Liabilities of ship owners attaching to agents

In many countries ship agents, and, in some cases ship managers, can find themselves involved in claims as a result of their joint and several liability with their principal, be that the ship owner or charterer. This liability arises as a result of either local law or port statute (statutory liabilities). Examples include cargo claims, payment of freight tax, customs duty and penalties, removal of wrecks, abandoned cargo, containers, etc., dock damage, immigration fines and repatriation costs, and oil pollution. These liabilities should, in the normal course of events, be handled by the principal and, where appropriate, their P&I Club.

The agent may also be liable, either at law or by port statute, to pay the principal's commercial debts, such as port and harbour dues, pilotage, bunkers/stores and repairs. Statutory liabilities form part of the cover provided by ITIC but commercial debts are not insured, as they can theoretically be taken care of by a prudent agent obtaining funds in advance.

In most jurisdictions, even where there is a joint and several liability, the principal, and not the agent, is the prime target for claims (eg although ship agents in Singapore are jointly and severally liable for dock damage and wreck removal, in practice the port authority will always look to the principal to ensure that security is provided before the ship leaves the port). However, in other jurisdictions (eg Pakistan) the ship may be allowed to sail and the port authority will send their bill to the ship agent, who then has to obtain payment from his principal. In the United Kingdom, the agent's liability is restricted to the costs and fines relating to illegal immigrants.

ITIC’s experience has revealed that the authorities in the following countries may look to the ship agent, rather than the principal, for various liabilities; Argentina, Australia, Bangladesh, Brazil, Canada, Chile, Ecuador, Colombia, Ecuador, India, Kuwait, Pakistan, Philippines, Spain, Taiwan, Turkey, United Kingdom, United States of America and Venezuela. This is not an exhaustive list, and consideration must be given to changing laws and revising port authority enactments.

Of the countries listed above, several have legal systems which take many years to process claims. This means that during the intervening years there is always the risk that the ship will be sold, or the 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, with the assistance of ITIC if necessary, to obtain a P&I Club letter of guarantee (LOG) before the ship sails. If there is substantial damage to cargo or a dock damage which cannot be defended or disputed then it may be possible to do this amicably. When an LOG is provided it is essential to check the wording of the letter to ensure that the agents’ liability is protected fully and that adequate consideration is given in respect of both interest and legal costs. The “International Group of P&I Clubs”, which is made up of 13 separate and independent P&I Clubs, have an agreed standard LOG wording, and this is quoted below.

QUOTE

P & I Club Letter of Guarantee

International Group Wording

Ship : M.V. "........."

Incident:

Date:

In consideration of your releasing from arrest and/or refraining from arresting or re-arresting and/or interfering in any other way with the use or trading of the above ship or any other ship or property or asset in the same or associated ownership or management, we, The .............. Protection & Indemnity Association Ltd, HEREBY AGREE to pay you such sum or sums as may be adjudged without the right of appeal by a competent court or arbitration tribunal or agreed between the parties with our consent to be due to you from the owners of the above ship in respect of the above matter, provided always that our total liability hereunder shall not exceed the sum of Pounds Sterling .......... (................Pounds Sterling) inclusive of interest and costs. This undertaking is given without prejudice to any rights or defences of the owners of the above ship, including their right to limit liability.

This undertaking shall be governed by English law and any dispute arising hereunder shall be subject to the jurisdiction of the High Court of Justice in London.

.............

The ...........Protection & Indemnity Association Ltd

UNQUOTE

Whilst it is not always possible to obtain an LOG based on this wording, the above is preferable and can be used as a guide if necessary.

ITIC has a number of other suggested LOG wordings for dealing with specific types of claims in certain countries, i.e. for expenses/fines incurred by agents in respect of illegal immigrants into Australia and the United Kingdom, customs dues and penalties in India, customs dues and penalties and cargo claims in Pakistan, all of which can be either found on the Club’s website, or provided by the Managers.

In the event that the claim falls outside of the scope of P&I Clubs cover, or P & I Club refuses to provide an LOG for any other reason, the agent should look directly to his 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 it may be possible where there is an actual claim on the ship agent (eg from the port for damage to harbour installations).

When first made aware of any statutory liabilities claim, the agent should immediately inform his principal of the loss/claim and seek confirmation that they (the principal) will indemnify the agent as per his duty and obligations in accordance with the laws of agency and any current agency agreement.

Whilst it is preferable to obtain formal security in respect of the claim, be that in the form of a P&I Club letter of guarantee or a cash bond/bank guarantee, consideration should be given to the reputation and status of the principal. In some cases it may be acceptable to receive the principal’s written confirmation that his P&I Club is handling the matter, protecting both owners and agents interests.

In the event that the principal does not co-operate with the request for security, you should contact ITIC who will approach the principals and/or the P&I Club directly with a view to obtaining security. Additional assistance is always available from the Club’s local correspondent. The correspondent will be well experienced in the type of claim faced by the agent and the best and most economic way to deal with it. As you may be jointly liable with the principals, the local correspondent may already be involved, and may be defending the agent's interests already.

An earlier Intermediary article (“misdirected arrows – ignore them at your peril” October 2002) addressed the problems faced by agents where claims are brought against them where they do not have joint and several liability and where there is no basis in law for a claim against them. This is available from the Club’s website www.itic-insure.com.