When a broker calls in the lawyers

It would be difficult to attempt to list a set of comprehensive guidelines to avoid problems getting paid under TOWCON, when a voyage has not gone according to plan.

A good broker should keep the parties talking, ensure most differences are resolved and that the tug gets paid. When therefore the first call comes in from a gentleman of that profession you know that he will already have lost much of the hair on his head and is verging on despair. He may even be reaching the point whereby one or other party, or both, are being so difficult that they deserve nothing better than to be cast into the hands of the lawyers. Usually at this point the broker makes one further and heroic attempt to knock heads together, telling the parties that a solicitor has been lined up and that if they do not behave this kindly intermediary will soon wash his hands of the matter.

Cases that can go legal very quickly include where the tow cannot be accomplished and the flotilla has had to return to port, or where the tow takes on water and the tug is obliged to seek refuge for repairs, involving delay and expense, and a late arrival at destination.

Seen from the hirer’s perspective, their budget for the tow is now greatly exceeded while delivery dates are leading to commercial problems with the end user, who may also be threatening to withhold the money intended to cover the tow. The operations team that planned the voyage is in deep trouble and looking for scapegoats. The finger gets pointed at the tug, and payments are withheld.

So, assuming for these purposes there is a good claim, what to do?

At this point a tug owner might wish that he had insisted on financial security. If that is on offer during fixture negotiations, care does need to be taken to ensure that any guarantee is worth the paper it is written on. There is, for example, no standard parent company guarantee wording. We have seen attempts to limit its scope and application, for example guarantees that expire automatically at the end of the voyage. If the right to financial security has been waived, with box 36 ignored and a line put through clause 12, as it so often is, the tug owner is left to secure his claim by other means.

One option, if available, is to exercise the possessory lien granted under clause 28 while claiming a delay rate. This is a subject I have covered before and which can be very effective but, equally, is not without its limitations in practice. However, it prompts a reminder to tug owners to remember the good reasons always to press in negotiations for the highest delay rate they can get.

Also not to be overlooked is the setting of a good rate of interest under box 35. Interest at  5 per cent per annum may be much higher than today’s deposit rates, but is hardly going to incentivise a hirer to make quick payment. It is only going to be effective if it hurts,  and I would suggest that pain only really begins at around one per cent a month. However, I can hear the broking community complaining that we lawyers do not live in the real world.

Moving on quickly therefore, the tug owner may look for security for his claim by arrest or attachment, including pursuant to clause 34. However, that depends upon whether such right is available in the courts where the tow ends up and, if so, whether the tow is a ship as defined under the Arrest Convention 1952/1999, and a good many tows fall outside that definition. There may be no right at all if the tow is not owned by the hirer named in box 4 and although clause 29 seeks to bind the undisclosed owner to the terms of the contract, this may be a source of unwelcome argument before the local courts. Last, but not least in this connection, if the tow is heading for the scrapyard it may have very little value, while in many jurisdictions counter-security may be required as a condition of arrest, an additional cash call that could be tied up for the duration of the underlying arbitration proceedings.

If the tow has actually sunk, a claim for unpaid lump sum instalments and other charges may arise together with a claim in damages for unearned instalments based upon a breach of the hirer’s undertaking to exercise due diligence to make the tow tow-worthy. There will be no tow to lien or arrest, but there may be scope for seeking from court a freezing order or injunction over the hull insurance proceeds before they reach the pockets of the hirer. In the London market that is certainly possible, although it needs to be done quickly and involves a not insignificant investment in legal fees.

However, frequently the problem is that this type of insurance is on voyage terms and subject to towage warranty survey compliance and other conditions. All too often a close examination of the hirer’s compliance with the policy will allow insurers to question or avoid cover.

When it comes to contract drafting and pricing, the above issues highlight some of the potential limitations facing the tug owner when the hirer decides it does not wish to pay.

Simon Tatham is a partner at Tatham & Co and founder member of the www.tugadvise.com service. He has more than 30 years’ experience of shipping law.

Reproduced with kind permission of International Tug & OSV magazine.