Simple mistakes can lead to costly claims

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Charlotte Kirk of the International Transport Intermediaries Club (ITIC) looks at some recent examples of costly mistakes leading to claims against brokers and agents.

The first rule that used to be drummed remorselessly into trainee carpenters was ‘measure twice, cut once’. It was sound advice, because wood is an expensive commodity, and the time to correct mistakes is before they happen. The equivalent term in the shipping industry is ‘check before fixing’. Merchant ships are no longer made of wood, but the consequences of making a mistake can be very expensive.

Shipbrokers are particularly at risk in this regard, witness the recent case of a broker acting for the owner of a vessel trading in the Mediterranean who was asked to consider an offer from charterers which included the term “time from 1700hrs Thursday or a day preceding a holiday until 0800hrs next working day not to count even if used”. When asked by the owner for the weekend working times in Algeria, the broker responded without checking. Sadly, he got it wrong.

The broker told the owner that the weekend working times in Algeria were 1700hrs
Thursday to 0800hrs Saturday when, in fact (as set out in BIMCO’s holiday calendar), the correct answer should have been 1700hrs Thursday to 0800hrs Sunday - a difference of 24 hours.

The owner agreed to the fixture following this negligent advice and calculated the freight rate on the basis of the shorter period which the broker had given. The vessel was delayed in port, and laytime started later than the owner had anticipated. The eventual shortfall in demurrage was claimed from the broker. The result was a claim in the amount of $25,527, which was ultimately settled by ITIC. This is a classic example of how a claim could have been avoided if the broker had checked before answering.

A slightly less classic – indeed, rather unusual – example of a mistake on the part of a broker leading to an expensive claim was provided recently by a chartering broker who arranged a contract of affreightment (CoA) between a Japanese owner and an American charterer. Under the terms of the CoA, the owner had to offer one ship per month to the charterer, which had a minimum obligation to make eight shipments in a year.

By the time the broker had received a nomination from the owner, the charterer had already met the minimum requirement under the CoA. It therefore had no obligation
to accept the new nomination and said it did not require the ship. In fact the charterer did have a cargo but had purchased it from another trading house (the second charterer) on CIF terms. The second charterer also had a contract with the same owner through the same broker, and had nominated the cargo under its own contract with the owner.

Unfortunately, the broker’s operations department made a mistake and thought that the cargo had been nominated under the first charterer’s CoA. In effect, the
same cargo was booked twice on the same ship. The owner was unsuccessful in obtaining an alternative cargo to fill the extra space on board and claimed from the broker the full freight it had not received on the booking, less the broker’s commission.

ITIC argued that the claim for freight did not take into account saved expenses, such as the time and cost involved in cargo working. These costs were deducted, and a settlement of $70,000 was finally agreed.

Of course it is not just brokers who are prone to making mistakes. In a case handled recently by ITIC, a liner agent in South America, due to various amendments required by a shipper, had to reissue an original bill of lading six times in respect of a consignment of bananas headed for the UK. The initial three versions of the original bill of lading provided that freight was to be prepaid, while the subsequent three versions showed ‘freight-collect’, meaning that the freight would be payable by the consignee.

The agent had mistakenly interpreted a comment from the shipper that the ‘consignee will pay’ as confirmation that the consignee in the UK had accepted the cargo on a freight-collect basis and accordingly issued a freight-collect bill of lading. Unfortunately, while the final bill of lading was issued showing freight-collect, the agent failed to update the line’s computer system, which still showed ‘prepaid’. Upon arrival in the UK, the discharge port agent checked the line’s computer system, saw the prepaid status and released the cargo.

It soon became apparent that neither the shipper nor the consignee had paid the freight, which amounted to approximately $40,000. The shipper argued that it had sold the cargo FOB and provided a commercial invoice and evidence of payment to support this. Accordingly, the shipper argued that the consignee should pay the outstanding freight. The consignee in turn argued that it had bought the cargo CIF, and produced emails to show that CIF terms were discussed/ negotiated. But it failed to provide evidence which confirmed that the final movement of the cargo was carried out on these terms, claiming that such evidence was ‘commercially sensitive’.

With the assistance of ITIC, the agent was able to persuade the consignee that, even though the cargo had been released prior to freight being paid, under the terms of the bill of lading the consignee was still liable for the outstanding freight. It was also highlighted that, if legal action needed to be taken in order to recover the freight, ITIC would also seek to recover the legal costs incurred. The agent offered to accept 95 per cent of the freight, which the consignee ultimately paid.

This is a classic example of the greater need for care. Many claims result from very simple housekeeping issues which are overlooked due to time pressures, or short cuts, which often result in very large settlements.