Publications
Intermediary March 2000
Welcome to the Intermediary, in this the Club's 75th year. This is the first of the new-look annual editions which is also the first to be published in both hard copy and electronically (on the Club's website at www.ITIC-insure.com). There is a lot to report in this issue. Debt collection was the subject of our interview in the last issue of the Intermediary and this year we have the benefit of advice from Mike Hawkins of Signum, the Club's private investigators. Fraud will always be an issue and we bring to Members attention recent attempts to secure illegal entry visas to the USA. The law affecting shipbroking commission will shortly be more fundamentally changed than at any time during the last 150 years. These changes will enable us to provide a more effective service to those Members who ask us to recover unpaid commission. We hope that you will find the articles both informative and interesting.
1 Designated Person - Insurance or not?
2 Authorised Consignor - Ship agents' potential liabilities
3 The Club's private investigators
4 Collecting commission
5 ITIC Electronic Communication Survey
6 Crew Visa Fraud
7 Update on the ITIC Website
8 ITIC Staff News
9 Super Reefer to the rescue
10 Continuity credits returning money to you
11 Signing off [2] - shipmanagers purchase orders
12 Money Laundering
13 75 years - The History of ITIC
14 Dates for your Diary
The objective of The Intermediaries is to bring the Members of ITIC information on recent legislation, court decision, claims and other matters of general interest. We also hope that circulation of The Intermediary among Members' staff will assist with loss prevention.
The Intermediary March 2000
THE MAGAZINE OF ITIC
THE PROFESSIONAL INSURER
Designated Person - Insurance or not?
This article is primarily concerned with a Designated Person within a ship manager's office as it is their concerns that need to be addressed. The real question is not so much one of whether the Designated Person under the ISM Code can be sued and might in some circumstances have personal liability, but rather whether the potential liability is such that specialist cover is required.
The suggestion appears to be that cover is required for Designated Persons for the following risks:
- misdirected arrow;
- failure of primary insurances (in particular P&I cover);
- failure of ship owning company (bankruptcy).
This may be true, but what is the real level of risk? It has always been the case that negligent individuals can be sued in their individual capacity, notwithstanding that the negligent act was performed in the course of employment or business.
Usually, individuals are not sued personally because the employer, who is vicariously liable, has more assets and in most cases the benefit of insurance cover. The ISM Code makes no difference to this point of principle, but there appears to be a growing belief that the "buck stops" with the Designated Person. The ISM Code did not create the role of Designated Person in order to provide a suitable target in the event that some negligence is involved in the operation of a vessel. This individual is not necessarily the person who is personally negligent if something goes wrong.
The concept of Designated Person was introduced because owners or senior management were able to distance themselves from events that occurred on board through the protection offered to them by the concept of "actual fault or privity". From the perspective of maritime safety, a distancing of the owner or senior management from shipboard operations is unsatisfactory and the whole thrust of the ISM Code is to prevent senior management from being able to disassociate themselves from responsibility for an accident by claiming that they had left everything to a superintendent to manage and that they had no personal knowledge of what happened aboard the ship. The aim of the ISM Code was to create a clear chain between shipboard activities and the owner or senior management of a company by appointing a person who could "provide a link between the company and those on board" and that the company should appoint someone ashore who has "direct access to the highest level of management". Thus the role of the Designate Person is to provide that link in responsibility between the ship and the highest level of management that was missing in many organisations prior to the implementation of the ISM Code. We believe it was not intended that the Designated Person should be the person who is deemed to be personally responsible if something goes wrong on board the ship. Clearly, that individual has responsibilities and could be negligent in a personal capacity, in the same way that any individual within the company could be negligent, but responsibility for that negligence is no different in principle to the position prior to the ISM Code. The fact that the Designated Person exists actually makes it rather more difficult for senior management to disassociate themselves in any event from the running of the ship. We believe it is important to recognise that the responsibility and authority of the Designated Person "should include monitoring the safety and pollution - prevention aspects of the operation of each ship...." This does not make the Designated Person responsible for the proper operation of the ship, which remains the ultimate responsibility of the senior management responsible for the proper operation of the ship, which in turn remains the ultimate responsibility of the senior management or owner. As a matter of practical reality, if Designated Persons do find themselves being sued, it will probably be because their identities are (or may be) easy to discover. At present the owner or senior management of, say, a Panamanian ship may be difficult to identify after a major casualty and finding the right superintendent or port captain may be equally difficult for the purposes of bringing legal proceedings. The Designated Person may be more a visible target.
That said, personal negligence will need to be proved. So far as general risks of suit are concerned, if a claimant commences proceedings and obtains judgement against a Designated Person (either alone, or as one of a number of defendants), so far as the ship's insurers are concerned, any liability which falls upon the Designated Person would surely fall into the same category as a liability upon the ship's managers or the master. In other words, the overall liability for the insurers would be no greater than if the ship owner alone had been held liable. Although it is common for managers to be named as co-insured, you would not expect to see an employee or master named in the policy. The role of Designated Person is not intended to interfere with the normal operation of the principle of vicarious liability and if anyone is at a greater risk of personal suit under the ISM Code, it is the owner or senior manager, because it is he (as a result of the existence of the Designated Person) who has less opportunity to defend himself in the event of a shipboard accident. It is he in the normal event to whom the claimant will most likely turn if personal liability is in issue. The circumstances in which a Designated Person will prove a valid target (except perhaps for tactical reasons in unusual circumstances) are limited and quite difficult to envisage (for example, the non-payment of premium by a failed company resulting in the loss of insurance at the time of an accident in respect of which the Designated Person was personally negligent in the exercise of his duties, leading to a loss to a third party). The position of Designated Person should not, in legal terms, attract personal liability any more than any other employee in a shipping company responsible for carrying out duties in relation to the operation of ship's.
A further question worth touching on is that of limitation. In the event that a Designated Person was sued personally, he would presumably be entitled to the benefit of limitation. It would be a curious result if a claimant could circumvent the ship limitation by suing individuals. On balance, we are not convinced of the need for special cover for Designated Persons and actually think that the senior management is in a more vulnerable position in the event of a negligent action. Such a liability is covered by a ship manager's liability policy with ITIC. It is true that there is some residual risk to the Designated Person in extreme circumstances, but we question whether that warrants separate cover in the way envisaged. However, such a cover is available from the Club at a very reasonable price. Please contact either the Club's managers or your broker for details.
Authorised Consignor - ship agents' potential liabilities
On 1 July, 1998 modifications were made to EC procedures for Community Transit goods. These changes were made pursuant to Article 389 of Commission Regulation Number 2454/93, and will impact on the daily lives of ship agents in the European Union (The "EU"). Since 1 July, 1998 all goods moving by sea on a "non-regular" shipping service are considered by customs officers to originate from outside the EU. Ships will only qualify as "regular" if they trade exclusively between EU ports thereby remaining inside Community Customs territory. By definition most ships operating in the tramp sector will be regarded as non-regular. Unless accompanied by positive evidence of EU status, all goods carried by such ships will be assumed to have 'third country status'. The positive evidence of EU status will normally be in the form of a T2L pre-authenticated Community status document. However, as in a number of countries (including the UK) there is a limited availability of customs officers, the requirement for the customs to stamp a T2L form after loading but prior to sailing has created practical difficulties. As a result a procedure has been adopted under which ship and forwarding agents may apply for "authorised consignor status" for the purposes of issuing pre-authenticated or self-authenticated Community status documents.
The approved consignor procedure is relatively new and it remains to be seen how customs authorities will administer it in practice. Some companies have reported that there is inconsistency in the practices in different ports within, as well as between, different EU states.
Liability Implications for Agents
The obvious problem for ship agents in acting as an authorised consignor is that if the goods for which the status document is issued subsequently prove to be non-Community goods they may acquire a liability to customs on the basis that goods liable to import duties had been unlawfully introduced into the EU. The liability will apply to agents if they fall within the provisions of Article 202(3) as:-
'Any persons who acquired or held the goods in question and who were aware or should reasonably have been aware at the time of acquiring or receiving the goods that they had been introduced unlawfully'.
The fact that the approved consignor was acting as an agent will not in itself necessarily mean that he is relieved from all responsibility to customs if he was aware, or should reasonably have been aware, at the time of acquiring or receiving the goods, that they had been introduced unlawfully. An agent cannot simply choose to rely upon his principals' instructions despite evidence suggesting they are untrue or inaccurate.
If the agent has obtained a written confirmation from his principal that the goods are in free circulation that would secure his right to claim reimbursement from the principal if the agent is issued with a post clearance demand from customs. It will not, however, prevent the agent from being held responsible to customs in the first instance. In practice the Club would advise agents in the EU to not only obtain written confirmation that the goods are in free circulation but also to obtain an indemnity from the cargo interests. The wording of such an indemnity is reproduced below:-
'We, ...(name of exporter)... hereby appoint you as our direct representative for Customs purposes and confirm that the goods described hereunder are in free circulation in the European Community, which qualifies them for T2L status:- In consideration of your issuing pre-authenticated documents, or authenticating community status documents for Customs purposes on our behalf, we hereby agree to hold you harmless and indemnify you for any duties, taxes, import levies, deposits, costs (including legal costs), or other amounts which become payable by you as a result of your activities on our behalf.'
Although this wording will assist, approved consignors must remember that this letter is only as good as the person providing it, while in some jurisdictions the courts may not enforce such indemnities.
Any persons who acquired or held the goods in question and who were aware or should reasonably have been aware at the time of acquiring or receiving the goods that they had been introduced unlawfully [into the EU]'.
SIGNUM SERVICES - the Club's private investigators
ITIM Co. Ltd, the managers of ITIC, are a subsidiary of Thomas Miller & Co. Ltd. The Miller group manages a number of other Clubs in the international transport field, including the UK P&I Club and the TT Club as well as UK based mutuals providing liability insurance to barristers, solicitors, housing associations and the trustees of company pension schemes. Signum Services Limited is another company within the Miller group. It has been in existence over 45 years and provides specialist investigation services to the managers and Members of the UK P&I Club, TT Club and ITIC. It currently has a team of four investigators, all ex-senior detectives from the Criminal Investigation Department at New Scotland Yard. The team has a wealth of investigative experience, which enables it to enquire into incidents world-wide where a Member suspects there is a criminal aspect. The experience gained from their investigations means they are ideally placed to give loss prevention advice to ITIC Members.
This article, in the form of an interview with Signum Senior Investigator, Mike Hawkins, reviews the work Signum do for ITIC in relation to bills of lading fraud.
What are the main problems that ITIC Members encounter?
Attempts to obtain the cargo from the discharge port agent by deception. The main concern focuses on the role of ship agents when releasing cargo. Any failure to comply with the release terms, can result in the carrier becoming liable to the rightful cargo interests. If the agent is responsible then the agent will have to indemnify the carrier.
How do the fraudsters operate?
As the original bill of lading is generally required to secure the cargo's release, people involved in transit cargo fraud concentrate on this document in one of two ways:
- falsification of the original bill of lading;
- avoiding the presentation of the original bill of lading.
What can you tell us about bill of lading forgery?
A bill of lading is susceptible to forgery. Perpetrators are always seeking new and ingenious ways to commit this type of fraud. With the aid of modern technology, it is possible to produce high quality forgeries. In a recent investigation for ITIC, the fraudsters had used commercial photocopying equipment to reproduce a dual-coloured carrier's bill of lading. The blank form created was completed using a very similar typeface to the one used by the carrier and a careful forgery of one of the authorised signatories. When presented to the unsuspecting agent, the document was accepted as genuine and the cargo released. Only later, after a close examination of the document did it become apparent it was a forgery. The creation of a forged document is a major threat to unwary parties. Agents should be specially alert when an unknown person presents documents, or the circumstances of the release appear suspicious. Application of simple checks can thwart attempts to obtain cargo by this method.
How does cargo get released without presentation of the bills of lading?
Enquiries into the circumstances of such a release generally find that the agent has either been deceived or, more often than not, shown a serious lack of judgement, frequently involving their working relationship with the cargo receivers. A typical example involved a branch office of an agency company. The agent was required to release ten containers of sugar to the consignee against presentation of the original bills of lading. The proprietor of the consignee and the manager of the agent's office had known each other since school and had a good relationship. Unable to make the payment to obtain the bills of lading, the proprietor of the consignee arranged with the agent for the release of the cargo on the acceptance of his personal guarantee.
With the shipper being unaware of this, further containers were forwarded and released by the agent's staff on the same terms. Later when the shipper sought information about his cargo, the agent deceitfully failed to disclose what had happened. As the consignee could not meet his financial commitments, the agent was held liable for the unauthorised cargo release. The personal guarantee was worthless. The finances of the proprietor of the consignee were the same as his company. During one investigation an agent commented that Signum Services Ltd worked in an ideal world, while he had to work in the real world and that on occasions, a bad business decision was made. This excuse is used to defend improper actions or to assuage guilt. What in fact happens is that the agent, for whatever reason, decides to ignore his legal obligations to his principal and without justification, acts in the interest of a third party.
In your example, the agent accepted a personal guarantee which proved worthless. What other documents are used to persuade agents to part with cargo?
Two common examples are indemnity letters from the consignee and letters from third parties such as banks. These ultimately do not however, offer any security. One case involved both of these factors. An agent was required to release four containers of electrical goods against presentation of the original bill of lading.
Personally knowing the consignee, who had a good business reputation, the agent released the cargo on the presentation from the consignee of a letter exonerating him from his actions. This was supported by a letter from the consignee's bank confirming that there were sufficient funds in the account at that time. When the shipper demanded payment for the goods the funds had been withdrawn. The letter from the bank was not a guarantee. The bank was neither liable to pay nor under any obligation to ensure that funds remained in the account. The bank had merely advised what was in the account on that day. As security, both the bank letter and that of the consignee were worthless. The agent was responsible to his principal for the value of the goods. Another common ploy is for the consignee to claim that the shipper has authorised the cargo release. One case involved an agent who accepted written confirmation of the shipper's agreement from the consignee. The agent did not obtain separate confirmation from the hipper.
The cases you have discussed are all matters that discharge port agents should be aware of. Do you have any experience of problems at the loadport?
The most common problems are agents placed under pressure to issue bills of lading which are inaccurate. An example would be pre-dating a bill of lading. Agents must appreciate that issuing a document which they know to be false is fraudulent and they can be held liable for the consequences. We were asked to trace a shipper who had left the agent in possession of 10 containers of cargo which needed specialist disposal. The original shipment was cancelled after arrival of the containers at the port. The agent's own enquiries could not locate the shipper and eventually the decision was made to dispose of the cargo to recoup the storage charges that had accrued. On examination rather than the bland description used on the booking, it was found that the containers contained out of date medical supplies. This, for hygiene reasons, required specialist and expensive disposal by licensed contractors to landfill sites at a cost of many thousands of dollars. Signum traced the individual who had shipped the cargo and the agents were able to recover the costs incurred.
How can Signum be of help?
Signum is always available to offer advice or help to Members if they have any concerns or experience a problem. Members should channel any requests through their ITIC account executive. The most common problems are agents placed under pressure to issue bills of lading which are inaccurate. An example would be pre-dating a bill of lading. Agents must appreciate that issuing a document which they know to be false is fraudulent and they can be held liable for the consequences.
Mike Hawkins
COLLECTING COMMISSION
major changes to English Law
A provision of English law which for 150 years has restricted the ability of ship brokers to collect their commission will be removed on 11th May, 2000. This change comes as a result of the Contracts (Rights of Third Parties) Act 1999 ('The Act') coming into force. The Act will also to a lesser extent have ramifications for ship managers and ship agents as is set out below.
The Act reforms the Doctrine of Privity of Contract a rule of English law which provides that only parties to a contract, such as the owners and charterers under a charterparty, can have rights and obligations under the contract which they can enforce. According to the Doctrine of Privity a person such as a ship broker who is not a party to the contract ('a third party') cannot enforce a term of the contract even if it names him and states that he should receive a benefit, such as the payment of a commission. The Act will amend this restrictive rule by providing that third parties such as ship brokers may obtain enforceable rights under a contract. The ship broker will be given a right to take action to enforce the commission clause in his own name. The Act will automatically apply to contracts entered into after 11th May, 2000. It is important to note that the relevant date is the date upon which the contract is made. The pre-Act position will therefore continue to be relevant while contracts entered into before the application of the Act continue to run. In relation to long term time charters this could be for a number of years. Although the doctrine of Privity prevented ship brokers bringing action in their own name, they were not wholly without a remedy before the Act. The courts held that the charterers had entered into the charterparty commission clause as a trustee for the broker. The broker was therefore entitled to demand that the charterer take action to enforce the commission clause. This was often not a commercially attractive option. The law further provided that should the charterer be unwilling to take action, the broker's remedy was to sue the charterer as a second defendant to formally enforce the trust. The need for this artificial device is swept away by the Act.
In order to make use of the Act the broker must fall within its provisions. Section 1 of the Act provides that a third party shall have the right to enforce a term of the contract if either the contract expressly provides that he may enforce it or, under Section 1(1)(b) 'the term purports to confer a benefit upon him'. Commission clauses in existing standard form charterparties do not expressly state that the ship broker can sue, but the clauses clearly 'purport to confer a benefit upon' the ship broker in the form of a commission. The Act therefore grants them the right to take action to sue in their own name. It is a requirement of the Act that there is a term of the contract which benefits the third party. This means that for brokers in some markets the Act will have no effect. The MOAs commonly used in sale and purchase transactions do not, as a matter of practice, have commission clauses inserted in the contract. The act will therefore not affect the position of sale and purchase brokers. A number of charterparties used in tanker trades also do not contain commission clauses. If these are not added as an additional clause, then again the Act will not assist brokers in these markets. In the majority of other circumstances ship brokers do find their commission is recorded within the charterparty and the Act will clearly apply to them.
It is also necessary that the broker is identifiable in the charterparty. This does not mean that he has to be expressly named, although many charterparty commission clauses are completed by inserting the name of the broker. It is possible that the broker could be identified as a member of a class or answering a particular description. This would mean that a charterparty clause '1.25% to each Broker' would probably be sufficient to identify them.
There is, however, a problem with the common practice of making out the commission clause with words like 'x% to ABC Shipbroker Ltd for division'. This will create problems for the brokers with whom the commission is to be divided as the contract does not appear to confer a benefit directly on them. Section 1(2) of the Act provides that no rights are granted if on the proper construction of the contract it appears that the parties to the contract did not intend the term to be enforceable by the third party. It would appear correct to conclude that a clause providing that commission would be paid to one broker for division with others does not intend to give the 'others' an enforceable right. The clear advice to Members is therefore to attempt to ensure that they are named in commission clauses together with the percentage of commission that they individually will receive.
The right granted is the right to enforce the charterparty term. The brokers' rights will therefore vary according to what charterparty form is used. Some commission clauses are merely simple statements of the amount of commission to be paid and to whom it is to be paid. Others, such as the Baltime and Gencon charterparties have extensive terms dealing with the situation where the charterparty is cancelled. This is an area which may cause problems.
Section 2(1) is intended to prevent parties from cancelling agreements under which third parties have acquired rights. It would be unfair if the third party had relied upon a contract term in his favour only for the parties to cancel the contract or vary it to alter or end his rights. The section prevents the cancellation or alteration of a contract or term in certain circumstances. These are where the third party has agreed to the term, or the party concerned is aware that the third party has relied upon it, or that it would be reasonable to expect the third party to rely on the clause and he has actually relied upon it. It is likely that this section will give rise to litigation in the common situation where brokers do considerable work only for the fixture to be cancelled. Where the charterparty contains express provisions for the broker such as in the Gencon and Baltime forms, those terms will govern the situation. In the absence of such provisions it is unclear whether the broker has in fact gained protection from the charterparty being cancelled without him being compensated. It is clear that the owners and charterers could not continue the fixture but simply decide they would not pay the broker. Charterparty commission is, however, paid only when freight or hire is earned and/or paid. If that does not occur because the charterparty is cancelled, then there is nothing for the broker to be paid commission on. It is not clear how the courts will look at this situation.
The Act removes the problems faced by brokers when bringing an action to secure commission. In doing so it does, however, produce some fundamental changes in the way that the Club will be able to assist Members to collect their commissions. It appears that ship brokers may now be able to arrest a ship to obtain security for a commission claim. The court would have to find that the claim came within Section 20(2)(h) of the Supreme Court Act 1981 which provides that the claim must be arising out of, or relating to, the use or hire of a ship. A charterparty of course relates to the hire of a ship and accordingly the shipbroker appears to have the right to arrest the ship.
Another major development may be that ship brokers will be able to pursue their claims by arbitration. The position will depend upon the charterparty arbitration clause. If like the NYPE 1946, clause 17 (which is often altered from New York to London arbitration), it refers to any dispute 'between owners and charterers' the clause will not be capable of governing third party rights. Other clauses are, however, more widely drafted. The BIMCO/LMAA Arbitration Clause provides that '... any dispute arising out of or in connection with this contract shall be referred to arbitration ...'. This would appear wide enough to cover the ship broker's claim for commission. The submission of commission claims to arbitration will be of considerable benefit to brokers. The BIMCO/LMAA clause provides for the small claims procedure to apply to claims below a certain level. This would catch most commission claims and would accordingly provide a cheaper and more efficient method of arbitrating the broker's case.
Other benefits include the ease with which proceedings can be started and the fact that arbitration is a private procedure. In conclusion, ship brokers should be aware of the changes brought about by the Act. To ensure that they are capable of benefiting, they should attempt to secure commission clauses both naming them and setting out the percentages that they should receive. They should, if possible, also try to ensure that the charterparty contains a commission clause, such as the BIMCO/LMAA Arbitration Clause which is wide enough to give them the benefits of arbitration, and especially that of the small claims procedure.
Ship Managers, Ship Agents and the Act
In addition to assisting third parties such as ship brokers who are promised payment in a contract, the Act specifically refers to the ability of a third party to rely upon a clause limiting or excluding their liability. This was deliberately drafted to assist parties who are mentioned in Himalaya clauses.
Himalaya clauses were designed to prevent cargo owners from avoiding the effect of contractual defences available to the carrier, such as the limitations in the Hague Visby rules, by suing persons, such as ship agents or stevedores who perform contractual services on the carrier's behalf. The clauses tend to provide that no action should be started against the agents and sub-contractors of the carrier and that in any event they shall have the same defences and limits of liability as the carrier. The use of these clauses is not, however, limited to bills of lading. Many contracts incorporate these clauses. One example is clause 11.4 of the BIMCO "Shipman 98" Standard Ship Management Agreement. The ability of the third party to rely upon the protection given by some of these clauses was in doubt until the passing of the Act. It is now clear that third parties can use the clause as a defence to any action brought by one of the parties to the contract. This will provide an additional protection to ship managers, ship agents and others who act on behalf of the carrier or owner. Ship brokers should be aware of the changes brought about by the Act. To ensure that they are capable of benefiting, they should attempt to secure commission clauses both naming them and setting out the percentages that they should receive.
ITIC ELECTRONIC COMMUNICATION SURVEY
The recent ITIC Claims Review highlighted some of the claims that the Club has seen arising out of the use of e-mail. The Claims Review reported that to date ITIC has seen little overall increase in claims as a result of the use of e-mail systems. It was, however, difficult to place this in context as there was no way of knowing the extent to which e-mail had become a major, if not the dominant, system with which Members communicate. The Claims Review therefore included a survey to ascertain if and how the Club's Members use e-mail as a method of communication. The following is a brief analysis of the results of the survey.
The vast majority of Members have access to this form of communication and e-mail is used to some degree by 94% of the Members who responded to the survey. One Member strongly believed that if a customer could not afford to spend 15p on a fax or telex, then they did not want to do business with them! Despite this one-off response, it seems that e-mail, with its radically reduced communication costs, has become an established method of communication. It is not, however, used exclusively or without some limitations.
The pie charts show that the majority of Members used e-mail for sending or receiving some, but not all, messages. Very few Members used e-mail for sending or receiving more than 75% of their communications.
A majority reported that less than 50% of messages were carried by e-mail. It is important to bear this in mind when considering the responses to the remainder of the survey.
A number of press reports have raised questions about the reliability of e-mail. Members were therefore asked whether they limited the use of e-mail to certain types of message. The response was that only 30% restrict their use of e-mail. The comments received indicate that many of those Members avoid sending time-sensitive messages by e-mail. Others stated that while such messages were sent by e-mail, they were also followed up by fax, telex or telephone. The Club had also been contacted by Members whose customers had given them instructions regarding what they would accept by e-mail. This practice does not, however, appear to be widespread as less than 20% of Members reported that they have restrictions imposed on them by their customers. Of those that do, the principal did not want fixture negotiations, recaps and voyage instructions sent by e-mail. Comments suggest that oil majors are responsible for most restrictions. Other limitations included no attachments, no weekend messages and no confidential messages.
30% of the Members reported that they had suffered problems with e-mail. These ranged from messages not being received to messages being received, but garbled. The responses suggested that there is currently a general lack of confidence in the use of e-mail. It is clear that e-mail still has not become the dominant form of communication. We are sure that the use of these systems will continue to increase, but clearly reliability remains a concern. The Claims Review offered a bottle of champagne to the first name drawn from a hat of those responding to the survey. We are delighted to report that the winner was Peter Aarosin of Danbrit Shipping Ltd, Goole.
CREW VISA FRAUD
Ship and crew managers should be vigilant against becoming unwittingly involved in a visa fraud to gain entry into the United States. A crew agency in the Ukraine, and others elsewhere, have been approached by seamen using headed notepaper purported to be from a ship management office in the USA, addressed to a US Embassy, asking for visas to be issued so that they can join a ship at a port somewhere in the United States.
The crew agency company was quick to spot this fraud and having checked with the US ship management company no application was made to the US Embassy. The obligations of the ship managers did not end when they confirmed the letter was a forgery. Although it is tempting to keep quiet about an attempted fraud, the manager had an obligation to advise all parties, including US Immigration, of the facts of the matter. Such advice should be made in writing and the notified parties should include the US Embassy in the country where the fraud was initiated. If the US immigration authorities subsequently found out that the management company had knowledge that their letterhead was being used without authorisation their silence might be viewed as implied authorisation of the use of the letterhead or complicity in the fraud.
Bogus Crew Update
The September 1999 issue of 'The Intermediary' reported on the use of a Piraeus telex number 211698 USTC GR in connection with bogus instructions to ship agents. Appointment messages referred to members of crew joining what proved to be non-existent ships. Agents made arrangements for the crew members who, once delivered to their hotel, disappeared leaving the agent to pay the bills and facing the risk of being fined by the immigration authorities. The publication of the details of this fraud clearly prevented other Members from being caught out by the same trick. Members are however, reminded that the perpetrators and others are unlikely to cease to run this type of operation and that they should therefore continue to be vigilant when receiving instructions from previously unknown sources.
UPDATE ON THE ITIC WEBSITE
We are pleased to see from the results of the Claims Review survey that so many Members have already found time to access the ITIC website at www.itic-insure.com.
This edition of The Intermediary is the first to be concurrently published both in hard copy and electronically on the website at www.itic-insure.com.
The appeal of internet applications is that information can be instantly shared by companies around the globe. ITIC Members benefit from the commercial and loss prevention information made available by the Club and, as the Members are located in 88 different countries, the ITIC website provides an ideal way of sharing this information and receiving feedback from the Members.
Since its creation in June of last year, the website has been undergoing continuous development. The first phase was to create a site providing a brief introduction to the Club and an indication of the services provided. The website explains what the Club is and who the account executives are. It shows the types of insurance available, and also allows a proposal form to be submitted on-line.
The next phase has been to provide on-line access to ITIC publications such as The Intermediary, the Claims Review and the Club's Rules and circulars. This facility is only available to the Members of ITIC, (you will be advised of your password shortly) and is designed to make it as easy as possible for Members to refer to Club circulars and distribute loss prevention advice to staff and branch offices. The publications will continue to be produced an distributed in hardcopy, but current and back dated issues of ITIC publications can now be found on the website. Members will now also be able to download 'screensavers' which provide loss prevention advice in the form of '10 Golden Rules' for ship brokers and for the delivery of cargo, by ship agents.
The development of the website will continue with the release of further electronic products over the coming months, including an area specifically designed to assist the Members of ITIC, who have purchased the Club's 'additional legal costs and debt Collection' (Rule 10) cover. The Club is developing www.itic-insure.com to give you greater access to ITIC information. If you have any comments or suggestions for the website or any of the electronic services provided, please do not hesitate to contact the managers.
- E-mail us with your comments and suggestions at ITIC@thomasmiller.com or fax +44 (0)20 7338 0151, or phone +44 (0)20 7338 0150.
- If you would like us to also send you ITIC publications and circulars by e-mail in the future, please e-mail us at ITIC@thomasmiller.com with the e-mail address you wish us to use.
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ICS Conference, Sri Lanka
ITIC was one of the main sponsors of a seminar held in Colombo on 29th and 30th September 1999. The event, entitled 'Shipping in the next Millennium', was organised by the Sri Lanka branch of the Institute of Chartered Shipbrokers.
Approximately 130 local members attended the seminar. They heard lectures on a variety of subjects over the two day period. These included three presentations on Ship Arrest, Bills of Lading and Liner Agency Contracts given by ITIC's consultant,
Paul Smith. Other topics included General Average, Multi - Modal Transport and Admiralty Jurisdiction.
ITIC STAFF
A new Chairman for ITIM
Peregrine Massey has replaced Francis Frost as ITIM's chairman. Peregrine is a Director of Thomas Miller & Co and was previously chairman of Thomas Miller Defence, the managers of the UK Defence Club. Francis Frost was appointed chairman of ITIM Co Ltd on 1st January, 1994 and has recently moved on to the new business development arm of Thomas Miller & Co. The Directors of ITIC, at their meeting in September 1999, thanked Francis for his contribution to the success of the Club and presented him with a watch as a token of their appreciation.
We also have to say goodbye to Andrew Webster who, after 3 years with us will be leaving London at the end of March, to manage the Dubai office of ITIC's sister Club, the TT Club. As part of his duties will include enhancing ITIC's presence in the region, he will not be saying goodbye to the Club completely.
We hope that Members in the area will have an opportunity to make contact with Andrew once he is established in Dubai and we wish him every success in his new position.
ITIC in Tokyo
Stuart Munro, underwriting director of ITIC, gave a presentation at the Japanese Shipping Exchange in mid-November 1999 on the liabilities of ship managers and designated persons. There has been a noticeable increase in enquiries from Japanese ship managers about liability insurance over the last few years, prompted by the introduction of the ISM Code. About 20 ship managers, ship operators and lawyers attended the seminar, which was presented in both English and Japanese.
Nick Kibblewhite joins ITIC
We are pleased to welcome a new member of staff, Nick Kibblewhite. Nick joined us in November from ITIC's sister Club, the TT Club, where he had gained four years experience working as an assistant underwriter. Nick has obtained a degree in economics and is currently studying for the Chartered Institute of Marketing exams.
Lehmann Junior celebrates 50 years
Whilst the year 2000 sees ITIC celebrating its 75th birthday, the Club's Deputy Chairman's company, Lehmann Junior, is celebrating its 50th birthday. A party to mark the occasion was held in Copenhagen in January and was attended by many in the Danish shipping community, together with Charlotte Kirk from our office.
SUPER REEFER TO THE RESCUE
ITIC's usual involvement with reefer containers is when they are set at the wrong temperature and their contents spoiled. We are grateful to A.P. Moller for allowing us to reproduce an article from their newsletter 'Maersk Post' which illustrates a positive effect of refrigeration.
Museum Collection saved
Normally the Super Freezer containers are used for the transport of fish, but that they may also be used for pest control has hardly ever been considered. However, this was the case at Moesgaard Museum in Jutland where beetles were found last year in part of the museum's ethnographic collection. The beetles made large bore holes in the leather, wood and paper objects and, despite the fact that the museum sprayed them with all sorts of pesticides, it failed to exterminate the vermin. There was only one thing left to do, and that was to freeze the objects to -35C as this kills all kinds of insects and their eggs. But even though Moesgaard Museum has two ordinary deep freezers, it would have been an impossible task to freeze-disinfect the large number of objects. The museum therefore approached Maersk Line and borrowed Super Freezer container for treatment of those objects that were most affected. One week in a -35oC cold Maersk reefer container was too much for the usually tough beetles and so the life of the museum objects has been secured. The advantage of the method is that traces of pesticide on the delicate objects are completely avoided.
CONTINUITY CREDITS - RETURNING MONEY TO YOU
ITIC has been returning money to its Members for the last four years through continuity credits at renewal.
Where does this money come from?
In an era where mutuality seems to be going out of fashion, it is worth reminding oneself that a mutual has no outside shareholders eagerly awaiting their cut of the profits in the form of dividends. As a Member of a mutual, you are also a 'shareholder' and so any surplus can only be paid to you and not to any other third party.
These surpluses arise mostly from investment of the reserves of the Club. If the return on those investments is good and the underwriting results satisfactory, a return can be made to the Members in the form of a credit at renewal. Those investment returns over the last four years have been good, although future returns look to be levelling off in line with lower returns and interest rates world-wide.
Why not return all the reserves to the Membership?
That is not possible if the Club is to continue in business. It is a requirement of the Club as an insurer registered and regulated in a member country of the European Union to maintain sufficient reserves. The required level of reserves is reviewed from time to time and is likely to be increased again by the regulatory authorities before long. It is likely that credits will continue to be offered to the Membership for at least the next two years. Those Members who are in the middle of a two year policy will shortly receive a reminder debit note and a credit note. They should simply deduct one from the other and remit the balance.
If Members or their brokers have any further questions on continuity credits they should contact Stuart Munro, the Underwriting Director.
telephone: + 44(0)20 7204 2933
facsimile: + 44(0)20 7338 0151
e-mail: ITIC@thomasmiller.com
Signingoff (2) SHIP MANAGERS' PURCHASE ORDERS
The last issue of 'The Intermediary' looked at the need for Members to take care that they made their agency status clear when signing off correspondence. The article concentrated on the problems faced by ship agents and ship brokers. In this issue we set out the Club's recommendations for ship managers signing purchase orders.
ITIC has seen an increase in the number of claims being made by suppliers against ship managers because owners have not settled their bills. The supplier has subsequently pursued the manager on the basis that the purchase order created a contract directly between the supplier and the manager. It is therefore very important that the manager ensures that the purchase order clearly states he is acting as agent for the owner when ordering supplies.
What the manager should not do is state that these supplies are 'for the account of XYZ Shipmanagement Company'. If you have that form of words on your purchase orders please change them immediately unless you specifically want to order supplies in your own name and so take the credit risk.
Our recommendations are as follows:
1 At the top of the order include the following words:
'Please invoice this order to: --- (name of owner or bareboat charterer etc) c/o XYZ Shipmanagement Company Limited';
2 when you sign off the purchase order it should be in the following style:
'for XYZ Shipmanagement Company Limited as agents only for and on behalf of --- (name of owner/bareboat charterer)'.
If you make your agency status clear in this way, you should avoid problems if the ship owner does not pay his bills. Although it will not prevent a supplier trying to sue the ship manager, it will make it very difficult for him to prove that he did not know with whom he was contracting and that he must look to the ship owner and not the ship manager for payment. If Members would like their purchase orders checked by the Club, they should contact the managers.
WARNING 'Agent' may not be enough.
In the first part of this article we pointed out that it was important that the words used when signing off made it clear that the person was contracting as an agent. The word 'agent' used alone as in 'Joe Bloggs, agent' could be descriptive in the same way as 'Julia Roberts, actress'.
A UK ship agency has consulted the Club about a document they had been asked to complete by their local port authority prior to the arrival of a ship. The form included the words 'we agree that we will be responsible for all charges.' At the end of the printed line space was provided for the addition of the name of the party submitting the form together with the words 'owner/charterer/agent (delete as applicable)'.
The Member was advised that in this context the selection of the word 'agent' would not release the ship agent from the obligation to pay the port charges. It was merely descriptive of his business. If the Member was to avoid liability he should alter the printed words to provide 'as agents only' followed by the identity of his principal.
If you make your agency status clear, you should avoid problems if the ship owner does not pay his bills. Although it will not prevent a supplier trying to sue the ship manager, it will make it very difficult for him to prove that he did not know with whom he was contracting and that he must look to the ship owner and not the ship manager for payment.
MONEY LAUNDERING
A London ship broker negotiated the sale of a small ship of the type commonly used for coastal trading. The buyers were based in the U.S.A. The sellers, although a Liberian company, were domiciled in Europe. At the closing meeting in Copenhagen, to the surprise of everyone present, the buyers announced that they were completing the transaction by paying in cash. Once the bank staff had finished counting the money the transaction was finalised. In the meantime, however, the bank had complied with its legal responsibilities and reported the transaction to the local authorities. The local authorities informed their colleagues from other countries and within a few days the ship was seized by the U.S. Navy. It was found to be carrying a considerable quantity of narcotics.
It should be made clear that the ship broker was not involved in any wrongdoing whatsoever. The case, however, highlights the workings of laws throughout the world aimed at preventing money laundering. It is important that, whether acting as ship brokers, ship agents or ship managers, any company dealing with the movement of funds is aware of their obligations under their local statutes. The exact definition of money laundering will vary according to the country concerned. The Hong Kong Securities and Futures Commission describes the nature of money laundering as covering '... a wide range of activities and processes intended to alter the identity of the source of illegally obtained money in a manner which creates the appearance that it originated from a legitimate source'. In the United States the relevant legislation for money laundering is 18 USC Section 1956 et seq. The applicable statute in England is the Criminal Justice Act 1993. In addition to applying to the criminal, the legislation in most countries also makes it a criminal offence to give assistance to a money launderer. Under the Criminal Justice Act 1993 the English courts can impose a penalty of up to 14 years imprisonment, or an unlimited fine, or both. This is the same penalty as can be applied against the money launderers themselves. In the U.S. the penalties can be up to 20 years in prison. Assistance to a money launderer could, for example, be construed as an agent using cash provided by his principal to settle debts.
The most important requirement is for legitimate businesses to ascertain whether local legislation provides them with an obligation to report suspect transactions. This would include, for example, reporting a large cash transaction to the National Criminal Intelligence Service in the U.K. The reporting requirements are not, however, simply limited to cash transactions. There is an obligation to report transactions which are suspect, perhaps, because they are incompatible with the customer's size, normal procedures, or simply make no commercial sense. An example could be a principal who transferred money to a ship manager only to transfer it again to another company controlled by the principal.
The vast majority of transactions are of course innocent and made for usual commercial reasons. Members are, however, recommended that they ensure that they are familiar with the obligations in their country and put into place procedures to ensure that they comply with any local reporting requirements. The most important requirement is for legitimate businesses to ascertain whether local legislation provides them with an obligation to report suspect transactions. This would include, for example, reporting a large cash transaction to the National Criminal Intelligence Service in the U.K.
We would like to thank Paul Fortune of Sinclair Roche & Temperley, Hong Kong, and Bob Brown of Brown Gavalas & Fromm LLP, New York, for their kind assistance in the preparation of this article.
75 YEARS - THE HISTORY OF ITIC
The International Transport Intermediaries Club (ITIC) celebrates its 75th Anniversary this year. The Club traces its origins to the Chartered Shipbrokers Protection Association, first formed as an unincorporated association on 2nd December, 1925. The name of the organisation is testimony to the fact that it was founded by a number of prominent members of the Institute of Chartered Shipbrokers carrying on their business as port agents and brokers in London and ports throughout the country. The Association was formed to tackle the problem of unpaid commissions. There had been a number of cases decided by the English courts in the period between 1916 and 1925. One of these had gone all the way to the House of Lords, the English Supreme Court, and set the procedural basis for shipbrokers to claim their commission until this year's legal changes reported elsewhere in this issue.
Since the costs of litigating these cases was considerable it was decided that chartered shipbrokers should be given the opportunity to join a defence association very similar to those which already existed for the benefit of ship owners. In this way, the legal costs would be met at least partially by the Association. Membership of the Association was originally confined to firms and companies of which one or more of the partners or directors was a Fellow or Associate of the Institute of Chartered Shipbrokers. The first Chairman was Mr. Joseph Fawcett of Fawcett Coverdale & Co Ltd and the original Secretary was a Mr. Eric J. Edward, a solicitor and partner in the firm of Edward and Childs. The relationship between the management of the Association and the solicitors firm lasted until the 1980's. Today ITIC is managed by a subsidiary of Thomas Miller & Co. Ltd, a firm specialising in the management of mutual clubs.
In 1937 the Association was incorporated under the Companies Act 1929 as a non-profit making company limited by a guarantee. ITIC remains a non-profit organisation existing for the benefit of its Members. It also still provides debt collection services and since 1992 has recovered about USD 40 million.
It became apparent by the end of the 1930's that shipbrokers also required insurance cover against claims for professional negligence. A separate Class II Indemnity cover was created for this purpose. At the same time the name was changed to The Chartered Shipbrokers Protection & Indemnity Association Limited to reflect this wider role. Originally all claims were met under a policy issued by Lloyds Underwriters, although the Association agreed to investigate and settle claims on underwriter's behalf and to pay the associated costs.
The cover provided in those early days was limited to £2,000 any one claim and £20,000 in the aggregate any one year. The original subscription was only one guinea (£1.05) per annum. For Class II Indemnity the charge was 30 shillings (£1.50) per first partner or director and 15 shillings (75p) for each additional partner or director. During the 1960's it became apparent that ship agents and ship brokers overseas who, at that time, had no connection with the Institute of Chartered Shipbrokers would appreciate similar insurance and defence cover to that provided by the Association. The then Managers were Hedleys, a firm of solicitors, who were the successors of Edwards and Childs, and they formed a parallel mutual association called The International Ship Brokers & Agents P&I Club Limited (ISBA Club). Within a few years the number of members of ISBA Club had overtaken that of the earlier association and it was felt by the Directors of both Clubs that a merger of the two organisations would create substantial economies.
Accordingly, after resolutions adopted by the members of both Clubs, ISBA Club and CSP&I came together in 1983 to form the Chartered and International Ship Brokers Protection & Indemnity Association Limited (CISBACLUB).
The next milestone for the Club came in March 1985 when the management contract passed from Hedleys to Tindall Riley & Co. The latter were also (and remain so today) the managers of the Britannia Steam Ship Mutual Insurance Association Limited, a mutual insurance club for ship owners.
In 1992 the members of CISBACLUB agreed to merge with Transport Intermediaries Mutual Insurance Association Ltd., (TIM). The latter had been formed in 1985 by the Thos. R. Miller & Son partnership (later incorporated to form Thomas Miller & Co. Limited), with a view to expanding the sources and availability of liability insurance for ship agents, ship brokers and the growing profession of ship managers.
The merger promised, and has provided, a stronger base from which to supply insurance to transport professionals throughout the world. The Club has grown steadily since the merger and currently insures 1,200 members in 82 countries.
DATES FOR YOUR DIARY
ITIC 75th Anniversary Conference
This year is the 75th Anniversary of ITIC and to mark the occasion the Club will be holding a two day conference exclusively for Members on 2nd and 3rd October, 2000.
The venue is the Four Seasons Hotel, Park Lane, London. The programme will consist of both lectures and workshops (delegates' participation will be encouraged) and conclude with a Gala Dinner. Further information will be circulated in July. It is anticipated that there will be a heavy demand for places and as the number attending will be limited to 200 early booking is recommended.
Connecticut Maritime Association
ITIC is sponsoring an evening reception at the Connecticut Maritime Association Conference - 'Shipping 2000 - Getting our bearings', on Tuesday 21st March.
Harry Gilbert, CEO, Wallem Shipmanagement and a Director of the Club will be making one of the main presentations to the conference delegates. Andrew Jamieson, the Club's Legal Advisor, will be speaking at one of the later breakout session seminars entitled 'Re-inventing the 21st century broker'.
Forthcoming Events
Julia Mavropoulos, the Club's Claims Director is scheduled to speak at the 4th Annual Ship Agency Conference. The conference takes place on 26th & 27th April, 2000 in London and is supported by FONASBA. The conference organiser is Lloyd's List.
Andrew Jamieson, the Club's Legal Advisor is scheduled to present a paper at the BIMCO 'Trading Places - the developing role of the shipbroker in the 21st century' conference in Copenhagen on 24th May, 2000.
New telephone numbers for ITIC
A reminder. As reported in the September 1999 issue of 'The Intermediary', the telephone dialling codes for London, Portsmouth, Southampton, Coventry, Cardiff and Northern Ireland are due to change on 22nd April. The new telephone number for ITIC will be (0) 20-7338-0150. Direct dial numbers will be (0) 20-7204-XXXX.
Andrew Jamieson, the Club's Legal Advisor, has contributed a chapter on Shipping Contracts to a forthcoming book 'Privity of Contract - The Impact of the Contracts (Rights of Third Parties) Act 1999'. The book is due to be published in June 2000 by LLP Professional Publishing as part of its 'Commercial Law Library' series.
Permission to reproduce or distribute this document can be obtained from Charlotte Kirk, ITIC, tel: (0)20 7204 2928, email: ITIC@thomasmiller.com