ITIC says simple checks will defeat shipping industry fraudsters

International Transport Intermediaries Club (ITIC) says ship brokers and agents are among those most at risk of exposure to fraud in the shipping industry, and urges them to carry out simple checks in order to protect themselves.

In the latest issue of its Claims Review, ITIC cites the case of a ship broker which received an emailed freight invoice from an owner for $120,000. The bank account detailed in the invoice was the same as that previously used by the owner but, several hours later, a further email was received, apparently from the owner, advising a change to the bank account details because the original bank account was ‘no longer available to receive payment due to an internal audit.’

The message was not in fact from the genuine owner, but from a very similar email address created by a fraudster, who had also provided a fake account registration form. The broker failed to notice the change in the email address, and it was only after the owner enquired about the whereabouts of the freight that the scam was discovered. The charterer had to pay the freight again and claimed from the broker for negligence. The broker reimbursed the charterer and ITIC reimbursed the broker.

In another incident, a ship agent received an email purportedly from its principal explaining that the principal’s bank details had changed and that funds were to be sent to a new bank account. Although the new bank account had no apparent link to the principal, the agent duly transferred into it the sum of $53,000. The principal, however, did not receive the funds, because the agent had paid the money into the wrong account, failing to notice that the email address notifying the change of bank account was slightly different to the correct email address of its principal. ITIC duly reimbursed the agent for the full amount.

ITIC says it continues to see a large number of such frauds. While most of the victims and intended victims have been ship brokers and ship agents, ITIC has also received reports from members carrying out a wide range of other activities.

ITIC emphasises that anyone making a payment could be the target of fraudsters, and warns that any message purporting to change bank account details should be regarded with suspicion. It has urged its members when transferring funds to use
the telephone to check account details with a trusted representative at the recipient’s office. Simple checks, it says, will defeat the fraudsters.

To access a dedicated fraud section on ITIC’s website, which contains advice and information relating to potentially fraudulent activity, go to:
https://www.itic-insure.com/knowledge/circulars/fraud-circulars/

ITIC is managed by Thomas Miller. More details about the club and the services it offers can be found on ITIC’s website at www.itic-insure.com


For more information:
Charlotte Kirk
ITIC
Tel. +44 (0)20 7338 0150
charlotte.kirk@thomasmiller.com

Ship agent liable for negligence leading to excessive dunnage disposal charges

International Transport Intermediaries Club (ITIC) has recently reported a dispute in which a ship agent in Australia was held liable to its shipowner principal for excessive charges demanded by a contractor for the disposal of dunnage and other materials related to the packing of cargo.

The agent was asked by its principal to arrange for the disposal of the materials upon the arrival of the principal’s ship in Australia, where strict local quarantine regulations apply. The agent engaged the services of a licensed disposal company which, although it had previously been used to dispose of ship’s garbage and other more hazardous waste, was not the company the agent normally used to dispose of dunnage.

The agent instructed the disposal company by telephone, without verifying the total cost. The materials were disposed of and the disposal company submitted its bill for approximately Aus$70,000. When the owner questioned the unusually high charges, the disposal company said it had charged its usual rate for licensed waste disposal. Subsequent enquiries by the agent, meanwhile, confirmed that the amount which its usual dunnage disposal company would charge to deal with dunnage and packing materials would have been approximately Aus$7,000.

The owner was unwilling to pay more than the reasonable costs which should have
been incurred. Because the agent had been negligent in its selection of the disposal company, ITIC reimbursed it the balance of the invoiced sum, amounting to Aus$63,000, which the agent was liable to pay the owner.

ITIC is managed by Thomas Miller. More details about the club and the services it offers can be found on ITIC’s website at www.itic-insure.com


For more information:
Charlotte Kirk
ITIC
Tel. +44 (0)20 7338 0150
Fax. +44 (0)20 7338 0151
charlotte.kirk@thomasmiller.com

Underwriters fall out with expert witness over valuation of fire-damaged vessel

International Transport Intermediaries Club (ITIC) has reported a case in which hull & machinery insurance underwriters instituted proceedings against a marine consultancy firm for alleged negligence in failing to properly review shipyard quotes in respect of the cost of repairing a fire-damaged vessel.

The insured vessel had suffered extensive fire damage. The owners claimed that the ship was a Constructive Total Loss (CTL), alleging that the cost of repairing it was in excess of its insured value. The insurers rejected this claim, maintaining that the vessel was capable of economic repair. The vessel was ultimately scrapped, and the only remaining dispute was over the amount which the insurers were obliged to pay under the policy.

At an early stage, the owners made an offer to settle the claim by accepting $1.136m, plus their legal costs. Underwriters did not accept the offer, and litigation was started by the owners. The underwriters engaged a marine consultancy firm to provide expert advice/evidence on what it would have cost to repair the vessel. The consultants issued a report stating that the vessel was not a CTL. This report was based, among other information, on two independent quotations from Chinese shipyards and detailed calculations from the builder of the vessel which indicated that the steel weight for the vessel’s accommodation block was 312 tonnes.

The owners in turn submitted the report of their technical expert, which had been prepared using a different, ‘newbuild’ approach. This report used an estimated steel weight total of 542 tonnes to repair the accommodation block, and concluded that the total cost of repairing the vessel was $6m, a figure that would have made the vessel a CTL.

Following a joint experts’ meeting, underwriters’ counsel asked the consultants to prepare their own steel weight calculations, inclusive of the accommodation block, in order to rebut the owners’ report. Drawing from their own calculations, the consultants concluded that the shipbuilder’s initial steel weight figure was inaccurate and that the cost of repairing the vessel was about $3.9m in excess of the total insured value. On the basis of this new advice, underwriters settled with the owners for $1.3m, plus the owners’ costs.

Underwriters then started proceedings against the consultants on the basis that they had been negligent in not properly reviewing the shipyard quotes. The underwriters claimed that, had they been properly advised, they would have been able to settle for a lower amount at an earlier stage. This would have reduced their own costs and their liability for the owners’ costs.

The consultants pointed out that the underwriters had rejected the owners’ earlier offer before they had been engaged, and argued that, for their part, they had relied on the figures provided by the underwriters. Moreover, it was not until after the joint experts’ report that they were asked to make their own assessment.

Reporting that the issue was finally settled at mediation, ITIC says, “It is four years since the English Supreme Court held that expert witnesses involved in legal proceedings no longer enjoy protection from liability for negligence. It was a feature of this dispute that there was no document specifying what the consultants had been engaged to do. A large number of disputes involving consultants and other advisers would be avoided if the scope of work was clearly defined beforehand.”

ITIC is managed by Thomas Miller. More details about the club and the services it offers can be found on ITIC’s website at www.itic-insure.com



For more information:
Charlotte Kirk
ITIC
Tel. +44 (0)20 7338 0150
Fax. +44 (0)20 7338 0151
charlotte.kirk@thomasmiller.com

Ship manager fined for breach of US sulphur emissions regulations

International Transport Intermediaries Club (ITIC) has confirmed that a ship management company has been fined over a quarter of a million dollars in connection with a breach of clean air regulations in the United States.

ITIC reports that an inspector of the California Air Resources Board, the clean air agency of the state of California, boarded a ship in July 2011 at a terminal in Los Angeles. The chief engineer was asked if he was aware of the revised 2009 California clean air regulations which required vessels to switch main engine, auxiliary engines and auxiliary boilers to low-sulphur fuel when in California-regulated waters. The chief engineer said he was only aware of the requirement to switch auxiliary engines to low-sulphur fuel in accordance with regulations effective from 1 January, 2007.

The master checked the vessel’s Safety Management System (SMS) but was unable to locate the 2009 requirement. The inspector then examined the records of fuel switchover for the vessel’s main engine, auxiliary engines and auxiliary boilers, and ascertained that the ship had called at California ports seventeen times between 2009 and 2011 without switching over the main engine or the auxiliary boilers. A penalty of $283,500 was duly imposed on the shipowner for failure to switch fuel during the seventeen port calls. The owner claimed against the manager, maintaining that the manager had been negligent.

ITIC says, “In 2009, a fleet circular had been sent to all vessels by the manager, setting out the change in regulations, and asking that it be displayed in a prominent position. The manager therefore initially rejected the claim on the ground that it had resulted from crew negligence, which was excluded under the BIMCO management agreement. The owners, however, did not accept this rejection, maintaining instead that the manager had failed to update the SMS. As it was considered unlikely that the manager would successfully defend a claim resulting from its failure to update the SMS, the claim was paid in full.”

ITIC is managed by Thomas Miller. More details about the club and the services it offers can be found on ITIC’s website at www.itic-insure.com


For more information:
Charlotte Kirk
ITIC
Tel. +44 (0)20 7338 0150
Fax. +44 (0)20 7338 0151
charlotte.kirk@thomasmiller.com