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Something fishy happening
A broker negotiated the sale of a fishing vessel. A Memorandum of Agreement (“MOA”) was signed between the buyers and sellers which included a clause providing that the broker would be paid 2% of the total purchase price by way of commission.
The agreed purchase price was US$ 12m. The MOA provided that the buyer was entitled to withhold payment of the final US$ 1m from the purchase price until the seller had delivered to the broker a “Deletion Certificate” confirming that the vessel had been removed from the seller’s national ship registry. The buyer paid US$ 11m. The remaining US$ 1m was not paid, and no Deletion Certificate was provided.
As the full purchase price had not been paid the seller refused to pay the shipbroker any commission at all.
The seller had not been able to provide the Deletion Certificate because the vessel had two charges attached to it for a combined sum of US$ 1m. The seller claimed that they did not have the money to remove the charges and wanted the buyers to pay it for them.
The broker contacted ITIC as they considered that despite the issue with the final payment they were still entitled to be paid their commission on the US$ 11m actually paid. ITIC agreed and the broker placed their own charge on the vessel in an effort to obtain security for their claim. Whilst this did not prompt any response from the sellers, it meant that no Deletion Certificate could be issued without the broker’s commission charge being lifted, so if the transaction was to move forward the broker was in a stronger position.
At the same time, the broker commenced arbitration against the seller in London, this being the dispute resolution mechanism in the MOA. The sellers refused to engage in this process and the arbitrator issued an award in favour of the broker for US$ 220,000, plus interest and costs (plus a further US$ 20,000 commission if the final US$ 1m was eventually paid by the buyer).
Eventually the buyers re-appeared and expressed an interest in wanting to properly register the vessel in their preferred registry – which they could not do whilst it was still registered in the original country. They had instructed London lawyers who also agreed to act as escrow agent in dealing with the exchange of documents and funds so as to ultimately allow the Deletion Certificate to be obtained. The buyer agreed that they would transfer the outstanding funds, which the seller agreed would be used to lift the charges on the ship register. The broker then agreed to lift their charge on the proviso that their commission would be paid. Once in possession of the Deletion Certificate and the final US$ 1m, the escrow agent simultaneously passed the certificate to the buyer, the commission to the broker and the balance of the purchase price to the seller.
The broker recovered US$ 240,000 in commission and the legal costs of US$ 25,000 were covered by ITIC.