ARRESTING FOR SHIP BROKERS’ COMMISSION

In the March 2000 edition of “The Intermediary” we reported on major changes to the law affecting ship brokers’ commission, as was brought about by the coming into force of the Contracts (Rights Against Third Parties) Act 1999.  Although it has yet to be tested by the Courts, it appears that the new statute will permit shipbrokers to arrest a ship for charterparty commission.

The grounds upon which a ship can be arrested within the English courts’ jurisdiction are set out in the Supreme Court Act 1981.  In order to obtain an arrest the broker would have to show that the commission claim fell within one of its provisions.  Section 20 (2)(h) of the Act provides that a ship can be arrested where there is a claim arising out of, or relating to, “the use or hire of a ship”.  Before the passing of the Act a ship broker could not take action directly against an owner on the basis of the charterparty commission clause, because of the Doctrine of Privity.  English law held that only parties to a contract, the owner and charterer under a charterparty, had rights and obligations which they could enforce.  A non-party, such as a ship broker, could not simply sue the owner, even though the commission clause named the ship broker and said he should receive a commission.  This was changed by the 1999 Act, and for the purpose of exercising his right to enforce the commission clause, the Act has placed the ship broker in the same position as if he had been a party to the contract.  In the circumstances it appears clear that a claim for the enforcement of a commission clause is one which arises out of the “use or hire of a ship”.  Chartering brokers may therefore find that their ability to enforce their rights has been increased.

The position is different for sale and purchase brokers.  It is market practice that the seller pays the commission which is due on the delivery of the ship.  That is unfortunately the very moment that the seller has disposed of the ship and, as a single ship company, the sole reason for its existence.  The 1996 New Zealand case S.O.S. Maritime Brokers –v- The Ship Dana Star was unusual as the buyers had specifically agreed to pay their brokers.  The New Zealand High Court held, however, that the obligation to pay commission to a sale and purchase broker did not arise out of an agreement in relation “to the use or hire of a ship”, which was the equivalent provision under English law.  Sale and purchase brokers regretfully therefore are unlikely to have gained any further rights as a result of the passing of the new law.