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Agent or Principal

Jagan - June 29, 2024 - 2 comments

Many a times parties believe that they are acting in one specific role i.e. as Agenti but when the facts or contractual documents are reviewed, sometimes they find that they are also a party to the contract. A party can act in various roles including in a dual capacity – as Principal for some roles and as Agent for other roles. What is the exact role can be gleaned from the surrounding circumstances, the local law, the contract and the custom of the trade at the place where the contract is being performed. The purpose of this article is to highlight some common examples where a party may be contracting as a Principal instead of as an Agent.

  1. Difference in Risks: A Principal is a party to the contract while an agent is generally involved in bringing parties to the contract. The common law position is that once the contract is formed, the Agent steps out of the equation and is not personally liable for any claims. However, there is an exception in that if it is established that there was some personal fault or negligence on the part of the Agent, then the party who engaged the Agent could pursue for recovery. Accordingly, the risk exposure for anything going untoward is mainly on the Principal and for which they (Principal) should consider a risk management strategy including contractual transfer and insurance. With respect to an Agent, their exposure is limited given that they cannot be faulted on the performance of the contract. Examples of Principals are Owners, Carriers and agents are Brokers, Ship Agents, Forwarders etc.
  2. Legal position: In some jurisdictions, the local legislation provides for the Agent to be liable for acts of their Principalii. The reason for this is due to the the Principal generally not being found in the jurisdiction. Obviously, an Agent in these jurisdictions must ensure to seek appropriate security/cover for this additional exposure.
  3. Contractual:
    1. Parties may sometimes be unwilling to contract with Principals who are based in a different jurisdiction. The Agent may therefore be forced to sign the contract as a contractual party to facilitate the provision of services to their Principals. Examples of such would be the Terminal Services Agreement signed by an Agent with a Terminal Operator.
    2. Forwarder/Agents may sometimes be unaware that they are a party to the contract which they facilitated for their clients. Examples of these would be a Forwarder who booked space say with a Carrier contracting either on BIFAiii or SLAiv Standard Trading Conditions. While the Forwarder/Agent may be under the impression that their role is purely that of an Agent, due to the contractual provisions in the relevant Standard Trading Conditions, they become a party to the contract such that Carriers could pursue them for any claims arising from the booking made. The reason why Carriers impose such terms is understandable given that they (Carriers) are generally unaware of the details of the Shipper when the booking is made and which results in their inability to conduct any risk assessment. The Forwarder/Agent can always seek an indemnity from their clients but this will be dependent on their client being a going concern and being good for their liability.
  4. Risk Management:
    1. An Agent would generally be aware of their exposures arising in their role as Agent. An Agent should seek appropriate insurance cover for their risks and liabilities provided by either Mutuals or Insurance companies. Depending on the risk appetite of both the Agent and their Insurer, the cover may be capped (limits) and with provision for risk sharing (deductible).
    2. The greater challenge is when a party/Agent becomes aware only when pursued that they are also a contractual party. If the basis of Insurance cover is on their role as an Agent, then the existing Insurance cover may not extend to deal with the claim being pursued i.e. as a contractual party. To avoid such exposures, Agents should regularly review the wordings of their contract together with developments in law so as to ensure that they are aware of their contractual position and deal with their trading exposures.
  5. In conclusion,
    1. an Agent must ensure to ascertain whether they are contracting purely as Agents and/or in a dual capacity.
    2. if contracting as Principals/or in a dual capacity, they must ensure to deal with their exposures including appropriate risk transfer mechanism such as insurance.

i.See an article on Fundamentals of Shipping Agency published by Sea and Beyond.
ii.See an article on Liabilities of ship owners attaching to agents published by ITIC.
iii.See Clause 3 of the British International Freight Association Standard Trading Conditions.
iv.See Clause 5 of the Singapore Logistics Association Standard Trading Conditions.

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  1. Markus Posl

    Again a very helpful article about an important contractual topic when it comes to liability regimes. Thanks for it.

  2. Henson Lim

    Very basic but but most of the time missed. Thanks for the refresher.

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