Negotiating must be conducted with care and accuracy. There must be complete agreement on all the terms and details between the two principals for an enforceable contract to come into being.
It has for many years been the custom for brokers to record the progress and details of negotiations in a "day book". This can provide a check-list as to the agreed position and outstanding issues and can later, in the event of a dispute, be used to safeguard their own and their principal's position. However, in the modern office environment there is less reliance on paper documents and copies of emails, instant messaging exchanges and the like may represent an equivalent of a day book. It is essential that such correspondence is recorded and retained for a reasonable period of time, at least until the Charterparty has ended and all matters have been finalised.
If agreement is reached a recapitulation (recap) should be exchanged between all parties summarising the final agreement. Verbal communications outside chartering negotiations, when a broker must act, for example passing on orders to ships, should be re-confirmed in writing back to the instructing company.
A broker authorised to sign a Charterparty on behalf of their principal should indicate the source of authority for example by telephone, facsimile or email authority of [the principal's name] ‘As Agents only’. When signing on behalf of a principal the basic rule is that with a signature qualified in this way a broker will not be held personally liable for the performance of the contract. If the name of the principal is not disclosed, then even the qualification of “as Agents only” would not absolve the broker from liability for the performance of the contract.
A ‘fixture’ is arrived at by the exchange of ‘firm offers’ between brokers acting on behalf of their principals, an owner and a charterer, and when concluded, (that is all terms and details agreed and subjects, if any, lifted), it is an enforceable contract.
A ‘firm offer’ should be limited as to time and be definite as to terms. Opening ‘firm offers’ are normally based on the main terms and such offers are made subject to agreement of further terms and conditions of the charter and in many cases contain a variety of 'subjects' (i.e. matters needing resolution before the charter can be agreed).
When a fixture is concluded on main terms with 'subjects', it is up to the brokers to ensure that both principals lift 'subjects' as soon as possible. It is important to note that no fixture has been concluded until all 'subjects' have been lifted.
A ‘firm offer’ or ‘firm counter offer’ can be declined by the recipient. They are then free to work their vessel or cargo elsewhere. This is a very important point for a broker to bear in mind. If a firm counter is made, however minor the change in terms, the simple act of countering allows the opposite negotiating party the opportunity to decline and withdraw from the negotiation without further discussion or recourse. No firm offer may be made by a broker without authority from a principal.
Negotiations on Charterparty details are similar to those on main terms but rarely include time limits for reply. Brokers exchange offers, and counter offers on behalf of their principals until both parties are in agreement on all details that will eventually form the Charterparty. It is important that brokers ensure that their principals are kept fully advised on the status of outstanding 'subjects' when confirming that details are in order.
Court decisions in the USA have determined that a binding fixture had resulted when the main terms had been agreed despite the fact that it was still ‘subject to details’. The USA Courts' view is not generally shared by the market in terms of practice in London and a judgement of the Commercial Court in London under English Law has affirmed that at that stage there is no binding contract. It should therefore be noted that if a firm negotiation is taking place under which any eventual contract would be governed by US law, such negotiation cannot fail on Charterparty details. Under New York law if the parties are unable to reach an agreement on the Charterparty details, a tribunal will rule on the outstanding points.
Briefly therefore, a broker should be aware that in the English Courts the expression "subject details" prevents a binding contract being in place until the subject is removed, and that this is not the position in the US.
This subject is to give charterers time to put the vessel to their shippers to confirm that they can accept the vessel to load the agreed quantity of cargo on the agreed laydays. ‘Subject Stem’ is only to be used to determine availability of cargo. As a matter of interest STEM originally stood for ‘Subject To Enough Merchandise’ being available.
Subject Shipper's or Subject Receiver's Approval
This subject is used when the shippers or receivers of the cargo must give their approval of the vessel.
Subject Head Charterer's Approval
This subject will normally indicate that the cargo in question is a relet or sublet and charterers must get approval of the vessel from their head charterers. Most contract voyage charters have a relet or sublet clause in them.
Subject Board Approval
This subject is used when the Board of Directors of either principal must approve the final fixture but should be viewed with caution as such approval can be refused without a specific reason being given. This subject would normally only be used for long term period fixtures.
Subject Charterer’s Reconfirmation
This subject can be used by charterers to hold a vessel while waiting to judge the market direction and sometimes to see if cheaper tonnage becomes available. This is a very onerous subject for an owner as the charterer simply does not need to give any explanation as to why a business is failed. It is recommended that any subject should be more specific in nature to reflect the actual situation.
Time Limits on Offers and Subjects
When exchanging offers, it should be understood by both parties that the reply time stipulated is either being set by the party making the offer (who would therefore have the authority to conclude a fixture if an acceptance is made to them within time), or the reply time is with another broker or the principal.
Therefore, if the authority is perhaps held overseas, and there could be communication difficulties or time differences, allowances should be made, otherwise the reply or acceptance could be ‘out of time’, with the risk that one party believes they have fixed because they have replied within time, but in fact the other party who had the authority to make the offer has not been contacted.
It is also important that precise reply times are given on offers and the lifting of subjects, rather than generalities such as ‘one business day’, ‘close of business’ or ‘24 hours after fixing’. State, for example, reply 0900 (local time) London or perhaps 0900 (local time) Tokyo, and make it clear whether the reply is to be made to a broker or the principal.
At no time should a reply time be expressed as 'reply in (10) minutes' or similar limit which is unclear as to the actual expiry time. All time limits should be set for a reasonable time.
Abuse of Subjects
Warranty of Authority
A shipbroker negotiating as intermediary between shipowner and charterer is deemed to warrant that he has the full authority of a principal to contract on the terms of an offer which he transmits. If for some reason it transpires that he did not have the necessary full authority he may be liable in an action brought by the person who receives the offer and accepts it. In this and other matters where disputes arise, a broker should avoid any statement which may be interpreted to accept liability or error before proper legal or insurer advice has been sought.
When dealing with a new connection, Members are recommended to check the Warnings and Postings issued on www.balticexchange.com and contact the Baltic Exchange which maintains an extensive internal database on complaints raised by Members over several years.
Members should ensure that they do not quote any business on behalf of a person, persons or company that has been posted on the Baltic but should of course not breach any existing charters or contracts.
The onward transmission to non-Members of any postings issued by the Baltic and received by Members is strictly prohibited as this could lead to action for defamation against both the Member and the Baltic.
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 dead freight and/or demurrage and detention (waiting time) if any. On timecharter 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 Charterparty and the commission is payable by the shipowner to the brokers named as having earned it in each individual fixture.
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.
The Act provides a mechanism by which a third party named in a contract but who is not actually a party to the contract, may enforce their rights. Thus, it can be used by a shipbroker to enforce payment of a commission specified in a Charterparty to which he is not a signatory.
Commissions deducted at source
Unless otherwise agreed in writing and included in the fixture recap, Charterparty or addendum, the owner is responsible for paying all commissions. If, however, during the negotiation or subsequent to the fixture, all parties agree, in writing, that a broker's commission will be deducted by and paid by the charterer and providing the commission is actually deducted, it will be the charterer and not the owner who is responsible for payment of the commission so deducted. If there is no written agreement, the charterer is required to pay the owner gross values, less any address commission only.
Brokers' commissions on direct continuations
Members should note that the occasional practice of owners or charterers avoiding the payment of commission due to brokers on direct continuations of timeCharterparties or contracts of affreightment in which a broker or brokers were originally involved or covered for commission, is considered to be unacceptable by the Baltic Exchange. 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 or contract.