Debt Collection

Recovery of monies and legal expenses under Rule 6

The 50% of the clubs Members who avail themselves of the clubs debt collection service by purchasing the optional cover under Rule 6 (recovery of monies and legal expenses) will be aware that the club has considerable success in collecting their debts. They may still be surprised to learn that, since ITIC was formed from the merger of TIM and CISBA in 1992, the club has collected no less than US$ 18 million for its Members

The cover is mainly used by shipbrokers and port agents to recover their outstanding brokerage and disbursements. Although the clubs success has been notable, any debts are incapable of being collected because the debtors in bankrupt, or the ship has been sold, and we believe that the following guidelines may assist Members in avoiding bad debts:-

"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"

Port agents

Obtain advance funds

If your principal is unwilling to provide advance funds, or only remits part of your pro forma disbursements, contact the club to see if anything is known amour the company. If the clubs is already pursuing outstanding debts from the same principal, it is essential that the funds should be secured before the ship sails.

Find out for whom you are acting

If your instructions are from a company who describe themselves "as agent only" ask them for whom they are acting as agents. Just because the party instructing you is a substantial shipowning or management company does not mean that the party they represent is equally substantial. you may find that the party to whom you are offering your services is not one to whom you would knowingly extend credit. On occasions we find that the "agent" is himself a creditor of the party he represents and is, therefore highly unlikely to discharge the debt to the port agent.

Similarly, you must regularly notify the suppliers of goods and services to ships under your agency that you are acting "as agent only" and let them know the identity of your principals, otherwise you could find yourself being pursued through the courts by those suppliers.

Find out who is going to pay

The problems facing the port agent acting for charterer were offered to in the December 1995 edition of "The Intermediary" If there are several parties involved with a ship under your port agency, you must immediately establish who is going to any for each service. The club frequently sees claims where the port agent has ordered goods and services e.g., port or stevedore costs without first establishing who is going to any. If there is any dispute between the owner and charterer over who is liable to pay under the terms of the charter party, both parties could refuse to appeal The agent might then be forced to settle the charges himself. when a port agent sends his request for pro forma disbursements to his principal, be should include the following sentences as precaution: "Unless we are specifically devised 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".

Shipbrokers

The shipbrokers' commission is set out in a specific clause in the charter party and it is beyond the scope of this article to consider the various terms of charter party commission clauses. However it is important to appreciate that, under English law, the broker not being a party to the charter party, has no direct right of action to enforce the commission clause.

FONASBA had addressed this potential problem in a one page document the International Brokers commission contract. This lays out the terms under which commission is payable and establishes where, should a dispute arise arbitration proceedings should be held. The document is particularly useful for the competitive broker who may be dealing with an unknown shipowner who, without the existence for a clear contract for payment of commission, might be difficult to pursue through the courts.

Shipbrokers commissions are traditionally payable by the owners unless there is an agreement that brokerage will be deducted by charterers from freight or hire. Normally it is preferable for the ship broker to least the liability for paying commission with the shipowner (who at least owner the asset which may, in some jurisdictions, be arrested to secure the outstanding debt) rather than agreeing that the charterer can deduct his commission, however, if the charterer is a substantial entity (a large grain house or oil major) or very well known to the broker, this advice may not be appropriate.

Never forget that fixing without subsequently gaining your commission is a total waste of time and money.

Collecting the debt

The club is conscious of the necessity for Members, whether they be agents or brokers, to maintain commercial relationships with their principals. the clubs first communication need therefore be only a polite reminder that the invoice may have been overlooked ITIC has dealt with more than 1,500 debts for its Members in he last four years and the club is well known to both owners and charterers.

If the funds are still not forthcoming the club can then with the agreement of the Member, take a more aggressive stance. The club has arrested more than fifty ships in the past year in many different jurisdictions and has also arrested bunkers, frozen funds, and otherwise done whatever proved necessary to achieve a successful recovery.

Do not leave it too long before seeking the Club's assistance

Contact the Club within a reasonably short period after the debt has been incurred. The older a debt, the harder it is collect, especially if the ship has been sold and the debtor is bankrupt. In some countries the time limit for collecting a debt is as little as two years, so you may find that you have no legal redress against the debtor company.

Since its formation four years ago, ITIC has dealt with more than 1,500 debts and collected US$18 million for its Members.

The Club's minimum sum in dispute

The Club has a minimum sum in dispute, which is determined by the Directors and, for any debt less than this amount, the Club cannot incur legal or other third party costs. Currently the minimum sum is US$ 3,500. It does not, of course, make economic sense to spend more collecting the debt than the amount of the debt itself.

Two of the Managers' staff are concerned solely with debt collections and have acquired expert knowledge as a result. The Club is sometimes asked by Members to appoint lawyers to assist them in collecting monies which are properly due to their principals (such as freight or cargo-related charges) especially where the agent acts in a "del credere" capacity. Unfortunately, the Club cannot use its resources to collect funds due to parties other than the Members and it is for the principal to make his own arrangements (possibly through his Defence Club) for legal expenses insurance for collecting freights.

Finally, if you do not have cover under Rule 6, but would like a quotation, please communicate with the Managers. The collection by the Club of a debt that would otherwise have been written-off could more than exceed your total annual premium.