Ask the Editor

Ask the Editor

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My commission is being withheld due to the charterers failing to pay demurrage. Can owners do this?

Thank you for this question. This is something we are seeing more and more often. The answer is, subject to the terms of the charter party, NO they cannot do so. Once the freight or hire is paid, this triggers the duty to pay commission to the broker. The fact that a charterer may later dispute, or simply not pay, demurrage, does not alter the fact that commission is due. Even if the principal alleges that the broker has in some way failed to perform post-fixture duties adequately, this should still not entitle the principal to withhold commission payments. This would simply allow the principal to bring a claim for damages in respect of any losses they suffered arising from the alleged post-fixture failings. They cannot withhold your commission.

As a ship agent, we have been asked to accept a Letter of Indemnity (LOI) from a P&I Club with a time limit of five years. Is this acceptable?

When an agent is provided with an LOI by a P&I Club it is usually because the owner of the ship has a potential liability in that jurisdiction for which the agent may be held jointly or even solely liable. In order to obtain security in respect of such a liability the agent will often try to arrest the ship. In order to stop this from happening, the P&I Club will often provide an LOI to the agent stating that in respect of the agent refraining from arresting the ship (or lifting the arrest where it has already happened) the P&I Club will agree to hold the agent harmless and indemnify them against all losses and liabilities stemming from the incident. At this early stage it is difficult to know when or even if a claim will arise. Therefore putting a time limit or expiry date on the LOI could leave the agent exposed if there is a delay in the commencement of the claim or if the claim takes many years to work its way through the legal system. We would therefore recommend that an LOI with an expiry date is not accepted. If there is absolutely no choice, you should at the very least make sure there is sufficient time for the claim to be brought in accordance with local time bars (for example in the UK the claimant may have six years to bring their claim - plus an additional year to serve it - so seven it total) and for it to progress through the legal system, which may take an additional few years.

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