Put it in writing

ITIC has seen an increasing number of claims on its shipbroking members relating to the receipt and forwarding of messages. The following claim demonstrates the importance of accurate record keeping and the need to reconfirm telephone conversations in writing.

A shipbroker, acting for charterers, found himself in the middle of a dispute between the owners and charterers concerning a substantial demurrage claim. Charterers failed to settle the owner’s claim for demurrage in excess of USD 400,000 and the owners commenced arbitration in London, in accordance with the terms of the charterparty. As the charterers failed to nominate their arbitrator, the owners nominated their chosen arbitrator as sole arbitrator, again in accordance with the terms of the charterparty. Despite orders from the sole arbitrator for the charterers to serve defence submissions within a required period, no defence or communication was received from them. The arbitrator awarded owners the full amount of the demurrage claim plus interest and costs (a total of USD 575,000).

Owners attempted to collect the award against the charterers through the US courts. The charterer’s defence was that they had never been advised of the arbitration proceedings and therefore had not had an opportunity to appoint an arbitrator to defend their position. The charterers also alleged that the shipbroker had failed to inform them about the arbitration, and that if the arbitration award was enforceable it should be paid by the broker. Charterers brought the broker into the US action by filing a third party complaint. The broker confirmed that he had advised the individual responsible for all vessel charters by telephone regarding the appointment of an arbitrator and again when arbitration proceedings had commenced. Unfortunately he failed to confirm this by e-mail and there was therefore no written evidence to support the broker’s position. The charterer, well aware of lack of written confirmation, simply denied that such telephone conversations took place.

ITIC appointed lawyers to protect the interests of the broker and conducted a detailed review of the matter. An area of concern was that, if the court found the broker to be an “agent” of the charterer, then it could be argued that service of notices regarding arbitration proceedings on the broker could be deemed to be service on the charterer. This could mean that the arbitration award was enforceable against the charterer, who in turn may have pursued the broker for the full value of the award.

The case was concluded at a court ordered mediation by means of a payment to the owners of USD 450,000. The broker contributed USD 75,000 to the settlement, and the legal costs of defending the broker were in excess of USD 140,000 – a total of USD 215,000 – a high price to pay for a simple failure to follow up a telephone conversation with an e-mailed confirmation.