Arbitrating Commission Claims

THE CLUB has been making increasing use of developments in English law that allow ship brokers to use arbitration to collect unpaid commission. In Nisshan Shipping Co. Ltd v Cleaves & Co., the court ruled that, although the charterparty arbitration clause only referred to disputes between owners and charterers, the broker ’s claim was also subject to to the arbitration clause.

There are a number of benefits for brokers. Arbitration is private and many brokers do not wish to be seen to be in conflict with their principals. The mechanics of starting international arbitration proceedings are much simpler than the need to comply with the requirements of court proceedings. It is therefore clearly in the brokers’ interest to have an arbitration clause.

The majority of standard form charterparties do include arbitration clauses as part of the dispute resolution provisions. These clauses are broadly satisfactory. If the broker is asked to alter them, or draft a clause from scratch, there are some pitfalls to avoid.

There are two main aspects to dispute resolution provisions in charterparties. The first is the choice of law clause (eg that the contract will be determined according to English law). The second aspect is the jurisdiction clause (eg disputes to be heard by the High Court or Arbitration in London). The Club has seen a number of unworkable clauses coming out of attempts to compromise on these provisions. One notable example was a contract that provided “this agreement shall be governed by and construed according to the laws of England and Jordan”. It is difficult to see how two laws will work simultaneously. Another arbitration clause provided that “In the event of contractual disputes on which the two parties cannot reach an agreement, each party is entitled to submit the same to arbitration in their respective countries”.

The above are extreme examples but it is very rarely a good idea to try to mix different laws and jurisdiction. One claim dealt with by the Club involved a contract subject to English arbitration but with Italian law to apply. This provision greatly added to the costs of the dispute as an Italian lawyer had to come to England to give evidence on Italian law.

It is preferable to use a recognised clause such as the “LMAA/Bimco arbitration clause”. This has the added benefit of including a small claims procedure which can also be very useful for ship brokers recovering unpaid commission. Very few of these cases rely on disputed evidence and are ideal for solving by a private documents only arbitration.