ITIC Broker wins commission award in California

An American shipbroker and Member of ITIC was recently awarded his full commission by a Los Angeles Federal Court in litigation with an American shipowner. ITIC assisted its Member in the recovery. In April 1990 a Long Beach refiner, distributor and marketer of petroleum products, chartered the tanker TEXACO FLORIDA from her owners ("the April 1990 charterparty"). The April 1990 charterparty was for a period of six months, with options for two additional six-month periods. The broker involved in the charter was paid a commission based on the standard commission rate of 1.25 percent of the charter hire received. In October 1990, a company affiliated to the charterers purchased the tanker from Texaco and was assigned all rights and assumed all obligations under the April 1990 charterparty, including the obligation to pay the broker his commission. As and when the new owners received charter hire, they paid the broker's commission. The charterers, through the broker, exercised an option to extend the charte rparty. As the expiration of the extended charterparty neared, the new owners sought from the broker rate and market information specific to the ship.

At about the same time the charterers advised the broker of their interest in extending the charterparty for a further period of one year with a one-year option, to commence at the end of the then current charter. The broker advised the new owners of the charterers' interest and invited the new owners to submit their rate proposal. Various informal discussions continued between the parties and by early July 1991 the new owners were ready to make a firm offer to the charterers to extend the charterparty. They did so through the broker. The rate offered by the new owners included the commission to the broker. The new owners continued to negotiate the extension of the charterparty through the broker. They also continued to use the broker despite being warned by a representative of the charterers that if the broker's services were used they would be obliged to pay the broker's commission. Some time later the new owners and the charterers began negotiating directly instead of through the broker. The new owner s, however, did not want to pay commission and in negotiations with the charterers stated that the charterers should pay the broker his commission if they thought the broker should be paid. In December 1991, the charterers accepted the new owners' proposed rate and the agreement was formalised in a charterparty dated January 1992. This charterparty substantially mirrored the original April 1990 document. The broker, however, was advised by the new owners that no further commission would be paid to him. As a result of the new owners' refusal to pay commission the broker commenced legal proceedings in the Los Angeles Superior Court to recover commission of US$ 141,970 plus interest. The broker also sought punitive damages for fraud and demanded a jury trial. The new owners removed the action to the Federal District Court. The broker's case against the new owners included the following allegations:

1. That senior management at the new owners had reached a secret agreement to use the broker as a broker without any intention of paying commission.
2. That the new owners had defrauded the broker by secretly cutting them out as a broker whilst continuing to use the broker's services.
3. That the broker had been engaged by the new owners as a broker and was therefore entitled to be paid commission.
4. That the January 1992 charterparty was in reality an extension of the original April 1990 charterparty.

In response the new owners contended:

1. That the broker was never engaged as a broker and furthermore provided nothing of value to the January 1992 charterparty.

2. That it was not their policy to cut out a broker, but brokers were not used by the new owners in charters between affiliates.

3. That the January 1992 charterparty was a new agreement and not an extension of the original April 1990 charterparty.

After a nine-day trial, the jury unanimously found in favour of the broker and awarded the full commission of US$ 141,970. Whilst the jury decided there was no express contract to pay the broker his commission, it found there was an implied agreement based on the conduct of the parties to pay commission for the period covered by the January 1992 charterparty. The jury also found for the broker on his quantum meruit claim (an equitable claim based on the concept that no one who benefits by the services or goods provided by another should be unjustly enriched thereby; under such circumstances the law implies a promise to pay a reasonable amount, notwithstanding the absence of a specific contract). Finally, the jury found clear and convincing evidence that the new owners had concealed a material fact (i.e. that they did not intend to pay the broker his commission). Although the jury could have awarded punitive damages as a result of such a finding, it declined to do so. The new owners appealed the judgment in favour of the broker. The Court of Appeal affirmed the district court's decision to award the broker the full commission of US$ 141,970. The Court of Appeal also held that the broker's contract claim was governed by federal admiralty law - not California state law - because charterparty brokerage has a significant impact on maritime commerce. The broker was represented by the Long Beach maritime firm of Cogswell Woolley Nakazawa & Russell and the assistance of Mr Alan Nakazawa in the preparation of this article is acknowledged with thanks.

"After a nine-day trial, the jury unanimously found in favour of the broker and awarded the full commission of US$ 141,970"