Importance of deciding what role you want to play in a shipping or maritime contract

The world of global shipping, freight, maritime and trade involves several stakeholders such as sellers, buyers, agents, brokers, carriers, freight forwarders, and many more..

The business also involves several contracts such as sales contracts, contracts of carriage etc and it is imperative to understand, know, and decide what role you want to play in these contracts..

In maritime and shipping contracts, parties often believe they are acting solely as agents, but upon closer examination of the facts and documents, they might find themselves as an actual party to the contract, acting in dual capacities—both as principals and agents..

There is a big difference in the role of principal and agent and determining the exact role depends on the surrounding circumstances, local laws, the contract, and trade customs..

A principal is directly involved in the contract and bears the main risk, whereas an agent’s role in most cases is to facilitate the contract between parties..

Typically, agents are not liable once the contract is formed unless personal negligence is proven..

This distinction underscores the need for principals to adopt risk management strategies, including insurance..

In some jurisdictions, agents might be held liable for the principal’s actions due to the principal’s absence in the jurisdiction.. This happens all too often for freight forwarders who may be held liable for exporters/importers who may abandon cargo, fail to pay demurrage etc.. Agents should secure appropriate protection for this added exposure..

Sometimes, agents sign contracts as principals to facilitate services, especially when principals are in different jurisdictions..

Forwarders and agents may unknowingly become contractual parties due to standard trading conditions, which can expose them to claims.. They can seek indemnity from clients, but this depends on the client’s financial stability..

Agents should regularly review their contracts and ensure adequate insurance coverage for their roles..

This is crucial as they might only discover their contractual liability when pursued for a claim and regular reviews and understanding of legal developments can help manage these risks..

Parties must ascertain their roles clearly whether acting solely as agents or in a dual capacity and manage their exposures accordingly, including securing appropriate insurance.

For further insights, refer to the full article by Muthu Jagannath of NAU which highlights the importance of understanding one’s contractual role and the associated risks in the maritime industry..