Ship Management International column June 2017 - Survey yourself out of distress

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Robert Hodge explains why, in a difficult market, it is important for ship managers to carry out pre-management vessel surveys.

Due to the difficult (albeit improving) state of the dry bulk market, there has been a noticeable increase in the number of ships being taken on by ship managers from the banks as distressed tonnage.

Prior to agreeing to accept ships under management you must carry out a pre-management survey. This requirement is even more important when distressed tonnage may not have been maintained as well as it should have been. ITIC has ended up paying substantial claims when a survey was not done or was undertaken but it was not clearly set out in the report what had and what had not been inspected.

One ship manager accepted the management of a ship, but had not inspected it beforehand. In fact, due to a high staff turnover in their technical department, nobody from the managers had even visited the ship. The owner went on board some ten months after it had been under management and was appalled at the condition of the ship and immediately made a claim against the manager for failing to manage and maintain the ship. This ship was relatively old and was likely not in the best of condition when the manager took it over. The manager however, had no proof of this. The owner brought a claim of over US$ 900,000 against their manager. ITIC had no starting point/initial survey on which to commence negotiations and so the claim was settled for US$ 700,000. 

The ship management agreement will normally commence on the date the manager takes on the ship.  As a pre-management survey will naturally have to be carried out prior to the vessel joining the manager, you should ensure the survey is carried out under a separate survey agreement or that the work be undertaken under your own separate Standard Terms and Conditions (“terms”).

However, having excellent terms in your desk drawer or on your website, is all very well, but unless you have incorporated them into your dealings with your principal, they will not form part of your legal relationship with them and you will not be able to rely on the terms should a dispute arise. 

Here are a few general tips on how to incorporate your terms:

1. Your terms must be brought to the other party’s (counterparty) attention before or at the time the contract is made. Usually, it is sufficient to bring them to the other party’s attention and make copies available to them. If the other party chooses not to read them, that is their concern. If the terms are brought to the counterparty’s attention once the contract exists it will be TOO LATE to incorporate them.
2. The safest way to incorporate terms is to send a copy to your counterparty and make them sign them or alternatively, acknowledge receipt of them (although we understand that this is not always practical).  If they are signed or acknowledged your counterparty will not be able to say they had not seen them if a dispute arises.
3. In many cases you will not receive a signed version back or even acknowledgement. However, as long as you can show that a copy was provided or made available they should still be effective. Simply because they are not signed or acknowledged, does not preclude them from being part of the agreement. 
4. You should make a copy of your terms available on your website. You should also include a foot note on your emails that states “all work undertaken is done so strictly in accordance with our Terms and Conditions, a copy of which is available [here/link]. Copies are also available on request”. You should also have a similar foot note on faxes (if you can still where the machine is…), letters and any other form of communication you use. 
5. If the terms are brought to the counterparty’s attention once the contract exists it will be TOO LATE to incorporate them.

ITIC has produced "ITIC's Standard Terms for Surveyors and Consultants," a set of draft clauses for members to consider using in their own trading conditions.  These can be found at our website: www.itic-insure.com.