ITIC Reimburses Broker Accused by Owner of Breach of Authority

International Transport Intermediaries Club (ITIC) recently represented a shipbroker accused by an owner of breach of warranty of authority in a dispute arising under a non-performing contract of affreightment (CoA).

The shipbrokers had negotiated the terms of a CoA between the charterers and the ship owners, receiving all their instructions from an agent purporting to act for the charterers. The CoA provided for a minimum of 18 shipments to take place over a 12-month period but, when the charterers failed to nominate any cargoes during the period of the CoA, the owners began proceedings against them, claiming damages of $3.1m. 

In their defense, the charterers denied being a party to the CoA and alleged that neither the shipbrokers nor the agents had authority to negotiate or enter into the CoA on their behalf.

The owners then joined the shipbrokers into the proceedings, alleging that they had breached their warranty of authority by representing to them that they were authorized by the charterers to conclude the CoA. They added that, if the brokers did not have such authority, then they would be liable for the loss suffered.

Liability for breach of warranty of authority does not, under English law, depend on any negligence on the part of the shipbroker. It is, however, specifically covered under ITIC’s rules. The shipbrokers maintained that they had not purported to represent the charterers and said that the owners had known that the brokers were acting on the agent’s instructions. The agents, meanwhile, claimed that they had been authorized to conclude the CoA.

After filing their defense, the charterers did not take an active part in the proceedings. The matter went to mediation between the remaining parties but did not settle on the day. Following the mediation, the owners indicated that they would be willing to accept a substantial reduction in their claim. The brokers and agents were able to negotiate a split of the settlement, with the agents paying the largest proportion. ITIC reimbursed the shipbrokers’ contribution of $260,000.