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 ship broker. The average response was US$ 100,000 for defence costs (including expert witnesses, etc.). If the ship broker 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.