Failure to exercise due diligence can be costly

Galadari Insights: Failure to exercise due diligence can be costly

Galadari recently secured a favorable final judgment from the Federal Supreme Court of the UAE, which dismissed a claim filed against our client amounting to over AED 5 million. The Court accepted our defense arguments, which were also in agreement with the Court’s appointed expert’s findings. This notable case serves as a cautionary tale for shipowners, highlighting the potential consequences, both financially and legally, that can arise from neglecting marine management expected to be observed.

Our client, a shipowner who entered a time charterparty agreement with a charterer who hired their ship for the transportation of petrol, found themselves facing adverse consequences because of their failure to exercise adequate due diligence in their operations.

In the maritime industry, it is customary both from a legal point of view and in accordance with the prevailing norms, for the shipowner, whether the actual owner of the ship or a ship supplier, to have possession and control over the ship’s maritime management. This includes tasks such as vessel preparation, maintenance, crew appointment, provision of food and payment of salaries. In this lawsuit, our client, a petrol tanker, ignored marine management responsibilities while the ship was under charter and failed to verify the quantities of petrol loaded by the charterer. These quantities were substantial and related to significant commercial transactions totaling more than AED 20 million, within a few months of the one-year charterparty term.  

After the expiry of the charter party, our client faced several claims from the petrol sellers.  Surprisingly, these claims were directed towards our client instead of the charterer, as the charter company had disappeared and closed its operations, leaving the ship behind. 

Our client faced many claims because of the negligent actions of the marine management responsible for overseeing the ship. The primary responsibility of ship marine management is to effectively manage the ship and ensure the accuracy and completion of all transactions conducted on board. Unfortunately, in our client’s case, the marine management failed to observe and inform them about the commercial transactions occurring on board. Adding to the problem, the ship’s captain, an associate of our client, signed and endorsed documents relating to the transportation of loaded petrol quantities without thorough review or verification. The plaintiffs who filed cases against our client took advantage of the failure of the client’s marine management to abide by the standard processes and duties by utilizing and presenting to the Court receipts bearing our client’s stamp and the signature of the captain. Consequently, they succeeded in obtaining several precautionary arrests on the ship.

Instances where marine judicial precedents address matters related to the unintentional negligence of shipowners are relatively few and considered rare. However, we take pride in stating that our firm has contributed to case law regarding marine management compliance and lawful functions pursuant to the UAE laws and regulations.    

For more information on Maritime Law in the UAE, please contact Emad El Habbak. Emad El Habbak was nominated as one of the top lawyers in the UAE for his contributions to the amendments of the provisions of the UAE Maritime Commercial Law.

Emad El Habbak Senior Associate [email protected]