|
|
||||
|
|
|
|
|
|
||||
|
||||
|
Ship Management : Tuesday 3rd October 14.45 - 15.15 Andrew Preston - Clyde & Co |
|
Collecting Outstanding Debts Introduction For a ship manager, the collection of outstanding debts is essential to ensure his financial wellbeing. In addition to assisting a shipowner in collecting monies due to the shipowner, a ship manager must also be alive to the debts that he incurs on behalf of the ship owner. The majority of this paper will deal with the second area of recovering monies for ship managers. The Contract Before looking at how a ship manager can go about recovering debts from a ship owner, it is perhaps sensible to recap the type of debts that he will be incurring on a shipowner's behalf. A ship manager's contractual relationship with a ship manager will vary from company to company and jurisdiction to jurisdiction. However, the most common form of ship management contract is the "Ship Man 98" form, a copy of which is appended to this paper. Briefly, a ship manager who contracts on the "Ship Man 98" form or an analogous type of contract agrees to do the following:- • Provides suitably qualified crew. • If the ship managers are also commercial managers then they will appoint agents at the ports and stevedores. • If the ship managers are technical managers then they will also:
• Arrange the insurance of the vessel. • Arrange for the provision of bunkers. It will be seen from the above list (which is by no means exhaustive) that the ship managers are potentially exposed to huge liabilities on behalf of the owners. That said, under the terms of the "Ship Man 98" form a shipowner must do the following:-
It is therefore relatively straightforward for a ship manager to point to a breach of the ship management contract when an owner fails to reimburse him promptly. That is the easy part. The harder part I ensuring that a ship manager is not, ultimately out of pocket. The points that I make below fall into two categories first, how to limit your exposure in the first place and secondly, once the debt is incurred how to pursue owners for reimbursement of that debt. Debts from Shipowner Limiting a Ship Manager¹s Exposure to Debts The managers are usually the first people to know about a ship owner¹s financial position since it is the manager who knows what freights/hire the vessel is earning and what expenses are being incurred. If the vessel is lying idle or off hire or alternatively hire/freights are not being paid then clearly there will be a cash flow problem and a ship manager should be wary of committing himself contractually to any further debts on behalf of a shipowner. Whilst from a legal point of view this is correct there may be commercial difficulties in declining to commit to repairing the vessel or employing a new crew. Additionally, a ship manager should consider how he contracts with third parties on behalf of the shipowners. Take the supply of bunkers for example. A ship manager on behalf of the shipowners will usually contact various bunker brokers to request supplies of bunkers. The brokers will contact various bunker traders who will bid for the stem. Once one of the bids from the bunker traders is accepted then there is usually a binding contract between bunker trader and the "buyer" of the bunkers. Often once the bunkers have been supplied an invoice will be issued by the bunker trader and their terms and conditions of business will appear on the reverse. Those terms and conditions will not apply to the first contract but if there is a course of dealings between the bunker trader and the "buyer" then as a matter of English law, their terms and conditions of business may apply. This is important for ship managers because many bunker traders now include a provision along the following lines:- "Should marine fuel be ordered by a broker or agent then such broker or agent as well as the buyer shall be bound by and liable for all obligations as fully and as completely as if they were themselves the buyer whether such principle be disclosed or undisclosed and whether or not such broker or agent purports to contract as broker or agent only but in all such cases the said broker or agent shall not have any rights against the seller". Historically, a ship manager could protect himself simply by confirming to a seller that he is acting as "agent only" for the shipowner in the contract for the purchase of bunkers. The above clause which appears in many bunker contracts raises a whole host of interesting legal issues about its enforceability on brokers and agents such as ship managers but if the courts in a particular jurisdiction are happy to enforce such a clause then ship managers are directly liable to the bunker trader. It is therefore essential that ship managers who contract with suppliers such as bunker traders, do so as agents only on behalf of shipowners and to make sure this point is made to the supplier. He should also read the terms and conditions of suppliers. The supply of bunkers is such a competitive market that many suppliers would probably be happy to delete a clause rendering the ship manager¹s liable if it secured them the contract for the supply. The position is similar in ship repair contracts. Contracts such as the "Ship Man" form require a ship manager to arrange and supervise "dry dockings, repairs, alterations and the upkeep of the vessel". Many ship repair contracts define the customer as the "person or firm or company placing an order with the yard" which would be the ship manager. Ship managers should of course always describe themselves as "agents only" sometimes, however, it is a ship manager himself who is placing the order with the repair yard and it may be difficult for him to avoid being primarily liable to the ship repair yard. That said, in a competitive market it is certainly worth a ship manager entering into prolonged discussions with a number of yards and making it a condition of any contract that they enter the repair contract as agents only for the shipowner who is the liable party to the ship yard repair. Further, ship managers will often receive monies on account from a shipowner and then guarantee the shipowners¹ obligation to third parties such as bunker suppliers or repairers. This situation can potentially be disastrous for a ship manager. If the shipowner goes into liquidation then a liquidator will be appointed to collect in the assets of the owners. The money held on account with the ship managers is an asset of the ship owners and in most jurisdictions, would be returned to the liquidator. This will leave the ship manager without any money on account and a guarantee to third parties. The obvious conclusion from this scenario is that a ship manager should very wary of guaranteeing obligations of a shipowner in any circumstances. In summary, a ship manager can go some way towards limiting his exposure to debts by ensuring that the comply with four simple rules:-
Collecting Outstanding Debts from Shipowners No matter how careful a ship manager is in contracting with third parties, it is almost impossible to avoid incurring debts to some degree on behalf of the shipowner. If a shipowner diverts his assets away from the manager¹s accounts or switches managers then a ship manager may have considerable sums outstanding which need to be recovered from a ship owner. Where monies are still coming into a shipowner¹s client account held with the ship managers then it is easy to deduct monies due. Where, however, there are no obvious assets other than the vessel itself then a ship manager will need to consider arrest or the exercise of maritime liens as their remedies to recover monies. Arrest of Vessels Nothing concentrates the mind of shipowners quite like an arrest. An arrest may be time consuming and expensive from the point of view of a ship manager but the inconvenience and immediate loss of revenue to the shipowner will invariably bring them to the negotiating table and will often result in the settlement of the claims or the provision of security. An arrest is therefore a vital weapon in the arsenal of a ship manager to recover monies due to him but are far from risk free. The basis for the arrest of vessels lies in the 1952 Arrest Convention which has been ratified by 75 countries. For example, in England, the 1952 Arrest Convention has force of law under the Administration of Justice Act 1956. Most jurisdictions will consider an application by a ship manager to arrest a vessel by relying on the terms of this convention. The convention lists the causes which give rise to maritime claims in Article 1. The problem that ship managers have faced over the years is that nowhere in the 952 Arrest Convention does it describe ship manager's claims as a "maritime claim". The two grounds that are commonly relied upon by ship managers are as follows:- "(k) goods or materials wherever supplied to a ship for her operation or maintenance
Historically, shipowners have been forced to rely upon the above provisions to argue that if they have contracted for the supply of, say, bunkers then such bunkers fall within the definition of "goods or materials" supplied to the ship. But is a ship manager is simply claiming non payment of his management fee then is this a "good or material supplied to the ship?" The answer is almost always no. Similarly, where the ship managers have incurred debts to stevedores or port agents then they are forced to argue that their claim falls under (n) being a master¹s disbursement made by "agents" on behalf of the ship or owner. Invariably, the ship manager could "hang his claim" on one of he grounds of the Arrest Convention but in many jurisdictions it was far from easy. This difficulty was recognised by the shipping community when they came to draft the 1999 Arrest Convention. Article 1(1)(k) has now become Article 1(1)(1) and now makes it clear that goods and materials claims are extended to cover "provisions, bunkers, equipment (including containers) supplies or services rendered to the ship for its operation, management, preservation or maintenance" (emphasis added). For the first time ship managers¹ claims are expressly incorporated within the Arrest Convention. Whilst the incorporation of ship managers¹ claims is good news, it may take a fair amount of time before it has any practical affect. The 1999 Arrest Convention will only have force of law when it has been signed by 10 signatory states. So far, only Pakistan has signed the Convention! When considering arresting a vessel it is worth thinking about the following points:-
Liens As I mentioned above, arresting a vessel is an effective and direct way of securing claims and resolving disputes. You can however only arrest a vessel in most jurisdictions if the owners at the time of the arrest were also the owners of the vessel when the debt was incurred. Companies incurring a string of debts to a number of parties including the ship managers may switch ownership of their ships to defeat claims against them. If the vessel is owned by a "new company" then it is going to be difficult to persuade a court to grant an arrest order unless you can show that there has been a fraudulent transfer of ownership. It is for this reason that liens are vital. The law relating to the exercise of maritime liens is complex and varies from jurisdiction to jurisdiction. The basis however lies in the liens and mortgages conventions of 1926, 1967 and 1993. Under these conventions claims for wages and certain claims for "necessaries" will give rise to a maritime lien and will survive a private change of ownership. Therefore even if a ship owner tries to defeat claims by switching ownership of the vessel the claims for wages and necessaries will still attach itself to that vessel. In many jurisdictions that phrase "necessaries" includes goods and materials supplied to that ship and stevedoring costs, port charges etc. It is a difficult question of law as to whether a ship manager¹s management fee will give rise to "necessary" although authorities for the English Courts have confirmed that analogous debts such as charterparty brokerage fees, agency fees or insurance premiums on freight or hull do not amount to necessaries. A ship manager¹s management fee would not give rise to a maritime lien under English law. Since crew wages and many of the other costs that are incurred by ship managers on behalf of owners do give rise to liens then ship managers should actively consider arresting vessels notwithstanding that they have changed ownership. The argument is that if the crew or stevedores etc would have a lien and the ship managers pay the crew or the stevedores etc then they should take an assignment of their claims against the owners and acting as assignees, arrest the vessel. You should of course check in each jurisdiction where you wish to take action whether it is possible. Arrests and liens are essentially direct actions to attack the asset (i.e. the ship) and hopefully, secure the ship managers for their claim. Where the vessel no longer exists then a ship manager will need to urgently consider alternative remedies to obtain reimbursement from the shipowners. Ship managers will know more about the ship¹s bank accounts than most parties and will be in a position to know with a reasonable degree of certainty where monies belonging to the ship owners may lie. A ship manager should therefore consider the possibility of applying to the relevant local courts for an attachment order over those bank accounts freezing funds. This is particularly so where the vessel has been a total loss. In this situation, the only asset available to creditors is often the hull proceeds. Since the managers in all likelihood placed the hull insurance on behalf of shipowners they will know which underwriters are paying the insurance and they are perfectly placed to obtain an attachment either of the underwriters¹ accounts to secure their claims or to attach to the owners¹ bank accounts as and when the hull proceeds are paid. Arrests liens and attachments are useful weapons available to a ship manager in securing their claims. Often however pre-judgement security actions may not be necessary and ship managers will simply need to obtain an award for the sums due to them from the shipowners. The "Ship Man 98" form refers disputes to two forums, one being English arbitration subject to English law. Ship managers should not be reluctant to use this forum. Using the procedures under the Arbitration Act 1996, the arbitration tribunal can be appointed very quickly and if the ship managers¹ claim is straightforward then he can obtain a final award for his debts in a matter of weeks or months. The ship manager will then be in a position to enforce his arbitration award. The New York Convention on enforcement and recognition of Arbitration Awards 1952 has been signed by a large number of countries and if you wish to enforce against a shipowners¹ assets in a particular jurisdiction then provided that country is a signatory to the New York Convention enforcement of the arbitration award should be relatively straightforward. Assisting a Shipowner to recover Outstanding Debts As I mention at the beginning of this paper the second area which ship managers are concerned with is how to assist shipowners in recovering debts. Essentially, a ship manager will be concerned with assisting owners in recovering hire, freight, demurrage or detention damages or in recovering monies following damage to a vessel. A shipowner¹s remedies will vary from jurisdiction to jurisdiction and will depend largely on the party against whom a shipowner is bringing proceedings. Invariable, however, his claim will lie against a charterer (whether it be bareboat, a time, voyage or slot) or the owners of a cargo under a Bill of Lading. The golden rule for any ship owner who has claims against a charterer or a cargo owner is to take action as quickly as possible. If a shipowner waits many months before proceeding for claims outstanding freight, hire or damage to the ship then he may find the name of the plate Panamanian company to whom he chartered the vessel no longer exists and he will then be left without any remedy. A shipowner¹s bargaining position will be at its strongest when he has something that the opponent wants, normally, the cargo. Many contract forms will give a shipowner the right to retain possession of the cargo, see for example, the Gencon 1976 form at Clause 8:- "Owners shall have a lien on the cargo for freight, deadfreight, demurrage and damages for detention. Charterers shall remain responsible for deadfreight and demurrage (including damages for detention) incurred at the port of loading. Charterers shall also remain reponsible for freight and demurrage (including damages for detention) incurred at the port of discharge below such an extent as the owners have been unable to obtain payment thereof by exercising the lien on the cargo." By way of caution however, while the shipowner may have a lien under the charterparty, he may not do so under the bill of lading and if he purports to exercise the charter lien he may be in breach of the bill of lading contract with the bill of lading holder. As a final point, owners are particularly well placed to identify bank accounts to attach to secure payment of outstanding sums. Normally, a shipowner will have received some hire or freight from an owner into his designated bank account and owners¹ bank should be able to tell the sender¹s bank details. It is something of a lottery attaching bank accounts depending on which jurisdiction is involved. Andrew Preston October 2000 |