Who is your client?
- Date: 05/11/2019
Surveyors rarely receive instructions from their actual client. Instructions are received by insurance brokers, P&I claim handlers, lawyers or managers on behalf of their client. Sometimes, as the following claim describes, you may even not have a principal:
A surveying company undertook a review to certify the lashing and securing of a cargo on the deck of the vessel. Unfortunately, during the voyage, the deck cargo was washed overboard.
The shippers of the cargo, the cargo owners (to whom it had been sold during the voyage) and the cargo owner’s insurers held the surveyor liable for their loss, which was calculated at EUR 1,200,000. They commenced preliminary proceedings against the surveyor in the courts.
The survey was undertaken subject to the surveyor’s Terms and Conditions (T&C's), which included an arbitration clause. All parties denied that they were the contractual counterparty of the surveyor.
The surveyor always thought they had been instructed by shipper. The T&C's held that in respect of claims from third parties (as the cargo owners and cargo insurers would be), the surveyor would be fully indemnified by their principal. In respect of claims directly by their principal, the limit of liability was limited to six times the fees – approximately EUR 6,000. Therefore, it was important for the surveyor to know who their principal was.
The surveyor commenced arbitration proceedings against both the shipper and the vessel owner seeking a declaration as to which one was their principal.
The arbitration tribunal, which incurred significant legal costs, concluded that the shipper was the surveyor’s principal. Further, they held that the surveyor’s terms and conditions were incorporated into the contract with the shipper and that they would determine any dispute on the merits. Eventually, the tribunal found in favour of the surveyor on the merits.
However, the shipper had never fully accepted the decision of the tribunal and challenged this in the courts. Despite numerous defeats in the courts, on appeal the shipper finally prevailed in convincing the court that they were not the contractual counterparty. This meant that that the arbitration decision against the shipper became null and void. However, the other original arbitration award against the vessel owner (that had never been challenged) stating they were not the contractual counterparty still stood – and the surveyor was now time barred from challenging it.
This meant that the surveyor had no contractual counterparty at all. Clearly, this was a legal anomaly and could not be correct, but this was the unfortunate position the surveyor found themselves in. As a result, a settlement with the shipper (at a much reduced sum) was concluded.
Whilst this is an extreme circumstance, it is very important that surveyors know who their principal is. Not only so they can eventually be paid for their work, but so they can provide a professional service to their client by taking instructions from the correct party.