Supreme Court Rules on Ship Agents' Liability for Cargo Damage

Background

Ship agents' liability for damage to cargo in transit has always been a controversial issue that has received varied judicial treatment in Spain.

The courts, including the Supreme Court, had traditionally held agents liable to cargo owners for damage sustained during transit. This liability was based on several legal constructions, depending on the particular facts of the case. The most common was to treat the agent as the shipowner. This legal fiction was based on Article 586 of the Commercial Code and Article 3 of the Carriage of Goods by Sea Act of 1949, which establishes that the person or entity representing the vessel in port is regarded as the owner.

The code dates back to 1885 and the act, which was enacted in order to incorporate the Hague Rules into Spanish law, follows the code’s provisions. Whether the code provided an appropriate framework for the regulation of agents’ activities in the 19th century is debatable. However, these provisions fail accurately to describe and properly to regulate agents’ present activities.

Ship agents are agents by definition and, in acting as such - either on a permanent basis for the same shipowner or on a case-by-case basis for different owners - are not bound by the commitments undertaken by the owners regarding cargo interests.

The traditional consideration of agents as owners has been vigorously and continually criticized by both practitioners and academics. It has been argued that this construction can be explained only as an attempt to afford additional protection to local cargo interests against foreign shipowners.

Recent Legislation and Jurisprudence

Appeal courts began to deviate from tradition by interpreting the code and the act in light of current circumstances, releasing agents from cargo damage liability. This direction was supported by the amendment to the State Ports and Merchant Marine Act 1992 (enacted in 1997), which, according to the appeal courts, established that owners’ cargo damage liability does not extend to agents.

On March 26 2006 the Supreme Court held that a ship agent, when acting in this capacity, should be treated as an agent and therefore should not be directly liable for damage to cargo in transit. This line of reasoning was later indirectly supported by its judgment of March 30 2006.

On November 26 2007 it unexpectedly delivered a judgment aimed at unifying jurisprudence in this area. It accepted the traditional line of jurisprudence holding that, despite developments in the industry since the code entered into force and the difficulties in identifying agents with owners, it is not possible to modify the existing legal regime through interpretation.

Furthermore, the court held that the amendment introduced in 2003 to the State Ports Act made clear that the previous amendment introduced in 1997 was intended to clarify only that the joint and several liability regime applicable to the agent for payment of port dues owed by the shipowner as established in this act (a public law issue) is not applicable to the agent's liability to cargo owners for cargo damage (a private law issue), which is governed by commercial law regulations. Therefore, the act does not establish a particular liability regime for agents regarding cargo damage; nor is it a valid guideline for interpreting whether such liability exists.

Finally, the court held that, until the existing law is changed by statute, agents are directly liable to cargo owners for damage sustained by cargo during transit, regardless of the particular arrangements between the agent and the shipowner or whether the representation of the latter by the former is permanent or on a case-by-case basis.

Comment

The new line of jurisprudence will have a significant impact on agents’ exposure to liability and should make them reconsider: (i) the particular arrangements governing their relationships with shipowners (ie, a regime of indemnities should be considered); and (ii) their liability insurance coverage.

Agents must wait for a legal reform, which may come in the form of the General Maritime Navigation Act under discussion in Parliament. Until then, agents will be legally regarded as being something different from that which they actually are - the courts have returned agents' status to the old legal fiction.