Many ITIC ship agent, shipbroker and ship manager Members become needlessly involved in matters which should only concern their principals because of carelessness in the way that they represent themselves to others. If a company signs off a contract in its own name (whether it is a charterparty, a cargo booking note or an order for bunkers) without making it clear that the company is acting as agent for and on behalf of another party, there is a risk that the company will be deemed to have contracted on its own behalf.
It is likely that agents and brokers make this mistake all too frequently, but it only causes problems when the principal is unable or unwilling to meet his obligations to his contractual partner. The general rule in most jurisdictions is that one who acts as an agent does not become personally bound on a contract that he makes for a principal. However, lack of care can land the agent or broker in the middle of a dispute that has nothing to do with him. The broker or agent may even in the end have to satisfy debts or liabilities to his principal’s contractual partners. How can this be avoided? The agent or broker or manager should always sign off every communication “ABC Company, as agent only for and on behalf of XYZ Company”.
In some countries, even if the agent mentions his agency capacity, he can still be personally liable if he does not disclose the name of his principal. In the case of Hutcheson v Eaton  it was held that the signature “ABC Company, agent” was merely descriptive (in a similar way to “Mel Gibson, actor”) rather than an indication of the capacity in which the company acted in a particular transaction. In order for the agent to be acting in a representative capacity, he needed to sign off “ABC Company, as agent only”.
Even where the contracting party is aware that the company is an agent, it is still necessary for the agent to sign off “as agent only” and to disclose the name of his principal. Why, when everyone knows that a company is in business as an agent, is this necessary? Firstly, the agent enters into numerous contracts himself (e.g. for office supplies). Secondly, in today’s market ship agents have extended their services to include activities such as freight forwarding and warehousekeeping, where they act as a principal. Parties who enter into a contract with the agent need to know exactly who their contractual partner is. If the principal becomes bankrupt the unpaid suppliers of goods and services will look for someone from whom to recover their outstanding funds. In the case of ship agents the danger of relying on the knowledge of vendors is well illustrated by the case of Maritime Stores Ltd. v H.P. Marshall & Co. Ltd. (1963).
The defendants were ship agents in Middlesbrough for the foreign charterer of a ship that was loading steel pipes. Before loading began Marshall and the stevedores met on board the ship and agreed that certain lashings and supports were needed for the deck cargo. Marshall told the stevedores to order the necessary equipment and to “send the bill to me”. No doubt he meant “send the bill to me as agents for the charterers and I will see that it gets paid”. When the charterers went bankrupt the court found Marshall to be personally liable and the judge found that the fact that Maritime Stores knew that Marshall was a ship agent was “in no way determinative of the issue”. He found on the facts of the case that the contract was made between, and only between, Maritime Stores and Marshall and that Marshall was personally liable.
Agents can even become liable for cargo claims if they are not careful. Some agents provide cargo insurers with the gift of inadvertently contracting in their own name. If the carrier is bankrupt, or the carrier’s bill of lading carries a jurisdiction clause in some far-flung place, cargo interests will welcome being able to sue a ship agent in his local jurisdiction. In addition, if they can get the courts to accept that the agent contracted himself to deliver their cargo in good order and condition, they can then avoid the limitations on the carrier’s bill of lading. Agents do not routinely have standard trading conditions and they could find themselves exposed to full liability, plus consequential losses, if they are not careful.
In a case that was recently heard in Denmark, a Danish ship agent was found liable to cargo insurers for damage to a cargo of refrigerated pork. The agent booked the pork onto his principal’s service to Estonia, but when it arrived at Tallinn it was found that the veterinary documents did not match the cargo which was not allowed to enter the country. The shipper requested that the pork be returned to Aarhus but, due to Christmas and New Year holidays, it could only be returned two weeks later. The agent had booked the cargo onto his principal’s ship again, and the principal’s bill of lading was issued for the return. It was discovered that the pork had been off power during the time it was ashore at Tallinn, and the cargo insurer sued the agent and the line.
The Danish courts found the agent to be liable for the damage (an amount of US$40,000) and to be responsible for everyone’s costs, including those of the carrier. The agents were found liable because, when the cargo was booked, they failed to make it clear that they acted as an agent on behalf of the shipping line. The agents also regularly acted as freight forwarders in their own name.
There are exceptions to the rule. For example, in the case of the SANTA CARINA (1977) it was held that charterer’s brokers who orally requested other brokers on the Baltic Exchange to procure bunkers for a ship were not personally liable even though they had failed to give details of their principal. Their capacity as agent had, however, been clear to their opposite number. If the brokers had also operated a bunker department it is unlikely that they would have escaped liability.
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. Is this practice is safe? There are a number of nineteenth century cases on this point most of which tend to the view that the broker should make it clear that he is not contracting on his own behalf. However, in Wagstaff v Anderson  the court’s decision in favour of the ship broker was partly based on the grounds that “ship brokers usually do not act for themselves”. The best that can be said on this point is that in order to be sure that ship brokers are protected by their agency capacity, they should make it clear that they are signing in their capacity as brokers. However, in the light of the well-established tradition that they frequently do not do so, they should be able to argue successfully that a custom of the trade exists to the effect that they should not be held personally liable on contracts made without qualification.
In order to try to avoid difficulties of this kind, the following guidelines should be observed:
- Sign off all documents “as agent only for and on behalf of XYZ Shipping Company”.
- If invoices are received in your name, send them back and have them re-issued in the name of the principal; e.g. “Owners/Charterers of M.V.... c/o ABC Agency Co”.
- Although ship brokers 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 liner or tramp agent, send out a letter every six months to the suppliers of goods and services to your principals informing them of your agency status. If you need a suitable wording, please contact ITIC.
“The general rule in most jurisdictions is that one who acts as an agent does not become personally bound on a contract that he makes for a principal”