SIGNING OFF – THE IMPORTANCE OF GETTING IT RIGHT

ITIC insures many companies whose job it is to arrange contracts on behalf of a principal between the principal and a third party. A problem which continues to produce many claims is the failure to clarify when arranging the contract that they are acting “as agent only”.

The law in most jurisdictions stipulates that an agent does not become personally liable under the contract he arranges. However, agents who are careless in putting together contracts often end up having to meet the principal’s obligations under the contract in the event that the principal is unable or unwilling to do so. The agent may present the claimant with a much more attractive target than the actual principal, who may be insolvent. Agents have been found liable to pay unpaid bills, cargo damage claims, claims resulting from defective bunkers etc. merely because they forgot to add “as agent only” when signing off the contract in question.

Bunker Brokers

A bunker broker (who also acted on occasion as a bunker trader) ordered bunkers for the operator of three ships at a total cost of US$186,000. Six months later the operator went bankrupt without paying the bunker suppliers, who then issued a writ against the broker alleging that he had ordered the bunkers for his own account. Although e-mails from the company mailbox had an automatic sign-off which included the necessary footnote making it clear (as appropriate) when the company was acting “as broker only”, most of the individual brokers worked from their personal mailboxes, which had no such automatic footnote. The courts found that the bunker broker had not made its agency status clear and that the bunker suppliers were entitled to look to the broker for payment.

Ship Managers

Suppliers of services to ships under management are entitled, if the manager has not made it clear that he is ordering goods and services as an agent for the owner or bareboat charterer, to look only to the manager for payment. When signing purchase orders for supplies to a ship, managers must always state that the supplies are ordered by the managers “as agents only” for the shipowner or bareboat charterer. If he has not, then in most jurisdictions he is personally liable. Ship managers are often more financially sound and reputable than the principals they represent. Suppliers will often allow credit to a ship manager, but not to a single ship owning company. This is what the courts will look at.

Ship Agents

Ship agents order numerous goods and services on behalf of their principals. If a shipping line becomes bankrupt, suppliers will look to get paid by any means and from any party. Ship agents often make life difficult for themselves by accepting cargo bookings, invoices etc. in their own name, which show the agent as “the carrier” or “the shipping line” instead of returning the booking note or invoice, asking that it be re-issued in the name of “ABC Agency Co. as agents for XYZ Shipping Line”. In one case involving a shipping line which had become insolvent, the line’s agent was facing claims from two feeder lines for unpaid freight totalling US$175,000. The agent had, over a considerable period, allowed the feeder lines’ agents to issue bills of lading showing the agent as the shipper on the feeder bills of lading, and invoices addressed to the agency company. The feeder line is the sub-contractor of the actual ocean carrier, and the name of the shipper on the feeder bills of lading should either be “XYZ Shipping Lines” or “ABC Agency Co. Ltd as agents for XYZ Shipping Lines”.

Shipbrokers

Shipbrokers do not currently face the same problems that other agents do if they fail to sign off “as brokers only”. Although shipbrokers normally sign off charterparties and other formal documents "as agents/brokers only" they generally do not sign off other communications in this way. This is not to say that there have not been claims against shipbrokers where it is alleged that they acted as principals in charterparties. Therefore, in order to protect their agency status, shipbrokers should also make it clear that they are signing in their capacity “as brokers only”.

Guidelines for agents to avoid contracting as a principal

Sign off all documents "as agent only for and on behalf of XYZ Shipping Company";

• E-mails to be signed off “as agent only” or “as broker only” even if personal mailboxes are used;
• If invoices are issued in your name, return them for re-issue in the name of the principal; e.g. "Owners/Charterers of M.V.... c/o ABC Agency Co";
• Do not accept feeder bills of lading which show you, rather than your principal, to be the party contracting with the feeder company;
• Although shipbrokers may be protected by custom of the trade, it would still be safer for them to sign off "as broker only for and on behalf of ...";
• Where brokers act as intermediate brokers between two other brokers (and not as sub-brokers) the recommended course would be to sign "as broker only" and to leave the question of the identity of the principal to be decided, if necessary, on the facts.

If you are a ship agent or a ship manager, send out a letter every six months to your principals’ suppliers informing them of your agency status. This should not be an unaddressed circular as you may need to use it as evidence that you have made your agency status known to any particular supplier. ITIC would be happy to provide a suggested wording if required.

Other pitfalls

Failure to disclose name of principal

In some countries, even if the agent signs off “as agent only”, he may still be found by a court to be personally liable if he fails to disclose the name of his principal. For absolute safety agents need to sign off “ABC Company as agent only for XYZ Company”.

“Agent” or “as agent only”?

In an English law case heard in 1984 it was held that the word “agent” in the signature “ABC Company, agent” was a descriptive title rather than an indication of the capacity in which the company acted in a particular transaction. In order for the agent to make it clear that he is acting in a representative capacity, he needs to sign off "ABC Company, as agent only".

DO NOT sign off “as agent only” when you are not

A company entering into a contract on its own behalf must not sign off “as agents only”. If a company purports to sign off “as agent only”, when they intended to act as a principal, the company could lose its rights under the contract. You cannot avoid personal liability under the contract by alleging agency status and at the same time maintain your own rights under that same contract.

Conclusion

Claims against companies who intended to act as agents in transactions succeed all too often. Even if an allegation that an agent has contracted personally is successfully defended, this will not be without considerable expenditure of time, trouble and legal costs. Do not make life more difficult for yourselves. GET IT RIGHT FIRST TIME – TAKE CARE IN SIGNING OFF.