Costly consequences of incorrect time-bar advice - Maggie Hui Li, Senior Claims Executive, for the ICS Shipping Network magazine

ITIC’s Maggie Hui Li advises brokers to not view time bars in isolation

Time bars are a perennial problem for brokers and agents. It is very important to have a proper system in place to note what time bars you may come across and to set proper reminders so you do not fall foul of the time bar.

Time bars can be statutory, i.e. six years to bring a claim or 14 days to file an acknowledgement of service, or they can be contractual, i.e. a one-year time bar to file a claim or a 60-day time bar to make a demurrage claim. If a broker forgets to pass on the demurrage claim within the time bar in the charterparty, or an agent has proceedings sent to them on behalf of their principal and forgets to pass them on – meaning the principal is time barred to file a defence – this will inevitably lead to a claim on the agent. However, it is also important not to just read the time bar clause in isolation. Other clauses in the contract may affect it.

A recent claim that ITIC dealt with involved two such clauses.

A broker acted for the commercial managers of a ship. The charterer ordered the ship to an area where an additional war risks premium (AWRP) was needed. This war risk policy was purchased in March by the owners and was for the charterers’ account as per the terms of the charterparty.

The owners had 90 days to make their claim for the AWRP (which was $90,000) against the charterer pursuant to the terms of the charterparty. However, when the owner, via the commercial managers, asked the broker what the time frame is to make the claim, the brokers incorrectly told them the time bar was 180 days. This was due to their confusion between the relevant time bar and an irrelevant one in the contract. The commercial manager relied on this advice and consequently sent the owners’ request for reimbursement of the AWRP to the charterer after 140 days. The charterer deemed the claim time-barred and refused to pay, claiming a 90-day time bar applied.

The owner, therefore, tried to hold the broker responsible for their loss.

“As soon as possible”

However, it was noted that the owner had sent their invoice for the AWRP to the commercial managers in March, but the commercial managers only issued their invoice to charterers in July. This meant the commercial managers had caused almost four months’ delay. This was important because the charterparty also said that charterers needed to be advised of any AWRP “as soon as possible”, and due to this four-month delay, they had not been.

This meant that the charterers could avoid the AWRP on two points; first, the claim was presented after the time bar, and secondly, the owners failed to provide the prior notice “as soon as possible”. There was therefore an argument that even if the claim had been presented within the 90 days, the charterers could have still rejected it on the basis that it was not presented “as soon as possible”. Therefore, both the owners/the commercial managers were in breach of their obligations under the charterparty and the brokers were also in breach of their obligation to use reasonable skill and care when they wrongly advised the length of the time bar.

In light of the above, the brokers and commercial managers agreed to indemnify the owner on a 50/50 basis.

It is very important to read documents as a whole. Although the time bar in this case was 90 days, it needed to be read in conjunction with the other clause that said the charterer needed to be told of the AWRP “as soon as possible”. Reading just the time bar clause provides only a partial view.