Management mistakes

A ship manager managed two ships for the same owner pursuant to two BIMCO Shipman contracts.

For one ship, the owners alleged that the managers mismanaged their ships by failing to identify deficiencies, arrange and supervise maintenance and repairs, implement the ISM and PMC systems on-board, and communicate properly with the crew.

Owners further alleged that the managers failed to provide them with sufficient information in respect of ‘extraordinary’ expenditure to allow owners to make an informed decision on whether to approve incurring the cost.

For the second ship the owners made various allegations including failure to plan a crew change, failure to dismiss the crew for misconduct, which allegedly meant the crew were not suitably qualified, and failures to adequately maintain the ship.

Owners presented their claims under various heads of damages including cost of repairs, loss of hire, cost of bunkers, and port and agency costs.

The total claim was for US$ 9.5m. BIMCO Shipman contracts limited liability to US$ 1.5m for each ship.

The ship managers accepted that there had been some mismanagement on their part. Therefore, there was significant litigation risk. Furthermore, costs incurred in fighting the claims would be significant – in the hundreds of thousands, if not more. Finally, a lot of management time would be used in defending the claims. As a result, with ITIC’s assistance, the managers met with the owner for settlement talks.

Following several rounds of settlement talks both ships were eventually settled at US$ 700,000 each (US$ 1.4m total). ITIC paid this claim less the deductibles.