Shipping broker awarded damages for loss of commission despite cancelled contract

In August 2008, a Danish shipowner and a Singaporean charterer entered into a contract through a Danish and a German shipping broker for the time chartering of two newly built ships. Under the contract, the shipping brokers were each entitled to commission at a rate of 1.25 % of "hire earned and paid under this Charter, and also upon any continuation or extension of this Charter".

However, the charterer faced financial difficulties in September 2008 as a result of the financial crisis. Consequently, he announced already in October 2008 that he could not fulfil the contract. The shipping brokers assisted in the negotiations between the parties in the subsequent period, but in the ultimate phase, they were left out of the negotiations when no solution was reached. The shipowner chose to commence arbitration proceedings against the charterer in England. Shortly after the parties entered into a settlement agreement - bypassing the shipping brokers. The new contract concerned bare boat charter parties for the same ships and was subject to an option to purchase. At the same time, the original contract was cancelled. The Danish shipping broker then claimed damages from the shipowner for loss of commission.

The cancellation was not to be to the detriment of the shipping broker

The Supreme Court upheld the decision of the Maritime and Commercial Court and awarded damages to the Danish shipowner for loss of commission. The Court primarily ruled that it appeared from the original contract that the owner was to pay commission to the shipping broker.

In the opinion of the Supreme Court, the owner had incurred liability to the shipping broker by - together with the charterer - having cancelled the original contract and replacing it by a new one without taking into consideration the shipping broker's entitlement to commission. The contractual parties had a common interest in excluding the shipping brokers from the new contract as they could then save the costs of commission.

Also, the Court emphasized that there was a close connection between the new contract and the cancellation of the original contract. Moreover, it was clear from the new contract that it replaced the time charter parties previously concluded.

IUNO's opinion

The judgment shows that as a general rule, a shipping broker is entitled to broker commission on contracts made. It follows from trade custom that the shipping broker is entitled to a rate of 1.25 % of the hire. The broker also has a right to commission if it proves impossible to perform the contract, and it is consequently cancelled and replaced by a new contract.

In other words, it can give rise to liability for damages to enter into a new contract to avoid having to pay commission to the broker. This also applies if the broker commission under the original contract is only payable on a "no cure - no pay" basis.

[Supreme Court judgment of 11 February 2013, case no. 85/2011, Maritime and Commercial Court judgment of 11 March 2011, case no. S-24-09]