Agents and conflicting interests

Most ship agents are aware of the conflict of interest which may exist if they represent two principals engaged in the same trade.

Indeed the FONASBA Standard Liner Agency Agreement contains a clause which states: “The agent undertakes not to accept the representation of other shipping companies nor to engage in NVOCC or such freight forwarding activities ... which are in direct competition to any of the Principal's transportation activities...”

However, an agent must never allow his own interest to conflict with his duty to his principal and there are other potential conflicts which agents may not have considered. If an agent accepts an “incentive” from a supplier of goods and services to a ship to place orders for the ship with that supplier he is in breach of his duty to his principal. If the principal finds out he can dismiss the agent and in some countries it would be a criminal offence. If the agent is asked to procure goods and services for the principal and instead of passing on the cost he charges a higher price, then any such practice would constitute the taking of a “secret profit”. The principal is then entitled to refuse to take the goods, and can also claim reimbursement of the agent's profit, or refuse to pay the agent at all.

An agent has a duty to provide his principal with material information which comes into his possession. In addition an agent must not make use of confidential information which he has acquired during the course of an agency. If the agency is terminated the agent would not, for instance, be able to provide a rival carrier with details of his ex-principal's customers.

These two duties can also give rise to a conflict when the agent has a dual agency. Agents are often appointed by charterers and simultaneously by owners as protecting agent. An agent can act for more than one principal with the consent of both, but the problems are obvious. For example, what should the agent do if he obtains knowledge as agent for the charterer which would adversely affect the owner? What if the charterer has failed to pay for tugs and pilots within a reasonable time thereby putting the owner at risk of having his ship arrested? Can the agent breach his duty of confidentiality to the charterer in order to fulfil his duty to disclose material information to the owner?

The courts are not particularly sympathetic to an agent who has allowed himself to be put into a position where he has a clear conflict of interest. In a recent case a port agent who released cargo without production of the original bill of lading on the instructions of the charterer, subsequently had to answer to the owner for failing in his duty of care. The charterer had become bankrupt and the unpaid shipper had successfully sued the shipowner, who in turn looked to his agent.

Another problem which arises where agents either represent more than one principal, or where they are nominated by one party for another party's account, is establishing who is going to pay.

Where there is a liner agency agreement, the question of who pays for what is clear. However, port agents have to be extremely careful to ensure that when they order goods and services they know who is going to pay. If the agent is both charterer's agent and owner's protecting agent it is sometimes difficult to establish who will pay for the various port and stevedoring charges. We often see cases where both parties point the finger at the other and both refuse to pay, leaving the agent in a “no win situation.”

In a recent case, a ship agent in the Far East was nominated by the voyage charterer, a well known trading house, to be the agent for the disponent owner (a well known and reputable shipping company). The agent sent his list of pro forma disbursements to the disponent owner one week before the arrival of the ship at the port, but no response was received and no funds were emitted. In view of the reputations of the companies concerned, the agent allowed the ship to sail before funds were received, even though he had a personal liability to pay all port costs. About two weeks after the ship had sailed, he was informed by the disponent owner that the port costs were not for his account, but for that of the voyage charterer. The  agent was caught in the middle of a dispute between these two parties, and twelve months later had still not been paid. After lengthy correspondence with both parties produced no result, a threat by the Club to arrest the ship finally persuaded the head owner to pay. The head owner recovered from the disponent owner, who presumably took his dispute with the voyage charterer to arbitration. If an agent is appointed by both the owner and the charterer he should establish exactly who will pay for each service. If he is nominated by the charterer to be the owner's agent, it is a sensible precaution to obtain the owner's confirmation of the appointment. When the agent is asked to order goods and services he should consider adding the following footnote to his communications to the party ordering them:

“Unless we are specifically advised by you that another party will be responsible for any services rendered to the ship before they are ordered, we will order such services on your behalf and for your account”

Agents should bear in mind when asked to act for two principals, that there is a danger that they may end up not satisfying the requirements of either.

This is a reproduction of an article which appeared on the ITIC page of the Spring 1998 edition of the Ship’s Agent & Broker magazine.