As the claims director of ITIC, the world's largest insurer of the liabilities of ship agents, I am uniquely qualified to talk on the subject of ship agents' liabilities.

I am using as the basis of my talk a recent analysis of all claims which exceed US$20,000 notified to the Club over the past five years. One of the reasons why this analysis takes place is so that the Club can target its loss prevention efforts at areas which need attention. A few years ago, the largest claim against ship agents was for delivering cargo without production of the original bill of lading, and the Club issued circulars, published articles and dedicated an issue of the Claims Review to this subject. Recently the incidence of fraud, both from outside and from within the ship agents' own office, has given the Club cause for concern. The latest edition of the ITIC Claims Review deals exclusively with fraud, and how to prevent it

Ship agent's liabilities fall into two categories. The first category of claims result from the agent's own failure in his duty to others, and particularly to his principals, and the second category results from the failure of the ship agent's principals in their duty to the ship agent.

The main duties of an agent to his principal are to:

One of the duties of a principal to his agent is to:

The latest analysis of claims against ship agents has revealed that 55% (by quantum) of claims against agents were due to the agent's negligence (failure to comply with instructions and/or to act with reasonable skill and care), 20% were in respect of fraud by agents’ employees (failure to act in good faith) and 25% were due to the failure of agents' principals to indemnify them.

The negligence of ship agents primarily takes the following form:

1) documentary errors

2) delivery of cargo without production of bills of lading

4) errors in quoting freight rates

5) other types of negligence

One of a ship agent's tasks is to prepare all the documentation which relates to the cargo. A mistake in a bill of lading or manifest can have wide ranging consequences, and produce a wide variety of claims.

A port agent in Auckland was instructed to clause bs/l for a shipment of logs from New Zealand to Korea "freight payable at Auckland as per c/p". The b/l clerk took this to mean that the freight would be prepaid and added the "freight prepaid" stamp. The shipper negotiated the bs/l with the Korean consignee, and then went bankrupt owing freight of US$400,000 to the shipowner. The owner was unable to lien the cargo for his freight and recovered it from the agent.

In most countries, in order for a carrier to be fined by customs, there has to be a substantial irregularity in the way cargo is declared, and possibly evidence that the carrier has made an intentional misdeclaration. However, there are countries where fines by customs for minor errors in bills of lading and manifests are a major earner of foreign exchange. Indeed, customs in some countries are presented with substantial targets which they have to collect each year in fines, and in others the customs officers are paid a percentage of any fines they manage to collect. This type of incentive creates a climate where the customs officer will seize on any minor documentary errors, and agents should therefore be extremely careful when preparing documentation. When a Chilean ship agent issued a bill of lading for a consignment of denim cloth for Colombia, he inadvertently entered the freight amount in the place where the weight should have been. Even though it was obviously a genuine mistake, the Colombian customs seized the opportunity (and the cargo). The agent had to pay a fine of US$35,000 to get the cargo released.

If an agent makes a mistake in the documentation which resulting in a container being sent to the wrong destination the costs involved are usually those of repositioning the unit to where it was supposed to go. However there can also be other losses, such as customs penalties, cargo loss or damage or even confiscation by the authorities. Cargo bound for San Diego has been sent to Santiago, steel for Cochin went to Kaohsiung and it is amazing how many places in China have identical or similar names. The only way to get containers from Manila North Terminal to Manila South Terminal is apparently by sending them via Hong Kong. If a number of containers are involved, the costs can be enormous. It may only cost hundreds of dollars to send a container from Europe to New York by sea, but if you have fifteen containers erroneously stowed for New York instead of Long Beach, the costs of trucking across America will be thousands of dollars per container.

What happens when two different grades of the same cargo are loaded in the same yard on the same day? Time and time again, we see that where cargoes of two different grades are mixed, the fortunate consignee who gets a more valuable cargo claims to have sold it on without noticing, whereas the consignee who gets the inferior cargo refuses to accept it. We have seen this same phenomenon with butter from Denmark, wool from New Zealand, pickled sheepskins from Ethiopia, and fish from India.

Not every shipper who gets better grade cargo than he ordered takes advantage of the fact. Two containers of whisky (one of "red" label and the other the more expensive "black" label) intended for Buenos Aires and Montevideo respectively were cross delivered due to a mistake in preparing the bills of lading. By the time the Argentinean consignee realised he had got "black" label instead of the "red" label he had ordered, the whisky had already been customs cleared. Being an honest man, he immediately informed the Argentinean customs of the mistake. They were so grateful to him that they fined him US$30,000 for incorrect documentation and tax evasion! The consignee in Montevideo was only pacified when he had been paid the difference in price between the two grades of whisky.

One of the more common mistakes of liner agents is that of failing to ensure that the container is plugged into the power supply either ashore or on the ship. Some refrigerated cargoes are extremely valuable - a container of photographic film or of seafood would be worth US$150,000+. When an agent mixes up the temperatures for two containers the result can be very expensive. Such a mix-up resulted in a container of frozen beef being carried at +4oC and bottled wine being chilled down to -18oC. The agent at the discharge port, who had been notified of the mistake, felt it would be a good idea to correct the temperature settings. When the containers were opened, the beef was in a very bad state indeed, and a mixture of white wine and broken glass flowed out of the other container.

Failure to properly clause bills of lading can cause many different problems. Just one example of this is a failure to make it clear that cargo is loaded on deck at shipper's risk. A brand new helicopter was shipped from the US to Australia in a semi-dedicated container ship and was unfortunately swept overboard in bad weather. The bill of lading was prepared by forwarders acting for the shippers and had been claused "Below Deck Stowage Required". As the ship could only take a small number of boxes under deck, the agent should have deleted this clause, but failed to do so. The line faced a claim in excess of US$1,000,000 from cargo insurers which, but for the agent’s error, could have been settled for US$500 under the package limitation provided for in the US Carriage of Goods by Sea Act.

If snails, insects or other kinds of wildlife are found in or on containers, the health authorities are likely to request the line, via its agent, to arrange for the cargo to be fumigated. What happens if the agent keys in the wrong container number into his computer?

Ten containers of acetate tow, from which cigarette filters are made, were rendered worthless by a liberal application of methyl bromide. The same fumigant was used on at least five containers of food, which had to be destroyed.

The ultimate claim was the wrongful fumigation of a container of washing machines. In itself this was not a catastrophe, as the smell would have dispersed eventually. However, the washing machines were then installed into mobile homes, which were sold to the general public in California. When the washing machines were used, the combination of the fumigant, the rubber gaskets on the washing machines and the heat, produced a gas which, in the confined space of the mobile homes, made the owners very sick indeed.

When a bulk cargo has to be delivered directly over the ship's rail into the consignee's trucks, the port agent needs to be very quick on his feet. He has to ensure that either the original bill of lading or, if his principal agrees, an original bank indemnity, is in his hands before the cargo is loaded into the trucks and effectively delivered. Some oil cargoes change hands so many times before they are delivered that the ultimate receiver never has an original bill of lading. Here, the agent must be extremely careful that he exactly follows his principal's instructions on delivery, otherwise he can end up with a claim for a misdelivered cargo worth millions of dollars.

A German liner agent received four identical containers of television sets, each shipped by the same Hong Kong company under separate bills of lading to the same Austrian consignee. All four containers were released on the same date and delivered to a Polish receiver. Six months later the shipper produced a full set of original bs/l for one container, and it was discovered that the agent had taken three original bs/l in exchange for 4 containers. The agent reimbursed the line with an amount of US$175,000.

In many cases the cargo will be covered by two bs/l, the ocean carrier's and an NVOCC bill. Agents frequently deliver against the NVOCC bill, when they should have waited for the ocean carrier's bill and vice versa. In a recent case an English liner agent received the original ocean carrier's bill of lading, duly endorsed, from a US NVOC with an instruction to only deliver a container of electrical goods against the NVOC's bill of lading. An employee of the agent made an entry in the computer simply recording the fact that the original ocean carrier's endorsed bill of lading had been lodged. Another employee, relying on this entry, released the cargo. The NVOC bill was left with the bank by the consignee.

Where more than one of the agent's branch offices is involved in the delivery (the port office and an office near an inland depot) misunderstandings can arise. Often each office checks with the other that all handling, haulage and freight costs have been collected, but unfortunately fails to check that the other has received the original bill of lading.

Another option, when the original bill of lading is not available, is to deliver against a letter of indemnity. The indemnity does not relieve the carrier of liability to the cargo owner. It only provides for compensation for amounts which the carrier may have to pay to the holder of the original bill of lading. The agent should therefore be very careful to ensure that not only has his principal authorised him to accept a letter of indemnity, but that the principal has also approved the wording and the security.

The release of cargo against indemnities has produced many claims. In one case the agent had received a letter of indemnity, counter-signed by a major international bank, which was addressed to "the Master/Owner/Charterer of m.v.....". However, the agent's principal was an NVOC, and the letter was useless in that it did not protect the interests of the agent's principal or the agent himself. Agents have accepted letters of indemnity where the bank's signature has been forged, and where the amount of cargo mentioned in the indemnity was far less than the cargo which was released.

An agent has to be careful to quote the correct rate, otherwise he will find himself paying the shortfall. A liner agent in Antwerp booked 83 containers of vegetable oil to Blantyre, Malawi, but quoted the rate for Bloemfontein, South Africa, which was the next rate on the principal's tariff. The difference in freight amounted to US$250,000. The shipper (not unnaturally) accepted the quote and the line had little choice but to claim the freight difference from the agent. A high price to pay for one's eyes straying down a page.

A German agent for a Chinese shipping company accepted a booking for the shipment of steel rails in three parcels from Hamburg to Huangpu, at a price of US$65 per ton. The first parcel was shipped on the terms agreed, but the principal refused to ship the second and third loads at the same rate. The freight market had risen and it was unclear from the principal's acceptance of the booking whether the full shipment, or only the first parcel, had been accepted at the original rate. The shipper eventually had to pay considerably more to ship the final two parcels, and claimed most of the difference from the German ship agent, who had confirmed a rate on behalf of his principal without having clear authority to do so.

There are many other types of negligence, which defy categorisation, and which have resulted in claims against ship agents. There have been several claims where the agent has provided wrong information about the dimensions of a ship, or the draft at a particular berth, which has meant that the ship cannot enter the particular port or berth. In one case, an agent failed to book a Suez Canal transit in time to get an 80% rebate, and in another an agent failed to book a Panama Canal transit when requested to, which resulted in a two day delay to the ship. An agent in the USA who acted for both owner and charterer was successfully sued by the owner for failing to inform him that the charterer was in financial difficulties.

An important part of a liner agent's job is to off-hire and redeliver his principal's leased containers. If he fails to do so his principal could lose large amounts in unnecessary storage and hire charges. A liner agent in Singapore failed to do this over a six month period. His principal calculated he had overpaid US$750,000 and claimed from his agent who had caused the loss. Another liner agent mistakenly thought a reefer container was part of his principal's leased equipment and used it for an outward shipment. Over a period of three years the reefer box was in regular use on his principal's ships - until it was discovered that one of the local shippers had been paying rent on the box for all this time. The principal refused to pay the reefer hire charges, on the grounds that he had sufficient reefer boxes to carry out his trade, and the agent had to pay.

An agent must not allow his own interests to conflict with his duty to his principal. If an agent accepts an incentive from a supplier of goods and services to a ship to place orders for the ship with that supplier he is in breach of his duty to his principal and can be instantly dismissed. In many countries he has committed a criminal offence. If the agent is asked to procure goods and services for the principal and instead of passing on the cost of goods he charges a higher price, then any such practice would constitute the taking of a "secret profit", and the principal is entitled to either refuse to take the goods, or to claim reimbursement of the agent's profit..

Unfortunately the Club has seen a large increase in claims resulting from fraud by Member's employees. In one case, two employees of a ship agent set up a bank account in the name of the principal and managed to divert US$250,000 in freights to it. In another, an export clerk, in collusion with outside forces, released 11 containers of clothing worth US$2,200,000 without receipt of the original bills of lading.

ITIC insures the liabilities resulting from fraud by Members' employees for the personal benefit of those employees. The Club does not insure the fraud of directors, partners or senior managers. The insurance is for third party liabilities and does not include, for instance, the theft of the company's own funds.

Although claims for libel/slander did not figure in the most recent analysis, it should be mentioned that the ship agent, like every other professional, needs to be very careful what he writes or says about other parties. If he passes on information he should make his source clear, and should be careful not to pass on rumours which are not substantiated.

A rapid growth in the use of electronic communications has opened up a new area of risk. Companies need to be very careful what information they include in their e-mail communications, whether internal or external. We have seen examples of confidential information which was intended for one party inadvertently finding its way onto a mailing list which was distributed all over the world. A message sent is easily attached to another, whether deliberately or inadvertently. In a recent case in England the Norwich Union Insurance Group was ordered to pay a rival insurer £450,000 in damages and costs after a defamatory message was circulated internally between Norwich Union offices by e-mail. The communication included unfounded rumours about the financial viability of the rival insurer.

Approximately 20% of the claims against ITIC's ship agent Members result from liabilities for which the agent bears no fault, and which have fallen on him because his principal has either failed to pay, or failed to indemnify him.

Liabilities resulting from default by principals:

• as an unintentional principal

• misdirected "arrows"

Unintentional principal

An agent orders numerous goods and services on behalf of his principal. Examples are launches, tugs, stevedores, hauliers, doctors, and crew travel. In most countries if an agent orders goods and services "as agent only" in the name of his principal, then he has no personal legal liability if the principal fails to pay. It is, however, an unfortunate fact that agents can become careless in the way they order goods and services for their principal, and make the mistake of believing that because everyone knows they are an agent, they have no personal liability. The agent should always make it clear to vendors (however long he has been using their services) that he is an agent, and for additional safety he should always name his principal. Otherwise he could find himself in the position of having contracted himself, and end up paying his principal’s debts.

When shipping lines or ship owners go bankrupt, vendors often start scrutinising communications to see if they can recover the unpaid amount from the agent. Some vendors genuinely believe they contracted with the agent. A shipping line went bankrupt in 1998, and the UK agent was faced with numerous claims from unpaid vendors. The claims were successfully defended, but at a cost of US$80,000.

A Far Eastern ship agent made a similar mistake when he ordered bunkers for ships chartered by his principal, the operator of a liner service. The agent ordered bunkers for three ships at a total cost of US$186,000. Six months later the principal went bankrupt without paying the bunker suppliers, who then issued a writ against the ship agent, alleging that he had ordered the bunkers for his own account. The ship agent had ordered the bunkers by telephone, and had accepted booking confirmations and invoices from the bunker suppliers addressed to "Master/Owners/Charterers/Agents" without any protest or comment. The courts found that the agent had not made his agency status clear to the bunker suppliers and that they were entitled to look to him for payment.

In most jurisdictions an agent has no personal responsibility for his principal's liabilities or debts, provided that he makes his agency status clear. However, in other jurisdictions the agent is jointly and severally liable with his principal either by statute or by an enactment of the port authority.

There is a growing trend for port authorities to use a broad definition of "port users" with responsibility for charges, damages, etc. More and more port authorities define the "port user" as "the master, owner, charterer, agent, etc.. Frequently ship agents have to post a guarantee with the port, and if the agent’s principals default on their debts or their liabilities, the agent's guarantee will be drawn on. The agent thus becomes liable for port dues, or pilotage, and in some cases for the cost of damage to port installations caused by his principals' ships or even the cost of removing a wreck, which is not likely to be less than US$700,000 and could run into millions.

Some examples of statutory liabilities faced by ship agents are:-

• cargo claims [e.g. Kuwait, Colombia, Pakistan, Philippines]

• freight tax [e.g. Malaysia, India]

• immigration fines and costs of repatriating stowaways [most countries, including the UK, USA and Canada]

• wreck removal/dock damage [Australia, Uruguay, Venezuela]

The best example of how catastrophic such a claim can be for a ship agent started with the sinking of a small container ship in Baranquilla harbour. Baranquilla is in Colombia and the Colombian Commercial Code provides that:

The ship was salved and placed on a berth in Baranquilla, where she stayed for three years. During these three years the shipowner and the liner company which operated the ship both ceased to exist. The agent received claims for US$5,000,000 (for which he was legally liable) covering wreck removal, berth dues, and loss of cargo. He even received a claim for US$1 million from the owners of a brewery because oil which escaped from the ship when she sank had entered the brewery's intake pipes.

The main source of claims is for cargo damage. In many jurisdictions the cargo owner has no need to chase the foreign shipowner or shipping line to recover his losses; he can sue the local ship agent in his local courts instead.

Agents were appointed to act for the call of a ship at Karachi by a shipping line (who were also the beneficial, but not the registered, owners of the ship). The ship was owned by a single ship Liberian company. The ship damaged an oil pier in the port, and the Karachi Port Trust imposed a fine of US$20,000. The ship's only working generator broke down, delaying discharge for three days, and the Karachi Port Trust imposed another fine of US$25,000 for breach of a regulation which required her to have two working generators. The Port Trust subsequently deducted the US$45,000 from the ship agent's guarantee, and the principal refused to reimburse his agent. Attempts to arrest the ship were thwarted by the "sale" of the ship to another single ship Liberian company, even through she was still being operated by the same interests.

The agent in Malaysia for a large tanker operator who became bankrupt in the mid 1990s, found himself facing a bill for freight tax for cargoes shipped from Malaysia, even though he had never been in possession of the freight and had therefore never had the opportunity to deduct the freight tax from it.

Another agent in the Middle East was fined US$150,000 by his local Environmental Protection Agency because a ship under his agency had damaged a coral reef.

Statutory liabilities are, of course, primarily the concern of the owner or the master of the ship and should be insured by the shipowner's P & I Club. In most cases the shipowner and his P & I Club will deal with the resultant claims, but unfortunately we are increasingly seeing defaults by the shipowner, either because of his bankruptcy, or because he has sold the ship in question and is no longer interested. None of this will seem reasonable or fair if you are a ship agent, but the law is designed to protect the interests of local cargo owners and port authorities. When the ship agent's joint and several liability is combined with a legal system which is long-winded and slow, the uninsured agent could find his continued existence in danger. Frequently, where there is joint and several liability, the shipowner is not even named in the proceedings by the cargo interests or port authority and therefore sees no reason to defend the claim. Even if the shipowner is named, by the time the case has dragged through the legal system, the shipowner could be bankrupt, the ship sold or scrapped, and the shipowner's P & I Club has withdrawn cover, possibly because of non payment of premium. The only one left "holding the baby" is the ship agent.

Even when the agent has no liability for his principal's claims he can still end up substantially out of pocket if he is mistakenly sued in addition to, or instead of, his principal. This is by no means a rare occurrence and causes particular problems in jurisdictions where the agent is not legally entitled to be indemnified by his principal for the costs of his defence, or if his principal cannot pay because he is insolvent. In some countries even if you successfully defend an unjustified claim, you cannot recover your costs from the claimant. We call these claims "misdirected arrows". They may be fired at the wrong person, but when they hit they are just as painful.

One American agent for a cruise ship was on the receiving end of a lawsuit from two stevedores. In the course of loading baggage on the ship, the stevedores met a friend and joined him for a drink or three in the ship's bar. The men were unable to leave the ship with the pilot down the Jacob's ladder because they were too drunk and were taken on a cruise to Mexico. The agent was amazed to subsequently receive a suit from the stevedores holding him liable, with the owners, for false imprisonment, kidnap, assault, and mental distress. Although the stevedores eventually withdrew their claim against the agent, the legal costs of US$150,000 were unrecoverable.

We are living in a more litigious world than we were five or ten years ago. A ship agent who was fairly heavily involved with reefer containers when asked a couple of years ago why he had no insurance of his own to deal with, for instance, a mix-up in the temperatures of two reefer containers, said that he had no need to, as his principal insured the risk. The same agent subsequently mixed up two temperatures and had to pay his principal US$200,000. He is now insured. In the not too distant past, the principal and the principal's P&I insurer would probably have picked up the claim, even if it was the agent's fault. However, since the explosion of P&I claims in the late 1980s, not only have the premiums charged by shipowners' P & I Clubs increased substantially, but shipowners have also tended to reduce their premium by taking higher and higher deductibles. Deductibles used to be in the region of US$500 to US$1,000, but are now more likely to be US$25,000. In addition, P & I Clubs are more diligent in recovering claims from the guilty party.

This also affects agents who are exposed to statutory liabilities. At one time the shipowner would continue to deal with a cargo claim even if the ship had been sold as his insurers would be picking up the bill, but today he is less likely to do so as it is possible that the claim is uninsured because of his high deductible.

Agents today have a very tough life. The smallest errors can result in enormous liabilities which could bankrupt them. Although there are some moves for ship agents to have standard trading conditions, ship agents remain one of the few professionals in the marine transport industry who face unlimited liability. The only sensible solution is to do what all of you have done, and become Members of ITIC.