Takes three to Tango

DUTCH law has seen much debate recently about the precise situations in which contractual clauses between two parties are binding upon a third party. Deciding where third parties stand in relation to legal agreements to which they have not put their signature is not a straightforward matter. And if shipowners and charterers understand the Dutch legal position, they can leverage an advantage for themselves when it comes to ascertaining liability in the event of a dispute.

In a recent case between owners and stevedores over liability for damage to the Angela Jurgens caused during cargo unloading operations by stevedores, the Court of Rotterdam ruled that the stevedore could not rely on the limitation of liability clause in its contract with the charterer. The stevedore in Angela Jurgens argued that it was entitled to benefit from its contract terms with the charterer because, by its actions, the owner had caused the stevedore to believe that it could rely on the terms of that contract.

The stevedore mounted a vigorous defence. It maintained that the owner was aware that stevedores in Rotterdam relied on limitation clauses which form part of the Rotterdam stevedoring conditions. It also argued that the terms of the charter party between the owners and charterers gave the stevedore cause to believe that it could rely on its limitation clauses against the owner. Other arguments relating to the commercial necessity of limitation clauses were also put forward.

The Court of Rotterdam, however, was not convinced that the stevedore was entitled to limit its liability, and did not allow the stevedore to benefit from the limitation clause in its contract with the charterer.

The conclusion that can be drawn from this ruling is that, under Dutch law, it remains extremely difficult for a stevedore to rely on its contract terms in a dispute involving a third party. By implication, owners and charterers have room for manoeuvre when deciding how best to pursue a claim. In cases involving alleged stevedore damage, we can expect that claims will be filed by whichever party – the owner or charterer – who has not signed a contract with the stevedore. The chances of the stevedore then successfully invoking the limitation clause in its contract become remote.

Another point for principals to consider is that they may be liable for the actions of the third parties they contract. In certain situations it has been shown that the principal is effectively vouching for the actions of the third party and may be liable for its actions.

One example is the recent ruling in the Dutch Supreme Court in the case of Meisterwerke v Damco, which shows that carriers are liable to the consignee for the actions of their agents. Meisterwerke, the consignee, bought 44 containers of ladders from a Korean company, using letters. The sellers contracted sea carrier Damco on a C&F Rotterdam basis to ship these containers from Korea to Holland.

To make payment for the ladders, Meisterwerke’s bank needed to be provided with four bills of lading, covering all 44 containers. These were provided by Damco's ship agent, Eastern Transport Co. Meisterwerke’s bank paid against the documents. When the first vessel arrived in the port of Rotterdam, most of the containers were missing without explanation. Meisterwerke immediately tried to stop payment, but the funds had already been transferred to Damco.

After investigation, it was revealed that Damco’s ship agent in Korea, Eastern Transport Co, had fraudulently provided Meisterwerke with misleading bills of lading. With almost no cargo in its possession and the amount already debited from its account, Meisterwerke made a claim against Damco to recover funds. Damco disputed any liability on its part, saying that the blame lay with the agent.

Was Damco liable for a fraudulent bill of lading issued by the agent on its behalf?

Damco argued that it was not. Damco’s argument was that it had not given permission to its agent to issue false bills of lading. In other words, Eastern Transport Co did not have the power to issue a false bill of lading in Damco’s name, and Damco should not be liable for any such fraudulent actions.

Meisterwerke’s argument was that Damco had given its agent the power to issue bills of lading, and this power existed regardless of whether the bills were accurate or not. Meistewerke said that fraudulent bills of lading should be treated in the same way as erroneous bills of lading when it comes to ascertaining who is responsible for them, because third-party bill of lading holders should always have the confidence that the bills of lading they are paying against are truthful and are backed by the full force of the law.

The Dutch Supreme Court agreed. It ruled in favour of Meisterwerke, saying that the agent was empowered to issue bills of lading on behalf of Damco and that this was not limited to whether or not the bills of lading were true. The court said that the agent had misused its power, and this made the agent liable to the carrier. But this did not mean that the agent had acted outside the limits of its powers. Therefore, liability for the fraud was attributed to Damco.