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Pitfalls for Ship Managers

December 2008 - Corporate & Commercial. Legal Developments by Wikborg Rein.

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Ship managers carry out management services as agents usually on behalf of a shipowner. For example, the ship manager will not be responsible usually for the shipowner’s obligations under an agreement for the supply of bunkers. However, in some cases ship managers risk being liable for the shipowner’s obligations.

Norwegian Law
The starting point in Norwegian law - as in most jurisdictions - is that someone entering into an agreement will be liable for the obligations arising out of the agreement, unless it is stated explicitly that the agreement was made on behalf of a named third party. For example, a ship manager ordering bunkers or spare parts for a vessel without specifying that this is done on the shipowner's behalf will accordingly be obliged to pay the supplier. This rule was confirmed in 1980 by the Supreme Court in the Fekete Case, which dealt with a manager ordering bunkers for a vessel without stating explicitly that this was done on the shipowner's behalf. The manager was held liable even though the supplier knew that the manager was not the vessel's owner. The lesson ship managers should learn from this decision is to specify always that an agreement is made on the shipowner's behalf and to name the owner in question.

International Law
However, this will not always be sufficient to eliminate the risk of ship managers becoming liable when acting as agents for a shipowner. A particular challenge for the shipping industry is its international nature, where vessels often trade in different countries and jurisdictions. When placing an order in Norway with a supplier of goods or services located abroad, a manager runs the risk of entering into an agreement governed by foreign law. This is quite likely since contracts are generally governed by the law of the country to which they are most closely connected, which will often be the country of the provider of the goods or services. Furthermore, the manager also risks being sued in the country where the service has taken place (eg, in terms of EU Regulation 44/2001 and Article 5(1) of the Lugano Convention, which give jurisdiction to the place of performance).

An example of where this might lead is Article 586 of the Spanish Commercial Code, which provides that the ship manager and the shipowner are jointly and severally liable for any orders the manager places "for the vessel's benefit". If a Norwegian manager orders goods or services from a Spanish supplier or service provider and the shipowner later becomes insolvent, the manager will consequently be liable for the bill.

Comment
Norwegian ship managers can reduce the potential risk of having to pay for goods or services ordered for the ship by specifying both that orders are made on behalf of a named owner and that orders are to be governed by Norwegian law and jurisdiction. The latter can be done through either explicit wording in the order or standard terms attached to the order. However, in such cases the supplier often insists or at least suggests in turn that its standard terms are used. Such procedural conflicts and the uncertainty that often follows may be avoided by having explicit internal instructions regarding contractual procedures. An advantage of using the manager's standard terms is that they may also include shipowner-friendly terms concerning the supply of the goods or services in question.

For further information please contact Gaute Gjelsten at Wikborg Rein by telephone (+47 22 82 75 00) or by fax (+47 22 82 75 01) or by email (ggj@wr.no).

Authors
Torgeir Willumsen
Finn Bjørnstad

For more information please visit www.wr.no