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Claims Review: Issue 5

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		Title	Contents
1		10 Golden rules for shipbrokers	Advice for shipbrokers
2	A	Refusal by hull u/ws to pay claim	Ship manager claim
	B	Fraudulent use of agent's stationary	Ship agent claim
	C	Cross-delivery	Ship agent claim
	D	P&I Club denies authorising correspondent to settle	P&I Club correspondent claim
	E	Incorrect discharge port	Ship broker claim
	F	What price steel?	Ship agent claim
	G	Inebriated stevedores taken on cruise	Ship agent claim
	H	Broker liable for undertakings	Ship broker claim
	I	Mis-description of ship's coating	Ship broker claim (S&P)
	J	Lack of stern line prevents discharge	Ship broker claim
	K	Shipyard fails to pay sale and purchase commission	Ship broker debt collection (S&P)

CLAIMS REVIEW - ISSUE 5

January 1997

Ten Golden Rules for Shipbrokers

Consider at all times with whom you are negotiating. Have you dealt with them before? If in doubt check with the Club.
If requested to pass on information about any company to others (including your principal) make sure that the source of the information is clear e.g. "agents/owners/master/charterers advise as follows......".
It is also recommended that you add the following footnote to communications containing information on others: "We pass the above information which we have received from .............as brokers only and without guarantee and would suggest owners/charterers make their own investigations".
If offering a ship on behalf of an owner do not rely solely on your own records and always check with owners for the ship's description before offering.
If you do not understand what was communicated to you, ask what it means. There is no shame in not knowing or understanding. The danger is in pretending that you know or understand.
Corroborate all telephone offers in writing as soon as possible. This is especially important when the recipient's English is poor.
Recap messages. It is a good idea to prefix these with the following: "For the sake of good order herewith recap as agreed so far" or (if fully agreed with all subjects and details in order and all other outstanding items agreed) "herewith recap as finally fixed".
Beware of "changeover times". The greatest proportion of claims against brokers arise from mistakes occurring either at holiday times or when brokers are absent due to travelling/illness, when colleagues try to cover their post-fixture related matters.
The Day Book. Keep a permanent written record of the day's events/notes of fixtures etc. for future reference.
Do not admit liability or suggest any compromise without first informing the Club.

Refusal by hull underwriters to pay claim

A cruise ship suffered a breakdown of both main engines due to contaminated lube oil and the owners submitted their claim for US$ 3million to their hull underwriters, who rejected it on the grounds that the engine breakdown was due to poor maintenance. The hull underwriters alleged that there had been problems with the lube oil filters for two years. The shipowners then sued the hull underwriters and the ship's technical managers, even though the engine breakdown occurred six months after the management agreement had been terminated. One of the claims against the ship managers was that, as they had fixed the hull insurance, and had presented the claim which had been rejected, they had breached their fiduciary duty to the owners. The hull underwriters filed a cross claim against the ship managers for indemnity and contribution for failing to notify them that they were no longer managers of the cruise ship. The claim was finally settled out of court for US$ 975,000, which sum was shared equally between both parties.

Fraudulent use of agent's stationary

Ship agents in Hamburg informed the Club in 1987 that they had been joined as joint defendants in court proceedings in Italy concerning unpaid customs duties.

Investigations revealed that an unknown person had used the agent's discontinued stationery to forge declarations of origin in respect of several shipments of maize to Italy with the intention of avoiding the payment of customs duties.

The signature on the declarations, which purported to be on behalf of the agent, was false.

Lawyers in Venice were instructed by the Club to defend the agent but it was not until December 1993 that they negotiated the release of the innocent agent from the proceedings, with each side paying its own costs.

Many readers will be surprised that it took nearly seven years to dispose of a claim of this nature but the time taken by the courts to settle cases is painfully slow in some jurisdictions.

This, of course, adds to the cost of defending claims.

Cross-delivery

A Danish liner agent booked four reefer containers of margarine from the same manufacturer, destined for two different consignees in different towns in Russia. Two of the containers held margarine in 500 gm packs ready for the supermarket shelves, whereas the margarine in the other two containers was packed in 20kg. blocks.

Unfortunately the consignments were cross-delivered and the party who received his margarine in 500 gm. instead of 20 kg. packs immediately sold them. The other buyer refused to accept the 20 kg. blocks and due to over-supply the market for margarine collapsed. The buyer refused to pay the shipper and the shipper claimed US$ 62,000 from the agent.

P&I Club denies authorising correspondent to settle

A marine surveyor and occasional P&I correspondent was requested by a P&I Club to attend on board a ship to survey a cargo of 2,000 metric tonnes bulk fertiliser, which had been contaminated by residues from a previous cargo. The correspondent and the cargo interests reached agreement on a depreciation allowance of US$ 22 per tonne. The correspondent, after several telephone conversations with the P&I Club, obtained verbal agreement to the compromise, and made a written offer of settlement to the cargo interests, which was accepted.

When the cargo interests submitted their claim for US$ 44,000 to the Club, the Club refused to pay alleging that the correspondent had no authority to make the offer of settlement. Not unnaturally, the consignees sued the P&I Club; they also sued the shipowner and the correspondent. In spite of strenuous efforts to get the Club to see sense, the case went to court.

ITIC appointed lawyers to defend the correspondent and, aided by the submission of the correspondent's contemporaneous notes, the court found that the correspondent had authority.

This was very much one man's word against another's and if the court had found otherwise, the correspondent would have had to pay the cargo claim, plus interest, plus the costs of some of the other parties involved (an estimated total in excess of US$ 100,000). This is a good example (with hindsight of course) of how important it is for Members to obtain WRITTEN authority.

Incorrect discharge port

Brokers had acted on behalf of charterers in respect of a voyage charter from Nigeria to the US Gulf. In subsequently negotiating the terms of a preliminary round trip whereby the charterers would discharge some cargo in Dakar, Senegal before returning to load the cargo in Nigeria, the broker mistakenly reported the discharge port as being in the Ivory Coast and agreed the preliminary voyage with owners on that basis. The error only came to light after the fixture had been agreed and the cargo sold.

The owners agreed to perform the longer voyage to Dakar but at a higher rate than the one previously agreed. There was clearly no defence to the claim and the Club negotiated a settlement at US$ 150,000.

This claim is a reminder of the potential consequence of simple errors.

What price steel

A German liner agent took a booking for 10,000 mt. of steel rails from Hamburg to China to be moved in three separate parcels of 5,000, 2,000 and 3,000 tonnes. The agent had put forward details of the booking to the line, and believed that the line had agreed to carry all 10,000 tonnes at the same rate and therefore confirmed the booking to the shipper. The first 5,000 tonnes were carried without problem, but the line refused to carry the second and third parcels at the same rate due to a rise in the market.

Unfortunately, the line's telex of acceptance did not make it clear whether the line had accepted the first 5,000 tonnes at the rate quoted, or whether the rate applied to the full 10,000 tonnes. The difference in freight was considerable. The line eventually loaded the second and third parcels, but at a higher freight rate with the difference being paid by the agent.

Inebriated stevedores taken on cruise

The American agent for a cruise ship was on the receiving end of a legal suit from two stevedores. In the course of loading baggage on the ship, the stevedores had met a friend in the ship's bar and joined him for a drink or three. The men were unable to leave the ship with the pilot by way of the Jacob's ladder because of their inebriated condition and were taken on a cruise to Mexico.

The agents were amazed to receive a suit from the stevedores which held them liable, with the owners, for false imprisonment, assault, battery and mental distress.

Although the stevedores eventually withdrew their claim against the agents, the Club paid US$ 150,000 in legal costs which, in the United States, are not recoverable.

Broker liable for undertakings

A broker was representing charterers who fell behind in their obligations to pay hire to the owners. The same brokers had also been involved in the sub-charter of the ship. The owners threatened to approach the sub-charterers unless they were given a satisfactory guarantee for the payment of hire.

The brokers stated to owners that they had been authorised by the charterers to withhold freights due from the sub-charterers. They subsequently confirmed that they had "irrevocable authority" to remit the hire from these sums. The brokers paid two hire periods which had fallen due but there were insufficient funds to pay a further hire instalment because, unaware of the previous commitment, another director of the brokers had arranged for the remainder of the funds to be used to satisfy a variety of other debts of the charterers.

The issue to be determined was whether the brokers had rendered themselves liable to the owners. The matter went to trial and the judge found against the brokers on the grounds that they had been fully aware that the owners wanted some form of security or guarantee. In response they had themselves given an undertaking that they had irrevocable authority to make the payments out of sums to be received. These monies had been received and the brokers were liable to pay them to the owners.

The case is a reminder of two important considerations. Firstly, brokers should take particular care on the wording of undertakings so as not to render themselves personally liable. If necessary the Club's advice should be obtained. Secondly, if brokers do give undertakings they should make sure that others within their office know the terms so that they can avoid acting in breach of them.

Misdirection of ship's coating

Sale and purchase brokers representing the sellers of a vessel received a list of questions from the buyer's brokers including one as to whether the ship's underwater parts were painted with "SPC Colours".

The sale and purchase brokers failed to see the significance of this and after checking with sellers informed the buyers' brokers that the hull had been painted in 1989.

The paint used at that time was a standard anti-fouling product whereas "SPC" is an abbreviation for self polishing copolymer, a specialist type of anti-fouling paint. After the ship had been delivered the buyers attempted to recover the costs of coating the hull with "SPC" paint which involved dry docking, sand blasting, loss of hire etc. The Club resisted the claim on the grounds that the buyers were only entitled to recover the difference in the value of the ship with and without the "SPC" coating and not the cost of having the work done. If the vessel had been "SPC" painted in 1989 by the time the description was made some two to three years later it would in fact have been considerably worn and need renewing in any event. The Club was ultimately able to settle the claim for US$ 40,000 which was a mere 10% of the amount originally claimed.

The claim is a reminder of the need to take particular care in answering questionnaires provided by buyers.

Lack of stern line prevents discharge

A North African oil company sent a circular to its panel of brokers informing them that tankers discharging at a certain North African port required a stern line. About ten days later a London tanker broker re-negotiated the fixture of a tanker already on charter to the oil company for one further voyage. The voyage included discharge at the port in question. Both the broker and the oil company overlooked the fact that the tanker had no stern line.

Bad weather prevented the tanker from discharging for about a week. When the lack of a stern line was realised, the shipowner agreed to divert to another port and claimed US$ 99,000 for deviation and detention costs. The oil company claimed the full US$ 99,000 from its broker, but then accepted 50% as both parties had forgotten the stern line requirement.

Shipyard fails to pay sale and purchase commission

A sale and purchase broker acted for a shipyard in connection with the construction and purchase of three multi-purpose ships. Under the terms of a separate commission agreement, the shipyard was to pay 2% of the purchase price to the broker in four instalments at different stages of the construction of each ship. The instalments were not all made even though the construction and sale was accomplished; the brokers were owed considerable amounts of commission. Solicitors successfully attached property belonging to the shipyard, and eventually an amount of US$515,0000 was recovered for the Member. Although the recovery took the best part of five years, and the legal costs were substantial, an outstanding result was achieved for the Member.

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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

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