A burnt out case
After a survey on her electrics, a yacht was purchased and taken to a yard to be refurbished. After further inspection, the yard reported that there was in fact substantial damage to her wiring and that a complete rewiring was required. While this was being carried out, the yard discovered structural damage, which seemed to have been caused by a previous fire, or fires. Gutting would be necessary for repairs, but this could cost more than the yacht was worth.
The electrical surveyor was uninsured, and the claim against them was settled for a small sum. The purchaser then claimed against the yacht broker, alleging misrepresentation and breach of fiduciary duty on the basis that the broker had been aware of the fire damage and had failed to disclose it to the buyer.
It became clear that there were significant disagreements between the seller, who maintained that the broker had been informed about the fire damage, and the broker, who maintained that the sellers had not told them. Either way, the purchaser had not been informed.
Unfortunately there was no written evidence to support the broker’s position. There was, therefore, a significant risk in litigating the matter, not only on liability but also because the very substantial legal costs in doing so would not be recoverable in the US courts even if the broker successfully defended the buyer’s claim. It was, therefore, decided to make an offer of partial settlement, of US$925,000 without any admission of liability. There were also legal costs incurred and the total amount of this claim was US$1,400,000.
It is important for brokers to maintain, in their daybooks, detailed written logs of conversations with clients, and that anything of importance is committed to writing.