Lesson 2 Maritime Law and Personnel Management MA2026

Singapore Maritime Academy

CoC 1/2

Maritime Law and Personnel Management

LESSON 2

Basics of Contract, Agency and Tort

Objectives:

At the end of this lesson you should be able to:

 Appraise the legal framework for contract under the common law system.

 Appraise the legal framework under the contract of Agency and its impact on
commercial transactions.

 Discuss the concept of Tort under the common law system.

References:

1. Singapore Academy of Law, ‘Singapore Law Watch’,

<https://www.singaporelawwatch.sg/>, assessed 01 Aug 2019

2. Singapore Statutes Online, <https://sso.agc.gov.sg/>, assessed 01 Aug 2019

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2.1 The Law of Contract

Contracts are made daily without us sometimes even giving it a second though.
However, in the world of shipping business, simplicity is not a norm in contracts. As
such, a basic foundation of the law of contract is essential before one can be
immersed in the law of the carriage of goods by sea.

Introduction

With the economic and social development of modern societies the need for a law of
contract becomes far more pressing for at least two reasons. In the first place, the
division of labour, which is such a fundamental feature of modern societies, creates
an increasing demand for the transfer of property from some members of the
community to others and for the performance of services by some members of the
community for others.

The legal machinery by which these transfers of property and performance of services
is carried out is broadly speaking, the law of contract. Contract law is thus, in large
part, the law of exchange, the law that regulates the methods by which individuals
exchange goods and services usually in return for money.

Definition of Contract

A Contract is a legally binding agreement. It can also be defined as a promise or set

of promises which the Law will enforce.

Essential Requirements of a Contract

Agreement arises as a result of an offer and an acceptance, but a number of other

requirements must be satisfied for an agreement to be legally binding. There must be:

1. consideration.
2. the parties must have an intention to create legal relations.
3. the parties must have the capacity to contract
4. the agreement must comply with any formal legal requirements
5. the agreement must be legal
6. the agreement must not be rendered void either by some common law or
statutory rule or by some inherent defect, such as operative mistake

Classification of Contracts
There are three main types of contracts. These are as follows:

 A Contract of Record
 A Contract under Seal (Specialty Contract or Deed)
 A Simple Contract

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A Contract of Record

It is in point of fact not a contract at all, and has nothing whatever to do with the law
of contract. It is a contract that is declared by a court and entered into the court’s
record. They came to be called contracts only because they were enforceable by the
same type of action as was used for genuine contractual cases in the common-law
system of procedure.

A Contract under Seal

Contracts under seal bear little resemblance to ordinary contracts, although here at
least the liability is based on a promise. A contract under seal, that is to say a deed, is
a written promise or asset of promises which derives it validity from the form, and the
form alone, of the executing instrument. The deed should be signed, sealed and
delivered.

A Simple Contract

A Simple Contract is an informal contract, either in writing or implied, thereby

creating legal obligations and rights.

It can become a contract by implication from the conduct of the parties. For example,
a person who boards a bus is in fact, entering into an agreement, impliedly, to pay his
fare for the journey.

The Making of a Contract

The typical contract is essentially a two-sided bargain, which can only be concluded
by the actions of both parties. Thus, it is necessary that two or more parties should
have reached an agreement. Generally speaking, this is done by the procedure of offer
and acceptance, and made binding either under seal or supported by consideration.

In the words of Pollock:

“One party proposes his terms; the other accepts, rejects, or meets them with a
counter-proposal: and thus they go on till there is a final refusal and breaking-off, or
until one of them names terms which the other can accept as they stand”.

The Offer

It is defined as an expression of willingness to contract made with the intention that is

shall become binding on the person making it as soon as it is accepted by the person
to whom it is addressed.
An offer is, in effect, a promise by the offeror to do or abstain from doing something,
provided that the offeree will accept the offer and pay or promise to pay the ‘price’ of
the offer. The price, of course, need not be a monetary one.

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The Acceptance

It is defined as a final and unqualified expression of assent to the terms of an offer.

The acceptance of an offer is the act, which completes the formation of the contract.
Until acceptance there is nothing but a revocable offer, which binds nobody. After
acceptance, there is a completed contract, which binds both parties.

Terms of a Contract

A Contract may contain either express or implied terms, or both.

Parties to the Contract may detail and state every term of their contract with varying
degrees of precision or they may only agree on the basic purpose of a contract and
leave the detailed terms to be implied from other circumstances.

Express Term

A provision of a contract agreed to by the parties in words, written or spoken. It may

constitute either a condition of the contract or a warranty.

Implied Term

It is a provision of a contract not agreed to by the parties in words but either regarded
by the courts as necessary to give effect to their presumed intentions or introduced
into the contract by statute. A term may be implied if it is necessary in the business
sense to give efficiency to the contract.

Condition

A condition is a major term of a contract. It is described as a term that goes to the root
of the contract. It is of vital importance where failure to observe a condition by one
party would entitle the other party to treat the contract as being discharged.

Therefore, should a condition in a contract be breached, the injured party would be

able to treat the contract as being discharged. Alternately, the injured party can elect
to treat the breach as only a breach of warranty and allow the contract to continue but
sue the other party for damages.

Warranty

It is a term or promise in a contract, breach of which will entitle the innocent party to
damages but not to treat the contract as discharged by breach.

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Right to Terminate a Contract

A breach of a duty arising under the contract may give rise to the right to terminate a
contract. A breach of such a duty may take one of the following forms:

(1) Non-Performance

Complete non-performance by one party naturally gives the other party the right to
treat the contract as terminated.

(2) Repudiation

The second case is almost identical to the first. An intimidation, whether by words or
by conduct, that a party declines to continue with the contract, is a repudiation if the
result is likely to deprive the innocent party of substantially the whole benefit of the
contract.

(3) Defective Performance

The third case of breach is that of defective performance. This term is used in a wide
sense to include all cases where there is a partial performance, or a complete
performance which yet does not comply in all respects with the contract, such as
belated performance.

The Unfair Contract Terms Act 1977

This Act is the first general statutory attempt to deal with the problem of unfair
contract terms. There are many other statutory provisions on this.

This Act is a most intricate piece of legislation. It deals only with exemption clauses
and does not deal with the whole subject of unfair contracts.

Contracts can, in a broad sort of way, be said to be unfair as a result of one of two
causes: either the contract may impose an excessive burden on one party, or is may
impose too light a burden on the other party. It extends to cover any contract with
regard to the carriage of goods by sea.

The simplest reform carried out by the 1977 Act is that it imposes a total ban on
exemption clauses which concern negligence actions for personal injury or fatal
accidents and is now unaffected by contractual exclusion clauses. The same goes for
notices such as are sometimes posted up warning persons that they may be permitted
to enter buildings or land at their own risk

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2.2 The Law of Agency

Introduction

The Law of Agency is the legislation dealing with agents who are persons appointed by
another to make contracts on their behalf. It is about the relationship between a principal
and the agent, including the rights, duties and liabilities of both parties.

Definition of Agency

Agency may be defined as the relationship an agent and the principal. An agent is one
that is appointed by another (the principal) to act on his/her behalf, often to negotiate
a contract between the principal and a third party.

The principal employs the agent and he will contract on behalf of that principal. An
agent does not enter into a contract on his own behalf, and therefore does not require
full possession of full contractual capacity. However, it must be emphasised that the
principal himself must, indeed, have full capacity, as it is only on this basis that he may
employ an agent in order that he be bound by what the agent does on his behalf. From
the definition of agency it is conclusive that the most important function of an agent is
to make contracts on behalf of his principal, which in turn sets up various relationships
between the principal and the agent.

These are: -
a) The relationship between the principal and the agent.
b) The relationship between the principal and a third party.
c) The relationship between the agent and the third party.

Creation of an Agency

An agency may be created in a number of ways. They are … by express appointment,

by implication, by necessity and by ratification.

Express Appointment

This is the most common way of creating an agency and thereby effecting a relationship
between principal and agent, is by consent. In this way the agent may be appointed
either by Deed or in writing or even by word of mouth. Normally, it is not important
which method is adopted but, in circumstances where an agent is appointed to execute a
Deed on behalf of his principal, then his appointment must be also by Deed. In this
circumstance, the agency is called a "Power of Attorney".

Implied Agency

Agencies may be implied in various circumstances and can arise through implication
from a commercial relationship. For example, through the directorship of a company or

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a partnership situation, for instance, in a partnership, every partner of that organisation

would be considered an agent of that company.

The Authority of an Agent

The appointment of an agent, either by express appointment or by implication, has

already been discussed in the section of this lesson relating to Creation Of Agency. We
can now add to that section that an agent's authority to act as an agent may also be
expressed or inferred by implication or it may be apparent, which is referred to as "usual
authority".

Express Authority

Such authority may be given to the agent either orally or in writing. If made in writing,
this may be either under seal or not. If any ambiguity were to occur through the express
authority given to him, then no liability can be placed on the agent, provided that he
interprets the terms of his authority reasonably.

Implied Authority

In order to fulfil his appointment as agent within the terms that were given to him by his
express authority, the agent further has authority to do anything necessary when carrying
out such Express Authority and this is known as Implied Authority in the
circumstances.

Apparent Authority

An agent can have what is termed apparent authority and as such, the principal is
responsible for the acts of his agent within such apparent authority, even if they are not
within his actual authority.

Any representation whatsoever which may be made by the principal which is likely to
be considered as an inducement to a third party reasonably to believe that the particular
person is an agent of the principal, makes the principal liable is those circumstances.
Such representation may be by words, or indeed by conduct. In circumstances where the
agent may have acted fraudulently or for his own benefit, the principal would
nevertheless be liable on the grounds of apparent authority of the agent.
until this
Rights of an Agent

In Law an agent has every right to be indemnified by his principal if he incurs any
liability or advances money in the performance of his duties as an agent. However, he
would lose this right if he acted in any unauthorised way or did not follow strictly the
instructions of his principal.

An agent is entitled to expect remuneration for the duties he carried out and such may
be expressed or indeed implied by the agreement.

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An agent is entitled a right to exercise a lien by retaining goods belonging to another

person as security for the payment of a debt. Such a lien may be either particular or
general when talking in terms of agency and may refer possibly to outstanding monies
resultant upon a particular transaction or generally it may extend to a balance of
account.

It must be pointed out that such a lien is possessory in that an agent can only claim a
lien if he has lawful possession of the particular property concerned. If he parts with
those goods on a voluntary basis then he, in effect, loses possession and of course, loses
his right to lien the goods. Obviously, the lien would also come to an end in
circumstances where the principal was to pay or tender the outstanding sum due.

Duties of the Principal

It is the principal's duty to remunerate or pay any agreed commission and he must not
prevent the agent from actually earning his remuneration. As already mentioned in the
previous section, the agent has a possessory lien over the goods belonging to his
principal until such time as the principal settles his commission in full.

When this remuneration or commission becomes payable to the agent is very much
dependent upon the contractual agreement. It may be payable, for example, when the
agent is employed to sell goods or sell land on behalf of his principal. On the other hand
if on completion of a sale and final payment of the price, the agent's commission could
be termed as earned and duly payable by the principal.

Breach of Warranty of Authority

An agent who enters into a contract with a third party (for and on behalf of a principal)
by implication warrants that he or she has the authority to do so. If this is not the case,
the third party has the right to sue the agent for breach of warranty of authority.

For example, a shipbroker that may purport to contract on behalf of a principal as agent
only, is deemed to warrant that he has full authority of the principal to contract on his
behalf. If it were to turn out later that he did not, in fact, have such full authority, he will
be liable in any action brought by the principal.

A further example would be the master or indeed the agent, signing bills of lading for
goods, which are not actually shipped on board a vessel. He would be liable for breach
of warranty of authority to a consignee or endorsee of the B/L, who may suffer by
taking up and paying for the B/L having relied on the statements, which they contain.

Agent of Necessity

This type of agency would arise in circumstances where a particular person was
entrusted with goods belonging to someone else and it becomes necessary to take
certain action to preserve the property in an emergency situation.

This could be likened to a Master of a vessel having to take action, on behalf of his
owners in an emergency situation.

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In those circumstances, he would have to prove that it was impossible to get instructions
from his principal because he could not communicate with them and he would also have
to establish that the action he took was of real necessity. For example, if a Master of a
vessel had to arrange the sale of a cargo to prevent it from perishing.

Termination of an Agency

There are several ways whereby an agency may be terminated. They are:
(a) By mutual agreement between the parties involved.
(b) A principal may, at any time, revoke the agent's authority and so prevent him
from making binding contracts with third parties.
(c) Renunciation by the agent.
(d) By complete performance of the duties and the obligations by the parties to the
agreement.
(e) An agency may be terminated by the operation of the Law, i.e.
 By death of the principal or agent.
 By bankruptcy or insanity of the principal or agent.
 By frustration of the contract.
 By intervening illegality of the contract.
 Where an agency has been created for a limited time, termination can come
about by effluxion of that particular time.

2.3 Law of Tort

Tort may be defined as a civil wrong for which the remedy is a common law action
for unliquidated damages, and which is not exclusively the breach of a contract or the
breach of a trust or other merely equitable obligation.

In general, a tort consists in some act done by the defendant whereby he has without
just cause or excuse caused some form of harm to the plaintiff. The law of torts exists
for the purpose of preventing men from hurting one another, whether in respect of
their property, their persons, their reputations, or anything else which is theirs.

The fundamental principle of this branch of the law is alterum non laudere – to hurt
nobody by word or deed. An action of tort, therefore, is usually a claim for pecuniary
compensation in respect of damage suffered as the result of the invasion of a legally
protected interest.

To succeed, the plaintiff has to establish that:

 he has suffered some harm or injury;
 and that the defendant has infringed or violated a legal right of the plaintiff.

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Nuisance

Nuisance may be described as interference with another person’s enjoyment. It is an

act or omission, which materially affects the reasonable comfort and convenience of
the other person. Nuisances are of two kinds, public and private. A private nuisance is
a civil wrong. A public or common nuisance is a criminal offence.

Public and private nuisances are not in reality two species of the same genus at all.
This is no generic conception which includes the crime of keeping a common
gaming-house and the tort of allowing one’s trees to overhang the land of a
neighbour.

A public nuisance falls within the law of torts only in so far as it may in the particular
case constitute some form of tort also. Thus the obstruction of a highway is a public
nuisance; but if it causes any special and peculiar damage to an individual, it is also a
tort actionable at his suit.

Private nuisances are themselves of two types – (1) any wrongful disturbance of an
easement and, (2) the act of wrongfully causing or allowing the escape of deleterious
things into another person’s land e.g. water, smoke, smell, fumes, gas, nose, heat,
vibrations, electricity, disease-germs, animals, etc.

Defamation

The wrong of defamation consists in the publication of a false and defamatory

statement concerning another person without lawful justification. The wrong has
always been regarded as one in which the court should have the advantage of the
personal presence of the parties if justice is to be done.

A defamatory statement is not necessarily made in words, either written or spoken. A

man may defame anther by his acts no less than by his words. The act of placing an
effigy of the plaintiff among those of murderers and other ill-fames persons in an
exhibition is defamation.

Libel and Slander

The wrong of defamation is of two kinds, namely libel and slander.

In libel, the defamatory statement is made in some permanent and visible form, such
as writing, printing, pictures, or effigies. In slander, it is made in spoken words or in
some other transitory form, whether visible or audible, such as gestures or inarticulate
but significant sounds.

Although libel and slander are for the most part governed by the same principles,
there are two important differences:

 libel is not merely an actionable tort, but also a criminal offence; whereas
slander is a civil injury only

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 libel in all cases actionable per se; but slander is, save in special cases,
actionable only on proof of actual damage.

Trespass

It is a wrongful direct interference with another person or with his possession of land
or goods. The distinguishing feature of trespass in modern law is that it is a direct and
immediate interference with person or property, such as striking a person, entering his
land, or taking away his goods without his consent.

Indirect or consequential injury, such as leaving an unlit hole into which someone
falls, is not trespass. Trespass is actionable per se, i.e. the act of trespass is itself a tort
and it is not necessary to prove that it has caused actual damage. Three kinds of
trespass are:

Trespass to the Person may be intentional or negligent, but since negligent physical
injuries are remedied by an action for negligence, the action for trespass to the person
is now only brought for intentional acts, in the form of actions for assault, battery, and
false imprisonment.

Trespass to Goods includes touching, moving, or carrying them away of another

person’s possessions. It may be intentional or negligent. The tort of conversion is the
intentional interference with another person’s goods in such a way as to interfere with
that particular person’s “entitlement” to the use and possession of those goods where
such interference has been without lawful justification. Examples of conversions are,
wrongful taking of goods, wrongful delivery, wrongful destruction and wrong
disposition. Detinue is the wrongful detention of goods belonging to another person
who has demanded their return.

Trespass to Land usually takes the form of entering it without permission. It is no

defence to show that the trespass was innocent (e.g. that the trespasser honestly
believed that the land belonged to him).

Negligence

Carelessness amounting to the culpable breach of a duty: failure to do something that

a reasonable man (i.e. an average responsible citizen) would do, or doing something
that a reasonable a reasonable man would not do. Negligence in the sense of
carelessness does not give rise to civil liability unless the defendant’s failure to
conform to the standards of the reasonable man was a breach of duty of care owed to
the plaintiff, which has caused damage to him.

Contributory Negligence

A person’s carelessness for his own safety or interests, which contributes materially
to damage suffered by him as a result partly of his own fault and partly of the fault of
another person or persons.

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Thus careless driving, knowingly traveling with a drunken driver, and failure to wear
a seat belt are common forms of contributory negligence in highway accidents. The
effect of contributory negligence is to reduce the plaintiff’s damages by an amount the
court thinks just and equitable. Contributory negligence in not a defence to
conversion or intentional trespass to goods.

Duty of Care

It is the legal obligation to take reasonable care to avoid causing damage. There is no
liability in tort for negligence unless the act or omission that causes damage is a
breach of a duty of care owed to the plaintiff. There is a duty to take care in most
situations in which one can reasonably foresee that one’s actions may cause physical
damage to the person or property of others.

An example is of doctors, who have a duty of care to their patients and users of the
highway have a duty of care to all other road users.

General Defences in Tort

Consent is a defence (volenti non-fit injuria) which means, “that to which one
consents cannot be considered an injury”. However, such a defence would never be
allowed in a criminal charge. In other words, a person who consents has no further
right to action. Also it is a general rule that a person who knows or is aware of a risk
and willingly consents to run that risk has no right of action if he is injured as a result.
The consent must expressed or implied, real and therefore must involve complete
abandonment of claims for compensation.

Self-defence

A defence at common law to charges of offences against the person when reasonable
force is used to defend oneself, or one’s family, or anyone else against attack or
threatened attack.

Act of God

An event due to the natural causes (storms, earthquakes, floods, etc.) so exceptionally
severe that no one could reasonably be expected to anticipate or guard against it.

Necessity

It can be defined as pressure of circumstance compelling one to commit an illegal act.

Necessity is in some circumstances a defence to an action in tort, but it is probably
limited to action taken to protect life or property in an emergency not caused by the
defendant’s negligence. The steps taken in the emergency must be reasonable.

Limitation of Actions (Time Bar)

Statutory rules limiting the time within which civil actions can be brought. Actions in
simple contract and tort must be brought within six years of the accrual of the cause

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of action (in the case of contracts, within six years of the date of the contract). In
actions in respect of land and of contracts made by deed, the period is 12 years from
the accrual of the cause of action. Time does not run against a party under a disability
until the disability ceases.

Vicarious Liability

Legal liability imposed on one person for torts or crimes committed by another
(usually an employee but sometimes an independent contractor or agent), although the
person made vicariously liable is not personally at fault.

An employer is vicariously liable for torts committed by his employees when he has
authorized or ratified them or when the tort was committed in the course of the
employees’ work. Thus negligent driving by someone employed as a driver is a tort
committed in the course of his employment, but if the driver were to assault a passing
pedestrian for motives of private revenge, the assault would not be connected with his
job and his employer would not be liable.

The purpose of the doctrine of vicarious liability is to ensure that an employer pays
the costs of damage caused by his business operations. His vicarious liability,
however, is in addition to the liability of the employee, who remains personally liable
for his own torts. The person injured by the tort may sue either or both of them, but
will generally prefer to sue the employer.

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Tutorial

1. For a contract to be legally binding, the parties must:

a) provide consideration in the form of money only.

b) fulfil their obligations within one month after signing the agreement.
c) have intention to create business relations.
d) have the capacity to contract.

2. A condition is a major term of a contract and if it is breached, the injured party:

a) would be able to treat the contract as being discharged.

b) can make a police report.
c) can elect to sue the other party in an international court.
d) can demand that the service or goods be provided to him without any payment.

3. An agent would lose his right to be indemnified by his principal if:

a) he lacks the knowledge to perform the tasks that are given to him.
b) he fails to provide good services to him.
c) he acted outside his authority.
d) he is slow in executing his instructions.

4. An agency may be terminated in several ways including:

a) revoking the principal’s authority and so prevent him from making binding
contracts with third parties.
b) by mutual agreement between the parties involved.
c) by the bankruptcy of the principal’s business partner.
d) by the death of the agent’s family member.

5. Tort is different from contract is that the duties under tort are primarily:

a) enforceable in a court if the action is brought by the parties within one year.
b) enshrined in IMO Conventions.
c) fixed by parties themselves.
d) fixed by law.

6. If a person commits a fraud and results in injury to the deceived party, he may claim
damages for the:

a) tort of deceit.
b) tort of negligence.
c) tort of nuisance.
d) tort of conversion.
.

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7. Explain the meaning of vicarious liability and give an example.

8. Explain the differences between Libel and Slander.

9. What are the elements that must be satisfied for a contract to be legally binding?

10. How is agency by necessity created?

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