STANDARD TRADING CONDITIONS FOR MARINE PROFESSIONALS

A wide variety of companies providing professional services to the transport industry choose ITIC as their professional indemnity insurer.  The Club’s membership includes surveyors and consultants, adjusters, insurance correspondents, marine engineers and oceanographers.

The Club’s Forum 2000 Conference in London in October 2000 highlighted the fact that although many companies in the transport industry carry on their business protected by some form of trading conditions, very few surveyors, adjusters and consultants do so.  A clear and concise explanation of why standard trading conditions should be used by all those who provide professional services to the transport industry was given by Dominic Ward of solicitors Andrew M Jackson &Co.  Highlights of his paper are reproduced below.  Any Member of ITIC who would like the Club to comment on the standard terms of business that they are proposing to use, or are currently using, should contact their ITIC account executive.

The advantages of trading conditions

The advantages can be placed into two categories.  Rather like American football these can be called defence and offence.

Defence

These clauses are intended to protect you in the event that a claim is made against you.  They include exclusions of liability, limitation of liability, time limits and law and jurisdiction.

Offence

These clauses are intended to assist you to bring a claim.  They include payment terms (including default provisions), indemnities, defining the brief, termination, law and jurisdiction.

You will see that law and jurisdiction appear in both categories and perhaps it is a good place to start.

Law and Jurisdiction

The key advantage to you both offensively and defensively is that in your own conditions you can impose a system of law and a jurisdiction with which you (and your insurers) are familiar.

In most cases it will be the law and jurisdiction of the place where you are based but it need not be.  There is nothing to stop you selecting another jurisdiction or system of law if there are perceived advantages of doing so.  Things to bear in mind in selecting a jurisdiction or system of law include:-

(i) The availability of judges or arbitrators who are sufficiently expert to be able to deal with the sort of legal issues which might arise.

(ii) The length of time it might take to get a case to trial and to get a judgment.

(iii) The cost you might incur in doing so and whether any costs are recoverable from the other side if you should win.

(iv) The predictability of the judges or arbitrators and their impartiality.

(v) Any particular advantages from the selected system of law, e.g. time bars.

Whether you end up defending yourself against allegations of negligence or whether you are suing for your unpaid invoices, if you have chosen the jurisdiction and the applicable law then you begin with the advantage.  You will be a less attractive target for a claimant if that claimant has to sue you in a jurisdiction a long way from their own.

Defence

Exclusions of Liability

In your conditions of business you can try to exclude liability for certain things.  In English law, for example, there are statutory restrictions on exclusion clauses and it is not possible to excludes one’s liability for death or personal injury claims. Other exclusions are subject to a test of reasonableness.  Subject to these restrictions, the exclusion clauses can be very useful.  For example they can exclude liability for:-

(i) consequential losses e.g. lost profits, lost opportunities;

(ii) failure of equipment;

(iii) negligence (sometimes these clauses only accept liability for wilful default which requires a greater burden of proof than mere negligence).

Limits of Liability

In the shipping industry the ability of carriers to limit their liability has been accepted for many years.  Shipping intermediaries, should,  therefore have little difficulty, in principle, in imposing limitation clauses in their own conditions. Contracts such as BIMCO Shipman and Crewman and conditions such as the BIFA terms contain limitation clauses, so the principle is well established.  To be enforceable under English law they would need to pass the reasonableness test.  I have seen some conditions which purport to restrict liability to a sum equivalent to the charges raised by the surveyor.  These may risk being regarded as unreasonable and unenforceable.  Other clauses use the same starting point but are more generous, e.g. ten times the surveyor’s charges.

My own preference is to see an actual figure so that both parties know exactly where they stand from the outset.  This in my view makes the clause more likely to be regarded as reasonable, although this will obviously depend upon the sum selected.  An example of such a clause might be:-

“Liability of the contractor shall in any event be limited to a sum calculated on the basis of ten times the charges invoiced by the contractor for the work which is the subject of the claim, or £150,000, whichever shall be the greater”.

With this above clause both parties know that if the surveyors charges are less than £15,000 the limit will be £150,000.  Both parties can insure themselves appropriately.  I should point out that there is no magic in the figure of £150,000, indeed it might be regarded as on the low side but at least it is certain.

I am currently engaged in a case where an intermediary is being sued for approximately £500,000 in relation to an accident which befell a large boiler being transported to a power station.

My client operated under trading conditions.  These conditions contained a limitation provision of £200 per tonne.  The boiler weighed 125 tonnes, thus producing a limitation fund of £25,000.  By way of comparison a haulier using the U.K. Road Haulage Association conditions has a limitation fund of £1,300 per tonne and, in the case of the boiler a limitation fund of £162,000 would be generated.  A freight forwarder operating under BIFA conditions will be entitled to limit his liability to 2 SDRs per kilo which at the exchange rate prevailing at the date of the accident, would generate a fund of £218,500.  It can therefore be seen that the £25,000 fund generated by my client’s trading conditions is very much on the low side compared to other approved conditions and in fact only represents about 5 percent of the sum claimed.

It is alleged by the claimants that my client’s terms and conditions are unreasonable and unenforceable although I argue that they are both reasonable and enforceable.  The risk of proceeding to trial and being faced with such a small limitation fund is driving the claimant to try to settle the case at a figure well below the value of the claim.  Had the client not had standard conditions then I have absolutely no doubt that the claimant would be pressing ahead with its claim and we would be under pressure to settle at a much higher figure.  This is just one example of how trading conditions can be of value.

Time Limits

This is another very good weapon in a defensive armoury.  Time limits must be reasonable.  Under English law the time limit for bringing a claim for economic loss is six years. By contract the parties can reduce that period.  In shipping circles one year is commonplace e.g. Hague-Visby Rules and nine months is reasonable (BIFA Conditions).  In a recent Court of Appeal decision in which my firm was involved, a six month time limit was regarded as reasonable.  Ocean Chemical Transport Inc and Another –v- Exnor Craggs Limited [2000] 1 Lloyds Rep.446 – the “JULIUS HAMMER” concerned a claim by ship owners against our clients who were bunker traders.  The judge at first instance and the Court of Appeal held that in the context of a contract to supply bunkers to a vessel, a six month time limit for the bringing of claims was adequate and reasonable.  The court held that, in the context of bunker transactions, six months was a reasonable period within which the shipowner would become aware of any problem with the fuel and have time to bring a claim.  In this particular case the ship owners brought their claim after the expiry of the six month time limit and their claim was therefore dismissed.

OFFENCE

Turning now to offence.  These are terms and conditions which can help you with your own claims or which positively set out what you will and will not do.

Defining the Brief

A condition which specifies that the surveyor’s obligations are to comply with the specific written instruction given by the principal, and not to do any further work unless specifically authorised, will clearly limit the ability of the principal to claim subsequently that, notwithstanding a specific instruction which had been given, the surveyor/consultant was under an obligation to do more than was simply requested e.g. to do further research or make other enquiries or to venture an “expert” opinion rather than simply reporting facts.

Indemnities

When acting for a principal it is not unreasonable for you to expect the principal to indemnify you if you incur a liability which is not due to your fault and was incurred as a result of carrying out the principal’s instructions.  Similarly an indemnity can cover the situation where you prepare a report for a principal for a specific purpose and the principal then distributes it to a third party who uses it for another purpose.  It is possible that the third party may seek to bring a claim against you if they feel the report was inadequate or inaccurate and in this context you should be entitled to an indemnity from your original principal.  An example of this is where a surveyor prepares a condition survey in order to establish whether a vessel is acceptable for a single voyage charter.  The principal uses the survey report for a quite different purpose, e.g. for demonstrating the vessel is suitable for sale to a buyer.  Had you known that the report would have been used for this purpose you would not have prepared the report in the same way, and it is only right that the principal should indemnify you if you are put to the cost of having to justify your original survey when the buyer is disappointed by the ship he purchases!  This may seem a fairly far fetched example, but it does happen, and the conditions which define the brief and establish a right of indemnity can be extremely helpful in this situation.

Payment Terms

There is ample opportunity in a set of conditions to set out payment terms in detail.  These can include; the normal credit period which is to be extended to the principal, the fact that no deductions or set offs can be made from the amount due from you, the rate of interest payable on overdue balances and any other default provisions.

Termination

Your conditions should specify when you are entitled to terminate your retainer.  If it becomes apparent to you that your customer is impecunious or if they fail to give you proper, clear, concise instructions you should be entitled (but not obliged) to terminate the instructions and charge for the work you have done to that date.  In the absence of a specific condition to this effect it may be very difficult to claim payment in these circumstances.

Incorporation

Time and time again I am asked to advise on whether a company’s terms and conditions can be relied upon either in defence of a claim brought against them or to assist them in pursuing their own claim.  In the majority of cases the wording of the terms and conditions are non controversial and would assist the client either in defending or in claiming.  The major problem is demonstrating that the terms and conditions formed part of the contract between the client and his principal.  Under English law you must draw your contracting party’s attention to your terms and conditions before you form the contract.  It is therefore imperative that a reference to your terms and conditions, ideally the full set of conditions, is included in any quote or estimate which you give to your principal before he confirms your instructions.  An endorsement such as:-

“all work undertaken subject to our standard trading conditions overleaf (or copy available on request)” is invaluable in demonstrating that the conditions were brought to your contracting party’s attention before you formed the contract.

I had a case some years ago where a client of mine wanted to claim an indemnity from a Belgian sub-contractor.  The client was one of a number of intermediaries involved in the transportation of a project cargo and was facing a substantial claim from the cargo owner.  Under a particular provision of Belgian law the claim against the Belgian company was subject to a six month time limit.  By the time I was instructed six months had already expired.  The Belgian contractor relied on his trading conditions as evidence that Belgian law was incorporated and the six month time limit therefore acted to prevent my client’s claim.  What the Belgian contractor had done every year was to write to my client in January wishing him a successful year’s trading and reminding my client that all work undertaken by that Belgian company would be subject to its trading conditions which were enclosed with the letter.  The Belgian company had kept copies of the letters which were obviously standardised and sent to all their regular customers.  Faced with this evidence, the English court held that the Belgian contractor was entitled to rely on its conditions as they had clearly been brought to my client’s attention in the January of every year and therefore subsequent contracts were clearly subject to them.  My client hadn’t even read the letters but had simply binned them.  It struck me that this is a very good way of demonstrating that your terms and conditions apply to the relationship you have with your principal.  A brief letter saying:

“Hope you had a good New Year and that this year is successful for both of us.  As you know all work we undertake is subject to our Trading Conditions (attached).  Look forward to doing business again this year.

Yours sincerely,

PS Hope the price of oil falls soon!”

can be very helpful in demonstrating that your terms and conditions apply to any work for that customer.  If you receive such a letter do not bin it, check the conditions and if you don’t like them write back and say so.

Brussels Convention

It is important that you can demonstrate that your terms and conditions were agreed to by your principal, particularly with regard to the jurisdiction clause.  Within European countries the Brussels Convention regulates the jurisdiction in which proceedings should take place.  The normal rule (Article 2) is that you must sue the defendant in the defendant’s domicile.  If, therefore, you are claiming for your unpaid invoices from a principal who is domiciled in another jurisdiction, then under the Convention you have to sue that company in its jurisdiction.  This may not be a particularly attractive proposition.  For you to be able to rely on your own jurisdiction clause in your terms and conditions you need to demonstrate under Article 17 of the Convention that there has been an agreement that any disputes should be referred to a particular jurisdiction.  The mere existence of your trading conditions will not be sufficient to satisfy Article 17.  However, the fact that you may have secured your client’s agreement, by them acknowledging your terms and conditions before a contract is formed, would be satisfactory evidence that another jurisdiction had been selected by the parties for the purpose of litigation.  It is therefore quite important that you take steps to ensure you can demonstrate that your principal had the opportunity or actually did see the conditions before the contract was formed.

Conclusions

Both the conditions used to defend claims and the conditions used to pursue claims have great advantages to you.  I cannot think of a single disadvantage of using trading conditions.  You may feel that your principals will not agree to your terms and conditions.  Even in cases where your principals object to your terms and conditions they will at least appreciate that you are a professional and thorough organisation.  I suspect that in many cases your principals will simply agree without even checking the conditions.  In 99 percent of cases your trading conditions will not be needed and business will be conducted properly and without any disputes arising.  In the 1 percent of cases where disputes do arise your trading conditions could prove vital to you.