Publications
Claims Review: Issue 4
| Title | Contents | |
|---|---|---|
| 1 | "As agent only" | Article on errors leading to claims |
| 2 | Failure to collect Delivery Charges | Ship agent claim |
| 3 | Erroneous delivery of container | Ship agent claim |
| 4 | Incorrect description of ship's fuel requirements | Ship broker claim |
| 5 | Negligent advice | Bunker broker claim |
| 6 | Caught in the middle | Ship agent claim |
| 7 | Incorrect instructions for reefer temperature settings | Ship agent claim |
| 8 | Liability of a marine surveyor | Marine surveyor claim |
| 9 | Agent's liability for US customs duty | Ship agent claim |
| 10 | Incorrect clasuing of bill of lading | Ship agent claim |
| 11 | Recovery of broker's commission under COA | Ship broker claim |
| 12 | Failure to check status of owners | Ship broker claim |
| 13 | Negligence claim against ship managers | Ship manager claims |
CLAIMS REVIEW - ISSUE 4
"As Agent Only"
Members frequently encounter problems as a result of their failure to sign-off faxes, letters, telexes etc. making it clear that they are acting not in their own personal capacity but on behalf of a named principal.
The aim of a declaration of status is to make clear to the person to whom the communication is being sent exactly what the agent's authority is and on whose behalf he acts. If this point is not clarified there is a risk that the agent will be personally liable on the contract or will be taken to have given advice or made representations in his personal capacity and not as an agent.
The agent could also find himself personally liable to pay for goods and services ordered for his principal; the fact that everyone in the port is aware that the company acts only as an agent and not as a shipowner or charterer, will not prevent the agent from being found liable in the event that he orders supplies or services without declaring his agency status. In the case of Maritime Stores -v- Marshall (1963) the agent instructed stevedores to order certain lashing equipment and said "send the bill to me". The judge said the fact that Maritime Stores knew that Marshall were ship agents was "in no way determinative of the issue". He found on the facts of the case that the contract was made between, and only between, Maritimes Stores and Marshall and that Marshall was personally liable.
Failure to collect Delivery Charges
A liner operator running a service between Europe and the Far East provided its agent in the UK with a breakdown of additional charges to be levied for the transportation of containers to and from different UK ports.
An employee of the agent at one of those ports believed (mistakenly) that containers delivered to and from the base port were at the expense of the shipping line. He therefore invoiced only the ocean freight for a period of more than two years. In June 1994 an external audit of the line's accounts showed that total delivery charges of approximately £70,000 had not been billed. The line claimed £70,000 from the agent. As further internal investigations revealed that the figure might be closer to £100,000, the Club made a prompt settlement.
Erroneous delivery of container
During Thanksgiving week cargo receivers in the US telephoned an agent's office daily on numerous occasions requesting a release date for two containers of furniture for which they were the notify party. The cargo receivers informed the agent that they would shortly receive faxed confirmation from the shipper that the containers could be released without the original bills of lading. On the evening of Thanksgiving Day, the line's Danish agent sent a fax to the agent authorising release of one of the containers.
The following day the bill of lading clerk in the agent's office authorised release of both containers. It was not until the Danish agent telephoned in connection with an account for demurrage on the second container that the error was realised. The agent subsequently telephoned the cargo receivers to enquire when payment might be expected. After initially giving promises of payment the cargo receivers subsequently ceased to trade.
The container in question contained furniture valued at approximately USD 60,000. The Club reimbursed the Member for the payment which he had been obliged to make to the Danish shipper.
Incorrect description of ship's fuel requirements
A broker for the time charterer fixed a ship on the NYPE form for one time charter trip from Rio de Janeiro to the Arabian Gulf/ Pakistan/ India/ Indonesia range.
During fixture negotiations the owner's broker sent the ship's particulars to the time charterer's broker. These did not include the ship's fuel requirements. The broker representing the time charterer, having fixed similar ships in the past, assumed that it would burn IFO 180 cst.
This information was sent to the charterer and included in the re-cap. The owner telephoned to object to the fuel description but this was overlooked by the broker. The charterer lifted subjects and confirmed the fixture. The owner objected again by telex on receipt of the faxed copy of the charterparty. He advised that the ship burned IFO 120 cst API 18 and not IFO 180 cst. The former is more expensive and not always available.
The ship required bunkers in Rio de Janeiro and Durban. IFO 120 was available in the former port and the price difference was minimal. However, in Durban the only fuel available which had the correct viscosity was IFO 60. The price for IFO 180 at that time was USD 82 per tonne and the price for IFO 60 was USD 114. The ship required 800 tonnes and there was therefore a price difference of USD 25,600.
The charterer held the broker fully responsible for the additional cost of the fuel and deducted it from the broker's commission. The broker was reimbursed in full by the Club.
Negligent Advice
A bunker broker, representing the owner, whose vessel was fixed on charter to load at Rotterdam for discharge at Durban, advised that the owner should bunker at Durban where the prices were, at that time, cheaper. As a result of the advice, the quantity taken on at Rotterdam was very much reduced. When the vessel arrived at Durban, the bunker price had gone up and was in fact more expensive than the price that had been available in Rotterdam. A more serious problem was that the ship was a VLCC and was not scheduled to discharge at Durban, but at an off-shore facility where bunkering was not permissible.
The owner made a claim upon the bunker broker for negligence. Although no broker can be held responsible for price fluctuation the failure to realise that the ship would not be able to bunker in any event was clearly negligent. The Club ultimately managed to negotiate a settlement for approximately USD 18,000.
Caught in the Middle
A port agent at the discharge port received a cargo of potatoes which became the subject of a dispute between the ship owner and the consignee. The owner claimed the right to hold the potatoes as the cheque paying the freight had been stopped. The owner threatened legal proceedings against the port agent if the cargo was released and the consignee threatened proceedings if the goods were not. The consignee claimed his automatic right as holder of the bill of lading to possession of the cargo. The port agent was an innocent party being dragged into a dispute which was none of his making concerning a commodity which was deteriorating. Attempts to persuade the protagonists to settle their differences failed and the Club arranged for the issue of interpleader proceedings. These proceedings are served on conflicting claimants for an order that the issue be decided between them, allowing the innocent party to be released from the dispute.
The judge ordered the owner and the consignee to present their case to the court. The agent was awarded the cost of bringing the action.
Incorrect instructions for reefer temperature setting
A port agent in the UK received a container list from his principal's South American agent which included two containers of frozen meat shipped at -18oC. When this information was transferred to the agent's computer system the containers were incorrectly shown as containing film with a temperature setting of +13oC. Unfortunately, the error was not picked up on additional checking with the result that when the containers were discharged at the UK port they were set to +13oC in accordance with the agent's instructions. Three days after arrival at the container depot blood was seen to be seeping from the doors of the containers, which were then opened to reveal rapidly thawing frozen beef. The temperature control was re-set to -18oC to try to stabilise the consignment. Surveyors were immediately instructed by the carrier's P&I Club and the Port Health Authority issued notices stating that the consignment could not be used for human consumption.
An offer was accepted for salvage thereby reducing the claim against the agent which was settled by the Club.
Liability of marine surveyor
A marine surveyor received a telephone call from a marine insurance broker requesting the survey and valuation of a 17 year old yacht for insurance purposes. He was told that the yacht had just been sold for A$ 95,000 and the vendor was arranging insurance for the purchaser.
The survey was carried out on this basis and the vendor was present throughout. The invoice for the valuation survey was made out to and paid by the vendor. Two days later, the vendor telephoned the surveyor and asked him to inspect the yacht out of the water and the fee was again paid by the vendor. In the surveyor's opinion A$ 95,000 was a fair figure for insurance purposes, bearing in mind that this was what the purchaser had already paid.
Subsequently, the purchaser spoke to the surveyor by telephone and was told that in general, the maintenance of the yacht was not good.
A few weeks after completion of the sale, the surveyor received a letter from lawyers acting on behalf of the purchaser claiming damages of A$ 51,000 plus interest. Apparently, the purchaser had obtained a full survey and market valuation which valued the yacht at A$ 58,000 and listed many items which needed attention.
In response the surveyor maintained that his report was intended to be used only for the purpose of an insurance valuation and that he was not aware that his professional advice was to be relied upon by the purchaser for the purpose of buying the yacht.
Furthermore, he had conducted his survey on behalf of the vendor who had paid his fees and not the buyer with whom he had only one telephone conversation to discuss the general condition of the yacht.
Legal proceedings were issued by the claimant against the surveyor. An independent broker then valued the yacht at A$ 60,000. After interviewing the surveyor and the purchaser, the Club's lawyers recommended settlement of the claim and this was achieved after negotiations between the parties.
The concept of "insurance valuations" (the cost of replacement) as opposed to "market valuations" (what the yacht would sell for on the current market) often gives rise to difficulties. However, since underwriters expect to insure a vessel for its market value, it is impossible to justify any difference between the two. It was this fact which persuaded the Club to seek a negotiated settlement.
Agent's liability for US customs duty
A US port agent received a notice from the US Customs Service of its intention to impose a fine on one of the agent's US tramp principals. It was alleged that the principal had failed to pay duty on foreign repairs to the principal's US flag ships.
As US ship agents are jointly and severally liable for the payment of such duty and the principal had declared bankruptcy, attorneys were appointed by the Club to protect the agent's interests. The appeal to the US Customs was, unfortunately, rejected and the agent was found liable to pay US$ 35,000. In view of the amount involved and the potential costs of taking the appeal process through the courts without any guarantee of success, the agent paid the claim and recovered from the Club. The complex nature of the case resulted in legal costs of US$ 20,000 being incurred, which were also paid by the Club.
This is an example of how an agent, through no fault of his own, can become involved in matters which more properly concern the shipowner.
Incorrect clausing of bill of lading
A company was appointed as a sub-agent by the general agent of a shipping line and instructed to complete the documentation on its behalf for most of the chartered ships represented by them. In that capacity, the sub-agent received bills of lading for a shipment of logs in several lots from a New Zealand port and simultaneously received from the general agent bill of lading amendments.
The bills, which were completed by the sub-agent in accordance with instructions received from the general agent, were to be claused "Freight payable as per c/p dated ...". Unfortunately, before releasing the bills, the sub-agent also erroneously stamped each bill "Freight prepaid". The freight was due to be paid in stages and the shipper met the first payment but failed to pay the second instalment. The shipper subsequently ceased to trade.
The error of the sub-agent was discovered before the ship arrived at the discharge port and the general agent immediately held the sub-agent liable for the outstanding freight and other costs as the owner had been deprived of his right to lien the cargo. The ship anchored off the port and the owner refused to arrange for discharge to commence until the question of the unpaid freight had been resolved. Demurrage began to accrue at a substantial daily rate. The owner managed to obtain some funds from the consignees and their bank and the cargo was eventually released. The shipowner then claimed U$340,000 in outstanding freight, demurrage and other costs from the sub-agent. The Club's lawyer advised that there were no obvious defences as to liability or quantum and a settlement was subsequently negotiated.
This claim emphasises the care that must always be taken in the preparation of documents - particularly bills of lading. It also highlights the need for substantial indemnity limits as this claim could well have been more costly had the owner not secured partial reimbursement from other parties.
Recovery of broker's commission under COA
A shipbroker Member asked the Club for assistance to recover approximately US$ 250,000 commission owed under a contract of affreightment. The owner was reported to be experiencing financial difficulties and there was some considerable doubt as to his continued existence. As the commission related to different ships under the COA, which also included chartered-in tonnage, it was decided to freeze the owner's bank accounts rather than attempt ship arrests. Injunctions were therefore obtained by the Club's lawyers in London and Istanbul in order to freeze bank accounts to which the owner had previously transferred freight. The owner paid the broker's commission in full.
Failure to check status of owners
A shipbroker Member in Italy, acting on behalf of a Swiss charterer, fixed a ship to carry a cargo of soya pellets from Argentina to Tunisia with arrival at the load port to be between 18 and 22 September. The Member was advised by the owner's agent of delays to the ship and extensions were granted by the charterer up to 26 September. In the event, the ship did not complete the discharge of its previous cargo until 29 September. The owner refused to present her for loading until he received an indemnity from the charterer holding him harmless from claims for delay. The charterer extended the cancelling date to 2 October but refused to provide the indemnity.
On 1 October the owner's agent informed the broker that the owner was unwilling to present the ship for loading due to charterer's unreasonable refusal to provide an indemnity. The charterer then formally agreed to the owner's request but owner's agent advised that their principals had already withdrawn the ship.
The Member subsequently received a telex from the charterer's lawyer putting him on notice that the Member, as well as other parties, would be held responsible for damages consequent on the non-performance of the charter party. The damages consisted of additional freight and demurrage for a replacement ship, the extra cost of the cargo and penalties for the delay in loading. The writ alleged negligence on the part of the broker for his failure to make a substantially greater effort to establish the precise status of the ship when it became clear the situation was deteriorating and, more importantly, his failure to ascertain that the ship had not actually been purchased by the alleged owner at the time the charter party had been concluded.
The Club's lawyers in Italy advised that the only part of the claim which would be admitted was the extra freight charges. The other items were questionable both as to liability and as to quantum.
After lengthy delays in the court proceedings a settlement was ultimately negotiated.
Negligence claim against ship managers
A Member was appointed as technical ship manager of a cruise ship for a period of 2 1/2 years and thereafter was only responsible for placing the hull and P&I insurances and handling claims.
A few months after the manager's main technical responsibilities ceased, the ship suffered a breakdown of both main engines due to contaminated lube oil. Hull insurers rejected the claim for approximately US$ 3 million stating that the damage was due to poor maintenance and on-board procedures. There were allegations of earlier problems with the lube oil filters.
The owner issued a summons against the insurers and the manager. The claim against the manager alleged breach of contract for failure properly to discharge his duties as technical ship manager and breach of fiduciary duty as regards the placing of the insurances of the ship.
The manager's liability was dependent, to a large extent, on the outcome of the main lawsuit between owner and insurers but as the trial date approached, the Judge convened a settlement conference which all parties attended. By this time, the claim with interest amounted to nearly US$ 5 million. At the conference, the insurers and the manager were advised that the actions against both of them might well be proved but the owner was also advised that there was a possibility that their actions might fail completely.
The outcome was that the owner was persuaded to reduce his claim substantially and the agreed settlement plus defence costs were shared equally by the insurers and the manager. The total cost of the claim to the defendants was nearly US$ 2,000,000.
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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