Beware the “poor” ship owner!

ITIC has seen a trend of claims against ship managers by ship owners who are facing hard times. As a result of their financial difficulties they resist paying for the full maintenance for the ship and also owing the ship manager funds not only for their own fees but also for disbursements paid on the owners behalf. When the ship manager tries to collect the funds due, invariably they are faced with a claim for negligence in the management of the ship.  In ITIC’s experience, once the ship owner fails to put the manager in funds, the situation rarely improves, and usually deteriorates.  The resulting claims are time consuming and costly to defend. To assist in the ship manager’s defence, it is of utmost importance that the ship manager’s records and correspondence with the ship owner are clear and in good order, as illustrated in the claim example below.

A dispute arose between the manager of a ship and the owner concerning a balance of funds owed to the manager. It was agreed that those funds would be put into an escrow account. The matter remained idle for five months, until the owner raised a claim, through their lawyers, against the ship manager for alleged negligence. The owner’s claim was that the ship manager was in breach of their duty to maintain the ship in an efficient employable state and as a result they had suffered significant losses. The claim put forward by the shipowner was in excess of USD 17 million and included alleged losses of the vessel's future employment, alleged expenses paid by the ship owner for repairs/spares/dry dockings, alleged reduction in the vessel's market value and other additional damages.

The ship manager rejected these allegations in full and lawyers were appointed by ITIC to defend their member’s position. The ship manager advised that the vessel's condition deteriorated due to the age, constraints of trade and by spending and maintenance restrictions imposed by the owner. The manager further stated that the owner was fully aware of the deficiencies and the condition of the ship when it was taken under management. Despite this, the owner did not take the necessary steps to facilitate remedial action.

Lawyers for the owner aggressively pursued the claim against the manager. However, the manager was fortunate in that their files and correspondence on this ship were in good condition and a thorough audit trail for every decision required regarding the running and maintenance of the ship existed. The ship was eventually scrapped, but the owner continued to maintain that they had a claim against the manager, although they were unable to provide any proof or document their losses.

Eventually, after two years, the claim was finalised on a drop hands basis. The total cost of the legal fees to defend the innocent ship manager totalled USD 250,000.