Brokers can be pressured into issuing revised recaps or draft charterparties reflecting what one side claims to have been the basis of an agreement. It is rarely prudent to issue such documents, however, as ITIC's Andrew Jamieson explains.
From time to time ITIC receives enquiries about shipbrokers signing charterparties on behalf of principals.
This is, of course, not a new question. Shipbrokers have signed charterparties on behalf of their principals for well over 100 years. In earlier days it was simply impractical to send the document around the world for a signature. The broker, as the man on the spot, would have a wide discretion as to the conclusion and the individual terms of the agreement. Modern communications have changed this arrangement. He or she can attach a copy of a drawn up charterparty to an email and send it anywhere in the world for approval. If original documents are required they can be couriered between continents in a matter of days.
Today the main reason for principals asking brokers to sign charterparties is not a matter of practicalities but the economic cost of employing staff to handle the process of checking and executing documents. There are a large number of stories of principals' offices containing piles of unsigned, and very probably unread, charterparties. There is a growing appreciation that most negotiations lead to a legally binding agreement well before the charterparty is drawn up and the time spent perusing formal documentation is regarded as time poorly spent.
In many cases the brokers have received a request from their principals that rather than forwarding a copy of the charterparty for signature they draw up the document and sign it "provided the same is strictly in accordance with negotiations”.
This sounds perfectly reasonable and it is difficult for a broker to tell a principal that he is unwilling to do it. After all, the broker negotiated the agreement and logically should be able to produce an agreement reflecting it. The problem is, however, that within some negotiations there are areas upon which the brokers have reached an understanding but need to turn that understanding into precise words. It would be prudent to expressly confirm the text of such provisions in writing.
ITIC is often asked to recommend the form of the signature line. A recent enquiry involved a broker who had been instructed to sign the charterparty “as authorised signatory of the owners”. The important consideration is that the wording of the signature line should make it clear that the broker is signing not as a party to the agreement but on behalf of the principal. A number of phrases including “as brokers only” can achieve this objective but the expression “authorised signatory” is not recommended. To avoid any difficulties brokers would be prudent not depart from the accepted practice of signing “As agents only”.
The principal on whose behalf the broker is signing should be named. It is permissible to refer to them as “owners” or “charterers” if they are properly indentified in the charterparty itself. Brokers should bear in mind that it is surprising how many claims reported to ITIC involve disputes about the correct identity of the contractual parties. Legal issues created by inaccurate or erroneous names can often give rise to costly and protracted litigation. It is prudent to check the name is written down correctly.
To avoid any possible issues of authority the instruction to sign the charterparty should come in writing from the named principal themselves. The Baltic Code suggests that the source of the authority should be referred to. The Code provides a signature line as follows:
“by email authority of (name of principal)………….as agents only”.
In tanker trades the process of drawing up a charterparty is modified by the use of "charterparty administration clauses". These provide a mechanism for concluding the deal on the basis of the recap message and thereby avoiding the need to draw up a charterparty unless one party requests a formal document. There are a number of different versions of this type of clause.
At a recent event at the Society of Maritime Arbitrators in New York one of the audience questions was whether ITIC had experienced claims arising from the use of such clauses and if we would recommend their use in dry cargo markets. Answering the first part of the question is simple – ITIC’s experience is that the clauses have not created problems for brokers. Whether other markets should adopt the process is really a matter for market participants. The use of charterparty administration clauses reflects that people didn’t see the need to draw up a formal charterparty party on every occasion. In many, perhaps most, dry cargo claims handled by ITIC no charterparty has been signed. Charterparty administration clauses may therefore be an appropriate way to reflect that reality.
The purpose of a signed charterparty is to record what has been agreed. If a dispute has arisen brokers can become under pressure to issue revised recaps or draft charterparties reflecting what one side claims was the basis of the agreement. It is rarely prudent to issue such documents however aggressive the threats made against the broker. The best course of action once a dispute has arisen is to seek advice.