Ship Agent and the Shipping Law

Ship Agent and the Shipping Law

Agency Relationship begins when one person (Agent) is considered by law as authorized to represent another person (Principal) in such a form as to be able to affect the Principal’s Legal Position under English Law. Principal is bound to a third party by contract only if the Agent acts within the scope of the authority. If the Agent acts outside the authority given upon them, the Principal may approve the Agent’s acts, making the Agent’s acts binding on the Principal. Contrarily, the Agent may be held personally liable under the contract.  Agency Relationship imposes several duties upon the Agent because of the contractual nature of the relationship. Furthermore, the nature of the Fiduciary (Relationship of Trust) imposes additional duties on the Agent. 

Agent is under a Contractual Duty to fulfill the duties and a wrongful failure will mean the Agent is liable for Breach of Contract. Agent must act per the authority conferred upon them. Therefore, Agent must obey any Express Instructions or Act by the general nature of the business. Furthermore, Agent must act solely for the benefit of the Principal. 

Agent owes a Duty to Act with reasonable care and skill. Agent cannot deny the title of their principal to goods, money, or other property held by the Agent on the Principal’s behalf.

When the authorized Agent secures a contract with a third party on behalf of a Disclosed Principal, the Principal can sue and be sued by the third party. Direct Contractual Relationship is formed between the Principal and the third party. Agent is not a party to the contract if the Agent act within the authority given by the Principal or within its Customary Authority or Implied Authority. The Ship Agent should not solely sign As Agents Only. If the Ship Agent is asked to disclose the identity of the Principal, the Ship Agent must disclose the identity of the Principal immediately, otherwise, the responsibility and liability will fall upon the Ship Agent. 

The Ship Agent is subject to the General Law of Agency. The Ship Agent must at all times have regard to General Law of Agency provisions. The legal meaning of Ship Agent can be construed as a Person (Company) that brings the Principal into a contractual relationship with a Third Party.

The effect of an Agency Relationship is that the Principal takes on the responsibility and privileges of the contracts into which the Ship Agent enters. Therefore, the Ship Agent has no personal liability regarding the contracts entered into on behalf of the Principal. The Ship Agent cannot be sued on contracts entered into on behalf of the Principal. Furthermore, the Ship Agent cannot sue the Third Party on contracts entered into upon behalf of the Principal. The only legal right a Ship Agent has is to sue the Principal for any payment or compensation due to the Ship Agent. This is the general principle of an Agency Agreement. However, this situation can be prolonged by Agency Agreement, and the terms of the Ship Agent Appointment can sometimes give the Ship Agent Rights of Lien and also the potentiality of Rights to Sell the Principal’s Goods to collect unpaid funds owing to the Ship Agent. The Agency Relationship with the Third Party is critical. To establish an effective Agency Relationship, Third Party must be made informed that Third Party is dealing with a Ship Agent and the Ship Agent must disclose the name of the Principal. 

When a Ship Agent enters into a contract on behalf of the Principal:

  1. Ship Agent must state that the Ship Agent is entering into a contract As Agent Only
  2. Ship Agent must inform the Third Party of the name of the Principal

Creation of an Agency Relationship:

Agency Relationship is created by:

  1. Express Agreement: actual authority is given to the Ship Agent to make a contract by the Principal
  2. Implied Agreement: placed the Ship Agent in a state of apparent authority and empowered the Ship Agent to represent the Principal as having such authority
  3. Agency by Necessity (Law): approved the Ship Agent’s action if the Ship Agent had performed the duty for the Principal without the Principal’s Express Authority

It is challenging to avoid contemplating what happens if the Principal does not subsequently ratify what the Ship Agent had done under Agency by Necessity (Law). This situation would come under the heading of a Breach of Warranty of Authority. The main point to always bear in mind is the Fiduciary Nature of Ship Agency.  

For example, the Ship Agent cannot communicate with the Principal due to time zone differences on Friday. However, by placing four (4) hours of stevedores’ overtime on a Friday, the ship loading operation will be completed and the ship will sail before the weekend. It might be a poor business relationship if the Ship Agent’s order is not approved by the Principal. Although it might be claimed that the circumstance should have been envisioned as a probability and the stevedores’ overtime should be reviewed in advance. Conversely, if the Ship Agent ordered stevedores’ overtime in the middle of the week because another ship required to get on to the berth, that would establish a betrayal of trust and a refusal to endorse should be anticipated.  

In some situations, the Ship Agent has to decide in an emergency which is not anticipated and when communication with the Principal is impossible. This uncommon circumstance creates an Agency by Necessity (Law)Agency by Necessity (Law) is the action that will be necessary if, some action is called for, the action taken is such as a prudent man with full knowledge of the facts would approve as being likely to prove beneficial in the interests of the adventure.

When the Ship Agent enters into a contract on the Principal’s behalf, this should always be approved in writing. The confirmation should identify the Principal on whose behalf the contract is made and should always be signed by the Ship Agent As Agent on Behalf of the Principal. If the Ship Agent neglects to sign As Agent on Behalf of the Principal and the Ship Agent does not make Third Party informed that the Ship Agent is contracting with the Third Party on an agency basis, then the Third Party is empowered to hold the Ship Agent liable as Principal.  

The Ship Agent must be precise and accurate in classifying their position and the name of the Principal when entering into contractual relationships on behalf of the Principal with Tug Operators, Pilotage Authorities, Stevedores, Port Authorities, Ship Chandlers, Ship Suppliers, Linesmen, Hotels, Travel Agents, and Bunker Suppliers. However, there might be certain circumstances when some suppliers of goods or services decline to trade with the Ship Agent on an As Agents Only basis. Usually, more modest service suppliers are not expected to take action against a ship or shipowner in the event of late payment. In some ports, it is common for a Port Authority to necessitate an undertaking to pay by the Ship Agent before allowing the ship to sail. The Ship Agent either has obtained funds in advance or is satisfied that the Principal is creditworthy. Otherwise, the Ship Agent is not obliged to accept liability for the ship’s debt. This means that the service will not be provided. In the position where the service has already been supplied, the Port Authority is obliged to look immediately to the Principal for a settlement. In numerous jurisdictions, this is not as critical as it seems because there are often laws that empower Port Authority to arrest the vessel without having to petition for a particular writ or other legal means. The dilemma of the Ship Agent being inadequately funded is a tricky one but the ability of the Port Authority to hold vessels that have not paid can be a valuable tool for the Ship Agent. Port Authority will not let the vessel sail without being reassured that there are funds available. In various ports, suppliers understand the Ship Agent’s role and will not significantly insist on the name of the Principal. Nevertheless, it must be remarked that an increasing number of ports are now looking to lawfully recognize the Ship Agent as the Principal and not accept the Ship Agent’s defense of As Agents Only. However, Ship Agents must still defend themselves and all printed instructions to Third Parties must be signed As Agents Only. The invoice that the Ship Agent collects for services provided must be addressed to the Ship Master and Shipowner, followed by the Ship’s Name, and then care of the Ship Agent. Consequently, the supplier has acknowledged the Ship Agent’s position and is using the Ship Agent as a postbox with the liability for payment placing with the Principal.

Ship Agent’s Duties and Obligations:

1- Ship Agent must not buy, sell, contract, or deal on behalf of their Principal without complete acknowledgment of the nature of the business
2- Ship Agent must keep their Principal’s entrusted capital and assets separate from Ship Agent’s capital.
3- Ship Agent must not make any secret profits with their dealings on behalf of their Principal. 
4- Ship Agent must always obey the instructions given to them by their Principal.
5- Ship Agent has a duty of absolute confidentiality. Therefore, Ship Agent must never disclose to any other party their Principal’s dealings.

Ship Agent appointment might be for particular duty at the end of which the Ship Agent Agreement with the Principal ceases when the duty is accomplished. Ship Agent appointment might be for a specific period that may be continuing until canceled by either side. When the Ship Agent appointment is for a Single Port Call for a tramp vessel, the Ship Agent Agreement is normally a short exchange of emails. If the Ship Agent wants to utilize terms and conditions to the Ship Agent Agreement, terms and conditions must be agreed upon with the Principal before accepting the Ship Agent appointment.  

If the Ship Agent appointment comprises a period, the Ship Agent should agree in writing with the Principal:

1- The outline of services, rights, remuneration, the scope of the Ship Agent’s authority, and the duties the Principal requires the Ship Agent to perform under the Ship Agent agreement
2- The period of the Ship Agent appointment, when it commences, and when it is concluded
3- The description of how the Ship Agent agreement may be terminated

Setting the Ship Agent payment is essential. Port agents are not like other occupations who can wait until the job is completed. In most ports, the Ship Agent’s performance is remunerated by a set fee.  

In some maritime nations, National Associations of Port Agents announce a Scale of Agency Fees every year. When the Ship Agent’s remuneration has been agreed, it has legally to be earned by the Ship Agent carrying out all the duties. If the Ship Agent fails to accomplish these duties feasibly, the Shipowner has a legal right to withhold all or part of the Ship Agent Fee agreed. On the other hand, if unexpected conditions result in the Ship Agent having to undertake far more duties than expected, the Ship Agent is within their rights to demand extra remuneration.

In some maritime nations, National Associations of Port Agents support in the form of formally announced Standard Trading Conditions which comprise:

1- Transactions by the Ship Agent, on behalf of the Principal, with suppliers of goods and services
2- Transactions with shippers and receivers of cargo
3- Limitations of financial liability. Protection under Standard Trading Conditions can only be accomplished if all the parties are fully informed of the contents of the conditions. It is prudent to send a copy of the conditions well in advance.

Noting Protest: is a practice that goes back to the time when the only means of communication was by courier and ship. Noting Protest is uncommon these days. Noting Protest is split into two (2) sections:

1- Noting of Protest
2- Extending of Protest

A party is protesting against potential damage to the property of others that resulted from a situation beyond their control. For example, the weather is the most well-known example. Consequently, the Noting Protest is a provisional refusal of liability. The Extending of Protest may be executed when and where it is convenient. The Extending of Protest is accompanied by supporting records.  

In the old days, it was customary practice for the Ship Master to declare Note Protest as soon as the ship arrives at any port. The intention is for the master to declare, on oath, in front of a public notary that their ship confronted difficulties such as heavy weather during part of the voyage. The purpose of Noting Protest is to allow the ship to endeavor to avoid liability for damage to the cargo. In many maritime nations, courts give far less belief to Noting Protest. Nevertheless, the Ship Agent should be aware of Noting Protest process. The Ship Agent should arrange Public Notary are conversant in maritime law. Public Notary is concerned not so much with the content of the Noting Protest but more with testifying the Ship Master’s signature. Public Notary must check the identity of the Ship Master, then witness the Ship Master’s signature and sign a certificate.

Protection and Indemnity (P&I) Clubs

Protection and Indemnity (P&I) Clubs are insurers of critical importance for shipowners. In the old days, insurance underwriters were not comfortable covering more than 75% of the Shipowners’ Collision Risks and were not at all interested to offer cover against Third-Party Claims. Therefore, Shipowners had no protection in the case of claims for lost or damaged cargo. Consequently, Shipowners formed Mutual Associations which are to this day still referred to as Protection and Indemnity (P&I) Clubs. In 1866, Tindall Riley established what is now the Britannia Club. Furthermore, Tindall Riley managed for a time the CISBA Club, which began in 1925 as the Chartered Shipbrokers Protection Association. This evolved into the International Transport Intermediaries Club (ITIC).

Protection and Indemnity (P&I) Clubs are engaged in two (2) principal activities:

1- Protection: the struggle of legal actions on behalf of the club’s members
2- Indemnity: the reimbursing of members for the claims they have had to pay

The important difference between insurance covered with an Insurance Company and insurance through a Protection and Indemnity (P&I) Club is the absence of a Profit incentive. A Protection and Indemnity (P&I) Club is governed by its members for its members. A Protection and Indemnity (P&I) Club elects BOD (Board of Directors) from the members. Furthermore, Protection and Indemnity (P&I) Club delegates a company to run the day-to-day activities. 

Insurance Companies levy Premiums, Protection and Indemnity (P&I) Clubs levy Calls upon their members based upon the size of each member’s fleet and an assessment of the risk. Moreover, The Protection and Indemnity (P&I) Club members’ Claims Records affect the level of the Call it has to pay.  

Protection and Indemnity (P&I) Club managers try to estimate the cost of operating the club and settling claims for the current year. Therefore, Protection and Indemnity (P&I) Club managers levy an Advance Call. If a higher than expected number of claims has to be settled, the Protection and Indemnity (P&I) Club may have to make a Supplementary Call. Protection and Indemnity (P&I) Clubs have representatives in numerous ports. There may be many circumstances that the Ship Agent may have to communicate the Shipowner’s Protection and Indemnity (P&I) Club’s local representative.  

A common Third-Party Claim may be initiated by a port or terminal operator if the ship collides with and damages part of the port or equipment. In many ports, the maritime law grants special authorization to Port Authority to seize a ship that has caused such destruction. Otherwise, the Port Authority may always resort to Arrest In Rem to seize assets.  

Shippers or Receivers may resort to Arrest In Rem if they have a claim for damages against the Shipowner over an Unresolved Cargo Claim. The claim may have happened far from the port where the ship is arrested. When the claimant has a writ, it can be served at any time. Usually, Ship Agent has a prior warning of an approaching arrest. Frequently, the threat of arrest is sufficient to concentrate the shipowner’s mind. The Ship Agent must move immediately to avoid delay to the ship. What the Wronged Party wants is a Letter of Guarantee or Letter of Undertaking by the Shipowner’s Protection and Indemnity (P&I) Club to pay whatever is determined to be legally due. 

General Average (GA)

The Maritime Law still uses conventional language. The Maritime Law refers to a Ship’s Voyage as an Adventure and the Cargo Owners as Participants in that Adventure. Therefore, the cargo and the ship have a Common Interest. Shipowners and Cargo Owners have to support each other if there is a problem in this Adventure. This is the basic principle of the General Average (GA). The notion of the General Average (GA) can be traced back to ancient times. The Ship Agent should understand the doctrine of General Average (GA) thoroughly to explain it precisely to the Shippers and Receivers.  

General Average (GA) occurs when a loss arises in consequence of an Extraordinary Sacrifice made or Expense incurred for the Preservation of the Ship and Cargo has to be shared proportionately by all those who are involved in the Adventure. Average Adjusters calculated the proportions. Average Adjusters’ duties comprise examining and verifying the losses and expenses incurred. Later, Average Adjusters estimate the value of the property of each of the Participants in the Adventure and determine the respective contributions. Usually, General Average (GA) is settled per the York-Antwerp Rules. For example, the concept of General Average (GA) would be the case of cargo becoming damaged by water used to extinguish a fire on board. If the fire had not been put out, the ship and all the cargo would have been lost, indicating that it is fair that those whose cargo was damaged to save all the rest should not have to bear all the loss and should be able to share that loss among those who benefited. The cargo that suffered fire damage is not part of the General Average (GA) but comes under the heading of Particular Average (PA). It is a loss suffered only by the owner of those goods and its loss did not benefit the other parties to the Adventure, therefore the value of the loss is borne solely by the owner of that cargo

The basic principle is that the General Average (GA) is exclusively concerned with the voluntary sacrifice made to save the whole of the adventure.  

General Average (GA) becomes more problematical when all that the ship had to do was to divert into a port to carry out repairs. Nevertheless, the General Average (GA) basic principle is still the same, in that if the ship had not incurred the expense of going into the repair port and making the repairs, the ship would have run the risk of sinking. Usually, General Average (GA) and Particular Average (PA) are covered in Cargo Insurance.

General Average (GA) is not automatic i.e. the shipowner has to declare General Average (GA) formally. For instance, if the amount involved in going into a repair port is minor the shipowner might even choose to bear the whole cost themselves in the interest of good customer relations.

In General Average (GA) and Particular Average (PA), the Ship Agent may have vital administrative duties to accomplish. The Ship Agent receives an extra monetary reward for their effort in supporting the General Average (GA) process. When the Principal declares General Average (GA), the Ship Agent needs to embrace a systematic strategy to the problem. As soon as the General Average (GA) Manifest is received, the cargo consignees should be notified that General Average (GA) has been declared.

There does not need to have been any damage to the ship itself for General Average (GA) to be declared. The shipowner is under an obligation to Cargo Interests to ensure that proportional contributions are made towards their loss. Therefore, the damage could quite have been only to cargo without so much as blistered paint on the ship. Nevertheless, the Shipowner has to declare General Average (GA), and the Shipowner’s insurance has to contribute accordingly.  

What is required is an irrevocable undertaking from every consignee that, 

Before the Average Adjuster has assessed each party’s exact contribution, the Average Adjuster asks for an irrevocable undertaking from every consignee. The security has two parts: 

1- The consignee’s signature to an Average Bond supplemented by a Valuation Form
2- Average Guarantee which is normally produced by the Cargo Insurers 

In some cases, when cargo owners are self-insured, such a guarantee may not be available. Therefore, the Average Adjuster asks for a Cash Deposit. This might be a tricky process because Cash Deposits are customarily required from cargo owners who have been insufficiently informed about the requirement to be certain that General Average (GA) cover is included in their insurance. It is crucial to keep accurate records of Port Disbursements Accounts (PDA) related to the General Average (GA) for submission to the Average Adjusters. Besides Ship Agent’s actual expenses, the Average Adjusters also accept such items as overtime fees to Ship Agent’s staff plus a moderate fee for the Ship Agent’s expertise.

In some cases, the consignee presents a Bill of Lading (B/L), and the consignee is given a Cargo Delivery Order before the ship’s arrival and before the announcement of the General Average (GA) declaration has reached the Ship Agent at the port of discharge. Therefore, all Cargo Delivery Orders should incorporate a clause “subject to safe arrival and General Average (GA) if any”.

Ship Agent’s Insurance Cover

Under the Law of Agency, the Principal indemnifies the Ship Agent for duties that the Ship Agent does on the Principal’s behalf. This indemnity does not cover Negligence or Misconduct on the Ship Agent’s part. Furthermore, it is always desirable for the Ship Agent to cover the Negligence Risk by insurance. Deliberate Misconduct cannot be insured against, however, some degree of cover against dishonest employees, called Fidelity Insurance can be included. For Ship Agents, the simplest method to get insurance is to become a member of one of the Mutual Associations specializing in such insurance cover such as the International Transport Intermediaries Club (ITIC).  International Transport Intermediaries Club (ITIC) was established from an amalgamation of CISBA Club (Chartered and International Ship Brokers P&I Association) and TIM (Transport Intermediaries Mutual Insurance Association Ltd). These clubs are experts in dealing with the concerns of Shipbrokers and Ship Agents. Furthermore, Shipbrokers and Ship Agents may obtain insurance cover through some insurance companies.  

It is crucial to understand the principle upon which the insurance cover is being offered. In some circumstances, Shipbrokers’ and Ship Agents’ Insurance Cover may be limited to Errors and Omissions that would restrict the cover to Mistakes made by the Shipbrokers and Ship Agents. This would not cover Mistakes made by others for which the Shipbrokers and Ship Agents may be liable. For this type of insurance cover, the Shipbrokers and Ship Agents also require Liability Cover. Furthermore, it is also prudent to ensure that the insurance cover comprises Breach of Warranty of Authority. Breach of Warranty of Authority is possible to affect Shipbroker than Ship Agents. Breach of Warranty of Authority has two (2) types: 

1- Breach of Warranty of Authority with Negligence 
2- Breach of Warranty of Authority without Negligence 

When the Ship Agent agrees a course of action be taken by the Shipper that is at variance with the terms of the original agreement between the Charterers and the Shipowners. The Ship Agent is warranting that they have authority to agree to this action. The Ship Agent may be doing so in the honest belief that this is the appropriate action to do under the conditions even though it is without explicit authority from the Principal or the Ship Agent may have misunderstood what the Principal was authorizing. If the Principal refuses to be bound by the consequences of the Ship Agent’s action, any losses suffered will fall on the Ship Agent’s shoulders because the Ship Agent acted without authority but, having warranted that they had authority, the Ship Agent is in breach of that warranty. This case would fall under the title with Negligence. But contemplate the case where clear authority to take the action came from the Principal’s Agents in a distant country and it is these agents who did not have the Principal’s authority. The Ship Agent has acted entirely in good faith, with no negligence or misunderstanding on their part. Even so, if a loss is experienced by the Shipper who received the go-ahead from the port agent then that Shipper has, under English law, clear legal recourse against the local port agent. The local port agent may, in turn, take action against the distant general agent who gave the false authority, although this is of no concern to the aggrieved Shipper.