Shipbrokers Breach of Authority

Shipbrokers Breach of Authority

During ship fixing negotiations, the shipbroker is deemed to be acting with the full authority of the shipowner or charterer.

It is therefore important that the shipbroker obtains this authority before making offers or counter-offers. Alternatively, the principal must ratify the broker’s action within a set time period.

If the shipbroker does NOT have the authority, shipbroker may be sued by the person receiving or accepting the worthless offer. Such an action would be on the basis of breach of authority, either with or without negligence:

  • Breach of Authority with Negligence
  • Breach of Authority without Negligence

In the case of a breach with Negligence, the shipbroker passes on or accepts/agrees an incorrect offer, either by mistake or deliberately.

Should the mistake be made by another party and passed on by the shipbroker, then it becomes a breach without Negligence.

In both cases, the shipbroker can be liable for damages but when it is without negligence, the broker has the chance of recovery from the party who passed the incorrect information to him.

Chartering is a fast moving business, it is always possible to make mistakes, so most shipbrokers will be covered by professional indemnity insurance against negligence.

Before a shipbroker can trade on London’s Baltic Exchange, shipbroker must demonstrate that he is covered by professional indemnity insurance.

Breach of Warranty of Authority occurs when an Agent, such as a Shipbroker, makes contracts between their principal and a third party, either exceeding or without having the necessary authority from their principal. This breach can result in the Agent (Shipbroker) being liable to one or both parties involved in the supposed contract.

Breach of Warranty of Authority can happen in two ways:

  1. with negligence or
  2. without negligence

When it occurs with negligence, the Agent (Shipbroker) makes a mistake or acts carelessly, failing in their duty of care towards their principal and potentially causing loss or damage. Without negligence, the breach may arise when the Agent (Shipbroker) acts based on incorrect information provided by another party, leading to an unenforceable presumed contract.

For example, if a Shipowner (O) gives a Shipbroker (S) specific terms to offer their ship and Shipbroker (S) presents it to a Charterer (C) under different terms, leading to Charterer’s (C’s) acceptance, there is no enforceable contract between Shipowner (O) and Charterer (C) due to differing intentions. Shipbroker (S) would be liable for a breach of warranty with negligence.

Alternatively, if Shipowner (O) offers the ship to an intermediate Shipbroker (X) under certain conditions, and Shipbroker (X) then offers it to Shipbroker (S) under different conditions, which Shipbroker (S) presents to Charterer (C), and Charterer (C) accepts, there is again no enforceable contract between Shipowner (O) and Charterer (C). In this case, Charterer (C) could action against Shipbroker (S) for breach of warranty without negligence. Although Shipbroker (S) might seek indemnity from Shipbroker (X), Shipbroker (S) still holds primary liability to Charterer (C). Shipbroker (S) can mitigate these risks through adequate insurance and by exercising careful and professional conduct.


Shipbrokers Breach of Authority

A shipbroker’s breach of authority typically refers to situations where the broker, acting as an agent for a shipowner or charterer, acts outside the scope of the authority granted by their principal. This can occur in various ways, such as entering into contracts or agreements that exceed the limits set by the principal, or misrepresenting the terms and conditions of a contract. In such cases, the principal may not be bound by the actions of the broker, and the broker may be liable for any losses or damages resulting from their unauthorized actions.

Key aspects to consider in cases of shipbroker’s breach of authority include:

  1. Scope of Authority: Understanding the limits of the authority granted to the broker by the principal, often defined in the brokerage agreement.
  2. Representation and Warranties: Evaluating whether the broker made any representations or warranties on behalf of the principal that were outside their authority.
  3. Principal’s Liability: Assessing whether the principal is liable for the broker’s actions, which depends on whether the broker was acting within the scope of their authority or if the principal ratified the unauthorized actions.
  4. Broker’s Liability: Determining the broker’s liability for acting beyond their authority, which may include compensating the principal for any losses incurred.
  5. Ratification: Considering if the principal has ratified the unauthorized actions of the broker, either explicitly or implicitly, which can bind the principal to the terms agreed by the broker.
  6. Contract Validity: Analyzing the validity of contracts entered into by the broker on behalf of the principal, which may be voidable if entered without proper authority.
  7. Remedies and Recourse: Exploring legal remedies available to the principal, including termination of the brokerage agreement, seeking damages, or other legal actions.

Understanding and navigating these aspects is crucial in addressing and resolving situations involving a shipbroker’s breach of authority. Legal advice is often necessary in such cases to ensure proper handling and to protect the interests of the involved parties.


Shipbrokers Breach of Authority with Negligence

When a shipbroker breaches their authority with negligence, it creates a more complex situation that can lead to significant legal and financial consequences. In such cases, not only has the broker acted outside the scope of their granted authority, but they have also failed to exercise the care and skill that a reasonably competent broker would exhibit under similar circumstances. Here are key aspects to consider:

  1. Definition of Negligence: In this context, negligence refers to the broker’s failure to act with the level of care and competence that is expected in their profession. This could involve careless mistakes, lack of diligence in verifying information, or failing to act in the principal’s best interests.
  2. Establishing Breach of Duty: To claim negligence, it must be shown that the broker had a duty to act with care and that this duty was breached. This involves proving that the broker’s actions fell below the industry’s standard of care.
  3. Link to Breach of Authority: The negligence is particularly problematic when linked to a breach of authority. This implies that the broker not only acted outside their permitted scope but did so in a manner that a reasonable broker would not have under similar circumstances.
  4. Consequences and Damages: The consequences of such negligence can be severe. The principal may suffer financial losses, reputational damage, or legal liabilities due to the broker’s actions. The broker may be liable for compensating these damages.
  5. Principal’s Liability: Generally, the principal might not be held liable for the broker’s actions if they were unauthorized and negligent. However, this depends on various factors, such as the apparent authority of the broker and any ratification by the principal.
  6. Legal Remedies and Recourse: The principal may seek legal remedies such as rescission of the unauthorized contract, compensation for losses, or punitive damages. Legal actions might also include suing the broker for professional malpractice.
  7. Preventive Measures: This situation underscores the importance for principals to clearly define the scope of authority in their agreements with brokers and to regularly monitor the broker’s activities.
  8. Insurance and Indemnification: In some cases, insurance may cover some of the losses incurred. Additionally, indemnification clauses in the broker’s contract might come into play, determining the extent of financial responsibility.
  9. Regulatory and Ethical Considerations: Such actions by a broker might also attract regulatory scrutiny and could be a breach of professional ethics, leading to sanctions or loss of licensure.

Given the complexity and potential severity of these issues, parties involved in a shipbroker’s breach of authority with negligence often seek legal counsel to navigate the situation and determine the best course of action.


Shipbrokers Breach of Authority without Negligence

A shipbroker’s breach of authority without negligence refers to a scenario where the broker acts outside the granted authority but does so without failing to exercise the standard of care and skill expected in their profession. In such instances, the breach is typically due to a misunderstanding or misinterpretation of the scope of authority rather than careless or incompetent behavior. Key aspects to consider in these situations include:

  1. Understanding of Authority: This type of breach often arises from a misunderstanding or misinterpretation of the broker’s authority. It may occur when a broker believes they are acting within the limits of their authority, but in reality, they have exceeded those bounds.
  2. Intent and Good Faith: Unlike negligence, the broker’s actions, though unauthorized, are carried out in good faith and with the intent to act in the principal’s best interest. There is no lack of care or competence.
  3. Principal’s Liability: The principal may still be bound by the broker’s actions if the third party was not aware of the limits of the broker’s authority and had reasonable grounds to believe the broker was acting within their authority (the doctrine of apparent authority).
  4. Broker’s Liability: Even without negligence, the broker may still be liable to the principal for any losses resulting from their unauthorized actions, as they breached the terms of their agency agreement.
  5. Ratification by Principal: If the principal ratifies the unauthorized transaction, even after the fact, they are bound by the broker’s actions. Ratification can be explicit or implicit, based on the principal’s actions following the discovery of the breach.
  6. Impact on Contracts: Contracts entered into by the broker may still be valid, especially if the third party was unaware of the breach of authority and acted in good faith.
  7. Legal Remedies and Recourse: The principal might seek remedies like rescission of the contract if possible, or may pursue compensation from the broker for any losses incurred due to the unauthorized actions.
  8. Preventive Measures: Clearly defining the scope of authority in brokerage agreements and maintaining open communication can help prevent such breaches.
  9. Ethical and Professional Considerations: While the broker’s actions might not constitute negligence, they could still raise questions about professional judgment and adherence to ethical standards in the industry.
  10. Insurance and Indemnification: Depending on the terms of professional indemnity insurance and the specifics of the contract, some financial losses might be recoverable under these policies.

In cases of breach of authority without negligence, it’s often crucial for the parties involved to seek legal advice to understand their rights, potential liabilities, and the best course of action moving forward.


Shipowners held not liable under Charterparties signed by Manager in Breach of Implied Warranty of Authority

Navig8 Inc v South Vigour Shipping Inc [2015] EWHC 32 (Comm)

In this case, the claimant chartered four ships, with the agreements being executed by the vessels’ commercial manager. Each agreement included the term “the Disponent Shipowners signatory in contract,” followed by the manager’s name. During the deal-making process, the manager clearly indicated they were representing the Shipowners and kept them updated on the negotiation progress.

Upon the ships being taken out of service, the Charterers filed a lawsuit against both the manager and the registered ship owners. They argued that the manager, in arranging the charter agreements, acted as an agent for the Shipowners. Therefore, they contended that the Shipowners were legally bound by the agreements and were in violation for withdrawing the ships. The Charterers interpreted the term “Disponent Shipowners” in the agreements as meaning the manager had the authority to arrange charters on behalf of the Shipowners. The Shipowners refuted being parties to the agreements and claimed that even if they were, the manager lacked the authority to represent them.

The Court determined firstly that the manager had signed the agreements in the capacity of a Disponent Shipowner, meaning as the ship manager. The term “Disponent Shipowner” could denote someone who is an agent of the registered owner, specifically if they are a manager with extensive powers (although the court noted this usage is both infrequent and unconventional).

Moreover, the Court found that the Shipowners had not explicitly given the manager the power to finalize the charter agreements. Thus, the Charterers’ lawsuit against the Shipowners  was dismissed. However, the manager was found responsible for breaching an implied warranty of authority, making them liable for damages to the Charterers. The damage amount equaled what the Owners would have paid, plus a balance of account.

Third parties like brokers and managers are often crucial in charterparty negotiations. This case underscores the necessity of ensuring that when one party represents another, both parties are fully aware of the scope and limitations of the representative’s authority. An agent violating an authority warranty could be held responsible for damages under a contract they allegedly entered into on behalf of their principal. While the principal might not be liable for damages, they could still face the burden and costs of legal proceedings that could have been avoided