Bad vibrations

A ship manager member of ITIC took on the management of a vessel; one of his duties under the BIMCO Shipman 98 management agreement was to provide crew for and on behalf of the owners.

In 2004, whilst the vessel was heading towards Shanghai, the Master reported that she had experienced “excessive vibration” after passing close to a buoy marking a wreck. The Master left the ship at Shanghai and returned home. The ship manager subsequently received an anonymous fax from the vessel, advising that she had actually hit a wreck. When the vessel reached its final destination it was dry docked and damage was noted.

Under the terms of the management agreement, the ship manager was co-assured on the hull policy, but the owner commenced arbitration proceedings claiming that substantial additional costs had been incurred. The claim was based on an allegation that the ship manager was vicariously liable for the actions of the Master. Wide ranging allegations were also made to the effect that there had been significant tensions, distrust and acrimony between the Master and some of the vessel’s officers, which were a direct cause of the damage. The defence of the ship manager was that, under the terms of the management agreement, the manager had no liability for the negligence of the crew. The manager’s sole obligation was to provide an appropriately qualified crew.

Negotiations and investigations by experts and lawyers continued for the next five years and substantial costs were incurred. The arbitration hearing was scheduled to take place in early 2010; however, by late 2009 the owner (probably realising that his claim for crew negligence was unlikely to succeed) served an entirely revised claim backed by a lengthy report from an expert. The claim was fundamentally altered and was now focused on the ship manager’s application of the ISM code and the role of the “designated person” ashore. A further allegation was made that the bridge team, or at least the principle members of it, were suffering from fatigue at the time of the incident and that the ship manager should have been aware of this.

By this time the costs of investigation and preparing the defence had reached USD 659,000. A defence was submitted that, on the evidence available, there was no error in navigation and so the claimant’s case could not be proved. ITIC’s lawyers were confident that the claim could be successfully defended, but it was recognised that the hearing could last up to seven days, which would result in legal costs in the region of USD 560,000, in addition to the USD 659,000 already spent in preparing the defence.

In 2011 the owner made an offer to settle the claim on a “drop hands” basis, with both sides bearing their own costs. Although the ship manager felt that they had been presented with an extremely weak case, it was not possible to completely rule out the possibility of adverse findings. Accordingly, the offer was accepted.

This case shows how important it is to use the right contract and to have an insurance to cover the legal costs of defending even weak claims. The defence of a ship manager is always expensive.