Bad vibrations lead to costly dispute for ship manager


International Transport Intermediaries Club (ITIC) has emphasised the importance of ship managers using the right contracts and having appropriate insurance in place following a lengthy collision claim

In the latest edition of its Claims Review, ITIC relates the case of a ship manager which took on the management of a vessel. One of its duties under the BIMCO Shipman 98 management agreement was to provide crew for and on behalf of the owners. In 2004, while the vessel was heading towards Shanghai, the master reported experiencing “excessive vibration” after passing close to a buoy marking a wreck.

After the master left the ship at Shanghai and returned home, the ship manager received an anonymous fax from the vessel, advising it had actually hit a wreck. When the vessel reached its final destination it was drydocked, and damage was noted. Under the terms of the management agreement, the ship manager was a co-assured under the hull policy, but the owner started arbitration proceedings against it, claiming substantial additional costs had been incurred. The claim was based on an allegation that the ship manager was vicariously liable for the actions of the master.

Wide-ranging allegations were also made about significant tension, distrust and acrimony between the master and some of the vessel’s officers, which were a direct cause of the damage to the ship. The defence of the ship manager was that, under the terms of the management agreement, it had no liability for the negligence of the crew.

Negotiations and investigations by experts and lawyers continued for the next five years, and substantial costs were incurred. The arbitration hearing was scheduled to take place in 2010 but, by late 2009, the owner served an entirely revised claim, backed up by a lengthy report from an expert. The claim was now focused on the ship manager’s application of the International Safety Management Code (ISM) and the role of the ‘designated person ashore’. A further allegation was made that the bridge team, or at least the principle members of it, were suffering from fatigue and the ship manager should have been aware of this.

By this time, the costs of investigation and preparing the defence had reached $659,000. A defence was submitted on behalf of the manager that, on the evidence available, there was no error in navigation and so the claimant’s case could not be proven. Although ITIC’s lawyers were confident the claim could be successfully defended, it was recognised the hearing could last up to seven days, resulting in further legal costs of around $560,000.

This year, the owner made an offer to settle the claim on a ‘drop hands’ basis, with each side bearing its own costs. Accordingly, the offer was accepted.

ITIC said: “This case shows how important it is to use the right contract and to have insurance and knowledgeable assistance to cover the legal costs and support and time needed to defend even weak claims. The defence of a ship manager is always expensive and very time-consuming.”