ITIC Says: Ship Managers Must Beware of Increase in Claims by Owners

International Transport Intermediaries Club (ITIC) says it has seen a noticeable increase in claims against ship managers by shipowners who are going through difficult financial times.

In the latest issue of its Claims Review, ITIC notes that, as result of their financial difficulties, owners resist paying for the full maintenance of their ships and also end up owing ship managers not only for their own fees but also for disbursements paid on owners’ behalf. When ship managers try to collect the funds due, they are faced with a claim for negligence in the management of the ship. In ITIC’s experience, once shipowners fail to put managers in funds, the situation rarely improves, and usually deteriorates. The resulting claims are time-consuming and costly to defend.

ITIC says that it is of the utmost importance that ship managers’ records and correspondence with shipowners are clear and in good order. By way of illustration it cites a dispute between the manager and owner of a ship involving a balance of funds owed to the manager. It was agreed that those funds would be put into an escrow account. The matter remained idle for five months, until the owner raised a claim against the ship manager, through its lawyers, for alleged negligence. The owner claimed that the ship manager was in breach of its duty to maintain the ship in an efficient, employable state and that, as a result, it had suffered significant losses. The claim put forward by the ship owner was in excess of $17m and included alleged losses in respect of the vessel’s future employment, expenses paid by the shipowner for repairs/spares/drydockings, reduction in the vessel’s market value, and other additional damages.

The ship manager rejected these allegations in full and lawyers were appointed by ITIC to defend its position. The manager maintained that the vessel’s condition had deteriorated due to age, constraints of trade, and expenditure and maintenance restrictions imposed by the owner. The manager further stated that the owner was fully aware of the deficiencies and the condition of the ship when it was taken under management. Despite this, the owner had not taken the necessary steps to facilitate remedial action.

Lawyers for the owner aggressively pursued the claim against the manager. However, the manager’s files and correspondence on the ship were in good condition, and a thorough audit trail existed for every decision regarding the running and maintenance of the ship. The ship was eventually scrapped, but the owner continued to maintain that it had a claim against the manager, even though it was unable to provide any proof or to document its losses.
 
Eventually, after two years, the claim was finalised on a drop-hands basis. The total cost of the legal fees to defend the innocent ship manager was $250,000.