Ask the legal team

Ask the legal team

Here at ITIC we are often asked about a shipbroker’s right to claim commission. There are three common scenarios, other than where the owner and/or charterer refuses to pay a shipbroker’s undisputed and clearly earned commission under the charterparty.

The three situations we refer to are:

1. Broker cut out of negotiations: One of the most frustrating experiences for brokers is when they make the necessary contacts but are then excluded from the negotiations, resulting in the loss of their commission. Despite this, a broker does have a right to commission if a principal cuts them out and completes the transaction without their involvement. The leading case in this area is Allan v. Leo Lines (1957), where the court held that the broker is entitled to commission if their efforts were the “effective cause” of the contract. This means the broker must materially contribute to securing the deal, though they don’t have to be the sole reason the deal was struck.

The negotiations don’t need to reach a specific stage, such as agreement on main terms or inspection, for the broker to be entitled to commission. In the referenced case, the judge emphasised that the key factor was the broker’s introduction.

2. Cancellation of charterparty: Many charterparty forms, such as GENCON and BALTIME, include specific clauses that allow the broker to receive compensation if the agreement is cancelled. Without such clauses, the broker unfortunately does not have a right to commission if a principal simply chooses to cancel the agreement.

3. Continuation of charterparty: The NYPE charterparty stipulates that commission is payable not only on hire earned under the charterparty but also on any continuation or extension. While there may be practical challenges in proving that a continuation or extension has occurred, the clause clearly grants the broker a right to commission in these circumstances. Without such a clause, it would be more difficult for the broker to show their entitlement to commission, but not impossible.

If a shipbroker has T&Cs in place and/or a commission agreement then the shipbroker could have more rights and remedies available to them when claiming their commission. For more information on terms and conditions please follow this link.

If a member feels that they are in a situation such as the ones mentioned above, please contact your ITIC Account Executive in order to receive assistance. ITIC is always happy to help you, recovering over US$244m in commissions and disbursements.


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