Sale & Purchase Commission Dispute

Two shipbrokers were involved in a sale and purchase of two ships, one acting for the buyer, the other for the seller. The commission agreed on delivery of each ship was to be USD 250,000 per broker, considerably less than the industry standard of 1% of the sale price. However, prior to the delivery of the first ship the seller indicated that he would not pay any commission to either broker due to a “lack of service.” The brokers reported the matter to ITIC and the Club’s investigation revealed that they were cut out of negotiations at a late stage because the buyer and seller were negotiating directly. This fact was brought to the seller’s attention and ITIC advised him that, despite being cut out at a late stage, both brokers had been an “effective cause” of the sale and purchase and were entitled to be paid commission. In response, the seller retained a lawyer in London who made an offer to settle the commissions at USD 125,000 per ship per broker. In October, 2008 the first ship was delivered and the seller’s offer to settle at USD125,000 was declined. The Club reiterated the “effective cause” argument and that the full commission agreed was due. Further, the Club threatened to pursue the industry standard of 1% commission if the seller did not meet his obligations. Subsequently the lawyer made an increased offer to pay commissions of USD 300,000 per ship to be split between the brokers (i.e. USD150,000 per broker per ship). At the brokers’ request, ITIC rejected the offer and insisted on receipt of the full commissions owed. In early November 2008, the lawyer advised that his client would be prepared to increase his last offer but first wanted a counter offer from the brokers. Again, acting on the brokers’ instructions, ITIC responded saying that they would accept no further compromise because they had already accepted to act on a rate below the industry standard. The seller’s lawyer confirmed that his client would pay the full amount to each broker on the first ship, which had already been delivered, without prejudice to the brokers’ right to claim full commission on the second ship, if it ever were to be delivered to the prospective buyer.