Sub Agency Agreements

The practice of a ship agent employing a sub-agent in order to undertake tasks in a port in which the agent himself does not maintain an office will be familiar to many readers of The Intermediary. The custom appears to be on the increase and this seems to be due to the principal’s wish to deal with a reduced number of agents worldwide, leaving the agents themselves to make their own arrangements as to local representation. FONASBA (The Federation of National Associations of Shipbrokers and Agents) has recognised the demand for a standard document and has recently published the first edition of a sub-agency agreement. This was adopted at FONASBA’s last annual meeting in Slovenia in October 1998. The document has also been approved by BIMCO (the Baltic and International Maritime Council).

FONASBA are also the publishers of the Standard Liner Agency Agreement and the General Agency Agreement (for Liner Services) both revised and adopted in July 1993. The FONASBA Sub-Agency Agreement follows the general layout of the Standard Liner Agency Agreement and contains clauses dealing with general conditions, accounting and finance, remuneration, insurance, duration, duties of the sub-agent, duties of the general agent and,  finally, jurisdiction. As an alternative to setting out an extensive list of the sub-agent’s duties, the Agreement refers to the agency agreement between the line and the general agent and leaves the parties to identify the duties set out in that document which are to be performed by the sub-agent in place of the general agent.

Although it is not the purpose of this article to comment on the individual clauses of the FONASBA Sub-Agency Agreement, it is important to note that the text includes an indemnity by which the general agent is obliged to indemnify the sub-agent against all claims, charges, damages and expenses which the sub-agent may incur in connection with the fulfilment of his duties under the Agreement.

The indemnity does not, however, extend to matters arising by reason of the wilful misconduct or negligence of the sub-agent. Although the FONASBA Standard Liner Agency Agreement contains a similar clause by which the liner principal is obliged to indemnify the agent, most agreements drafted by liner companies or their lawyers, contain no such provision. It is, therefore, important that agents should endeavour to negotiate the inclusion of such a clause when first being appointed by a new liner principal.

One problem that can sometimes arise in the context of relationships between liner principal, agent and sub-agent, is the situation where the agent becomes insolvent owing money to the sub-agent. In these circumstances does the sub-agent have a remedy against the liner principal? A case in the United States, which was heard several years ago, illustrates the importance of a sub-agent ensuring at the outset who is to be responsible for his remuneration in the form of commission on freight.

The facts were as follows: E.S. Binnings (“Binnings”) an agent in the Gulf ports, sued the shipping line for outstanding commission in the sum of approximately US$500,000. The shipping line had previously hired a New York steamship agent, F.W. Hartmann & Co. Inc. (“Hartmann”) as its general agent for liner activities in North America. The contract between Hartmann and the shipping line allowed Hartmann to appoint subagents in ports where Hartmann did not maintain an office. Hartmann appointed Binnings to serve as Hartmann’s sub-agent for the US Gulf and the ports of New Orleans and Houston. This contract between Hartmann and Binnings required the former to pay the latter a 3% commission on all outbound cargo shipped through New Orleans and Houston. Between 1981 and 1984 Hartmann’s financial position began to deteriorate and during the course of 1983 and 1984 Binnings accepted promissory notes from Hartmann for approximately US$300,000 for outstanding commissions.

Subsequently, Hartmann ceased trading and Binnings sought to recover from the shipping line. The court found that there was never any contract between the shipping line and Binnings and that the former had no liability for the latter’s commissions. The court reached its conclusions based on the following facts:

1. Hartmann had no authority under its contract with the shipping line to bind the latter directly or indirectly to Binnings for the payment of Binnings’ commissions and Hartmann did not do so.
2. Binnings alleged it assumed that Hartmann had authority to commit the shipping line to pay Binnings’ commissions but the facts did not support that contention. To the contrary, the facts established that Binnings never understood that the shipping line was responsible for the payment of Binnings’ commissions.
3. The shipping line never agreed to pay commissions to Binnings.
4. Binnings never advised the shipping line of the amount of commissions it was receiving for the services it performed.

This case clearly demonstrates that Members who act as sub-agents in respect of liner business in the absence of any specific agreement between the principal and the general agent, will not act as the principal’s agent. They would therefore have no remedy against the carrier in the event of the insolvency of the general agent. If, however, the carrier is to be bound then a clause should be inserted in the liner agency agreement along the following lines:

“Subject to any written instructions to the contrary, the agent shall have authority to appoint sub-agents to perform services on behalf of the principal and the agents so appointed shall act as the principal’s agents.”

In practice there may, of course, be difficulties in persuading a liner principal to agree that sub-agents so appointed by the general agent shall in fact act as the principal’s agents. A similar case was heard in Canada in 1986 involving the bankruptcy of a general agent. Once again, the sub-agents were unable to persuade the court that there was any “privity of contract” (the contractual relationship between the two parties to the agreement) between the principal and the sub-agent. The Canadian Court was referred to an English case, Calico Printers’ Association v. Barclays Bank and in particular to the judgement of Wright J. who said:

“To create privity it must be established not only that the principal contemplated that a sub agent would perform part of the contract, but also that the principal authorised the agent to create privity of contract between the principal and the sub-agent, which is a very different matter requiring precise proof”.

In conclusion, agents who are authorised by their liner principals to appoint subagents would be well advised to use the FONASBA Sub-Agency Agreement as it sets out the responsibilities and duties of the parties in a clear and straightforward document. Copies can be obtained from the Club.