Settlement Without Authority

A P&I club correspondent was requested to survey a cargo of 2,000 metric tonnes of bulk fertilizer, which had been contaminated by residues from a previous cargo.

The correspondent, having carried out the survey and after several telephone conversations with the P&I club, obtained verbal agreement to offer the cargo interests a depreciation allowance of USD 22 per tonne, which was accepted. When the cargo interests submitted their claim for USD 44,000 to the P&I club, the club refused to pay, alleging that the correspondent had acted without authority in offering settlement.

The consignees therefore sued the P&I club and the shipowner, and the correspondent was involved, on the grounds that if the court found that he had no authority, then he would be liable under the doctrine of breach of warranty of authority. The case went to court in London. As the correspondent had no confirmation in writing, the dispute turned on which witness was believed. The court eventually found that the correspondent had been authorised to make the offer.

If the correspondent had not made a convincing witness, and had not kept contemporaneous notes, he would have had to pay the claim, plus interest, plus the costs of some of the other parties involved, and would have faced a liability in excess of USD 100,000.

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