Ship agents, makes a very important link in the business of Maritime Transport, that too at a very crucial point, that’s why they also bear immense legal, financial and commercial responsibility.
They may act as someone, who represents from time to time, Charterers, Shippers, receivers, Ship owners, Freight forwarders, Stevedores Custom agents, Ship Husbanding, Ship Chandlery, etc.
Ship Agents are supposed to be and deemed to be upright in the way they deal their clients at one hand and deals with law and finance on their behalf on another hand.
Thus there could be severe consequences by being non-prudent on their part.
Below we present various points to be considered by the Entities dealing in the business of Shipping Agency to ascertain that they have covered their business risks by the way they conduct it.
Though we have done a lot of research to gather the knowledge especially from the International Transport Intermediaries Club(ITIC) and other General Insurers, it is not yet exhaustive and you are most welcome to express your views and points in the comment box and we shall add them in the blog expressing credits to you for that.
$11. Due Diligence on the Ship agent’s part is the most important process before taking the client’s appointment as their Agents
Following questions should be asked by yourself, during this process and analyze their responses, to assess the risks involved
What do you know about the vessel?
i. Proceed with caution if the vessel is coming into port with mechanical problems. This could lead to undue delays in port (particularly if the owner is in financial difficulty) and liabilities to accrue for a ship agent, in terms of port dues and other related expenses.
ii. Establish which P&I Club the ship is entered with. Is it insured with a Club from the International Group? In the event of a problem, you will want the assurance that the vessel is insured by a quality insurer.
iii. Consider subscribing to the Lloyd’s List Intelligence website, which provides a wealth of information in relation to the world’s shipping fleet, their owners, insurers, vessel movements, in addition to other useful information.
What do you know about the principal?
i. Make sure you know who your principal is. Are they the Owner or Charterer?
ii. If they are the Charterer, establish who the Beneficial Owner and Registered Owner are.
iii. If you are being appointed by the Charterer, establish whether an Owner’s Protecting Agent is also being appointed. If not, be aware that you will be deemed to be the agent for the vessel, with all the associated liabilities that this implies.
iv. If the appointing party has signed off “as agent”, then ask them who they are acting for, and who will be responsible for paying the disbursement account. If they refuse to disclose this information, then proceed with extreme caution.
v. Are there any indications that your principal is in financial difficulty? A quick search of the internet and the industry press can establish this very easily. If they owe other parties money then you as agent could become involved in an arrest.
How will you be paid?
i. Establish from the outset, who will be paying for your services and the services of the third parties you will be appointing on their behalf (who you also have a responsibility to protect).
ii. When receiving an appointment from a new party, always try and get as much prefunding as possible, and preferably 100%.
Don’t be afraid the decline an appointment!
If after undertaking the above process there is something that concerns you, do not be afraid to walk away. Accepting an appointment for a vessel that is experiencing problems, or for a principal that is in financial difficulty, could not only cost you a lot of money, but can also cost you a huge amount of time, which could be better spent assisting quality principals.
$12. Knowledge of the ” Ways of thieves”, that can help you to prevent fraud
Fraudsters use brokers, agents and ship managers as a vehicle for crime. The result leaves them exposed to a liability as a result of somebody else’s dishonesty.
Acts of fraud can be varied, and time has shown that fraudsters will often seek to “respectabilise” themselves by associating their actions with reputable companies. It is therefore important that brokers, agents and managers are aware of the ways in which the broking chain, and parties who assist Operators in the day to day running of a vessel, can be manipulated to assist fraudulent transactions.
By way of an example, there are scams which resulted in pre-funded port costs being diverted to a fake bank account. In each case the Owner due to make the payment received an email advising that the agent’s bank account was inoperable because of their annual audit. The message was sent using an email address very similar to the agent’s address. Details of a different bank account were provided for payment. Owners unfortunately sent money to the new account. By the time the agent reported that the pro-forma disbursement account has not been paid, the fraudsters had stolen the money.
In retrospect it may appear that a few simple checks would have been sufficient to prevent these losses occurring; the email address used by the fraudster may be very similar to the genuine one, but it will not be identical. This may lead to criticism of the victim, but taken in the context of the varied and often time-sensitive daily activities of a busy shipping professional, it is not difficult to see why the potentially fraudulent nature of the request was not detected.
Another claim once reported involved payments made by a ship manager to a parts supplier. Again, a fraudster was able to insert an email into the exchanges providing new bank details for the payment. Cases such as this are difficult to resolve. In that example, the chandler did not receive his money. The ship manager had already made the payment to the fraudster’s bank account and he understandably didn’t want to pay again. Despite the fact that both parties were innocent, neither can get what they want. The issue of who is liable can be quite complicated to work out – whose system was broken into by hackers is not as simple as whose house was burgled. In addition there are the commercial realities; the ship manager may avoid paying twice for these goods, but he is unlikely to be able to secure further supplies from that source. That may or may not be a problem.
“Cash to Master” and hire payments are also often attractive targets for fraudsters. In contrast to the previous examples, a Norwegian shipbroker managed to avoid an attempt to steal a monthly hire payment by questioning a request to forward the hire to an account with revised payment details. He telephoned to check the details with the Owner’s accounts department, who advised by return that they were not correct. Whilst it is appreciated that a large number of payments are processed by brokers and agents, changes to account details should always be treated with suspicion. There are very few legitimate changes to account details.
The check should be made with a separate contact at the payee. Unfortunately, in contrast to the above, one ship manager’s member of staff was suspicious of a message asking if the money could be sent directly to the agent’s foreign exchange broker who could secure banknotes which were in short supply in that part of the world. The manager’s member of staff queried the instruction, replying “As we don’t know broker, would it be possible to remit CTM to your bank account as usual?” Of course they received confirmation of the new arrangement from the same e-mail address. The advice is to take separate steps to verify the instructions. Don’t use the reply button!
Act of fraud committed against ship brokers, agents and managers are sometimes more complex than the simple manipulation of payment details. Bills of lading are often used as a vehicle for fraud. Over the years many ship agents suffered as a result of their incorrect release of cargo against a counterfeit bill of lading. The wrongful release will lead to a liability for the Carrier. The test to determine the liability of the agent to indemnify the Carrier will be if, looking at the quality of the counterfeit bill, it was reasonable for them to have treated it as the real bill of lading. Like fraudulent telexes, a thorough examination will reveal differences. The standard of forgery can be very high.
It is one thing to be taken in by a copy of a Bill of lading but quite another to agree to manipulate its contents. All information on the bill of lading must be correct, and generally, the insertion of information which is known to the requesting party to be incorrect is to obtain payment fraudulently under the terms of a letter of credit.
There were instances where cargo interests have asked their nominated agents to backdate the date of issue of the Bill of lading. Many commodities are traded on the basis of the shipment occurring prior to a certain date. Agents are often placed under considerable commercial pressure and the shipper may try to legitimize their actions by suggesting it is practice of the trade. Misdating a bill of lading is fraud for which the agent will be liable to any party who has relied on the truth of what is said in the bill of lading. It is easy to go online and check the sailing dates of vessels. It is therefore easy to detect the misdating of Bills of lading.
Documents authorizing the release of the cargo without production of the bill of lading can also be forged. In one case a liner agent was requested by the receiver of 12 containers of frozen meat shipped from Denmark to deliver them without original bills of lading. The carrier's bills of lading were consigned "to order" of the Danish shipper, and the receiver produced a fax from the shipper which appeared to confirm that he was the owner of the cargo. In the same fax the ‘shipper’ authorized delivery without the original bills of lading. The fax bore the shipper's logo, a transmission record on the top, and appeared to be signed by the same person who had signed the invoices. In view of the perishable nature of the cargo and the contents of the fax, the ship agent released the containers to the receiver.
However, the fax was found to have been forged by a former employee of the Danish shipper and the receiver subsequently failed to pay for the meat. The carrier was held liable for the shipper's loss and in turn claimed US$400,000 from his agent. Agents must take their authority to release cargo without Bills of lading only from their Principals. If a letter is produced which purports to provide an authority to release without original Bills of lading, the agent should send the letter to his Principal. This will provide him with the opportunity to check with the shipper (or bank) to ensure that the letter is genuine.
Where the Principal has agreed to release cargo against a letter of indemnity ship agents should be aware of the potential for fraud. There were cases where agents have accepted letters of indemnity where the bank signature has been forged. Care should also be taken to make sure that the receiver is presenting a letter of indemnity that covers all the cargo.
The above frauds all attempted to obtain money or goods by misrepresentation. Unfortunately ship agents can also be the target of unscrupulous migrant smugglers who are looking to move illegal immigrants around the world. To give the impression of legitimacy to the transport of migrants, they are treated as if they were part of the Ship’s normal crew by the smugglers.
Over the years the basic pattern which has emerged is that the agents are asked to attend the vessel’s call at a port and provide assistance with a crew change. Although the approach is bogus, the agent provides cover for the arrival of the migrants in the country when the ship docks. The migrants subsequently disappear on embarkation, leaving the agents with unpaid hotel bills and liabilities for fines and penalties which are imposed by the immigration authorities. In addition, should the migrants be caught, the agents can also be liable for detention and repatriation costs.
A prudent approach is often all that is needed to avoid agents becoming victim to an act of fraud; a company based in Athens contacted ship agents based in Djibouti, requesting their services for 50 - 70 fishermen joining a fish factory ship. The Member was suspicious and after duly checking it was found that the telephone numbers given were not Greek numbers and that the company did not exist. The Ship agent declined the agency.
Unfortunately fraud will always be a problem in international shipping. Shipping professionals deal with an ever-increasing volume of messages the vast majority of which are perfectly legitimate.
Although it is difficult to detect the odd bad apple, knowledge of the common frauds increases the chances of avoiding becoming a victim.
$13. Ever Vigilant is the mantra of a successful Ship agency
A case came into light of a ship agent which incorrectly calculated two pro-forma invoices in respect of port dues, using the cheaper rate for a cargo of malt, rather than the rate for the cargo of wheat booked for discharge from two ships. The wheat cargoes had been discharged, and the final invoices for port dues sent out, before the error was discovered.
The difference between the invoiced port dues and the correct port dues totaled Euros 14,000. But the owner refused to make up the shortfall because, relying on what it had been told, it had in turn charged the lower amount to the charterer.
Another case referenced by ITIC, involved the submission by a port agent of all relevant cargo declarations in respect of a ship which had tendered notice of readiness in a Middle East port. These declarations included a document which the agent had translated into Arabic and English, and which described the cargo and the names of the consignees.
When the ship arrived, the only berth at which it could discharge was not available for a further ten days. The mistakes in the translation of the cargo declarations were subsequently noticed, resulting in a three-day delay in clearing the ship for berthing, which coincided with the last three days of the overall ten-day delay.
The owner claimed against the port agent for the full ten-day period of delay, arguing that the ship had not legally been able to berth due to the documentary error.
“Errors such as these put pressure on commercial relationships. Attention to detail is important.”
$14. Beware of forged documents
It is strongly advised to shipping intermediaries to be on the look-out for cleverly forged documents which could result in them being held liable for substantial claims by cargo interests.
There was a reported case of a Belgian ship agent which released six containers of castor oil valued at $270,000 against a fraudulent bill of lading. The containers were to be shipped from India to Belgium, and although the bill of lading against which the ship agent released the cargo to the consignee appeared at first glance to be genuine, it was in fact a clever forgery.
The shipper claimed that it had not been paid for the cargo, for which it still held the original bills of lading. It duly arrested one of the carrier’s vessels in India and obtained a bank guarantee from the carrier as security for its claim. In turn, the carrier looked to the ship agent for indemnity.
Examination of the bills of lading that had been presented established that the agent should have spotted the forgery. The forged bills included clearly incorrect details, such as the name of the load port, and also spelling errors, including the name of the carrier. The agent had therefore been negligent in releasing the cargo against the documents.
The claim brought against the carrier by the shipper was for the cargo value plus costs and interest. The case was fought in the Indian courts, which is usually a slow process. As it was unlikely that the claim could be successfully defended, carrier pushed the shipper to settle the matter. Finally, after almost four years of negotiation, a settlement of $160,000 was agreed - $100,000 less than the original amount claimed.
It has never been easier for documents to be cleverly forged, and ship agents need to ensure that they thoroughly check the details on bills of lading and other such documentation.
$15. Take Insurance for Cash in transit
Ship-owners often require their agents or managers to deliver cash to ships whilst in port. The risks are obvious. The ship agent or ship manager needs insurance to cover cash when it is temporarily in his custody, whether during transport to the ship, in a strong room at his office, or in a safe at home or on the managed ship.
$16. Ship agents has to bear the cost of avoidable errors
There was a case where a ship agent at a tidal port in Japan was asked to provide a tide table to enable the owner of a ship to calculate the permissible drafts for the dates that its ship was due to berth at the port. The ship agent duly scanned the tide table and sent it electronically to the owner. The ship arrived at the port with a draft of 8.56 m, but was informed by the port authorities that the permissible draft was only 7.8 m.
It emerged that the agent had inadvertently sent the owner the tide table for 2012 instead of 2011. The two tide tables were kept together in the same file and, during the scanning process, the corner of the tide table had folded over, thereby obscuring the year. The excess draft meant that the ship could only discharge for about four hours in the morning and two hours in the afternoon. The ship had to shift anchorage three times during the four days it took to discharge, which was twice as long as it should have taken.
The owner claimed the pilotage and towage costs involved in shifting to the anchorage three times, plus two days’ hire, additional bunker consumption, and additional stevedoring, for a total of $143,000. It was agreed by the owner that some of the costs would have been incurred in any event, and the claim for additional costs was settled at $120,000.
In another case reported by ITIC, ship-owners appointed a port agent for a bunker call by their vessel. The agent failed to complete the required customs formalities in time to book the berth, a mistake which went unnoticed until the vessel was approaching the port. After being notified by the agent of the mistake, the shipowner decided to divert the vessel to another port around 500 km north of the original port as the bunker berth at the first port was not due to become free for another five days. The ship agent also operated within the second port and the bunkering proceeded without incident.
When the time came to settle invoices totalling $26,000 from the various service providers in the second port, the owners refused to pay, claiming that these additional costs had been incurred as a result of not being able to call at the original port. The costs were in fact the normal charges relating to bunker calls, such as tugs, security charges and pilotage, and would have been payable by the owners in any event, even if the vessel had been able to call at the original port. However, the vessel had been delayed by two days and it had incurred estimated costs that exceeded this amount for fuel and other services, as a result of having to travel 500 km to the second port.
$17. Agents must beware of his statutory liability.
In many countries, ship agents and, in some cases, ship managers, can find themselves embroiled in liability claims only because of their role as agent of the ship owner or charterer. This happens because of a joint and several liabilities under local law or port statute, or so called 'statutory liability'.
Examples of where this happens include cargo claims, customs duty and penalties, removal of wrecks, abandoned cargo and containers, dock damage, immigration fines and repatriation costs, and oil pollution. All of these liabilities should, in the normal course of events, be handled by the P&I clubs. Sometimes, however, things do not go according to plan.
In most jurisdictions, even where there is a joint and several liability, the principal - and not the agent - is the prime target for claims. However, authorities in a number of countries will look to the ship agent, rather than to the principal, for statutory claims. These countries include Argentina, Australia, Bangladesh, Brazil, Canada, Chile, Colombia, Ecuador, India, Kuwait, Pakistan, The Philippines, Qatar, Spain, Taiwan, Turkey, the UK, the US and Venezuela. This is not an exhaustive list, however, and consideration must be given to changing laws and to the revision of port authority enactments.
Of the countries listed, several have legal systems which take many years to process claims. This means that, during the intervening years, there is always the risk that a ship will be sold, for example, or that an owner will cease trading, in which case the agent will be left to deal with the claim.
If the agent becomes aware of the claim while the ship is still in port, attempts should be made to obtain a P&I club letter of guarantee before the ship sails. If there is substantial damage to cargo, or dock damage which cannot be defended or disputed, then it may be possible to do this amicably. When a letter of guarantee is provided it is essential to check its wording to ensure that the agents' liability is protected fully and that adequate consideration is given in respect of both interest and legal costs.
In the event that the claim falls outside the scope of P&I club cover, or the club refuses, for whatever reason, to provide of a letter of guarantee, the agent should look directly to its principal for security - preferably in the form of a bank guarantee. It is probable that the courts will not allow the ship agent to arrest the ship for an anticipatory claim, but this may be possible where there is an actual claim on the ship agent, for example from the port in respect of damage to harbour installations.
When first made aware of any statutory liability claim, the agent should immediately inform its principle of the loss or claim, and seek confirmation that the principal will indemnify the agent as per its duty and obligations in accordance with the law of agency and of any current agency agreement.
$18. Contractual Responsibilities of a Ship Agent and Signing Off
In response to the fall in global freight rates, it has been noticed that some port authorities are attempting to place greater responsibility on local ship agents.
In one case which came into light through a communication from a port authority to an agent attempting to hold it responsible for port dues left unpaid by a ship owner. Although a ship agent's statutory liability varies from jurisdiction to jurisdiction, 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.
As such, if port dues are unpaid, the agent should have no financial responsibility for these charges. Any agent who receives such a communication from a port authority should make it clear in response that they cannot accept financial responsibility for the debts of the ship owner.
The same port authority asked the ship agent to ensure that any ship not fully funded prior to departure be referred to them. This guidance was helpful because the agent could simply refer in its communications with owners to the demands of the port authority. Ultimately, if the port authority requires full prefunding for the cost of the port call, prior to departure, the ship agent cannot be responsible for any delay if the port authority decides to detain the ship. Similarly, the risk of the ship agent being left with a large bill from the port authority is removed.
It is also opportune to remind you that ship agents may become involved needlessly in matters which should only concern their principals because of mistakes in the way that they represent themselves to others.
If a Ship Agent signs off a contract in its own name without making it clear that it 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.
Agents can make this mistake all too frequently, but it causes problems only when the principal is unable or unwilling to meet his obligations to his contractual partner. However, lack of care can land the agent in the middle of a dispute that has nothing to do with him. The agent may have to satisfy debts or liabilities to his principal’s contractual partners.
In most jurisdictions, the agent can avoid this by always signing off every communication “ABC Company, as agent only for and on behalf of XYZ Company.
$19. Ship Agents in post conference era and code of conduct with reference to competition law
After 133 years, the Regulation 4056/86 which allowed shipping companies to apply common and uniform rates in return for providing reliable services came to an end on 18 October 2008 in Europe. The regulation was based on the UNCTAD Code - an international convention in place in many countries around the world.
The markets in every trade have plummeted since the end of conferences system(which in short is a cartel of shipping companies to co-operate in tonnage availability & freight and thus effectively cut competition), but few disagree that this is because of the massive drop in demand across the world following the global financial crisis.
For European trades, ship owners may no longer jointly try to minimise the disruption caused by discussing solutions with past conference members. Consortium and alliance members are however allowed to adjust capacity to reflect supply and demand.
Agents and ship owners, are viewed as part of the same undertaking as the principals for the purposes of competition rules. For this reason, prudent ship owners have been putting in place extensive training programmes for their agents to help them work in the new post conference era.
It is important to respond in a measured way to the changed environment. Agents who do not change any of their practices expose themselves and their principals to fines, but those who overreact will also put their principals at a tremendous commercial disadvantage.
Examples of the most frequently asked questions by agents are:
As an agent, can I act for more than one carrier?
As agent, you can act for more than one carrier. However, structures need to be in place so that your contractual obligation to one carrier is not compromised by your duty to another. These structures include having designated teams and fire walls in place.
As an agent, am I still allowed to collect competitive information?
The European Commission considers gathering information to be pro-competitive, whether directly or via an agent. If the information is in the public domain, it is easier to collect and use this information than information collected from a private source where there may be issues in relation to confidentiality and trade secrets.
Agents can continue to collect information on:
ocean freights; schedule of vessels; documents required by their principal for various port authorities; and Information from shippers and consignees which may affect their principal.
A carrier cannot use an agent to exchange information with its competitors or put in place an exchange mechanism with competitors through an agent.
What can I do at trade association meetings?
A trade association is an incorporated or informal entity which, in principle, brings together a large number, if not all, of the competitors within a specific industry at a meeting to discuss general issues. According to European Commission Guidelines, practices which cannot be undertaken by trade associations include the following:
(i) Discussing current and future pricing to customers in meetings;
(ii) Identifying individual customers (actual or potential) and discussing their commercial relationship with those customers;
(iii) Discussing current and future costs (for example personnel, vessel and stevedore costs) which could influence the final price charged to customers;
(iv) Discussing and exchanging information relating to commercial relationships with suppliers;
(v) Entering into discussions which could lead to members of the trade association taking coordinated action against non members.
Trade associations, on the other hand, can:
(i) Exchange information on volume, costs and pricing provided it is historic and aggregated (so that particular companies cannot be identified) and in the public domain. The Maritime Guidelines state that individual information needs to be at least 3 months' old (i.e. historical). In relation to highly sensitive information, such as cost and price, the European Commission advises a longer time period than 3 months is prudent, depending on the concentration of the market;
(ii) Discuss commercial information which is in the public domain;
(iii) Discuss industry standards and codes of conduct;
(iv) Discuss industry views and representations in relation to government/public authorities such as the European Commission;
(v) Discuss relations with regulatory bodies such as the IMO.
There is limited risk of infringement of EU competition law provided the trade association has transparent membership (so as not to exclude competition from non members), ensures active and effective competition compliance programmes and complies with the above requirements.
If I meet an agent of another shipping company at a social event, do I have to ignore him?
This would be an overreaction. Agents do not have to stop all social interactions – you can talk to competitors but you cannot discuss rates, volumes or any information which would reveal your principal’s commercial strategy at any time when in the presence of competitors.
Notes do not need to be kept if you stick to non-business matters but remember there is no such thing as an "off the record discussion." If there are any inappropriate discussions, these need to be reported to your compliance officer and a record needs to be made.
A competitor to my principals asks to buy some slots on my principal’s ship. Can I sell them?
It is important to distinguish between shipper rates and charges to a competitor. This would be viewed as a vertical arrangement between your principal and the competitor. Your principal is chartering space specifically to allow him to fulfill his obligation to his customer because the competitor has a lack of space/capacity on his own vessels. Therefore it is unlikely that the parties would be found to have an objective of price fixing since the competitor providing the service is acting, in this arrangement, at a different position in the supply/distribution chain to your principal (who is collecting the money from the customer).
The European Commission finds these types of arrangements acceptable in terms of competition law as long as done on an ad hoc basis when there is a lack of space.
Competition issues arise where these types of arrangements become regular and are used in a more permanent manner to get round joint cooperation between the two competitors. Joint cooperation by those two parties for the purpose of providing a service would require a self-assessment to make sure they are compliant with competition rules.
$110. Always take care to pass on correct information about the cargo which you have shipped in containers
Large claims often arises, for damages to refrigerated cargo due to mistakes by ship agents in passing information on temperatures. However, in carrying cargo, it is not only the temperature which needs to be correct, but it is also vital that other carrying instructions are passed along the line, particularly where cargo will be stored in more than one port terminal and transshipped to more than one ship.
One example involves a cargo of onions in a 40ft dry container. The agent was instructed that the doors of the container should be tied back and left open. This instruction, although given as part of the booking, was not passed on to the operational staff involved. The result was the total loss of the onions, plus storage and destruction costs.
Another example was a booking of several containers of cocoa butter. The booking note provided that they should be stowed away from heat, ie. in the middle of the stow and away from the engines. The special instructions were complied with by the first carrying ship, but were not passed on by the agent to the transshipment port agent and the cargo sustained heat damage on the second ship and was a total loss.
In a third case, two containers of flower bulbs shipped from the Netherlands to South Africa were destroyed because the agent failed to pass on instructions for container vents to be left open.
In a fourth case, a ship agent put the instruction to carry a container of live worms at +4 degrees Centigrade on the reefer manifest, but failed to pass on an instruction to keep the air vents open. When the worms arrived approximately two thirds had suffocated. As the worms were intended for fishing, dead worms were of no use. The value of the dead worms was USD68,000.
$111. Failure to properly clause bills of lading can lead you to difficult situations
Failure to properly clause bills of lading can cause many different problems.
One example of this is a failure to make it clear that cargo is not loaded under deck. Ten containers of expensive electronic equipment were shipped from the USA to Australia. The bills of lading were prepared by the shipper’s agent, and each bill of lading was claused “below deck stowage required”. The bills of lading were then sent to the line’s agent for checking and signature. The line did not guarantee under deck stowage and the agent was instructed to delete the clause “below deck stowage required” before signing the bill of lading. During heavy weather eight containers were lost overboard, one of which belonged to the shipper of the electronic equipment. It subsequently emerged that the agent had failed to delete the clause requiring under deck stowage. The line faced a claim in excess of USD500,000 from cargo insurers which, but for the agent’s error, could have been settled for USD500 under the package limitation provided for in the US Carriage of Goods by Sea Act.
$112. Be careful while drafting pro-forma disbursement accounts
Several disputes arise with ship agents with their principals, owing for not settling disbursement accounts in full because they are different from the pro forma disbursement account originally provided by the agent.
It is therefore suggested to place the following wording on all pro-forma disbursement accounts so that your principal is well aware that the pro-forma document is simply an estimate and is liable to change.
"Please note that this is a pro-forma disbursement account only. It is intended to be an estimate of the actual disbursement account and is for guidance purposes only. Whilst [the Agent] does take every care to ensure that the figures and information contained in the pro-forma disbursement account are as accurate as possible, the actual disbursement account may, and often does, for various reasons beyond our control, vary from the pro-forma disbursement account. You are required and are liable to pay upon demand, the full amount described and shown in the actual disbursement account. This duty exists regardless of any difference between the figures in this pro-forma disbursement account and the actual disbursement account. For the avoidance of doubt, this pro-forma disbursement account is not a contractual document."
$113. Be informed with your latest local and international regulatory demands
There has been a rise in the regulatory burden facing all those in the marine industry. This pattern is likely to continue. Often the practical task of ensuring compliance falls on the ship agent and regulators are increasingly imposing fines on agents as well as their principals.
Under local regulations in Peru it is necessary for a ship’s master to report that the ship is entering Peruvian waters to the port captaincy office. Ship agents routinely report these regulations to the master as well as providing the contact details to which the master must report. On a number of occasions the port captaincy office’s contact details have been changed and local agents subsequently failed to provide arriving ships with the correct details. In these cases both the owners and the local agent have faced fines from the port captaincy for failure to comply with the reporting regulations. The level of fine has ranged between US$ 900 to US$ 14,000.
The most well publicized regulations relating to ship arrivals are the “24-hour” rules applicable to ships arriving in the USA. Liability for non-compliance is strict and punitive.
The most recent example led to a demand for US$ 100,000 against an agent who failed to realize that the U.S. Coast Guard's policy was not to allow consecutive ports of call to be added to an already submitted Notice of Arrival. Regulators are increasingly demanding compliance with the detailed provisions of regulations.
There are however cases when regulations do not give authorities the rights they claim.
Following damage to a quayside ladder by a visiting ship, a UK ship agent received a routine letter from the port authority holding the master and owners of the ship responsible. When the owner failed to pay the invoice, the port authority wrote to the agent insisting that they, as agents, were legally liable to pay the invoice themselves. After further research by lawyers of the relevant Statutory Instrument to which the port authority had referred, and in co-operation with the ship agent, it has been explained to the port authority that they had misinterpreted its provisions. As a result, the port authority re-directed their attention towards the ship owner and the ship agent was left to continue with their business.
The ISPS Code and the Ship Agents
Ship agents are the link between the ship and the port facility. When a ship calls at a port facility for the first time the Master has no way of knowing what pre arrival security information is required, when he needs to send it and to whom it should be sent.
Unfortunately, there does not appear to be a harmonization of pre arrival security information and requirements vary from port to port and country to country so it is not possible for the ship to have a pro forma document which can simply be forwarded to the port agent or to the designated authority at every port called at. It is understood that the IMO intends to introduce a standard Ship Pre-arrival Security Information Form, which is currently in draft, which should eventually simplify the provision of information for all concerned. In the meantime, most port facilities have their own electronic “form” to be filled in by the ship, which contains fields for all the required information.
At the current time, therefore, the master relies on the port agent to notify:
(a) The pre arrival security information required by the port,
(b) Where the information needs to be sent (eg. via the agent or direct to the terminal/port authority, customs, coast guard, etc) and
(c) The time scale in which it needs to be provided (in some countries it is 24 hours before arrival of the ship at the port, in others it is 96 hours).
Failure by the ship to provide this information within the time period allowed can result in fines, detention of the ship and even refusal by the port facility to allow the ship in at all.
Several claims arises against port agents for failing to ensure that the message to the master setting out the port’s requirements got through to him, or failing to pass on the information to the relevant authority. In one case, an agent sent a telex to the master setting out the requirements of the port, but the master allegedly never received the telex. The ship was kept outside the port until the 96 hour notice period had expired. In another case, a bulk carrier was delayed for three days. The port agent had passed on the information to the coast guard, but mistakenly used an old e-mail address, even though he had been notified of the new e-mail. The old e-mail address was no longer functioning, but unfortunately there was no “message failure” report. In a buoyant market, the charterer’s claim for lost hire was US$55,000 per day.
In some jurisdictions, legislation or port statutes have been passed which make the agent jointly and severally liable for fines resulting from breaches of regulations relating to the ISPS Code. In a circular issued by the Maritime and Port Authority of Singapore, it is stated that “the owner, agent and master of a ship which does not comply with the requirements of the …. ISPS Code…. shall be guilty of an offence.. which is punishable upon conviction with a fine not exceeding $10,000”. The Maritime Transportation Security Act (MTSA) 2002 (the American equivalent of the ISPS Code) provides that “the owner, agent, master, operator or person in charge of a vessel … is responsible for compliance”. This allows the US Coast Guard to fine the local agent when a ship fails to send the electronic Notice of Arrival (e-NOA) with full and correct details of crew, passengers and cargo to the National Vessel Movement Center (NVMC) 96 hours prior to the arrival of the ship at a US port. One claim involved a fine of US$32,500 imposed on a US ship agent because the master of a ship, having provided the e-NOA to the NVMC for the call of his ship at one US port, failed to send an e-NOA to the NVMC for the call at a second US port. The ship had already sailed when the fine was imposed, and the fine was therefore issued in the name of the ship agent. The owner is refusing to deal with the fine on the agent as he alleges that the agent was at fault in failing to instruct the master to send a second e-NOA in respect of the call at the second port.
Although most legislation provides that the ship should lodge the information directly, in most countries it is too soon for there to be a “custom of the trade” with regard to whether the ship or the local agent should electronically register the pre-arrival security information with the designated authority. In some countries the ship is instructed by the port agent to send information electronically direct to the designated authority. One reason for this is that, if the information is sent via the agent, there could be delays in passing on information received by the agent outside working hours, and if the information is received, for example, by telex rather than an e-mail in the required format and has to be transcribed, errors could result. In addition, if the information is incorrect or incomplete (or even if the information is in a format which the designated authority cannot open) the agent could be exposed unnecessarily to claims from the ship for delays.
However, in many ports/terminals all information is transmitted via the agent, who then passes it onto the designated authority. The agent sometimes charges an extra fee for this. In such cases, the agent must make it clear that he does not accept responsibility for the accuracy or completeness of the information provided by the ship. The agent’s job is to provide the ship with details of the information required by the port facility, and to pass on the information provided by the ship to the designated authority. It is not the agent’s job to check the information for accuracy and completeness.
Ship agents in the United States should send following disclaimer in relation to the implementation of the e-NOA/D, to their principals when asked to perform the filing on their behalf:-
(Agent) will exercise reasonable skill and care to file the data correctly and within the prescribed filing deadlines. However, it must be noted that (Agent) cannot accept any responsibility or liability for the correctness and accuracy of the information provided by the vessel owner/master/crew /operator. The same is true if the data is not received in a timely manner from the vessel owner/master/crew/operator, resulting from technical problems or human error beyond our control. (Agent) can provide the filing process as a data exchange service only. Any liabilities, whether or not (Agent) was or is claimed to have been negligent or at fault in any way resulting from the filing, rests with the vessel owner/master/operator/crew. Based on the above, vessel owner/operator/master/crew requesting (Agent) to provide this filing do so at their own risk and shall protect, defend, indemnify and hold (Agent) harmless from and against any and all claims arising as a result.
It is the duty of any agent to perform his duties with the degree of skill and care that someone in the same position should possess. If they fail in this duty then they would be responsible for any loss caused. However, some principals attempts to transfer liability contractually to their agents for delays, costs, and losses suffered by the principals due to failures by parties other than the agent in the implementation of the ISPS Code. It is thus as often suggested that the agent rejects any demand from a principal that he sign an agency agreement containing such a provision.
$114. Use of E-mail by Ship Agents - Risk Management
Approximately 90% of all business communications are electronic. Agents (which terms includes ship agents, shipbrokers, ship managers and forwarding agents) will send many important documents by e-mail, including manifests, bills of lading, charter parties, recaps, tenders, pro-formas, NORs, notices to master, demurrage statements and MOAs.
With the greater speed, convenience and informality of e-mail communication comes greater risks of errors. This section of the blog, attempts to highlight the most common areas where mistakes can be made, and what can be done to avoid them.
Incorrectly signing off
Agents must make it clear when communicating with others that they are not contracting on their own behalf, but on behalf of a principal (whether the principal is named or not). It is often seen that, while agents have no difficulty in remembering to sign off other communications “as agents for XYZ Company”, the informal nature of e-mail seems to inhibit agents from signing off properly.
If you do not sign off as “agent only” and the third party has genuine reason to believe they are contracting directly with you (because the principal is undisclosed) you could be held liable for any losses that party incurs as a result of entering into the contract. Ship managers, who order numerous goods and services for ships under their management, and are often more substantial entities than the owners of the ships they manage, are particularly vulnerable.
Companies who are usually careful to draw attention to the existence of their standard trading conditions by means of footnotes on their headed paper, faxes and invoices, do not always take the same precaution when sending e-mails. As more contracts are now completed by e-mail, often situations arise, where it is difficult to prove that the Company’s standard trading conditions were incorporated at the time the contract was made. The incorporation of standard trading conditions can make the difference between enjoying a limit of liability or facing unlimited liability.
Incorporate an automatic sign-off making agency status clear and incorporating standard trading conditions in every e-mail sent, although legally, the fact your terms and conditions are referred to may not in itself actually guarantee their incorporation into the contract.
Non receipt (or alleged non-receipt) of the E-mail
Apart from reliance on unknown ISPs, the internal system at either the sending or receiving end of the message could be down because of maintenance, repair or infection by a virus. This will not always produce a “fail” report.
An example of this occurred when a ship broker was instructed by his principal, the charterer, to confirm re-delivery of a ship to its owner. He sent the NOR to the owner’s broker by e-mail, and requested an automatic “confirmation of receipt”. The owner’s broker received the message from the charterer’s broker but, when he viewed it, it was blank. He assumed that it had been sent by mistake before it was ready. Meanwhile, the system had confirmed receipt to the charterer’s broker, who assumed that the re-delivery notice had been received and accepted. The owner refused to accept re-delivery and a claim was made against the broker concerned.
Another problem occurs when a party denies having received an important e-mail. Unfortunately, there are occasions where the recipient of an e-mail denies its receipt because it is to his advantage to do so.
Send all important messages by both e-mail and fax. Have a crisis management plan in place for when your e-mail system fails and a plan ahead for when you know there will be “down time”.
E-mails to wrong party
It is very easy to make a mistake when addressing a message. In an example case, claim aroused against the broker for a charterer who had invited tenders for a long-term time charter. The broker involved accidentally addressed his principal’s bid to the entire mailing list. The principal’s bid, therefore, became known to the competing owners. The principal did not secure the business and claimed his bid was undercut as a result of its publication round the market.
In another case of misaddressing, the agent for a liner company quoted a “special” rate to a potential customer of the line who would bring a large amount of business. Unfortunately the special rate was mistakenly sent to an existing shipper, who then demanded the same preferential rate in order to keep his business with the liner company.
Check the address very carefully and make sure there are no erroneous “ccs” or “bccs”. Attach an automatic “confidentiality” notice to the foot of all e-mails, stating that the message is only intended for the named recipient and that the unintended recipient is prohibited from using or relying on the information contained in it.
Corruption of texts in the E-mails
E-mails, when received, sometimes look very different from when sent, particularly where figures are concerned. This error has resulted in a large customs fine when the details of a cargo transferred from an e-mail to a bill of lading were found to be incorrect. The number of packages had been shown as the weight. The number of packages was 1,200, the weight was 18,000 kgs and the fine was US$35,000.
Insert a table into the e-mail when dealing with figures.
A shipbroker was negotiating the details of a fixture directly with two principals. The final clause on an offer ended in two separate paragraphs, each of two lines. When the broker forwarded the message, the system ignored the blank line between the paragraphs and forwarded it as a single paragraph of four lines. The recipient counter-offered on the basis that the last paragraph should be deleted. The counter-offer was accepted, but on the understanding that the “last paragraph” only referred to the last two lines.
Use numbered paragraphs.
Late opening of the E-mails
In order to meet a shipment deadline on a feeder service, cargo had to be booked by twelve noon. The agent to the feeder operator, however, went out to lunch without checking his e-mail messages until his return at 2 p.m. The booking had been received in time, but it was too late to make arrangements for the sailing. The deadline for providing details of cargo intended for US ports of 24 hours before it is loaded on the ship imposed by the US Customs in 2002 makes it even more important that e-mail bookings are regularly checked.
An e-mail from a shipper for a cargo covered by a sea waybill was forwarded by the load port agent to the personal e-mail address of the import clerk in the discharge port agent’s office. The shipper had not been paid as promised, and was exercising his right to stop delivery of the cargo. Unfortunately the import clerk had left the office through sudden illness, and by the time she returned to her desk the cargo had been delivered.
Have more than one person monitor all incoming e-mails, either by routing all messages to a central mailbox or by having a system in place where personal e-mail boxes are automatically monitored during planned and unplanned absences. Do not leave personal e-mail boxes on the system for people who are no longer employed. You will be held liable if a deadline is missed.
Re-usage of previous email’s content
It is common, when producing charter parties to use previous clauses or even entire charter parties “with logical amendments”.
However, by using “old” e-mails there is a risk that mistakes can occur.
An example of this occurred when a fixture was made incorporating special terms for the “South bound” journey only. The charterer’s broker used a previous clause which included the special terms for the “North bound” journey as well. When the owner claimed the additional hire, the charterer declined to pay until the terms of the charter party were brought to their attention. A claim was then made against the charterer’s broker.
It is vital to ensure that all databases, templates and other documents or clauses you may wish to re-use are continually updated and checked thoroughly before being sent.
Risk of being accused of Libel
Some of the biggest names in British business have been found guilty of libel as a result of comments made by their staff in internal and external e-mails. Both British Gas and Norwich Union Life Insurance have had to pay substantial damages to competitors because of defamatory remarks made by employees in e-mails.
Companies are vicariously liable for statements made by their employees. Therefore it is important that the employer has an e-mail policy which all the employees are made aware of and abide by.
An exclusion clause stating that the views expressed in the e-mail are those of the individual sender and not the company’s may assist in some cases.
We must all strive to manage e-mail in a responsible and businesslike manner. Most of the problems set out above could have been avoided by putting in fairly simple safety systems.
Above all, despite their informality, it is of the utmost importance to always think of emails as proper business communications.
$115. Ship agents must know that every disbursement is not covered by the Maritime Liens
There is a common misconception among ship agents that all disbursements incurred by a ship owner or a time charterer constitute a maritime lien which is automatically enforceable against the ship that incurred the debt.
A wonderful idea but wrong!
The law relating to maritime liens differs from country to country and more particularly from civil law jurisdictions such as France and Belgium to common law jurisdictions such as England, Gibraltar, Hong Kong and Singapore, in fact any jurisdiction which bases its law on the English model.
In England and other common law jurisdictions, the term maritime lien applies only to seamen’s wages, masters’ wages, masters’ disbursements and salvage. These are traditional maritime liens.
Claims resulting from the supply of necessaries, bunker supplies, port services, towage and even mortgages etc. do not give rise to a maritime lien under English or other common law jurisdictions.
It is commonly thought, that a mortgage constitutes a maritime lien under English law. However, this is not the case, although when it comes to the determination of priorities when a ship is sold by court auction, a mortgage is ranked higher than a ship agent’s disbursement account.
So, what does constitute a maritime lien?
In many civil law jurisdictions the following claims against the owner, demise charterer, manager or operator of the ship shall be secured by a maritime lien on the ship:
a) claims for wages and other sums due to the Master, officers and other members of the ship’s complement in respect of their employment on the ship, including costs of repatriation and social insurance contributions payable on their behalf;
b) Claims in respect of loss of life or personal injury occurring, whether on land or on water, in direct connection with the operation of the ship;
c) Claims for reward for the salvage of the vessel;
d) Claims for port, canal and other waterway dues and pilotage dues
It is of course this last item that ship agents are most concerned with.
It should be noted that shipbrokers’ commission does not constitute a maritime lien.
The maritime liens as described above take priority over registered mortgages and charges.
The importance of maritime liens is that they follow the ship, notwithstanding any change of ownership or flag, unless the ship has been sold by court auction.
Maritime liens are usually extinguished after a period of one year (In France the maritime lien is extinguished after six months) unless, prior to the expiry of such period, the ship has been arrested or seized and such arrest or seizure leads to a forced sale.
The one year period commences when the claims secured thereby arise.
Some countries will enforce the maritime liens of another country even though the debts do not constitute a maritime lien in the country of arrest while other countries will use their own maritime lien criteria. Whether or not a maritime lien can be enforced against a ship which has been sold will depend largely upon which ports the ship calls at.
Once a maritime lien has been established it will take priority over registered mortgages and charges. Maritime liens usually rank in the order previously listed, provided, however, that maritime liens securing claims for reward for the salvage of the ship take priority over all other maritime liens.
The important thing to remember is the fact that maritime liens are usually extinguished after one year and any delay in forwarding a claim to the Local courts, could well mean that an arrest of the ship concerned would not be possible.
$116. The tricky affair of appointment as sub-agent
This section will endeavor to examine the English law approach to the problems which arise when an agent or broker appoints a sub-agent or sub-broker.
Where is the Problem
Looking from the Sub-Agent's point of view sometimes they will want to prove that they were in fact the agent of the principal, for example where the Agent has gone into liquidation and the Sub-Agent is owed money arising out of activities performed in connection with the Principal's vessel. Demonstrating that the Sub-Agent was in fact in a direct contractual relationship with the Principal may entitle the Sub-Agent to arrest the Principal's vessel or at least make a claim against the Principal who remains solvent.
In other cases the Sub-Agent will face a situation where the Principal has gone into liquidation and they will be keen to show that the contractual position was that the Sub-Agent's principal was in fact the Agent and the Agent is therefore responsible for paying the Sub-Agent whether or not the Agent has received funds from the Principal.
English Law Approach to the Problem
Under English law the courts will wish to establish the true contractual position. The key to doing that is to identify in what capacity the Agent made the appointment of the Sub-Agent. Did the Agent make the appointment acting as agent for the Principal and with the Principal's authority, effectively thereby appointing the Sub-Agent as a co-agent, or did the Agent act in its own right as a principal?
To examine whether a party acted as a principal or agent, whether in the context of making an appointment, or in any other context, is a process which has vexed the courts for many years. As a result, the courts have adopted an approach of examining the facts of each case and applying some tests or criteria to see whether on balance the party concerned acted as an agent or principal when carrying out the relevant activity or function.
The English law approach was summarized by Judge Bean in the delightfully named case Hair and Skin Trading Co Limited –v- Norman Air Freight Carriers and World Transport Agencies Limited  when he said:
"….. when a Judge has to decided whether a party is acting as a principal or agent, it is very much a matter of impression, what impression the evidence forms."
This approach was endorsed in the case of Tetroc –v- Cross-Con  and in Granville Oils and Chemicals Limited –v- Davies Turner and Co Limited .
It is a feature of cases where a court has to enquire as to the capacity in which a person or company undertook activities that the court will examine in detail the communications which passed between the parties and often witnesses of fact will be required to give evidence to the court as to what they said in telephone calls which may have occurred months or even years before the trial date.
It is for this reason that it is recommend that at the outset of a contractual relationship a great deal of time and trouble can be saved if communications are put in writing and care is taken over the exact wording used.
Some General Propositions
In deciding whether a party acted as an agent when making an appointment of a sub-agent or whether the party acted as a principal, the court will have regard to the general rule of law that an agent may not delegate his authority to another person or appoint a sub-agent to do some of the tasks entrusted to him by his principal without either express authority to do so from the principal or implied authority from the principal to do so.
i) Express Authority
If, at the outset of the relationship between the Principal and the Agent, the Agent knows that it will have to appoint a sub-agent (for instance in those ports where it does not have its own office) thought should be given to recording in an exchange of communications how work for the Principal will be dealt with in those ports and whether a company or individual appointed in that port is being appointed as sub-agent to the Agent or as the Principal's agent in that port, albeit that the communication of the appointment and the routing of communications thereafter may be dealt with via the Agent. Such an exchange of communications would be evidence of express authority from the Principal to appoint the Sub-Agent.
ii) Implied Authority
Implied authority to appoint a sub-agent may arise where:
a) the principal knew at the time of the agent's appointment that the latter intended to appoint a sub-agent and raised no objection to this;
b) where delegation of authority or the employment of a sub-agent is the normal practice in the trade in question and is not inconsistent with the express terms of the agency agreement;
c) where, from the circumstances of the case and from the conduct of the parties to the original contract of agency, it may reasonably be presumed that the parties intended that the agent was to have power to delegate his authority;
d) where the act to be done by the sub-agent does not involve the exercise of any discretion but is purely ministerial;
e) where, in the course of the agency, unforeseen circumstances arise which make it necessary for a sub-agent to be appointed.
It will be readily apparent that, for the Agent to establish that he had implied authority in a circumstance where perhaps the Principal is denying that implied authority, a very careful examination of the facts and state of knowledge of each of the parties will have to be undertaken by the court and this will necessarily involve conflicts of evidence and witnesses having to recall detailed events which may have occurred months or years earlier. Again any documentary evidence created at the time will be of the utmost importance in this situation.
Appointment of Sub-Agent without Authority from the Principal
If it is established that an agent appointed a sub-agent without authority from his principal to do so, the following consequences may arise: -
i) The Agent would be liable to the Principal for breach of his duty not to delegate and may also be responsible to the Principal for the acts or omissions of the Sub-Agent.
ii) No contractual relationship will arise between the Principal and the Sub-Agent unless the Principal ratifies the appointment or it can be implied that the Principal has ratified it.
Appointment with Authority
Where the Sub-Agent has been appointed with the Principal's authority or the Principal subsequently ratifies the appointment of the Sub-Agent, normally the acts of the Sub-Agent will bind the Principal and the court may well find that the Sub-Agent is in a direct contractual relationship with the Principal provided that there is clear evidence that the Agent appointed the Sub-Agent whilst acting as agent for the Principal.
This brings us back to the question of examining whether when the appointment was made, the Agent acted as an agent or as a principal in his own right.
The Five Tests
In considering whether a party acted as agent or principal in carrying out any particular function the courts have developed five criteria which assist the court in forming an impression as to whether a party is acting as a principal or agent.
The five criteria are as follows:
i) The terms of the particular contract including the nature of the instructions given.
ii) Any description used or adopted by the parties in relation to the contracting party's role.
iii) The course of any dealings, including the manner of performance – at least so far as it throws light on the way in which the parties understood their relationship.
iv) The nature and basis of any charging (in particular whether an all in fee was charged, leaving the contracting party to make such profit as he could from the margin between it and the costs incurred).
v) The nature and terms of any [CMR note] [shipping document] issued.
Looking at other definitions of these criteria briefly in turn:
The ICS conditions (2002) contain a more positive statement as follows:
"The Company, with the consent of the Principal, shall have authority to appoint sub-agents to perform services on behalf of the Principal, including such services as may be subject to these conditions, remaining at all times responsible for the actions of the sub-agent."
Furthermore the same ICS conditions provide that in relation to the Company's transactions with the Supplier the following condition applies:
"Unless otherwise stated in writing, when the Company is acting as a port agent or liner agent or booking agent it acts at all times as agent for and on behalf of the Principal and has authority to enter into contracts with the Supplier as agent for the Principal. The company shall not be personally liable to pay any debt or expense to the Supplier from the Principal."
If the Agent can demonstrate incorporation of the ICS conditions in the relationship with the Principal these clauses will assist the court in deciding whether when appointing the Sub-Agent, the Agent was acting as a principal in his own right or as the ICS conditions suggest, was at all times acting as agent for the Principal.
The FONASBA Standard Liner and General Agency Agreement (approved by BIMCO 2002) permits (in consultation with the Principal) the agent to appoint on the Principal's behalf and account Sub-Agents. (FONASBA stands for, The Federation of National Associations of Shipbrokers and Agents)
It can immediately be seen that if the Agent takes steps to incorporate and draw the Principal's attention to these institutional conditions, the court will subsequently be assisted in considering whether the appointment of the Sub-Agent was done on behalf of the Principal or on the Agent's own behalf.
In addition to the effect of the institutional clauses referred to above, communications between the parties at the time the appointment was made may be crucial and the parties should therefore consider at that time exactly in what capacity any appointment is being made and should express this clearly in their communications.
"Any Description Used or Adopted by the Parties in Relation to Contracting Party's Role"
Although use of the terms "Principal" or "Agent" may be helpful in giving an overall impression of what the parties intended, it is by no means determinative. Simply signing everything "as agent only" will not guarantee that the agent will be regarded as an agent, and on many occasions the courts have concluded that, notwithstanding the agent using such a term, it was in fact acting as a principal.
"The Course of Any Dealings, Including the Manner of Performance – At Least so far as it Throws Light on the Way in Which the Parties Understood Their Relationship"
This will involve the court considering how functions were carried out by the parties in question and whether an inference can be drawn as to whether the Sub-Agent was acting for the Agent in carrying out its functions or whether in fact it was acting for the Principal. The degree of direct communication between the Sub-Agent and Principal will be important under this category indeed the knowledge of the identity of the Principal by the Sub-Agent will be an important consideration.
"The Nature and Basis of Any Charging (In Particular Whether an “All in” Fee was Charged, Leaving the Contracting Party to Make Such Profit as he could from the Margin between it and the Costs Incurred)"
Again the invoicing route can often be a very important factor in the court's mind. If the Sub-Agent invoices the Agent and the Agent then invoices a global sum to the Principal, a global sum building into it a profit margin between the invoice it has received from the Sub-Agent and the cost it is charging to the Principal, this will tend to suggest that there was no direct relationship between the Sub-Agent and the Principal.
This may be counter balanced by express agreement between the parties, for instance where the Principal has indicated that rather than receiving invoices from various Sub-Agents it would prefer to receive a single invoice from the main Agent or by the sorts of clauses referred to in the FONASBA agency agreement.
Nonetheless the invoicing route is something which agents should consider carefully when making an appointment of a sub-agent.
When acting as the Agent one should consider at the outset of the relationship with the Principal whether any of the functions being performed by the Agent will have to be delegated to a third party, for instance in a port where one does not have one’s own office. If this is likely to be necessary, the Agent should consider whether it would be prepared to make this appointment on the basis that the Sub-Agent so appointed enters into a direct contractual relationship with the Principal or not. If the Agent appoints the Sub-Agent as a principal, then the Agent will be liable to pay the Sub-Agent's remuneration (regardless of whether it has itself received payment from the Principal) and the Agent will also be liable to the Principal for the acts and/or omissions of the Sub-Agent. The Agent will want to charge a global fee and will be free to decide the profit margin within commercial limits. If this is the desired arrangement the Agent should consider excluding the Contract (Rights of Third Parties) Act 1999 by an appropriate clause.
The alternative is for the Agent to record clearly in writing with the Principal and with the Sub-Agent that, in making the appointment, the Agent is acting as agent so that the Sub-Agent will only be entitled to be paid by the Agent once the Agent has received payment from the Principal and, in the event of the Principal's default, the Sub-Agent will have no claim against the Agent. Furthermore this should also mean that the Agent will not be liable for the Sub-Agent's acts or omissions as the Sub-Agent will be carrying out its activities on behalf of the Principal. In reality the term Co-Agent is more appropriate in this scenario than the term "Sub-Agent". It is this type of result that the FONASBA standard agreement seeks to achieve. In this scenario it is more likely that there will be transparency regarding the Sub-Agent's charges and less scope for the Agent to make a profit margin on them.
If these matters are considered at the outset appropriate evidence can be put in place in the form of a bespoke agreement or by reference to institutional clauses so that subsequent disputes can be dealt with relatively quickly and easily and the parties may avoid prolonged litigation or the detailed enquiries which the courts make in these situations.
$117. Do not ignore even such claims, where you as ship agent are not even remotely liable to pay for.
Ship agents and ship managers are regularly sued in addition to, or even instead of, the shipowner. There are a number of reasons for this.
In some countries, agents have joint and several liability with their principals, either in accordance with the law of their country or by port authority enactment, for liabilities which would normally only attach to the principal. These include cargo claims, customs penalties, dock damage and wreck removal. In other cases the agent may have been careless in the way he has contracted and failed to make his agency status clear (like, improper “Signing off” and unclear declaration of his status in the contract)
There are, however, cases when agents are joined into proceedings where they do not have joint and several liability and where there is no basis in law for a claim against them. ITIC call such claims “misdirected arrows“ and spends considerable sums defending them, especially in countries where the legal costs cannot be recovered from the party making the claim. These costs can run into hundreds of thousands of dollars.
Although suing a party who is clearly not liable appears to be a waste of the claimant’s time and money there is often a hidden agenda. Sometimes agents are joined into claims as a means of establishing jurisdiction in the claimant’s own country. For example it is fairly routine for cargo claimants in India to commence legal proceedings in the Indian courts against both the ocean carrier and his local agent. Even though the bill of lading may provide for claims to be dealt with in a Far Eastern jurisdiction, the shippers bypass the jurisdiction clause by suing a local entity. Indian law provides that agents for disclosed principals have no personal liability if that principal fails to fulfill his liabilities. However, the fact that the local entity is not liable is not a deterrent, as costs awarded by the Indian courts for such misdirected actions are minimal. Sometimes the claimant and his lawyer genuinely believe there is a valid claim against the agent. In one case a consignment of hand made carpets lay unclaimed by the receivers in Rotterdam and were eventually sold by the port. The shipper of the carpets was convinced that the ship agent in Mumbai was to blame for their loss. This took twelve years to resolve.
When a Ship agent is sued in addition to his principal, it is extremely important that a proper defense is filed for the agent, using all the arguments available. The law of agency of most countries provides that an agent is entitled to be indemnified by his principal for losses, costs and so forth properly incurred in the performance of his agency duties. It is, therefore, normal practice for the principal’s P & I Club to appoint a lawyer to defend both the ocean carrier and his agent. This appears to be the right solution. The agent should not have been sued and so the principal should meet the costs for the defense. There are, however, potential dangers for ship agents who simply pass the claim to the ship owner’s P & I Club’s local correspondents and forget about it. It is imperative that the conduct of the claim be monitored closely. The reasons are best illustrated by the following two cases:
An agent in a South American country had no liability under his country’s laws for a claim for cargo loss, but was nevertheless sued by the cargo owners in addition to his principal, a shipping line for whom he had been the agent for 60 years. The agent relied on the lawyers appointed by the ship owner’s P & I Club to defend his interests. The incident occurred in 1991, but it was not until February 2000 that the court of first instance found both agent and principal not liable for the cargo damage. In the meantime, the shipping line had sold its ships and its business to another well known carrier. The P & I Club’s local lawyer continued to deal with the matter until the end of 2000, when the appeal court found for the cargo owner and awarded a claim amount and costs totaling US$200,000. Only at this stage did the principal’s P & I Club inform the agent that they would not be paying the claim or the costs which related to it. All P & I policies have a provision known as the “pay to be paid“ Rule, which means that the shipowner must first pay the claim before the Club is liable for reimbursement. In this case the shipowner had ceased trading and could not do so. The cargo claimants seized funds in the agent’s bank accounts to enforce the award. It was ascertained that the P&I Club’s local lawyer had failed to enter the defense that the agent was not liable by reason of his agency status and it was by then too late for such a defense to be entered.
The second case involved an Indian agent, where both the agent and the foreign shipowner were sued. Legal proceedings in India take not years but decades to complete. As is often the case, by the time the claim had passed through the courts, the shipowner had ceased trading. As no security had been provided, a decision was made by the P & I Club to cease defending the claim. The local P & I correspondent withdrew his lawyer, but no-one informed the ship agent, as a result of which a default judgement for the cargo claim was entered against the ship agent, even though he was not legally liable.
Both these cases illustrate the need for agents to pay attention to all claims made against them, even though their principal’s P&I Club appears to have taken over the handling of the matter. This is particularly important in jurisdictions where court cases take years to be finalized. It is not sufficient for the agent to sit back and allow someone else to conduct his defense.
For such type of unforeseen eventuality it is prudent to take insurance cover from the insurers of Transport intermediaries like ITIC. Then the ship agent must report any claim in which he has been named as a defendant to ITIC. The Club will not necessarily appoint a separate lawyer to defend the agent, but it will monitor the defense provided by the principal’s lawyer to see that all defenses available to the agent have been used. If appropriate the Club will try and obtain a Letter of Indemnity from the principal’s P & I Club to avoid the situation where, ten years later, the principal’s insurers will be able to simply walk away from the claim.
$118. Ship agents must be very clear of the peculiarities of Bill of Lading!
If you as ship agent are engaged in freight forwarding, then you must be aware of the current trend of the trade and must be careful in your daily dealings in the matter related to the Cargo for your Principals.
Guidelines for the Release of Cargo under straight bills of lading
Here we shall endeavor to provide the answers to questions concerning the right of carriers (or their agents) to release cargo without taking in exchange a non-negotiable or “straight” bill of lading.
It should be noted foremost that releasing cargoes to named consignees under “straight” bills of lading without first obtaining the original bill of lading is an extremely dangerous practice and that agents should never do so without the principal’s written instructions.
A recent claim has highlighted this point and the dilemma facing any agent. Even though his local law (or “custom of the trade” in his port) may allow release of the cargo covered by a “straight” bill of lading to the named consignee without first collecting the original bill of lading, it is not likely to be the local consignee (who, after all, has taken possession of the cargo) who has a claim against the carrier. It is more likely to be the shipper in the far away load port who will be the loser. The law or the “custom of the trade” at the discharge port is therefore likely to be irrelevant.
In 2002, a container of T-shirts was carried by a Japanese shipping line from Yantian Port, China to Haifa, Israel. The carrier had, at the request of the shipper, issued a straight bill of lading. The named consignee in Israel was unable to produce the original bill of lading, but did produce evidence that he had paid US$7,200, the invoice value of the cargo, to a bank in China. He also produced the shipper’s invoice for US$7,200 and offered a letter of indemnity in that amount. The Israeli agent, as it was “custom of the trade” at that time in Israel to release to named consignees without taking the original straight bill of lading in exchange, accordingly released the cargo against the consignee’s personal letter of indemnity for the invoice value of US$ 7,200. The agent did not obtain authority from his principal, the Japanese shipping line, to release in this way.
Several months later, the Chinese shipper of the T-shirts approached the Japanese shipping line to find out where his cargo was. The shipper still had all three original bills of lading in his possession. The carrier informed the shipper that the cargo had been delivered to the named consignee without collecting the original straight bill of lading, in accordance with custom of the trade in Israel and in accordance with Chinese law. Up to that time, there had been various decisions of the Chinese courts that straight bills of lading were not documents of title and that the responsibility of the carrier under the contract of carriage to deliver the cargo should be regarded as accomplished once the cargo had been delivered to the named consignee.
Although, the bill of lading was subject to Japanese law, the shipper lodged a claim for US$ 23,000 (which he alleged was the true invoice value of the cargo) at the Guangzhou Maritime Court. This court followed previous decisions and adjudged that the carrier had properly fulfilled his obligations under the contract of carriage by delivering to the named consignee. The shipper appealed to the Guangdong Higher People’s Court, which reversed this decision, and found the carrier liable to pay the consignee US$ 23,000 plus interest and costs. Although, the Israeli consignee had paid US$ 7,200 to someone in China, there was no evidence that this amount had been paid to the shipper, nor did the court deem that it represented the full value of the cargo. The carrier then claimed reimbursement of US$ 59,000 from his agent in Israel, which represented the shipper’s claim plus interest and costs, and the carrier’s own legal costs.
This case is interesting in that it highlights the dangers for agents of looking only to their own law or custom when releasing cargo (or indeed in taking any other action which might affect the ocean carrier). The agent made two further mistakes. The first was to release the cargo without first obtaining his principal’s written authority. The second was to accept a letter of indemnity which was not in the principal’s recommended wording and was for an inadequate amount. Even if the invoice value had been US$ 7,200, as claimed by the consignee, rather than the US$ 23,000 claimed by the shipper, the amount of the letter of indemnity was insufficient to cover legal and other costs.The laws of three countries governed the release of the container of T-shirts.
There is no law in Israel that allows the release of cargo covered by straight bills of lading without taking in exchange the original bill of lading. At the time of this incident, it was “custom of the trade”, BUT following the decision of the English House of Lords on the “RAFAELA S”, Israeli courts no longer recognize this custom.
Chinese courts have, in the past, taken the view that, under the provisions of Article 79 (I) of the Chinese Maritime Code, a straight bill of lading is not a document of title. Therefore, unless the shipper has instructed otherwise prior to the delivery of the cargo, the carrier fulfils his responsibilities under the contact of carriage once he has delivered to the named consignee and it is not necessary to take in exchange the original bill of lading. This has been reflected in decisions taken by Chinese courts over a number of years. However, it is understood that senior judges representing the Chinese Supreme Court and maritime and higher courts (such as appeal courts) at the Thirteenth National Seminar on Maritime Adjudication, which took place in Quingdao in September 2004, came to the conclusion that, where the Maritime Code of People’s Republic of China is applicable, delivery of cargo covered by straight bills of lading should only be against surrender of original bills of lading. This is reflected in the decision of the Guangdong Higher People’s Court mentioned above.
The third law involved in this matter is Japanese Law. Although the Guangzhou Maritime Court seized itself of this matter, the shipper could equally have sued in Japan as the bill of lading provided for Japanese law. Article 573 of the Japanese Commercial Code states that, even in cases where a bill of lading has been made out in the name of a specified person, it can be transferred by endorsement, unless the bill of lading itself contains a provision forbidding endorsement. Therefore, and unlike other jurisdictions, a straight bill of lading is not necessarily non negotiable under Japanese law. The cargo must therefore be delivered against the production of a straight bill of lading, unless it is clearly stamped “non negotiable” on its face.
It can be seen from the above that delivery against straight bills of lading, whether stamped “non negotiable” or not, is a minefield. It is, however, the carrier’s minefield and ship agents should keep out of danger by not taking such decisions themselves but by asking for the principal’s instructions and authority (in writing).
Always carefully read Bill of Lading
ABC Agency Co was the agents in China for an NVOC (non ship owning carriers) based in Washington State, USA which operated a service between the USA and various Asian ports. The NVOC ceased trading through insolvency, and containers carried under their bills of lading remained stranded in various Asian ports. ABC Agency Co contacted the cargo interests involved with all the containers booked through them and offered to arrange for the containers to be forwarded to their final destination. Unfortunately the cargo interests had to pay additional freight even though they had already paid full freight to the NVOC. The cargo interests were fortunate that ABC Agency Co was professional enough to make sure their cargo reached its destination – in similar circumstances cargo has ended up being sold by ports and terminals to cover costs.
Imagine the agent’s surprise when, several months after the safe delivery of the containers, both they and an affiliated company in the USA were in receipt of a court summons from cargo interests in the US claiming a return of the additional freight paid and other damages resulting from delay in delivering the cargo. The basis of the claim by the US cargo interests on a company which was obviously acting as an agent was a clause on the reverse of the NVOC bill of lading. This clause stated:
Every servant or agent or subcontractor of the Carrier shall be entitled to the same rights, exemptions from liability, defenses and immunities to which the Carrier is entitled. For these purposes Carrier shall be deemed to be acting as agent or trustee for such servants or agents or sub-contractors, who shall be deemed to be parties to the contract evidenced by the bill of lading.
A clause similar to this is incorporated in most bills of lading. It is commonly known as the “Himalaya“clause and is meant to confer on the carrier’s subcontractors and agents (who are not parties to the bill of lading contract) the same defenses and limitations which the carrier enjoys under the bill of lading. The normal wording of a “Himalaya “clause does not include the final sentence of the boxed clause. This clause has the effect of making the agent jointly and severally liable with the carrier for the carrier’s liabilities.
It was felt by the US lawyers that, whilst there were defenses to the claim, the local courts, which were not maritime courts, were likely to interpret the clause at face value and find for the cargo interests. The claim was therefore settled. ABC Agency Co. had never read the reverse of the NVOC bill of lading, and did not realize that it contained this very unusual and damaging addition to the Himalaya clause.
So always read the bills of lading you sign!
Problem with the NVOC Bills of Lading
Some operate as non ship owning carriers and here examines some of the pitfalls that can be encountered when issuing NVOC Bills of Lading.
You have paid the loss – can you recover from the actual carrier?
NVOCs need to pay careful attention when completing the “shipper” box on ocean bills of lading, or they risk not being able to recover loss or damage claims against a carrier. Putting the matter right can be a painful and time and cost consuming exercise.
Freight forwarders often issue their own negotiable bill of lading to clients with the name of the actual shipper and consignee completed. In exchange, the forwarder gets the ocean carrier’s bill of lading. Sometimes in the space for the name of the shipper, the forwarder’s name is inserted with the addition of “on behalf of the shipper”.
Problems can occur when there is a cargo loss or damage claim that is the fault of the ocean carrier. If the negotiable bill of lading is clean and the loss or damage occurred before delivery, the forwarder is often obliged to pay the cargo interests. But, when the forwarder turns to the carrier for redress, the carrier may challenge the forwarder’s title to sue because of the phrasing of the bill of lading. The carrier may rely on the argument that the forwarder was merely acting as the shipper’s agent and that the ocean carrier contracted directly with the shipper, not the forwarder. Although the forwarder may argue that he contracted directly with the carrier on the grounds that the forwarder’s NVOC bill of lading was issued to the actual shipper and that he received lump sum freight and not commission from the shipper, the carrier may contend that it is only the ocean bill of lading that matters.
In order to avoid confusion and unnecessary risk, the freight forwarder should avoid using the notation “on behalf of” the actual shipper on the ocean bill of lading but enter only his own name in the box for shipper. For example a forwarder in the Far East issued a negotiable bill of lading to the shipper for a consignment of 6,600 cartons of canned mushrooms from Hong Kong to Seattle. On arrival, the consignee’s surveyor discovered salt-water damage and a claim for US$38,000 was presented. The forwarder was clearly liable under his negotiable bill of lading and reached an amicable settlement with the consignee. The ocean bill of lading read ‘freight forwarder o/b shipper’ and when the forwarder tried to recover from the ocean carrier, the carrier claimed that he had contracted directly with the shipper and the forwarder merely acted as the shipper’s agent. The forwarder’s settlement with the consignee had nothing to do with him, the carrier argued. The forwarder’s case was that he was acting as a principal since he issued his own negotiable bill of lading to the shipper, from whom he received a lump sum freight and that he had no authority from the shipper to act as agent.
The straight bill of lading in the US trade NVOCs and shippers, who are not familiar with the US trade, may fail to realize the particular implications of the issuance of a ‘straight’ or non negotiable bill of lading. In most jurisdictions, the shipper under a straight bill of lading has exactly the same rights over the cargo as under a negotiable document. The consignee is usually obliged to present the original bill of lading to the carrier (or the carrier’s agent) at destination before he can collect the cargo. If the consignee does not pay, the shipper still has the bills of lading and, effectively, controls delivery. In the USA, however, by statute (the Pomerene Act) the straight bill affords the seller no such protection. If a bill of lading is made out to a named consignee, all he has to do is to prove his identity in order to receive the goods.
The carrier has no legal right to withhold cargo and a consignee named in a straight bill can take legal action to enforce delivery, even though he is not in possession of the original bill of lading.
There is quite clearly a problem for shippers and NVOCs in other parts of the world, who may not realize the particular implications of issuing a straight bill of lading to a consignee in the USA. In order to avoid problems, NVOCs trading to the USA should issue ‘to order’ bills of lading wherever possible. NVOCs should explain to customers who ask for straight bills of lading that there is no guarantee that the cargo will be held against presentation of the original bill of lading, and recommend the issue of negotiable bills, which do afford protection, instead. After all, a negotiable bill does not have to be negotiated through a bank; it only has to be endorsed by the shipper.
NVOCs and their agents should also be careful of accepting ‘Express’ bills of lading from ocean carriers when they have issued their own negotiable documents. It is standard practice in the USA for carriers to release goods under express bills to the company that cleared the goods through customs and paid any charges due. There have been several instances of companies using this loophole to obtain cargo without going through the tiresome process of paying for it. A further precaution is for NVOCs to use negotiable ocean carriers’ bills wherever possible, with their US partner as ‘notify’ party, to provide additional security, particularly for FCL business.
A number of US Federal Circuit courts have held that in order for the carrier to be able to rely on the US COGSA package limitation of US$500, the bill of lading must give the shipper a ‘fair opportunity’ to declare a higher value so as to avoid the limitation. In order to give a ‘fair opportunity’ the bill of lading conditions must state the US COGSA package limitation and make it clear that a higher value may be declared by a statement of the value on the face of the bill of lading. Some US Federal Circuits, such as the Second Circuit, go further and require that there must be an excess value declaration box on the face of the bill of lading to enable value to be inserted.
Conversely the Ninth Circuit Court of Appeal in Mori Seiki USA Inv. v ALLIGATOR TRIUMPH (1993) held that in so far as that circuit was concerned it was not required that an excess value declaration box be pre-printed on the face of the bill of lading.
Although this is a decision to be welcomed by NVOCs, delight should be restrained by the realization that many other circuits maintain the view that an excess value declaration box is required. Therefore, NVOCs should have an ‘ad valorem’ box printed on the face of bills of lading used for carriage to or from the USA, otherwise they could find that the amount that they have to pay out for a loss or damage claim, is vastly different from the amount they can recover from the ocean carrier.
Remember that it’s your properly inserted Standard Trading Conditions and not just “Himalaya Clause”, which at the end will limit your liabilities
Ship agents, like other professionals in the transport industry, need to limit their liability to an amount which is commensurate with their remuneration.
Carriers by sea, air and land set out their contractual obligations and limitations in either bills of lading, or airway bills, CMR notes or standard trading conditions.
One of the most important developments in connection with the question of an agent’s liability has been the general acceptance in a number of countries of the effect of the so-called “Himalaya clause” in a bill of lading.
The clause originates from a decision of the English House of Lords in the case of The Himalaya (a Passenger liner of P&O Lines),where a passenger on the P&O liner sued the master in connection with an injury sustained while on board the ship. The passenger ticket contained a clause which protected the carrier from any action brought against the master. The House of Lords decided that, although the carrier was entitled to provide not only for himself but also for those engaged to carry out the contract, he had not done so. Since the ship’s servants or agents were not covered by the immunities on the ticket, the master was found liable in tort for the passenger’s injuries.
Following this decision, ocean carriers included a Himalaya clause in their bills of lading. The text of a typical Himalaya clause is as follows, although it is more likely to be found under the heading “sub-contractors” or “exemptions and immunities of servants, agents, etc.”
“No servant or agent (which expression shall include an independent contractor) acting solely on behalf of the carrier shall be under any personal liability whatsoever for any loss, damage or delay whatsoever, whensoever and howsoever caused. Without prejudice to the generality of the foregoing, every term and exception herein upon which the carrier is or would be entitled to rely shall extend to protect every such servant or agent. For the purposes of this clause the carrier shall be deemed to be acting as agent on behalf of and trustee for the benefit of all persons who are or may be his servants or agents from time to time which persons shall to this extent be deemed parties hereto.”
If this clause is included in the bill of lading an agent can avoid liabilities for loss and/or damage to cargo in his possession provided the act which gave rise to the loss occurs during the contract of carriage and the bill of lading contains a Himalaya clause.
These two requirements are found in the English High Court decision Raymond Burke Motors Limited v. The Mersey Docks and Harbour Co. (1986) . A container of motorcycles was stored in a container park, away from the quayside at Liverpool, awaiting the arrival of the carrying vessel, where a truck operated by an employee of the Mersey Docks & Harbour Co. struck and damaged it. The question which the court had to decide was whether the dock company could take advantage of the Himalaya clause in a bill of lading which had not been issued at the time of the damage. What was relevant was not whether a bill of lading had been issued, but whether the contract of carriage had already come into existence at the time the container was damaged. The court decided that the contract of carriage had not yet come into existence and therefore the defendants were not entitled to take advantage of the exception clause in the bill of lading. The court considered, on the information available, that a through bill of lading would not have been issued and that the contract of carriage would only commence once steps were taken to load the container onto the ship. This was deemed to be when a straddle carrier was dispatched for the purpose of picking up the container.
Therefore, when a ship agent performs a duty on behalf of the carrier (whether shipowner, charterer or liner company) and in the performance of those duties causes damage or loss to the cargo owner, he would normally (although not in all cases) be entitled to the defenses provided by the Himalaya clause in his principal’s bill of lading.
The clause does not, of course, protect the carrier from claims by his customer or protect the agent from any claim by his principal for reimbursement. Why, if he has the protection of the carrier’s bill of lading, does a ship agent need his own standard trading conditions? The answer is that there will always be circumstances where the carrier’s bill of lading terms do not apply, which could leave the ship agent liable for the full value of any loss, unless he has the protection of his own standard trading conditions. For example, if the ship agent provides services to the cargo owner, such as collecting cargo from or delivering it to the merchant's premises or arranging customs clearance or consolidation of groupage cargoes, he is no longer representing the carrier. Instead he is providing a service to the cargo interests, either as an agent or as a principal. It is, therefore, recommended that ship agents have their own standard trading conditions.
The Association of Rotterdam Shipbrokers and Agents have had their own standard trading conditions for many years, as have the Danish Shipbrokers’ Association. Ship agent members of the Institute of Chartered Shipbrokers are also entitled to use their own standard trading conditions. It is not enough for the agent to have standard trading conditions; they must be notified to the customer before the contract is formed, otherwise they are not incorporated into the contract. Under the laws of many countries, it is sufficient to add a footnote to the bottom of booking forms, headed notepaper, faxes, telexes and invoices to the effect that “all business is transacted subject to the standard trading conditions of ......., a copy of which can be obtained on application.”
Another method of notifying customers is to print standard trading conditions on the reverse of documents and company notepaper. In some countries, however, this method of notifying customers is not sufficient and they would not be deemed to have been incorporated into the contract unless the clients had both received a copy of the conditions, and signed and returned them to the company wishing to rely on them.
It is important that the standard trading conditions are notified to the customer before the contract is finalized.
If a guest registers at anhotel and there is a notice on the reception desk (where the guest can read it before he signs the register) to the effect that the hotel will not be responsible for the loss of the guest’s personal items from his hotel room, then this provision is incorporated into the guest’s contract with the hotel. If, however, the hotel has the same notice up in the guest’s room (rather than at the reception desk) then it is simply too late to change the terms of the contract which was formed at the reception desk. It is therefore not sufficient to place a footnote notifying the existence of standard trading conditions on the invoice, which does not reach the customer until after the contract has been performed. It is important that the footnote be placed on booking notes, telexes and other communications sent to the customer when the contract is formed. It is also advisable to send copies of standard trading conditions periodically to customers so that, if the agent has to limit or reject liability on the basis of the standard conditions, the customer does not receive an unwelcome shock.
“Standard trading conditions must be notified to the customer before the contract is formed”
Ship Agents must consider getting away with their Rubber Stamps
It is time for ship agents to examine the rubber stamps they use when signing bills of lading and consider destroying some of them. Ship agents are sometimes sued in addition to (or instead of) their principal, the contracting carrier, for loss or damage to cargo.
The reasons for this vary. They include plain ignorance of the law by the cargo interests and an unhelpful local statute which makes the ship agent jointly and severally liable with the carrier.
A third reason is preventable. Agents sometimes put their own head in the noose by using a rubber stamp which either does not identify or mention the principal, or is set out in such a way that it is not clear which company (agent or principal) is the contracting carrier.
An example was:
UNLUCKY & CO
This rubber stamp was placed on a blank liner bill of lading, which contained no reference to the carrier. Unlucky & Co were the agents to the shipowner, and should have signed the bill of lading on behalf of the shipowner (or the master). Instead John Smith, on behalf of Unlucky & Co, has signed the bill of lading in a way that can be interpreted to imply that John Smith is the agent for Unlucky & Co and Unlucky & Co are the contracting carrier. Unlucky & Co, an Indian ship agent have been the subject of legal action in France since 1997 for damage to industrial plant and machinery shipped from Mumbai to Thailand. They were involved for no other reason than the rubber stamp they used. In another case, an agent in Singapore signed an NVOC bill of lading which had already been printed with the name of the NVOC, so there should not have been a problem in establishing the identity of the contracting carrier.
However, the agent managed to place his rubber stamp in exactly the right position to give the impression that the NVOC was the agent and the agent was the carrier, in the following fashion:
UNTRUSTWORTHY NVOCC CO LTD
AS AGENT FOR CARRIER
UNLUCKY & CO
This rubber stamp has resulted in a Singapore ship agent being sued in the US courts for delivery of cargo worth US$350,000 by the NVOCC or his agent without taking the original bills of lading in exchange. Both these cases have one thing in common. They involve large, well known and reputable ship agents who have been in business for many years, and carriers who have disappeared. The cargo claimants and their lawyers are probably well aware of the fact that Unlucky & Co acted as agents, but the agents’ own rubber stamps have enabled them to look for satisfaction of their claims from a party who is able to pay them, rather than the bankrupt carrier. Look at your rubber stamps, and get the scissors out!
Ten Golden Rules for the delivery of cargo
A recent analysis of claims has revealed that delivery of cargo without bills of lading remains the largest single cause of claims against both liner and port agents. Brief guidelines are set out below followed by examples of common errors:
RULE 1 - Bills of Lading: Always obtain the original Bill of Lading
An Irish liner agent delivered a container of wood-pulp against an original bill of lading which had been mailed to him. The bill of lading was consigned "to order" of the shipper who had apparently endorsed and dated it on the reverse. The cargo was released and it was only when the unpaid shipper in the United States enquired about its whereabouts that the words "copy not negotiable" were found in identical typeface amongst the typed description of the goods on the face of the bill of lading. The consignee who had forged the shipper's endorsement subsequently went bankrupt. The agent had to reimburse the amount paid to the US shipper by his principal.
A French port agent released two consignments of sawn timber covered by two separate bills of lading. It subsequently transpired that he had been given one original and one copy of the same bill of lading, instead of two different originals.
The shipper claimed US$ 150,000 from the shipowner, who in turn obtained reimbursement from his agent.
Shippers or banks often send a photocopy of the original bill of lading with the sale documents to the consignee. The fact that a consignee is in a position to fax what is apparently an original bill of lading to the ship agent should therefore never be taken as evidence that the consignee is in possession of an original bill of lading.
RULE 2 - Bills of Lading, Always obtain the correct bill of lading
A liner agent in Denmark, having obtained an original bill of lading, authorized the release of a container of computer parts to a consignee in Russia, without noticing that the container held two different cargoes covered by two separate bills of lading. Unfortunately the ship agent was subsequently unable to recover the mis-delivered cargo and had to reimburse the shipowner the amount which he had paid to the shipper.
A regular importer who had received a container of furniture every month for 25 years presented two originals from the same set of bills of lading in exchange for the delivery of two separate boxes. The importer was in financial difficulties and subsequently went bankrupt. The Dutch agent had to reimburse his principal.
An English liner agent received the original ocean carrier's bill of lading, duly endorsed, from a US NVOC with an instruction to only deliver a container of electrical goods against the NVOC's bill of lading. An employee of the agent made an entry in the computer simply recording the fact that the original ocean carrier's endorsed bill of lading had been lodged. Another employee, relying on this entry, released the cargo. The NVOC bill was left with the bank by the consignee. Care should be taken to correctly enter any special instructions in a computer system.
The fact that many consignments are covered by two bills of lading, (the ocean carrier's and another issued by an NVOC) can lead to confusion, especially where the line's agent also acts as agent for the NVOC (as is often the case).
RULE 3 - Delivery of cargo against an indemnity
One of the agent's options, when the original bill of lading is not available, is to deliver against a letter of indemnity. The indemnity does not relieve the carrier of liability to the cargo owner. It only provides for compensation for amounts which the carrier may have to pay to the holder of the original bill of lading.
RULE 4 - Indemnity
The agent should therefore also ask himself the questions set out in the following Rules:
Has your principal given written authority to release and agreed the wording and security?
An agent in Indonesia obtained his principal's authority to accept an indemnity, countersigned by a bank, for delivery of a cargo of timber without the original bill of lading. Unfortunately the ship agent did not use the ship owner’s recommended wording and allowed the bank to use its own. The bank simply agreed to pass the original bill of lading to the agent, once it came into the bank's possession. There was no undertaking to indemnify any party for the consequences of delivering the cargo without the original bill of lading and, as the original bill of lading never came into the possession of the bank, it never had to honour its indemnity.
It is not only important that a ship agent obtain his principal's written authority to release cargo without bills of lading; he should also agree the wording and the security.
RULE 5 – Indemnity, Has the cargo owner authorized release in writing?
A Turkish liner agent was requested by the receiver of 12 containers of frozen meat shipped from Denmark to deliver them without original bills of lading. The carrier's bills of lading were consigned "to order" of the Danish shipper and the receiver produced a fax from the shipper, confirming that he was the owner of the cargo and authorizing delivery without the original bills of lading. The fax bore the shipper's logo, a transmission record on the top, and appeared to be signed by the same person who had signed the invoices. In view of the perishable nature of the cargo and the contents of the fax, the ship agent released the containers to the receiver in exchange for his personal letter of indemnity. The receiver subsequently failed to pay for the meat and the fax was found to have been forged by a former employee of the Danish shipper. The carrier was liable for the shipper's loss and in turn claimed US$ 400,000 from his agent.
The agent should have checked with both his principal and the shipper to ensure that the former agreed to the release without the original bills of lading and that the latter had in fact sent the fax to the receiver.
An English port agent was appointed by the charterer's general agent, who instructed him to release 500 metric tons of steel without production of the original bill of lading. Subsequently the shipper of the steel arrested the ship and commenced proceedings against the shipowner, who then joined in the ship agent as a third party. It transpired that the charterer, who was also the receiver of the steel, had on-sold it to the ultimate consignee without paying the shipper and without retrieving the original bill of lading. The charterer went into liquidation. The shipowner paid US$ 95,000 in settlement of the shipper's claim and commenced proceedings against the port agent. As the port agent had been acting both for the shipowner and the charterer, he had failed in his duty of care to the owner in releasing the cargo without the original bills of lading on the instructions of the charterer's general agent. The port agent reimbursed the shipowner.
Was the charterer's general agent also to blame? The answer is "NO", as he had no duty of care to the shipowner and had not released the cargo. It was the duty of the port agent to act in the ship owner's interest, and he failed to do so.
"It is perfectly clear law that a shipowner who delivers without production of the bill of lading does so at his peril."
RULE 6 – Indemnity, Is it counter-signed by a first class bank?
A shipowner sought to recover from his agent who had released cargo against indemnities countersigned by the failed BCCI bank. The agent had authority to accept indemnities countersigned by first class banks. The owner alleged that the ship agent had failed in his duty of care, in that BCCI was not a first class bank. It was only when it was pointed out to the owner that his own account had been with BCCI that the claim was withdrawn.
An agent in the Arabian Gulf received instructions from his principal to deliver 77 crates of plywood to a company who was not the consignee named on the bill of lading. Unfortunately, despite the instruction, the agent delivered to the named consignee against an indemnity counter-signed by a local bank. The second receiver, who was in possession of the original bill of lading, sued the agent in the local courts. The bank refused to honour its indemnity and had to be joined into the proceedings as a third party. The court, after proceedings which lasted nine years, ordered the bank to pay the value of the goods to the second receiver but did not award the agent his costs, which amounted to US$ 120,000.
Several cases has also been seen regarding, forged bank indemnities, and thus it is recommended that if the ship agents receive a bank indemnity, they should consider taking the precaution of telephoning the issuing bank to ensure that it had issued that particular indemnity. Delivering millions of dollars worth of cargo on the strength of a rubber stamp alone is not advisable.
RULE 8 – Indemnity, Does it contain adequate financial and time limits?
Agents should always be careful to ensure that the letter of indemnity covers all claims and costs which could be incurred. There is little point in obtaining a letter of indemnity for the invoice value of the goods, if a dispute takes five years to litigate. The amount of the claim will then have doubled as a result of interest and costs. Agents should always allow for the worst possible scenario when establishing financial limits.
Care should be taken not to accept indemnities which are only valid for a period of, say, twelve months. Court cases are unlikely to be resolved within twelve months and the indemnity could become worthless.
The general rule under English law is to obtain a letter of indemnity valid for seven years; the six year statutory period, plus the additional year which is allowed for the serving of a writ.
RULE 9 – Indemnity: Do the goods itemized correspond exactly to those in the delivery order?
A liner agent in Hong Kong was asked to deliver a consignment of frozen chickens against a letter of indemnity counter-signed by a bank. The indemnity covered 112,000 kilos of frozen chickens with a value of US$ 100,000. The agent faxed the indemnity to his principal, who confirmed that the cargo should be delivered. Unfortunately the employee who prepared the delivery order failed to notice that the cargo covered by the bill of lading was 224,000 kilos of frozen chickens, whereas the indemnity only referred to 112,000 kilos. The shipper claimed US$ 100,000, the value of the mis-delivered chickens, from the principal who subsequently recovered from his agent.
RULE 10 – Indemnity : Is it an original document?
A liner agent in Spain delivered five containers of electrical goods on five different occasions against faxed indemnities, which were apparently counter-signed by the consignee's bank. It subsequently transpired that all the indemnities were forgeries and the bank had no knowledge of any of them.
Although millions of consignments are delivered each year without incident, it has also been seen an increase in attempts to obtain delivery of cargo using forged documents. Agents should be extremely vigilant.
Ship agents should note that a deliberate decision to deliver cargo without first obtaining an original bill of lading may put them outside their insurance cover.