Publications
Claims Review: Issue 8
| Title | Contents | ||
|---|---|---|---|
| 1 | A | A moment's inattention - Fax to a wrong number - US$500,000 | Various Articles on easily made errors that lead to claims |
| B | A simple switch of words - US$150,000 | Ship broker claim (S&P) | |
| C | Message on mobile - US$900,000 | Ship broker claim | |
| D | Wrong line - US$250,000 | Ship agent claim | |
| E | Wrong number - US$150,000 | Ship agent claim | |
| F | Yet another wrong number - US$600,000 | Ship agent claim | |
| 2 | A | Not one but 2 packages | Various Articles on recent claims |
| B | Misrepresentation of charterers | Ship broker claim | |
| C | Too broad in the beam | Ship broker claim | |
| D | Commercial manager caught by "scatter gun" | Ship manager claim | |
| E | Technical manager caught by "smoking gun" | Ship manager claim | |
| 3 | The high cost of winning | Feature on the legal cost of pursuing and defending claims. | |
| 4 | A | Warm orange juice | Ship agent claim |
| B | The quality of wheat | Cargo superintendent claim | |
| C | Wrong box | Ship agent claim | |
| D | Out of date letter of guarantee | Recovery agent claim |
CLAIMS REVIEW - ISSUE 8
Large claims for negligence do not necessarily result from a badly run office or badly trained staff. As the claims on this page illustrate, minor errors or omissions can have catastrophic consequences.
1A Fax to a wrong number - US$ 500,000
A liner agent booked a reconditioned soft drink bottling plant packed in 16 containers from Rotterdam to India. The plant had been carefully dismantled, overhauled, and each component packed in numbered sequence for re-assembly. The shipper's sale fell through and on Christmas Eve he instructed the agent not to ship the cargo on the intended sailing, due to depart over the New Year period. Instead of faxing the instruction to the line's agent at Rotterdam, the agency clerk pressed the wrong "speed dial" button and sent the fax to the Antwerp agent. The 16 containers were shipped and the mistake was not discovered until after the holiday. The containers were duly landed in India, where unnecessary freight, storage and customs fines were compounded by the fact that numerous cargo inspections by customs and potential buyers had caused sufficient damage so as to make the plant virtually worthless.
1B A simple switch of words - US$150,000
A seller instructed a sale and purchase broker to find a buyer for two sister ships "with both spare propeller and tail-shaft available". The broker passed this to the buyer as "two sister ships for sale … both with spare propeller and tail-shaft available". It is common for sister ships to share one spare propeller and tail-shaft, but the broker had offered two of each. The buyer only received one of each and claimed US$ 150,000 from the broker.
1C Message on mobile - US$900,000
When fixing a tanker to carry vegoil the charterer asked whether the tanks had been washed. The owner's broker telephoned the charterer's broker to inform him that the tanks had been "washed but not fresh water rinsed". The charterer's broker, who was contacted on his mobile phone while having lunch in a restaurant, mistook the message as being "fresh water washed". Salt left on the tank walls from a seawater rinse contaminated the vegoil to the tune of US$ 900,000.
1D Wrong line - US$250,000
An Antwerp agent booked 83 containers of vegetable oil to Blantyre, but wrongly quoted the rate for Bloemfontein. The difference in freight amounted to US$ 250,000. The shipper (not unnaturally) accepted the quote and the line had little choice but to claim the freight difference from the agent.
1E Wrong number - US$150,000
A U.S. liner agent when keying into his computer details of special instructions to the line's terminal for the care and handling of containerised cargo, entered a "3" instead of an "8" when recording the number of a container to be fumigated. As bad luck would have it, the container with the wrong number was also in the terminal, and this container of hospital supplies worth US$150,000 was fumigated with methyl bromide.
1F Yet another wrong number - US$600,000
An agent mixed up two container numbers on the line's stowage plan, which resulted in dangerous cargo, which should have been carried on deck, being stowed under deck. When the ship reached the hub port, smoke was emerging from the hatches. The ship had to be completely discharged, and was delayed for a week.
2A Not one but two packages
The Spanish agent for a shipping line arranged for a container which held two separate packages each containing 322 radio cassette recorders shipped from Hong Kong to be loaded on a feeder ship from a Spanish port to the final destination of Casablanca. The agent erroneously advised the feeder operator's agent that the container held only one package of 322 radio cassette recorders, and the feeder ship's bill of lading and manifest were issued to evidence this. The Spanish agent quickly discovered the error and a manifest corrector was sent to the Casablanca agent of the feeder ship. However, despite every evidence that this was a genuine error and not an attempt to smuggle the second package into Morocco, the Moroccan customs fined the feeder operator US$ 63,000, which the operator recovered from the Spanish agent.
2B Misrepresentation of charterers
A London shipbroker acting for a Turkish charterer, arranged a fixture, through an intermediate broker in Denmark, of a ship to load bagged urea at Istanbul. The charterer provided information about his financial standing and substantial assets (which included a factory), which the London broker passed to the intermediate broker. The intermediate broker forwarded the charterer's information to the owner without making it clear that it originated from the charterer and had not been checked. When the ship arrived at Istanbul to load no cargo was available. The owner sued both brokers for US$ 780,000 as the financial information provided by the charterer was found to be completely false.
2C Too broad in the beam
A ship was fixed, via an Italian shipbroker, to carry steel pipes from Toronto to Garston, United Kingdom. The day after the fixture had been concluded it was realised that the Italian broker had given the discharge port as Liverpool. Garston is part of Liverpool, but is a separate port in the River Mersey which is accessed by locks. The maximum beam for ships transiting the locks is 19.5m and the ship's beam was 20m. The charterparty was cancelled and the broker was faced with claims from both the owner and the charterer. The owner claimed US$ 75,000 for loss of profit and the charterer claimed a further US$ 39,000, for the increased freight paid to the substitute ship.
2D Commercial manager caught by "scatter gun"
The sinking of a cargo ship with tragic loss of life resulted in large claims by the bereaved families. As the port of loading had been in the USA, an American lawyer, employing the usual "scatter gun" approach, issued summonses against everyone who had even a remote connection with the ill-fated ship. One of the targets of the lawyers' "scatter gun" was the commercial manager, whose only connection with the ship was to fix her employment. The claim was vigorously resisted because the commercial manager was not, and could not be, in any way responsible for the sinking. One by one all the other defendants settled with the bereaved families, and the commercial manager was left with the unenviable prospect of being the sole defendant at a jury trial in the US courts. Fearing that the jury would allow their natural sympathy for the families to cloud their judgement and overrule the evidence, the Club's lawyer recommended a "cost of defence" settlement. An amount of US$ 370,000 was therefore paid in claim settlement and costs for a loss for which the commercial manager had absolutely no liability.
2E Technical manager caught by "smoking gun"
The technical manager of a tanker which he had managed for three years, found himself on the receiving end of a claim from the owner for US$ 1,400,000. Multiple claims were made, mostly without any particular merit, relating to repair costs and loss of earnings. The owner's main grievance appeared to be the alleged negligence of the crew supplied by the manager. At an early stage in the arbitration proceedings the arbitrator ruled that the owner's lawyers were entitled to a full inspection of all the manager's files, which were found to include an internal memo (the "smoking gun") from the manager's superintendent criticising the performance of certain crew members and recommending their replacement. The claim was settled at the threshold of arbitration for US$ 300,000, mostly because of the "smoking gun" memo. The legal costs amounted to an additional US$ 300,000.
3 The high cost of winning
One of the most important aspects of ITIC's insurance is the payment of legal costs. Even if the Member has absolutely no liability for the claim against him, a defence has to be prepared and the costs can be substantial. ITIC recently asked ten firms of London solicitors for an estimate of costs for a three day court trial of a hypothetical but fairly routine claim against a shipbroker. The average response was US$ 100,000 for defence costs (including expert witnesses, etc.). If the shipbroker were to lose the case, he would become liable for 75-80% of the opponent's costs (which would be for a similar amount). The total costs of a routine case would therefore amount to US$ 180,000 without taking into account the amount of the claim itself. Even more expensive have been the costs of arbitration of ship management claims which rarely amount to less than US$ 300,000.
In the English courts (and others) a successful defence or prosecution means that the winning party can recover a major part of his costs.
This is not the case in other jurisdictions and ITIC's Members often have to pay substantial unrecoverable costs. A firm of US oil traders needed a tanker to load an oil cargo for the USA at a Nigerian port. Their broker approached an intermediate broker in Belgium, who fixed a tanker through the owner's broker. The tanker waited two weeks at the Nigerian port for a cargo which did not materialise. The owner subsequently obtained an arbitration award of US$ 200,000 against the US charterers, but was unable to enforce it as the charterers were insolvent. The owner then sued the intermediate broker in the Belgian courts alleging breach of warranty and/or negligence. The court case extended over several years and, even though the broker was eventually successful in defending the claim, no part of the defence costs could be recovered.
Even in jurisdictions where costs are recoverable, the shortfall can be substantial. When a steel cargo loaded on the deck of a ship was damaged by seawater, the receivers claimed the value of the damage from the ocean carrier because the bills of lading were not claused for deck stowage. The ocean carrier paid the claim and sought reimbursement from his agent in the Singapore courts, on the grounds that the agent should have claused the bills of lading. Over the next seven years several attempts were made by the Club to settle the claim, as it was obvious that costs were overtaking its value. No reasonable settlement proved possible and in 1996 a full court hearing took place, which resulted in victory for the agent. However, the agent's legal costs amounted to US$ 135,000 of which only US$ 85,000 were recovered. The "victory" cost US$ 50,000.
4A Warm orange juice
When port employees went on strike at a South American port, 50 containers of orange juice had to wait two weeks on the dock until the next ship sailed. The sheer volume of reefer cargo which congested the strike-bound port meant that there were not enough reefer points or clip-on refrigeration units available to keep the cargo cool. The orange juice was found to be unfit for human consumption at its destination and cargo interests presented a claim for US$ 400,000. The agent at the load port had verbally informed the shipper of the problem in cooling his cargo but the shipper denied receiving any such notification. The shipper further said that he would have taken the orange juice back to his own cooling facility if he had been made aware of the situation. The carrier paid the shipper and claimed reimbursement from his agent. This is a goodexample of the necessity to put everything in writing.
4B The quality of wheat
A firm of cargo superintendents sampled a shipment of wheat bound for France. The samples were sent to a laboratory for testing for various specifications, which included moisture, protein and admixture. The samples were retained by the cargo superintendents for a short period and then disposed of, as is usual. The underlying sale agreement was on GAFTA terms and the certificate issued on the basis of the load port test was binding on the buyer. Ten months later the cargo superintendents were sued for an amount of US$ 80,000 by the buyers of the cargo, which had allegedly been found to be of inferior quality at the discharge port. The cargo superintendents' defence was hampered by lack of evidence, as no samples had been retained and no explanation could be given as to the difference between the laboratory results obtained at the discharge port and the load port. The claim was eventually settled with a substantial contribution from the cargo superintendents.
4C Wrong box
Two consignments, each of 712 cartons of children's shoes, were carried on the same ship from Shanghai to Kotka, Finland, under two bills of lading with similar numbers. When the Shanghai agent was authorised by the shipper of one consignment to release it without surrender of the original bill of lading, he gave the Finnish agent the wrong bill of lading number. The unpaid shipper claimed US$ 45,000 from the carrier who claimed reimbursement from the Chinese agent.
4D Out of date letter of guarantee
A cargo of ethyl alcohol was discharged from a ship at Hamburg in damaged condition. The cargo insurers paid the claim for damage, and obtained a letter of guarantee from the ship owner's P&I Club. The guarantee provided for reimbursement of the claim if a competent court found the ship owner liable for the damage and was valid for one year unless renewed. The cargo insurers passed the claim to an independent recovery agent, who obtained successive time extensions from the ship owner, but overlooked the requirement to renew the letter of guarantee. The cargo insurers' claim against the ship owner was therefore still valid, but the ship owner then declared bankruptcy.
As the P&I Club letter of guarantee was invalid, the cargo insurers had no option but to recover their claim for US$ 150,000 from the recovery agent.
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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