Ship Management International column October 2012 - Pointing the finger - article by Roger Lewis in latest edition of Ship Management International

To see the article as it appears in Ship Management International, please click here (page 32).

Roger Lewis, Underwriting Director, International Transport Intermediaries Club (ITIC), on why agents must beware of misdirected liability arrows.

In many countries, ship agents - and, in some cases, ship managers - can find themselves embroiled in liability claims only because of their role as agent of the ship owner or charterer. This happens because of a joint and several liability under local law or port statute, or so-called 'statutory liability'.

Examples of where this happens include cargo claims, customs duty and penalties, removal of wrecks, abandoned cargo and containers, dock damage, immigration fines and repatriation costs, and oil pollution. All of these liabilities should, in the normal course of events, be handled by the P&I clubs. Sometimes, however, things do not go according to plan.

In most jurisdictions, even where there is a joint and several liability, the principal - and not the agent - is the prime target for claims. However, authorities in a number of countries will look to the ship agent, rather than to the principal, for statutory claims. These countries include Argentina, Australia, Bangladesh, Brazil, Canada, Chile, Colombia, Ecuador, India, Kuwait, Pakistan, The Philippines, Qatar, Spain, Taiwan, Turkey, the UK, the US and Venezuela. This is not an exhaustive list, however, and consideration must be given to changing laws and to the revision of port authority enactments.

Of the countries listed, several have legal systems which take many years to process claims. This means that, during the intervening years, there is always the risk that a ship will be sold, for example, or that an owner will cease trading, in which case the agent will be left to deal with the claim.

If the agent becomes aware of the claim while the ship is still in port, attempts should be made to obtain a P&I club letter of guarantee before the ship sails. If there is substantial damage to cargo, or dock damage which cannot be defended or disputed, then it may be possible to do this amicably. When a letter of guarantee is provided it is essential to check its wording to ensure that the agents' liability is protected fully and that adequate consideration is given in respect of both interest and legal costs.

In the event that the claim falls outside the scope of P&I club cover, or the club refuses, for whatever reason, to provide of a letter of guarantee, the agent should look directly to its principal for security - preferably in the form of a bank guarantee. It is probable that the courts will not allow the ship agent to arrest the ship for an anticipatory claim, but this may be possible where there is an actual claim on the ship agent, for example from the port in respect of damage to harbour installations.

When first made aware of any statutory liability claim, the agent should immediately inform its principle of the loss or claim, and seek confirmation that the principal will indemnify the agent as per its duty and obligations in accordance with the law of agency and of any current agency agreement.

In a recent case, ITIC was able to help persuade a reluctant insurer of wreck removal liability to stop forward, without which initiative the agent would have been left to fund the entire wreck removal.