Surveyors, Consultants and other Transport Industry Professionals: Tuesday 3rd October

09.15 - 10.00 Tony Payne - ITIM

Title: Loss Prevention for Transport Professionals

• ITIC is a credible insurer of your business.
• ITIC understands what you do.
• ITIC has some sensible ideas to help reduce the risks you face.

• To open day two of our own Conference with authority.
• To provide Members with some loss prevention advice from their Club to take away with them.

• To provide a brief insight into some of the dangers that we know Transport Professionals might face.
• To share some straightforward ideas which Members can put into practice to try and prevent claims being made against them.

List to follow

PLAN FOR PART ONE (ANP)

• Introduction, including reference to:

• Duration of talk 20 minutes. Talk in 3 parts.

• Re-confirmed to avoid misinterpretation. (note conversations)
• Recommend others if necessary (don’t go outside your expertise area)
• Who is instructing you? Do you know them? Which party are you representing? Ship owner, charterer or insurer?

• Office management systems to check fax attachments, fax numbers and emails (the important fax that never made it / threat of increased email use)
• Back-up’s (email, faxes, data)
• Storage of reports and correspondence(time-bar/legal requirement in different jurisdictions/average adjuster claim example / lost records from the past)
• Disaster recovery.(?)

• Contracts/agreements (prior approval/necessary inclusions — liability, limitation, jurisdiction etc.)

• Standard Trading Conditions (refer to briefly because of following speaker.)
• Sub-Contractors (careful with choice/your name on the line/ do they have insurance?/ Written agreement with them? What should be in it?)

(RL speaking - making the introduction)

And so to our first paper.

Only you know, how best to run your individual businesses. However, at the Club’s Headquarters we have a unique overview of how each of you do this. The first paper today passes on some of these secrets. It is in two parts. My colleague Tony Payne will share with you, for the next 20 minutes, the lessons, some of them painful, that other members have learnt. I will then take over from Tony and look at, for the last ten minutes or so, a subject dear to all of us; that of getting paid for our work.

Tony Payne is Managing Director of ITIM, ITIC’s management company. He began his transport industry career with one of the old British liner companies before joining a ship agency in Singapore. Then came six years in Jeddah as a ship agent and Lloyd’s Agent followed by thirteen years in Piraeus as a Lloyd’s Agent and P&I Club correspondent. Tony joined ITIM’s predecessor Transport Intermediaries Services in 1985.

Loss Prevention for Transport Professionals (ANP)

Introduction

I want you all to imagine that you have just written out a company cheque for a very large sum of money. Say the equivalent of US$ 200,000. It was not an amount that was budgeted for. Not too many businesses have sufficient cash available to cover such a payment. You feel uncomfortable. Looking back, you know the payment was unnecessary. You know the problem which caused it could have been avoided.

Your professional indemnity insurers are going to reimburse you, or so you believe. But you will still have a large claim on your claims record and may well have to share the unpleasant details with your colleagues or, at the very least, your accountant.

Fortunately, not too many members of ITIC face this scenario. We have US$ 200,000 claims only once or twice a year. However, many of them could have been prevented with the benefit of hindsight.

The aim of this paper, therefore, is to highlight some of the dangers we, the Club’s Managers, believe your businesses are facing. Many of them will be obvious. The application of common sense is the most effective loss prevention tool. However, in a busy successful business, it is the simple straightforward risks that are most often overlooked.

This is not an attempt by us to try and tell you how to run your business. Our simple aim is that by the end of the day both you and we, the Managers, will feel that we have enjoyed a very useful exchange of views.

I am going to examine three areas of business risk for the Transport Professional.

The first is present when a new instruction is given to you.

• Instructions

The second, when you interact with your customers…

• Communications

and the last, a lack of which can spell disaster for all of us…

• Preparations

1. INSTRUCTIONS

Verbal instructions always provide the potential for a dispute but it gets even more complicated when instructions come both verbally and in writing.

One surveyor Member of ITIC received a faxed request to perform a joint on-hire survey. The ship was at anchor offshore awaiting delivery at midnight. En route to the ship in a car late that evening, the charterer’s representative asked the surveyor to be especially vigilant. He wanted him to look in more detail at the ship than was normal because a previous sister ship which they had chartered, had caused them a few problems.

Months later some deck cargo was lost overboard in heavy seas. The charterers failed to recover their losses in full from the owner and made a negligence claim against the surveyor. The basis of the claim was that the surveyor had not given them sufficient warning of the poor condition of the lashing material and pad eyes.

Was the surveyor duty bound to report in more detail on such items in an on-hire survey? Could he, realistically, in the time available to him do this, even if he was asked to do so? The claim for USD 300,000 was eventually dropped shortly before it

reached the Appeal court but it still cost the surveyor, and ITIC, USD 100,000 in legal fees.

People’s expectations vary. Surveyor, correspondent or consultant, only you will know what you can realistically achieve on your customer’s behalf, and you can do something to prevent any misunderstandings.

INSTRUCTIONS

Don’t leave it open. Even if you’re used to getting written instructions which you can open at your leisure make it standard practice in your office to acknowledge, if at all possible before you carry out the work, what you understand you have been asked to do AND the extent of your intended work. If you can do it in writing, all the better.

INSTRUCTIONS

Even more important, tell them what you cannot do given the constraints of time, available equipment etc. Of course you can’t list every exception to every survey but you can call on your past experience to identify areas of doubt.

We, all of us, dislike turning business away. In a competitive market, saying no hurts even more. One consultant, a former Master, was asked by an important shipowning client to review his marine insurances for him. He knew a shipowner should have P&I and hull insurance and had even advised one or two other clients on this subject in the past. However, it was not his area of expertise. He therefore met for a beer with a marine insurance broker friend and subsequently recommended to his client that he purchase stand alone P&I insurance for his crew P&I risks, i.e. death or injury claims. This gave the owner a cost saving which he was delighted with and allowed him to maintain his existing relationship with his P&I Club to cover his operational liability risk.

Unfortunately, it was only after a near fatality where a crew member suffered horrific burns, that the sub-limits of liability under the separate crew liability cover became apparent. Medical expenses of USD 2 million were incurred and the insurance capped at USD 200,000 per crew member. The ship was arrested as security for the uninsured expenses and the owner had to put up his own security because his operational liability P&I Club had been asked to exclude crew cover.

Reputations in this industry take a long time to build up. Don’t ruin yours by being greedy. We are a generally friendly bunch. Favours tend to be returned. So don’t hesitate.

A final couple of words on instructions. Who have they come from? In the excitement of a new instruction it is perfectly understandable to forget to stop and ask yourself, who is it that that is instructing me? And, are they reliable?

INSTRUCTIONS

• Who gave them?
• Can you rely on them

There are several dangers here. Roger is going to look, in a minute, at how many people seem happy to work for principals completely unknown to them. Happy that is, until, they go unpaid for their services.

For claims agents and correspondents, those professionals who handle transport claims on behalf of another party, this an especially important question to ask.

As an agent, you are given authority to represent another party. If that authority is later on taken away, or your principal denies that it was ever given, you could be deemed to be personally responsible.

One claim, which has received some press coverage recently, involved an insurance correspondent member of ITIC who was appointed by a non International Group P&I insurer to handle a claim. A cargo of bulk fertiliser had been contaminated by residues from previous cargo. Agreement was reached on a depreciation allowance and the correspondent obtained verbal agreement from the P&I Club to this compromise. When the cargo owner claimed reimbursement of the settlement amount from the Club, they denied every having authorised their representative to agree to settle for this amount.

The consignee commenced legal proceedings against the ship owner, the P&I Club and its representative. Luckily, the court found, with the aid of the correspondent’s notes of his telephone conversations, that the correspondent did have authority to settle from the P&I Club.

• Note telephone instructions

This case perfectly illustrates the importance of getting written instructions wherever possible. It also highlights the benefit of noting telephone conversations down in detail. Ship brokers can teach us a thing or two here. They use a day book to note down all verbal instructions and negotiations.

My last comment on instructions, is a reminder that a claims agent or correspondent can only normally represent one party. If your company offers a service whereby you handle claims for ship owners, charterers or other transport interests, as well as representing insurers, you must be especially careful.

Another well known P&I Club correspondent represented a London based P&I Club and, also, on occasions, handled claims on behalf of a local shipowner. The correspondent also had an insurance broking subsidiary which placed the marine insurances for the same shipowner.

One of the owner’s ship sank and a large cargo claim was made. The cargo interests obtained a court judgement which was not appealled and the owner paid the claim for USD 250,000. However, his claim for reimbursement from his P&I Club was rejected on a technicality to do with notification. The ship owner, naturally upset, alleged that the correspondent had been responsible for the alleged failure in that he did not pass on to the Club parts of some correspondence. To make matters worse, at the same time, the P&I Club wrote to the correspondent suggesting that they did not act as the Club’s correspondent in the matter as they had a different relationship with the owner. The matter is not yet finalised and the correspondent continues to insist both that they were the agent for the Club and that all the documents they received from the owner were passed on to the Club.

At this point, it would seem appropriate to move on to my second topic, communications.

2. COMMUNICATIONS

The written word, and in some cases, numbers and pictures, is the lifeblood of your business. If your customers cannot get new instructions to you or if you do a good piece of work, yet fail to report it accurately, you are unlikely to be successful. The consequences of poor, inefficient communication can, unfortunately, be more serious than just lost business.

One claims handler in a correspondent’s office was instructing solicitors in India in the defence of a claim. The court hearing had already been postponed three times to give the defence more time to prepare their case. Now, at last, the correspondent had obtained the documentary evidence he needed from the uncooperative shipowner, who had been on holiday all of the Summer (he was either Scandinavian or Southern European, I don’t recall.) Faxing 50 pages to India has never been easy, and unfortunately, the claims handler had only two hours to fax the documents. He hit the speed dial button for the lawyers in Mumbai, fed the papers in carefully and rushed out of the door leaving firm instructions with his associate to ensure the fax had gone.

When he returned, his colleague was at lunch. The fax had gone through first time but the claims handler must have hit the wrong speed dial button because the fax had gone to the law firm’s Singapore office instead of their Indian one. His colleague had realised the error and resent it to India but only half the pages had gone through. With 10 minutes to go until the hearing, he called the lawyer, who had left for the courtroom with only part of the faxed evidence. The judge was sympathetic at the poor lawyers plight. Not so sympathetic, unfortunately, not to find in favour of the claimant. The ship owner’s insurer also showed little sympathy and demanded that the correspondent pay half of the claim.

Have an office system to:

• Check fax numbers and fax attachments

One company ITIC works with very sensibly requires all staff sending a manual fax to first check and then mark the fax with a tick that both the fax number is correct from the file and that the right number of pages are attached. Only then are they permitted to feed it in to the machine. Simple but effective.

It is only a question of time before all instructions are received electronically and reports or correspondence sent out by email. The convenience of email makes this inevitable. I don’t know about your own operations but ITIC’s email box receives more than five hundred email messages per week and our staff send about one hundred more.

Email is, however, dangerous. Dangerous because its ease of use means people regularly make mistakes when typing the text of messages or, more importantly, of the address of the recipient. Secretaries still type letters and faxes, you and I type e-mails.

Email is also dangerous because the format or appearance of a message is often different on your screen from the screen of the receiver. One ship broker received a message where the sender had accepted an offer with the exception of three clauses on which they made a counter-offer. When passing this message the system simply omitted the middle of the three clauses. Although a large gap was left on the message received, the text simply provided that the party accepted the offer with the exception of two clauses. The counter proposal was accepted on this basis.

Have an office system to:

• React to failed email transmissions

Email is also a relatively unreliable medium of communication. A fax, if it goes, is instantaneous. Email is not.

• Request urgent instructions by fax

Make your customers aware that you prefer urgent instructions by fax and that you would like them to telephone to check that they are received.

One final tip on electronic communication.

The most dangerous message is the one you cannot prove you sent or, more importantly, that you received.

We currently have a ship agent in the United States who knows he received an email instruction from the shipper to release cargo to the receiver. Now that the line has received a claim for USD 130,000 because the shipper denies ever having sent such an instruction, he cannot find a copy of the message.

Take care that all important communications are stored safely. How long does your server archive both incoming and outgoing messages? Make it the practice in your office to print off and file securely all important electronic communications.

Don’t let it be you that loses that vital fax authorising you at what level to settle a claim or instructing you to protect a time bar.

A related question often asked of ITIC is "how long should I keep a record of correspondence, reports, calculations etc.?"

Under English Law, which still governs many transport contracts, most civil actions are time-barred after six years. In theory, therefore, nobody is going to ask you to produce documents as evidence of a claim after this period. However, as the written word or number is the lifeline of our business, we at ITIC are currently reviewing our storage and archiving policy.

We have now ensured that all our communications are properly sent; that they are received safely, and have been stored until well after they need to be. I want to finish the subject of Communications with a quick look at the end product of, in this case, the surveyors’ work, namely the survey report. I also want to refer to the use of Disclaimer Wordings.

Here is an example:

SURVEY REPORTS: DISCLAIMERS

This report is issued without prejudice

to the interests of all concerned.

I am afraid to say that this particular phrase is completely meaningless. The term "without prejudice" is much overused in the belief that it will mystically fend off any claims from anybody.

Under English Law, the phrase "without prejudice", merely protects correspondence between the parties which is aimed purely at settling the dispute, ending up in Court. Hardly relevant to the issuance of a survey report.

I am not going to go into further detail here about the wording of disclaimers. Surveyors are far better advised to ensure their own is drafted by a lawyer and, if you wish, reviewed by ITIC. However, one or two common wordings are included in the copy of this paper which you can collect later today. (See Appendix)

The myth about disclaimers preventing all claims is further challenged by the Law of Contract. In England, the Law requires any Terms and Conditions to be made known to the contracting party before any contract is entered into. In other words, at the time of first contact with the client rather than in the Survey Report which comes after the formation of the contract. It would be interesting to learn how different the position may be in other jurisdictions. (We could ask Alan McLean and Ronald Hoernicke).

This brings me nicely on to the third and final part of my piece….

What if it does all go wrong? What if the court summons arrives? Is there anything you can do now, in advance, to make handling the problem easier?

The last part of my paper looks at what you can do to prepare for the handling of a claim against your company or a dispute with a third party.

PREPARATIONS

• Trading Conditions

Dominic will talk about this subject in more detail before our coffee break. So many disputes and problems become more complicated simply because people have not taken advice before signing an agreement or because they do not use, and incorporate into their day to day business, written conditions of trade

You work in an industry where carriers by sea, air and land all qualify the extent of their liabilities. Yet it is not common global practice in the surveying, correspondency or claims agency professions to use contracts, agreements or standard trading terms. Why is this? Some countries are better at it than others. Germany and Holland set a good example.

Always seek advice on the wording of agreements and contracts before you sign them. We do it all the time and it costs you nothing!

• Wording of agreements and contracts

A poorly worded agreement can have expensive consequences.

One German cargo inspector signed an agreement to represent a South American company who exported a large volume of cargo to Europe. He was to survey the cargo prior to final delivery. The agreement that he signed was written in the Spanish language in which the inspector was proficient. He could follow Spanish and understood what was required of him and his contractual partner.

It was only when a dispute arose over payment for his services when the South American customer alleged that he had not done his job properly, that the errors in the agreement became clear.

Disputes were to be resolved in that most famously expensive of arbitration centres, London. The law, under which the arbitrators should consider the dispute was, however, not stated in the agreement. The inspector felt German law should apply because that was where the services he provided were carried out. The customer wanted his own countries law to apply. As the dispute escalated, both parties instructed lawyers in London and Germany as well as experts on the interpretation of the Spanish wording in the agreement. Considerable time and expense was wasted by both sides. Had the inspector used a standard wording accepted universally by the industry, with agreed jurisdiction and arbitration provisions, the matter would have been resolved much more quickly and cheaply.

Perhaps after we have listened to Dominic, we should briefly debate the merits of industry standard terms of engagement for your particular disciplines. This is not as far fetched as it may seem. I don’t know how many of you are familiar with the BIMCO Shipman and Crewman Agreements? These are BIMCO approved contracts for the ship and crew management industry. They are used extensively. People have confidence in the clause wordings. What about Surveyman, Correspondentman or Consultman?

One thing is for certain. If transport professionals, such as yourselves, do not take the initiative and look to put some standard trading terms in place, your principals will do it for you. Developing a set of universally accepted terms for your particular discipline would save time and money for all concerned.

And finally, ………..

It is common practice in the surveying and consulting world to subcontract work that is too challenging either geographically or physically or can be done more cheaply by a "local". The final report or advice comes out on your own paper but the actual work is done by another individual or company. What happens if the customer is unhappy with that work?

CONCLUSION:

One company found the answer to that question the hard way in the early 1980s. They sub-contracted a gas free survey to an Italian. The gentleman concerned was a university professor and doubtless well qualified. However, he decided, for whatever reason, that the job could be done by one of his students. The inevitable happened and there was subsequently a big and expensive bang. The surveying company declared bankruptcy as a result and gave me the perfect ending to this cautionary tale.