ITIC Urges Ship Managers to Review Liability Limitation Provisions

AHEAD of an impending revision of the standard industry ship management agreement, the International Transport Intermediaries Club (ITIC) has urged ship managers to limit their liability to a sum which reflects the growing proportionate gap between ship values and the level of ship management fees.

ITIC notes that the standard ship management agreement, BIMCO Shipman, has been around for over twenty years. It says, “The current version is BIMCO Shipman 98 and it is expected that another version will be published very shortly. The common thread through all these agreements is the ability of ship managers to limit their liability for acts arising solely from their negligence or gross negligence to ten times the annual management fee. The value of ships has increased significantly since 1988, when the first contract was drafted, but the level of ship management fees has not. Therefore the need for a ship manager to limit its liability to a sum commensurate with the fee that it is earning is more important in 2009 than ever before.”

ITIC claims director Andrew Jamieson says, “The club never recommends that a ship manager signs an agreement that does not limit its liability to a multiple of the fee it earns. Of course it might not always be possible to limit liability to ten times the management fee (even though the overwhelming majority of contracts do), but a great deal of effort should be made to limit liability to a reasonable sum.

“If ship managers have no limit of liability in their contract they will face more claims from opportunistic owners wanting them to contribute to every operational loss. Also, managers may suffer a sharp increase in their professional indemnity premium as the underwriter will look at their ability to limit liability under contract when assessing the premium.

“Furthermore, all ship managers should exclude all liability for the negligent acts of the crew. A manager is usually acting as an agent for and on behalf of the owner and is arranging the employment of the crew. It is for the owner to insure the negligent acts of the crew, not the ship manager.”

ITIC also emphasizes that, under BIMCO Shipman contracts which are subject to American law, ship managers may not be able to limit their liability to the amount agreed in the contract unless the limitation clause has been specifically discussed, agreed between the owners and managers and signed off separately. “US courts do not like limitation of liability clauses in an off-the-shelf contractual agreement,” says Andrew Jamieson. “They would want to see such a clause specifically negotiated and agreed separately.

“Also, under US law, ship managers who exclude liability ‘solely’ arising out of their negligence under the contract will find that it is contrary to well-established US concepts of proportionate fault and contributory negligence. An attempt to exclude such liability could be viewed as a contractual means of excluding the managers from liability for negligence. Monetary limitations on damages are also viewed unfavorably by the US courts.

“In fact, with any BIMCO Shipman contract which is subject to a legal system other than English law, managers need to contact a local lawyer to assess whether such an agreement would be binding and/or whether there are ways and means of enforcing their limitation of liability by signing a separate agreement.”

Photo: Andrew Jamieson.