Debt Collection Edition

CLAIMS REVIEW

DEBT COLLECTION EDITION

Issue No.7 August 1998

ITIC RECOVERS US$30 MILLION

Marine intermediaries provide services to foreign companies, who are sometimes totally unknown to them. When left with a debt from a company on the other side of the world, obtaining payment can be extremely difficult, if not impossible. As an optional benefit to its Members (and at an additional premium) ITIC offers a comprehensive debt collection service. ITIC's staff, who have many years' experience in the field of international debt collection, will take over the collection of the debt and do whatever is possible, at the Club's expense, to recover sums due to the Member.

Since 1992 ITIC has been asked by its Members to collect more than 2,500 debts. By August 1998 the total recovered had topped US$30,000,000.

In this special edition of the Club's Claims Review, we hope to explain what ITIC can and does do to assist its Members, and what Members can do to help themselves.

TEN HINTS ON AVOIDING BAD DEBTS.....

1. ESTABLISH WHO YOUR PRINCIPAL IS BEFORE YOU ACT

-Have you been appointed by charterers to be owners' agent?

-Is your principal a well-known ship manager, or is the manager the agent for a less well-known shipowner?

2. GET FULL DETAILS OF YOUR PRINCIPAL - NAME, ADDRESS, TELEPHONE, FAX, BANK ACCOUNT

-Check them out. Do they exist? Surprisingly, some agents still accept appointments without knowing who they are acting for.

3. CHECK OUT YOUR PRINCIPAL WITH ITIC. WILL HE PAY?

-ITIC is asked to collect debts from thousands of shipping companies, and often knows who is failing to pay.

4. IF YOU ACT FOR MORE THAN ONE PRINCIPAL

-Make sure you get confirmation in writing who will pay for each service.

5. SHIP AGENTS - GET ADVANCE FUNDS

- If the principal fails to remit advance funds, or only remits part funds, check with ITIC as we may already be pursuing debts owed by the same company.

6. SHIP BROKERS - CHOOSE CAREFULLY WHO WILL PAY YOUR COMMISSION

- Unless the charterer is substantial (e.g. an oil major or large trading house) it is usually best to leave the responsibility for paying commission with the owner (who has the arrestable asset).

7. DO NOT CONTINUE TO ACT WHEN DEBTS ARE MOUNTING

Especially if your principal has already broken promises of payment.

8. ACTING FOR CHARTERERS? BE ESPECIALLY VIGILANT

- Only a few jurisdictions recognise charterers' debts as a maritime lien against the ship and it is often difficult to trace charterers' assets.

9. MAKE YOUR AGENCY STATUS CLEAR

- Sign off "as agent only" when ordering goods and services, otherwise you could be liable to pay the suppliers.

10. DO NOT ACCEPT INVOICES FROM VENDORSIN YOUR NAME

-Invoices should be addressed to "Master/owners/charterers c/o agent"

IF IN DOUBT CHECK WITH ITIC

SHIPBROKERS' RIGHT TO COMMISSION - THREE COMMON SITUATIONS

ITIC is often asked whether a shipbroker is entitled to claim his commission. It is very important to remember that each case should be considered on its own facts.

Shipbroker cut out of negotiations

There can be few greater sources of annoyance to brokers than the feeling that they have made the necessary contacts only to be deprived of the commission. This is a difficult area, but a broker does have a right where a principal cuts him out of the negotiations and completes the transaction without him. The leading case is Allan -v- Leo Lines (1957), in which the court held that the broker is entitled to commission if his efforts were the "effective cause" of the contract. It is clear that this does not mean that the broker must be the only reason the deal was struck. That would be an impossible standard. However, the broker must materially contribute to the securing of the deal. There is no single stage which negotiations must reach, such as agreement on main terms or inspection, before the broker is entitled to commission. In the case previously referred to the judge held that the important factor was the introduction.

Cancellation of charterparty

A number of charterparty forms such as GENCON and BALTIME contain specific clauses which provide for the broker to receive compensation in the event that the agreement is cancelled. In the absence of this type of clause the broker unfortunately does not have a right to commission if a principal merely chooses to cancel the agreement.

Continuation of charterparty

The NYPE charterparty provides that commission is payable not only on hire earned under the charterparty but "also on any continuation or extension". There may be a practical problem in showing that a continuation or extension has taken place, but the clause clearly does provide that the broker has a right to commission in these circumstances. In the absence of a clause it is difficult to see on what basis the broker could claim that he should be paid further commission.

DEBTOR SENT TO PRISON

An English shipbroker remitted a balance of hire of US$ 30,000 twice to his European counter- part. In spite of many promises the European shipbroker failed to pay back the funds and court proceedings were commenced. After several years of litigation the English broker obtained a judgement for the claim plus substantial interest and costs, but the European broker refused to pay, pleading poverty. The European broker then found himself in prison, where he stayed for a week until, miraculously, the funds were found.

A VERY LOYAL MASTER

The Club's lawyers arrested a tanker in Abidjan, much to the disgust and ire of the master who threatened the court bailiff with bodily harm. The owner paid and the same bailiff tried to release the ship. The master hit him on the head when he tried to get on board!

Associated ship arrest

Unpaid disbursements are not the only problem which face ship agents. In many countries ship agents have a joint and several liability with their principal for cargo claims, customs penalties, dock damage, etc. If a principal who has operated a regular service becomes bankrupt, the agent will have to defend and pay numerous claims which should properly fall on his principal.

ITIC does, of course, cover the agent's exposure to such liabilities, but if the claims go back over many years, the deductibles which apply to each voyage could be substantial. If the shipowner is bankrupt there is not much that can be done, but what if the shipowner discontinues his service and simply walks away from the claims? In a recent case the problem was made worse by the fact that the shipowner was selling his ships (which were each owned by a separate Liberian company). The shipowner knew that if he failed to defend and pay the cargo claims his agent would have to do so, but this did not change his attitude. The Club managed to find the owner's last ship, fully loaded with cargo, in a jurisdiction which allowed the arrest of an "associated" ship and recovered all amounts paid out to cargo interests and lawyers.

"Associated" ship arrest is the arrest of a ship which is beneficially owned by the same company as the ship (or ships) on which debts and/or claims have arisen. The law in most countries only allows the arrest of a "sister" ship (i.e. a ship owned by the same company), but some (notably France and South Africa) extend this right to arrest to associated ships.

BROKER CUT - OUT

Norwegian shipbrokers via a London broker, commenced negotiations for the sale of a tanker to a Greek buyer. Discussions continued for several months until the shipowner went bankrupt and the ship was taken over by a Norwegian bank. The bank commenced sale negotiations through the same London broker, but used a different broker in Norway. The ship was sold to the original Greek buyers.

The original Norwegian brokers felt that, as the effective cause of the sale, they were still entitled to commission of 1% (about US$ 265,000), and legal proceedings were commenced in Norway against the bank.

The court of first instance found the bank liable to pay the commission plus interest and costs, as did the appeal court. The final settlement by the bank amounted to US$ 528,000. This included costs of approximately US$100,000 which the Club was pleased to recover.

MORe than one principal? Who pays?

In a recent case, a ship agent in the Far East was nominated by the voyage charterer (a well known trading house) to be the agent for the disponent owner (a well known and reputable shipping company). The agent sent his list of pro forma disbursements to the disponent owner one week prior to the arrival of the ship at the port, but no response was received and no funds were remitted. The agent, feeling that he was in safe hands with such reputable companies, allowed the ship to sail before funds were received, even though he had a personal liability to pay all port costs. About two weeks after the ship had sailed, he was informed by the disponent owner that the port costs were not for his account, but that of the voyage charterer. The voyage charterer insisted that the disponent owner should pay. The agent was caught in the middle of a dispute between these two parties, and twelve months later had still not been paid. After lengthy correspondence with both parties produced no result, a threat by ITIC to arrest the ship produced payment from the head owner. The head owner recovered from the disponent owner, who presumably took his dispute with the voyage charterer to arbitration.

The above case illustrates the need to make sure that if one party (e.g. the charterer) appoints you for the account of another party (e.g. the owner) you have the owner's written confirmation that he will be responsible for your fee and disbursements.

SEIZURE OF BUNKERS

TO RECOVER COMMISSION

Three chartering brokers requested the assistance of the Club to recover US$55,400 commission unpaid by an oil trader. The Club obtained information that the oil trader had another ship on time charter and tracked her to Curacao. The Club was able to obtain information from a local bunker supplier that bunkers had been ordered by the ship in the name of the oil trading company. A local lawyer was instructed to arrest the bunkers once they were taken on board the ship, as security for the outstanding commissions. The oil trading company immediately instructed their bank to remit the funds.

The arrest of bunkers is in many ways a last resort as it is usually difficult to ascertain who owns the bunkers, and if the debtor has no funds to pay, it is necessary to pay for the cost of removing the bunkers.

Getting there

in the end

Where there is no obvious asset, such as a ship or bunkers, then other methods need to be considered. A ship agent was owed US$75,000 by a Greek ship management company which had no obvious assets apart from a hydrofoil which could not be traced. The Club's lawyers filed a conservative arrest order preventing the legal transfer of the ownership of the hydrofoil and commenced legal proceedings against the debtor company. The Club eventually managed to obtain payment by means of post-dated cheques, which were unfortunately not honoured. The hydrofoil was located in a repair yard and arrested. Two auctions failed to produce a buyer for the hydrofoil, and the Greek Seamen's Pension Fund declared an interest. As the Fund's claim would obviously take precedence, other assets were sought. It is a criminal offence to issue cheques drawn on a Greek bank without sufficient funds to cover them and proceedings were commenced against the parties who signed the cheques. The Club's lawyers applied to the courts for an order to sell an apartment belonging to one of the signatories, and this, at long last, resulted in the ship agent receiving US$75,000.

Unfortunately it had taken four years and cost US$40,000. A case of determination winning in the end.

HELP US TO HELP YOU!

NOTIFY THE CLUB SOON - the older a debt, the harder it is to collect especially if the ship is sold or the debtor bankrupt. In some countries the statutory time limit for collecting a debt is as little as six months.

PROVIDE APPROPRIATE DOCUMENTATION

From shipbrokers the Club needs:

a) commission invoice

b) copy of charterparty

From ship agents the Club needs:

a) copy of original appointment/agency agreement

b) copy of disbursement account

From both parties we need copies of any correspondence with the debtor, particularly any communication where the debt is admitted.

GIVE US THE FULL STORY. If your principal is disputing any of the charges let us know. Disputes normally have to be resolved before debts can be collected.

ARRESTS WILL BE IN YOUR NAME. If it is necessary to arrest a ship or a bank account any counter-security will have to be provided by you. The Club will pay the legal costs.

DO NOT APPOINT LAWYERS WITHOUT THE PRIORAPPROVAL OF THE CLUB UNLESS IT IS AN EMERGENCY. 50% of debts are recovered without involving lawyers. The Club has a large network of contacts worldwide - we usually know the right person for the job.

PROVIDE OWNERS'/CHARTERERS' BANK ACCOUNT DETAILS. We have had some success in seizing bank accounts.

NO ADVANCE FUNDS? SHIP READY TO SAIL? Notify the port authority or tug company that you have not been placed in funds and will not be able to pay them.

DO YOU HAVE TRADING CONDITIONS WHICH ALLOW YOU TO CHARGE INTEREST? Tell us, we will try to recover interest as well.

NOTIFY US AS SOON AS FUNDS ARE RECEIVED

ITIC is the world's leading insurer of the risks facing transport intermediaries.

If you would like details

of ITIC's debt collection

service, please contact

your ITIC underwriter,

insurance broker, or

Stuart Munro

International Transport

IntermediariesClubLtd

International House

26 Creechurch Lane

London EC3A 5BA

United Kingdom

Tel: + 44 171 338 0150

Fax: + 44 171 338 0151

Telex: 8814516ITIC G

E-mail: