Us East Cost to Italy

Sea Princess, 36,000 t, heavy grains

$12.50, 4 days/1,000 t, Jan. 15 – 19 (Importex Inc.)

In layman’s terms, the vessel Sea Princess has been chartered to load grain in the U.S. East Coast and transport it to Italy. The cargo consists of 36,000 tons of heavy grains at a freight rate of $12.50 per ton. Four days are allowed for loading and 1,000 tons per day rate for discharging. The vessel must present itself ready to load between January 15 and January 19. The charterer is Importex Inc.

Naturally, a shipowner will wish to obtain the highest rate possible for the use of his vessel, while the charterer will seek a vessel to carry his cargo at the lowest rate possible while still ensuring the cargo’s safe arrival at its destination. Indeed, the amount of income earned by a vessel charter is the key factor in the profitability of ships and transactions and in determining whether a maritime transport deal will be struck in the first place. Although the ideal means of finding relevant freight rates and / or hire levels is to actually enter the charter market and seek vessels or cargoes, it is possible to obtain some idea of current levels by examining reported fixtures of cargoes and ships. Many shipping publications contain fixture lists and market summaries (particularly for large markets such as the dry bulk and tanker trades), as do private circulation lists distributed by broking houses. Market information is also distributed in less formal ways by e‐mail, fax, or word of mouth among individuals and / or companies interested in certain sectors of activity.

The Baltic Exchange in London publishes the “Baltic indices,” which are an assessment of the price of moving the world’s major raw materials by sea. The indices are based on estimates of the cost of transporting various bulk cargoes on a per tonne and daily hire basis, which are made by leading shipbroking houses located around the world. The estimates cover both wet cargoes (such as crude oil and oil products) and dry cargoes (such as grain and coal). The dry cargo index is centered on a “basket” of thirteen frequently fixed and settled worldwide voyages that are individually weighted to provide a balance of relative importance. The tanker index is based on a “basket” of nine trade routes for medium‐sized tankers which are also weighted so as to provide balance of relative importance. Both indices are based on an arbitrary figure of 1000, which should increase during good freight levels and fall below that figure in time of lower market freight rates. These indices are closely followed by charterers and shipowners (as well as the brokers that they employ) as charterparties are often concluded on the basis of the floating rates determined by them.

However, it is important to remember that there are a variety of other factors that can affect freight and hire rates. On the ship side, such factors can include the age of a vessel (since older vessels require a higher insurance premium on their cargo); vessel speeds and rates of bunker consumption, special equipment and cargo‐handling gear and cubic and tonnage capacities. On the cargo side, such factors are often based on a cargo’s physical characteristics and their potential to cause damage to the ship (e.g. sulphur can have a corrosive effect on the steel in a cargo hold, or heavy scrap metal can cause damage to a ship’s structure). Still other factors that can affect rate determination are the speed of loading or discharge, the amount of commissions payable and the area in which the trade will occur (e.g. a war risk region).

Given all of these variables, a great deal of skill, expertise and knowledge are required to effectively evaluate fixtures and to bring together appropriate cargoes with appropriate ships. That is why the employment of a broker, whose job it is to keep his principle informed of relevant fixtures and to provide an analysis of the freight market, can be extremely useful. Generally speaking, major shipping companies that are owners and / or charerters will employ their own staff (who are sometimes assisted by an external broker) to track and assess market information that is relevant to their specific needs, while smaller owners and charterers will often attempt to become familiar with the market through their own analyses and contacts.

2. Chartering negotiation. Is normally initiated when a charterer (usually a shipper) enters the market to find a suitable ship to move his product, or when an owner (usually acting through a charterer) enters the market to find employment (i.e. a suitable cargo) for his ship. Within this framework, the key elements that set the entire process for negotiating a charter into motion (and which determine the parameters of the agreement that is ultimately concluded) are the quantity and characteristics of the cargo that will be shipped, its location at the time the charterer enters the market and its destination. In practical terms, the process that ensues can be divided into two distinct stages (investigation and negotiation, each of which is governed by its own procedures and terminology.

1. Investigation

a) The Charterer Places an Order:

The first stage of the negotiating process, called the period of investigation, begins when a charterer (either a shipper or an owner) enters the market with an order (either directly or through a broker). Before doing so, however, the charterer must decide whether he is ready to immediately engage in firm freight negotiations (provided he finds a suitable counterpart), or whether his main objective at this stage is collect information regarding potential shipping opportunities, with a view to beginning negotiations at a later date and only after he has analyzed and evaluated all of the information he has gathered.

In principle, any order that is circulated on the market by a reputable charterer and broker will normally be regarded as FIRM if the order does not contain any indication to the contrary. Nevertheless, the charterer may decide to make his intentions even clearer by using terminology such as FIRM OFFERS INVITED or PLEASE OFFER FIRM. In cases where the business has been concluded (i.e. the cargo has been purchased) but the charterer does not want to enter into firm negotiations immediately, he may mark his order FIRM or DEFINITE, while at the same time adding terminology such as INDICATIONS ONLY or PLEASE INDICATE or PLEASE PROPOSE. The expression FIRM WITH XX DAYS’ NOTICE indicates that the cargo is ready to be negotiated but loading can take place only XX days after the fixture has been concluded.

On the other hand, if negotiations for purchasing the cargo have not yet been concluded, but the charterer nevertheless requires a freight quotation or estimate, the order may open with wording such as PROSPECTIVE ORDER or ORDER EXPECTED TO BECOME DEFINITE or ORDER NOT YET DEFINITE, or similar. If the charterers have not concluded any specific business and only wish to make a general investigation of shipping possibilities, this may be indicated through the use of terminology such as POSSIBILITY ONLY or CHARTERERS HAVE A POSSIBILITY TO WORK UP FOLLOWING BUSINESS.

At this stage in the process, the contents of the charterer’s order will be limited to the minimum amount of information that the shipowner needs to determine whether he has a potential interest in the business. In the case of a voyage charter, such information will include the charterer’s name and domicile, cargo quantity and description, loading and discharging ports, period within which the vessel is to be presented for loading (lay/can), any restrictions or preferences regarding type or size of ship, charterparty form on which the charterer wishes to base the terms and conditions, commissions to be paid by the owner In addition to these items, the charterer may also mention the approximate freight level at which he wishes to begin discussion or negotiation (the charterer’s “freight idea”), although such information is often omitted from the original order to allow for negotiating maneuverability.

An order concerning a time charter arrangement is presented on the market in largely the same way as for voyage chartering, except that rather than providing details on cargo, ports and loading / discharging rates and terms, the charterer provides details about the intended trade, the duration of the required time charter period and places for delivery and redelivery of the vessel.

b) The Shipowner Reacts:

There are a number of ways in which an owner can express his interest in order. If the order was presented as being FIRM AND READY TO TRADE, the owner may choose to submit a firm offer right away. This can be done when the trade is well known, the freight level is more or less established and the ship’s size and position are in accordance with the conditions given in the order. A firm offer may also be desirable when the owner expects to encounter strong competition in the market. What occurs more often, however, is that the owner presents his ship and his abilities to meet the conditions of the order and submits a “freight indication.” Such an indication will provide the charterer with an idea of the owner’s starting point for a possible negotiation, without committing the owner to any specific terms or figures. Because it does not commit the parties, an indication is often given without any time limit. Still, if the owner does submit a firm offer later on, he is supposed to present freight and terms that are no worse for the charterer than those indicated earlier.

Alternatively, the owner can provide the charterer with a “freight idea” indicating a freight rate that the owner would use as the basis for further negotiations, with the understanding that the proposed rate could be adjusted either upwards or downwards when the owner is ready to make an eventual offer.

A proposal, a freight idea, or an indication all form part of the negotiation stage and provide a basis for the charterer’s calculations and evaluations of chartering possibilities. The charterer may go on discussing proposals, ideas and indications with a number of owners until he finds a suitable counterpart for negotiations. The charterer will then revert to that owner asking for a firm offer on the basis of the conditions given in the order or in accordance with previous discussions. The charterer may then reply to the owner’s indication with a firm offer.

2. Negotiation

The actual negotiation stage can be divided into two parts: the negotiation of the main terms, followed by the negotiation of details and wording of clauses that were not covered during the negotiation of the main terms. Since the parties begin by negotiating the main terms and save the details for a later stage, it is important that every offer or counter offer submitted during the main stage is accompanied by the words SUBJECT TO DETAILS (or SUB DETAILS).

a) The First Offer:

In time chartering, the first offer that starts the firm negotiations will contain the following details:

• shipowner’s name

• ship’s name and particulars

• cargo quantity and description of commodity

• loading and discharging ports and berths

• laydays / cancelling day

• loading and discharging rates and terms

• demurrage and despatch rates

• freight amount and conditions for payment of freight

• clauses covering time counting, Ice clause, War Risk clause, applicable law and place of arbitration, Bunker clause, clauses covering extra insurance premiums, taxes and dues, etc. which the owner considers to be of prime importance

• charterparty form

• commissions

If the charter is for a tanker voyage, loading and discharging rates will not be provided separately, but as a number of total days for loading and discharge (laytime allowance all purposes) and the freight rate will be provided by reference to Worldscale

In time chartering, the offer will contain the following details

• The shipowner’s name

• The ship’s name and particulars

• Description of the time charter arrangement

• Place of delivery and redelivery

• Laydays / cancelling for the delivery

• Intended trade with geographical limits and other trading limits; cargo exclusions from the owner’s side

• Quantity and price for bunkers on board on delivery and redelivery

• Hire and conditions for hire payment

When the main terms of the charter are being negotiated, the required vessel details are quite extensive and comprise not only the vessel’s name, year of construction and flag, but also its deadwight, grain and bale capacities of cargo spaces, number of hatches and holds, cargo gear, speed, bunker consumption and other details of importance for the intended cargo and trade. Since it is not always possible to give these particulars with exact precision, the description of the ship is customarily followed by the words ALL DETAILS ABOUT (which literally means ALL DETAILS GIVEN WITHOUT GUARANTEE BUT GIVEN IN GOOD FAITH AND BELIEVED TO BE CORRECT).

b) The Owners’ First Offer & the Charterers’ Reply :

The negotiations officially commence when the owners relay a message to the charterer indicating OWNERS’ OFFER FIRM and provide a time limit for reply. This commits the owners to adhere to the terms offered either until the stated time limit has passed, or until the charterers have provided a reply which differs from the owner’s offer. Normally, the charterer’s reply to the owner’s first offer

will be one of the following (the charterer’s reply will also indicate a time limit within which the owner must reply):

• CHARTERERS ACCEPT OWNERS’ OFFER, EXCEPT (which means that some parts of the owners’ offer is acceptable but other terms are subject to further negotiations) – In this case, the charterers’ offer is called a “counter” because the parties have already agreed on a number of terms

• CHARTERERS DECLINE OWNERS’ OFFER AND OFFER FIRM AS FOLLOWS (which means that the charterers will make a full firm offer of their own rather than negotiating terms that they find unacceptable) – In this case, the charterer’s offer is called a “counter offer” because the parties have not yet technically agreed on any point

• CHARTERERS DECLINE OWNERS’ OFFER WITHOUT COUNTER (which means that the charterers find the owners’ offer to be completely unacceptable and wish to end negotiations) – In this case, the negotiations will be terminated.

The charterers’ can also make provisions or “subjects” in their counters or counter-offers:

• SUBJECT TO CHARTERES’ BOD” APPROVAL (subject to approval by the Board of Directors)

• SUBJECT TO RECEIVERS’ APPROVAL (subject to approval by the receiver of the cargo, who may have an interest in the terms under which his cargo will be transported)

• SUBJECT TO STEM (subject to confirmation from the shippers or suppliers of the cargo that the negotiated quantities will be ready for loading at the time agreed to by the owners and charterers during the negotiations)

• SUBJECT TO CHARTERERS’ APPROVAL OF PLAN AND SUBJECT TO INSPECTION (subject to the charterers’ satisfaction that the vessel is technically suitable for the intended trade - this is particularly applicable to time charters).

c) The Negotiations Continue….

The owner can now offer a variety of replies, such as ACCEPT….EXCEPT (whereby the owner would list the exceptions he is requesting), or OWNER COUNTERS BY REPEATING HIS LAST, EXCEPT (whereby the owner reverts back to his previous offer with only a few modifications), or with an indication that he turns down the counter and wishes to end the negotiations. The negotiations will continue in this way until the parties have reached an agreement regarding terms that are acceptable to both of them. The resulting agreement on main terms, which is always SUBJECT TO DETAILS, will be concluded by a “confirm.” On the owners’ side, the last reply would be expressed as OWNER ACCEPTS CHARTERERS’ LAST IN FULL AND CONFIRMS HEREBY THE FIXTURE SUBJECT TO DETAILS. The charterers’ final reply would then be CHARTERERS’ CONFIRM THE FIXTURE SUBJECT TO DETAILS AND SUBJECT TO STEM. At this point, the charterers will immediately compile a full summary of all the terms and details agreed upon so far and forward same to the owners, with a view to having both parties meticulously check and confirm the summary as soon as possible.

d) Negotiation of Details:

The parties now enter the second stage of negotiations, in which they finalize the details and wording of clauses that were not covered during the negotiation of the main terms. At this stage, the charterers have to present all suggestions and preferences on amendments, deletions and additions to the printed text (i.e. the agreed upon charterparty form) relative to the business in question. If the amendments are numerous, it may be necessary to send the full suggested wording by fax or e-mail, as a result of which the owners will receive an indication of AMENDMENTS TO PRINTED FORM OR PRO-FORMA. This process is usually viewed as a discussion, as opposed to a regular negotiation with offers and counter-offers. As a result, there are not time limits involved and the parties use phrases such as CHARTERERS SUGGEST THE FOLLOWING AMENDMENTS TO ………, with discussions continuing until both parties are in full agreement.

Once the parties have agreed on every detail, a confirmation of the deal will ensue indicating HEREBY CONFIRM / RECONFIRM THE FIXTURE. If at the same time all the reservations are removed (the points being waived) a clean fixture has been obtained. The date of the charterparty will be the last date on which the parties reached a clean fixtures, which means the date on which the last remaining subject was waived.

3. Service of shipbrokers. Shipbroking is a financial service, which forms part of the global shipping industry. Shipbrokers are specialist intermediaries/negotiators (i.e. brokers) between shipowners and charterers who use ships to transport cargo, or between buyers and sellers of ships.

There are many types of shipbrokers, each with differing functions, such as owners' brokers, charterer's brokers and sale and purchase bro­kers. To compound this diversity, English law does not have a systema­tized notion of agency law. There is no formal concept of the «commercial agent» as there is in other systems. The various rights and duties of the shipbroker are not defined by reference to formal categories, but by looking at what they actually do and relating it to general principles of agency - inevitably derived from the study of large numbers of cases.

A survey of the law relating to shipbrokers can start by identifying the range of a shipbroker's activities, before considering general duties and particular problems. The shipbroker may perform a wide range of functions, of which the following may be mentioned: information pro­vider, commercial adviser, negotiator, drafter, provider of post agreement services.

Information provider (market knowledge). The main attribute that the shipbroker can offer to his principal is probably his knowledge of the market. For example, in the traditional tramp chartering market the classic function of the shipbroker was to mar­ry a shipowner having a spare ship with a charterer having a free cargo. The real advantage of a shipbroker to the shipowner here is to facilitate forward planning: to ensure that there is suitable future employment. In this sort of market the shipowner may have to rely to a great extent on the shipbroker to generate business. He may not have the access to the necessary information himself. A charterer will also need to be able to ensure that as little time as possible will be lost in the movement of car­goes. In many cases the shipbroker has to be ahead of his principal. On a rising market it may be advantageous to charter early, even though a ship will not be needed for several months. The shipbroker has to be aware of trends on the market.

Thus the range of the chartering broker's working knowledge must in­clude port geography, stowage factors of main commodities, sailing dis­tances, shipment seasons for main commodities, ship construction. The sale and purchase broker may need to have slightly different information and the sources will differ accordingly. He may need to know more about ship construction, equipment, propulsion systems, along with banking procedure, credit financing and vessel capabilities. He will need to con­sult the classification records of the ship and her survey records. Both will need to have some knowledge about law and insurance.

Adviser. A shipbroker may provide general commercial advice and, on occa­sions, quasi legal opinions. The commercial advice function overlaps with the information providing function in that it may relate to pre-contract matters - as part of the negotiations. There may also be post-agreement advice, for instance how to settle disputes. The type of advice may vary in its formality, from a simple opinion as to a vessel's suitability, to a form of confidential consultancy report on the movement of a market sector. The advice of the shipbroker might be sought where no immediate contract is contemplated and may or may not be given gratuitously - in the hope of future business.

The sale and purchase broker may also have occasion to give advice almost as a consultant. In particular, there is the important independent function as a valuer of ships. In addition to this, he may be expected to advise a prospective buyer about company matters, taxation, insured val­ues and about general average (at end of the voyage) or salvage (at the place of safety).

In some cases the shipbroker may perform the function of an expert himself, for example by giving expert evidence in cases involving dam­ages or repudiation.

Negotiator. When ships and cargoes are identified the use of a shipbroker may save negotiating time: it may even be tactically advantageous to deal at arms length. The principal will rely on the shipbroker to obtain the best deal possible. At this stage the shipbroker will be expected to use both commercial and legal knowledge: it is the latter that may give rise to dif­ficulties.

Drafter. Most modern charterparty forms are produced by teams of law­yers, shipbrokers, charterers and shipowners. The older forms, which have been the subject of much judicial exegesis, are still in use although heavily amended, such as Gencon, Baltimore Grain Berth C. Some (for example Baltime) were produced by shipowner organizations, such as BIMCO and are thought to be favourable to shipowners: others are pro­duced by charterers or organizations sympathetic to them, such the US ASBA and are more favourable to them (e.g. Asbatime). Some, such as oil charterparties are drafted by large powerful trading houses and more or less imposed on clients who want to do business. It is not therefore fair to say that the shipbrokers are responsible for all the bad drafting around. However, they are often responsible for advising parties as to which charterparty to choose and for drafting any alterations or additions to the standard forms.

Post-Fixture Services. Shipbrokers' main functions are to do with the process of bringing the parties together and, once that is done, it could be thought that all they have to do is collect their commission. In practice it seems that it is not as simple as this. There is a definite practice of after sales service that has always existed in which the shipbroker may perform a variety of supplementary services. This may be particularly true when the principal is one for whom the shipbrokers act regularly or exclusively. At one time the shipbroker did everything, «from sending out the commission note to handling the problems of his client». Now, many firms have post fixture departments. This is certainly time consuming and can affect the shipbro­ker's ability to keep up to date.

Because the shipbroker wears many different hats (for example also operating as a port agent) instructions may come from a broking client to do something which might involve a quite different function to ne­gotiating a fixture. He may well be asked to pass on messages to a ship (through local offices). Presumably this sort of request is most likely to come from a charterer. The legal risks arise from moving out of areas of natural expertise.

Documentation. Once the contract has been agreed, for example by telex, the shipbro­ker must draw up the charterparty or memorandum of agreement and check them.

In a sale and purchase contract there is much to be done after the drawing up of the memorandum of agreement. On delivery of the ship the shipbroker may have to handle the Bill of Sale and check that payment is in order. The buyer's shipbroker might also be expected to advise on insurance.

Tie shipbroker may also have to check that the following documents arc handed over ashore or on board: the registry certificate, load line cer­tificate, deratization certificate, safety construction certificate, radio and telephony certificates, classification certificates, plans. The shipbroker may also be requested to register the vessel anew. Here is a completely different function, with different risks.

There may be delays, the shipbroker might forget a document, or in­clude the wrong name as shipowner. A delay in registration might be im­portant, for example in arranging financing.

Very often addenda are made to charterparty contracts. This may be for a variety of reasons, e.g. the charterer may wish to change the destina­tion and want other disports to be permitted. Permitted cargoes may be varied. Time charter extensions may be requested. All these alterations may affect freight or hire rates, although they cannot usually be expected to affect commission already earned. It is unclear how far this sort of ser­vice is a part of the original service. In practice it is probably performed free, for goodwill purposes.

Handling finance. It seems that in many cases the owner's shipbroker will perform the function of preparing time sheets and sending demurrage statements to the charterer.

A special brokerage clause would be the easiest way to deal with the reward for this service, as it is arguable that unless the shipbroker asks for extra payment the principal will be entitled to assume that the commis­sion covers all normal post-contract support.

Charterers' shipbrokers may collect freight from the charterer and remit this less commission to the shipowner. Port agents often ask the shipowner for advances for disbursements, a practice approved of by BIMCO and may ask the shipowner to instruct shipbrokers to deduct this from the freight. This prevents the need to involve an overseas bank and gives some security to the agent, knowing of a local connection. 90% of fixtures of one shipbroker were estimated to involve this practice, on shipowner's authority.

"What had started as a favour to one or two owners is becoming virtu­ally part of the financial transactions required relating to a fixture". In one case the shipbroker forgot to remit the sums to port agents out of freight.

Could there be a liability to an agent for example for delay in remitting the money? There could be a loss of interest, or the agent may have in­curred expenses in reliance on the "promise". The shipowner in receipt of full freight might even refuse to remit funds or become insolvent. There is no direct contract between the shipbroker and port agent. The P&I Club advised that there would be no quasi-contractual liability as the party un­justly enriched was the shipowner not the shipbroker.

If the shipbrokers told the agents of the instructions or practice estab­lished some sort of reliance it might be possible to found a claim based on tort or estoppel. It does not seem the most promising sort of case to succeed and the agent may be left with an action against the shipowner.

Classification of shipbrokers. It might be thought relatively easy to identify shipbrokers for the pur­poses of study. Certainly they can be described as persons who, on behalf of others, negotiate charterparties and other shipping contracts such as those concerning ship sales and purchases. But the expression is often used more widely to include other kinds of maritime agents. In the Bal­tic Code the function of the Institute of Chartered Shipbrokers (ICS) is said to be to equip its members for employment in any of the branches of the shipbroking profession, for example, chartering/port agency/liner agency/sale and purchase/shipowning or ship management.

Chartering and Shipbroking Practice lists a number of categories of chartering shipbroker and it is useful to identify a few of them here. But their functions may overlap and the use of labels such as «middle-broking role» or «lead shipbroker» may have no particular legal significance and should be treated with great caution. The main distinction appears to be between those shipbrokers who represent one of the interests only and those that have a more independent function.

The owner's broker is the shipbroker who acts on behalf of the ship­owner in finding cargoes (or time charterers) for the ship. The charterers' broker is the shipbroker who acts on behalf of the charterer in finding ships to meet the needs of the charterer to ship cargo. The confidential broker may be either of the above, but is someone who has the exclusive business for the particular principal. This is presumably a prized source of business, although it can give rise to problems. Major traders often operate in-house chartering departments which can perform shipbroking services to a number of companies in a group. Their main purpose is to save the commission costs, particularly those heavy ones associated with long term charters. They would seem to act as confidential charterers' bro­kers and will commonly expect an address commission for time charters.

There are also intermediate or independent shipbrokers who, although still agents, do not specially represent one side or the other. These are often called competitive shipbrokers - presumably because they have to com­pete for their commission. They could operate between the owner's and charterer's broker or as a sole broker between owners and charterers. It is understood that the use of a sole broker is most often used in the short sea trades, where ships have to be fixed with great speed and where terms are understood so well that the only details are often «rate and date». This type of shipbroker will owe allegiance to both parties and must be distinguished from the case of a sub-broker, whose allegiance may be to one side only. While it is difficult to see a commercial reason why an agent should split his commission with a sub-agent, there are apparently cases where deal­ings with particular countries require some sort of local presence.

The difference between the owner/charterer's shipbroker and the in­termediate shipbroker can assume importance both in relation to that per­son's authority and to commission, as there is a chance that the intermedi­ate shipbroker may be cut out of the final contract.

Commission (Brokerage). The main principles of brokerage. Unless otherwise expressly agreed, commission is payable only on freight or hire earned and paid; it is customary in a voyage charter for this to be extended by agreement to allow commission to be payable on deadfreight and/or demurrage, deten­tion (waiting time) if any. On time charter similarly it can be extended to a ballast bonus.

In chartering it is the usual (though not invariable) practice for a com­mission clause to appear in the contract (the charterparty) and the com­mission is customarily payable by the shipowner to the charterer's agent as well as to the owner's broker.

The Contracts (Rights of Third Parties) Act 1999 has changed the way in which shipbrokers can take legal proceedings to enforce their right to commission. The Act applies to contracts entered into after 11 May 1999. It is important to note that the relevant date is a date upon which the con­tract is made. The pre Act position will continue to be relevant while con­tracts entered into before the application of the Act continue to run. In relation to long term time charters this could be for a number of years. The Act reforms the Doctrine of Privity of Contract a rule of English law which provides that only parties of the contract, such as the owners and charter­ers under a charterparty, can have rights under the contract which they can enforce. A person such as a shipbroker who is not a party to the contract («a third party») can not enforce a term of the contract even if, like a com­mission clause, it names him and states he will receive a benefit such as the payment of commission. Shipbrokers were not, however, left without a remedy before the Act. The courts held that the charterers had entered into the charterparty commission clause as trustees for the broker. The broker is therefore entitled to demand that the charterers take action to enforce the commission clause. If the charterer refused to take action then the broker had the option to sue the charterer as a second defendant to enforce the trust. These remedies were often commercially undesirable.

The Contracts (Rights of Third Parties) Act 1999 has removed the need to involve the charterer. The Act provides that a third party has the right to enforce a term of the contract if either the contract provides that he may or «the term purports to confer a benefit upon him». Commission clauses in charterparties clearly fit within this latter description. The Act therefore grants shipbrokers the right to take action to sue for their unpaid commission in their own name.

The Act also provides that the right is subject to other clauses in the contract.

Shipbrokers may be able to pursue their claims by arbitration if the ar­bitration clause is drafted sufficiently widely to include a claim for com­mission by the broker. An example of such an arbitration clause is the Bimco/LMAA arbitration clause.

Commissions deducted at source. Whilst owners are responsi­ble for paying all commissions, in many cases charterers do agree to de­duct some or all broker's commissions from their payments to owners, as well as their own address commission. This has lead to several complaints from brokers where statements issued at the start of a charter shows bro­kers commissions deducted, whereas when final balances are discussed a statement shows the opposite, leaving the question of who is actually holding their commission unclear. It is recommended that if charterers are deducting broker's commissions at source, then this must first be agreed with owners. Secondly, brokers must have in writing that this will be the agreed method of payment of their commissions.

Brokers' commissions on direct continuations. Members should note that the occasional practice of owners or charters avoiding the payment of commission due to brokers on direct continuations of time charterparties or contracts of affreightment in which a broker or brokers were originally involved or covered for commission, is considered by the Baltic Exchange as unacceptable. To avoid any dispute and possible legal consequences, it is recommended that brokers endeavour to have included in the original time charterparty or contract of affreightment a clause specifying that they will receive not only a commission on any hire or freight paid, but also upon any continuation of the charter.

Review questions:

1. What does it mean to “charter” to ship?

2. What does the "charter market" mean?

3. Give a main principle of the chartering negotiation

4. What does the term "shipbroking" mean?

5. What types of the shipbrokers classification do you know?

6. What does the term "brokerage" mean?