Shipbrokers and the Law

Andrew Jamieson

• Publisher: Informa Law from Routledge
• Year: 2020
• ISBN:
  9781000286090
• Edition: 1
• Topic: Jura
• Subtopic: Seerecht

This text provides an explanation of the responsibilities and liabilities of the shipbroker, both in direct contact with principles and as part of a chain of other brokers.

Highlighting legal questions arising from ways in which the broker's business is done, issues addressed in this book include potential legal liabilities as well as common negligence claims. The book also deals with the shipbroker's entitlement to commission and the problems associated with litigation in this area.

It is suitable for ship owners, charterers, agents and marine consultants, as well as brokers.

CHAPTER ONE

THE SHIPBROKER AND THE PRINCIPAL

THE LAW OF AGENCY

In Harper & Co. v. Vigers Brothers,¹ Mr Justice Pickford summarised the legal position of a shipbroker in charterparty negotiations:

A broker is only an agent. There may be some brokers who perform somewhat peculiar functions differentiating them in that respect from other agents; a shipbroker is only an agent to make a charter…

In order to encompass the range of markets covered by the definition of the word shipbroker used in this book it is necessary to add the words “or agreement to buy or sell a ship” but the essential feature is that the legal position of a shipbroker is largely one of agency. It is a simple matter to find a definition of agency in the legal text books. The classic work, Bowstead and Reynolds on Agency² provides:

Agency is the fiduciary relationship which exists between two persons, one who expressly or impliedly consents that the other shall act on his behalf so as to affect his legal relations with third parties, and the other of whom similarly consents so to act or so acts….

It is clear that this is a relationship that arises out of the parties’ acceptance of it. It is quite simply a state of affairs when one party (“the agent”) acts as a representative of the other (“the principal”). There are, however, a number of important duties and obligations implied by law into that relationship and the word fiduciary stresses its special nature. These factors form the basis of much of the shipbroker’s legal position.

The definition covers the shipbroker’s primary service of negotiating a contract on behalf of the principal. In addition the shipbroker may provide other services to his principal. These may involve giving advice on the state of the market and likely future trends or providing a formal valuation of a client’s vessel. These types of services are provided to the principal as a direct supplier and can give rise to different considerations than the agency role. It is noticeable that some of the larger broking concerns have created separate divisions or even companies to provide business research and information services to clients thereby effectively isolating the different functions. At least one group has a separate division providing ship valuations. The majority of this book examines the law as it affects the shipbroker in negotiations, and other services provided to clients are more specifically considered in Chapter Eight.

1. [1909] 2 KB 549 at 562.

2. Sweet & Maxwell, 1996, 16th ed.

The shipbroker’s role in negotiations gives rise to two considerations. The primary relationship is, of course, between the shipbroker and his principal. The shipbroker obviously comes into contact with other people and there are instances where the shipbroker may have some responsibility and acquire some liability to a third party. This chapter will deal solely with the relationship between the shipbroker and his client. The variety of situations when the shipbroker could be held liable to a third party will be considered throughout much of the remainder of the book.

IDENTIFYING THE PRINCIPAL

The first consideration is to determine who is the shipbroker’s principal. If the broker represents one principal, albeit in a group structure, then the answer is evident, but in competitive business the question can be surprisingly difficult. In a very simple case where a shipowner contacts a broker requesting that he finds a cargo, the formation of the relationship is very clear. The relationship may, however, be initiated by the broker contacting a shipowner or charterer or come about in a variety of ways and it is difficult to lay down hard and fast rules. An example of the informal way the relationship can arise is found in the judgment of Mr Justice Wright in G.C. Ashdown & Co. Ltd. v. Godman³:

The plaintiffs are a well known firm of shipbrokers and the defendant, Mrs Godman, was the owner of an auxiliary motor schooner called the Veronica. At the beginning of this year she was anxious to have that schooner disposed of. It came to the notice of the plaintiffs in the course of their employment as brokers that she wanted to find a purchaser. In January, 1928, they took steps to secure a purchaser on her behalf. There is some question as to whether at the outset they were definitely employed by or on behalf of the defendant for that purpose. I think they probably were. But it does not matter because at an early stage it was recognised by the defendant or her husband that the plaintiffs were seeking to find a purchaser, and as we see from a letter at the end of January he was very willing indeed that they should continue to do so.

In the above case the buyers were represented by their own brokers and although the moment the relationship commenced was unclear, it was obvious that in the negotiations Ashdown were acting as the seller’s broker.

3. (1928) 31 Ll L Rep 227 at 228.

That case can be contrasted with the findings of Mr Justice Rowlatt in Thomas Brothers & Co. v. Field & Co,⁴ in which there was a dispute as to who the broker represented in chartering negotiations:

It seems that the defendant firm had never acted for the plaintiffs before as brokers or agents, but somebody in their employment knew one of the partners in the plaintiff firm, and had written to him privately saying that he hoped they might do business. The correspondence here opens with a letter of an enterprising character on the part of the defendants, who point out that they have heard that the plaintiff’s ship is seeking employment and asking if they could consider business.

Two days later this particular class of business was mentioned, and I think that if firms of agents — whether shipbrokers or house agents or any other sort of agents — approach people who have not sought to employ them and intend to put themselves in the position of agents or do not, they have to make it clear. In the correspondence here the defendants write: “We are pleased to be in a position to make you a firm offer”, and that is not the language of the agents of the plaintiff.

It is clear that the correct approach is to look at the facts and attempt to draw the appropriate conclusions as opposed to applying set rules.

The classic position where each party clearly has its own broker, who negotiates with the other side’s broker, is attractive to the legal mind and the various relationships are easy to identify. In practice, however, between those two brokers there can also be a number of other shipbrokers and the position of these is given separate consideration at the end of this chapter. There are, by way of contrast, frequent situations where there is only one broker in the chain. Indeed, in some trades this is very much the norm.

The variety of potential roles was (irrespective of the subsequent findings of fact in the Court of Appeal) correctly summarised by Mr Justice Staughton in Armagas Ltd. v. Mundogas S.A. (The “Ocean Frost”)⁵:

Such a situation commonly occurs in shipbroking circles, so that in a given transaction where there are two brokers, broker A is accurately described as the broker and agent of the shipowners, and broker B as the broker and agent of the charterers. Even when there is only one broker involved, it may happen that he is the agent of one of the parties only. But equally it happens that there is one independent intermediary between the parties. In such circumstances he is what I would describe as a true broker, authorised by each party in turn to do on its behalf what that party requires him to do. Thus he may be given an offer by the shipowner, and is the shipowner’s agent to transmit it; and then be given a counter-offer by the charterer to transmit on his behalf to the shipowner.

The position of a sole shipbroker can be difficult to analyse. If one party clearly has made the first approach to a broker and requests that the broker goes out on the market to find a vessel or cargo as the case may be, then the broker will almost certainly be that party’s agent. If, however, the reason the party made contact with the broker was because that broker frequently acted for a certain owner then that contact obviously would not mean the broker’s allegiance changed (it would not normally mean that the broker had authority to act for the owners in that particular matter unless subsequently authorised to do so). The idea of looking to see who made the first approach can be a useful test of a broker’s allegiance but it is certainly not a conclusive indicator. In a market in which it is the practice that a given party (i.e. sellers or owners) will pay the commissions then legally there is no concept of “he who pays the piper”. It is very much a question of looking to see what happened and drawing the appropriate conclusions. The situation is further complicated by the fact that the broker may start as agent solely for one party but, with consent, can act for both parties. This is a possibility discussed by Mr Justice Evans in Marcan Shipping (London) Limited v. Polish Steamship Co. (The “Manifest Lipkowy”)⁶:

4. (1922) 13 Ll L Rep 58.

5. [1985] 1 Lloyd’s Rep 1 at 17.

If a buyer’s broker does introduce himself to and negotiate direct with sellers his status as the buyer’s agent is unchanged. If he assumes or accepts any duties towards the sellers then he is in breach of his duties towards the buyer, though the breach can be prevented or healed by full disclosure to and consent obtained by both parties. If he becomes involved as the sole intermediary with the knowledge and consent of both parties then his role involves negotiating with both parties on behalf of the other, in turn, and doubtless he will owe duties to both.

The judge found that on the facts of the case, the brokers had not adopted such a dual role. He went on to say that he was not surprised that one shipbroker called as an expert witness found that such a role between two principals placed the broker in a difficult and embarrassing position. There are obviously difficult balancing acts when a broker introduces two principals, especially ones for whom his firm habitually acts. There is a danger that unless the position is fully explained, both principals can be under the impression that the broker is representing them. This is compounded in the not uncommon situation in which a different individual within a broking concern will deal with each principal who they regard as “their client”. In legal terms however the broking company being a legal person such as a limited company will be deemed to be the agent and not its individual brokers irrespective of the operation of “Chinese walls”.

It is clear that the proper solution, however commercially undesirable, is for the broker to disclose his position to both principals and if they are content for it to continue then they can have no later complaint. The trouble is that in practice the parties and the brokers are concentrating on fixing, not questions of who is legally agent for whom, or the potential pitfalls of an undisclosed conflict of interest.

6. [1988] 2 Lloyd’s Rep 171 at 180.

DUTIES TO THE PRINCIPAL

Contract and tort

It has been noted that the relationship between the broker and his principal arises out of the parties’ acceptance of their respective roles. In essence the relationship is contractual, although there are occasions on which services are provided on a purely gratuitous basis. A client may telephone for free advice but the lack of payment does not mean the broker is exempt from liability if the advice turns out to be wrong. The law imposes liability for the tort of negligence on concepts of foreseeability, proximity and fairness, not whether there happens to be a contract between the parties.

In the example given it is clear that the approach requesting the advice was made in the course of business and that it would be reasonable for the principal to rely upon the advice given. In legal terms, the broker owes a duty of care to the principal. This would contrast with a few comments a broker made to a group during a social event. On that occasion the courts would be most unlikely to impose any liability.

The fact that the advice was erroneous in some way does not automatically mean that the shipbroker would have fallen short of the required standard. A useful comment on the position is found in a case involving a barrister, Saif Ali v. Sydney Mitchell &...