Shipbroker settles for $380,000 after failing to disclose voyage restrictions, sparking arbitration dispute

An arbitration dispute highlighted in the latest Claims Review by International Transport Intermediaries Club (ITIC) has concluded with a shipbroker settling a $380,000 claim. Accused of breach of contract and negligence for not disclosing critical navigation restrictions to charterers, the case underscores the paramount importance of transparent communication and due diligence in the shipbroking industry.

The incident began when a shipbroker arranged a charter party (CP) agreement between shipowners and charterers. While the main terms were settled, the shipowners informed the broker that the ship's official certificate would be provided shortly. In the meantime, they shared details of a sister ship, noting that its "navigation area is R1 as well" — a classification restricting the ship from operating beyond a certain distance offshore.

Due to spam filters, the broker did not receive the certificate via email. Eventually obtaining it through WhatsApp, the broker faced technical issues that prevented forwarding the document to the charterers or advising them about the R1 restriction. Confident that the official certificate would arrive soon, the broker neglected to pass along this crucial information.

Unaware of the ship's operational limitations, the charterers lifted subjects, finalising the agreement. It was only when voyage instructions were issued that the ship's Master informed the charterers of the R1 notation, rendering it unsuitable for the intended voyage.

This revelation led to Without Prejudice (WP) negotiations, resulting in the cancellation of the original charter and the establishment of a new, shorter-term agreement at a higher rate to accommodate the ship's capabilities. However, during these discussions, the charterers discovered that the broker had been informed of the R1 restriction before they lifted subjects. Feeling misled, they accused the broker of breach of contract and negligence.

The charterers claimed damages for the additional time and bunkers required for the adjusted voyage, the costs of hiring a replacement ship for the remainder of the charter period, and extra insurance and legal expenses. Complicating matters were questions about the broker's duty of care — especially since the charterers had their own broker — and uncertainties regarding the applicability of the commission agreement. Additionally, the losses claimed were initially vague and lacked proper evidence.

Upon seeking legal advice from ITIC, it was deemed likely that the broker faced liability, either directly to the charterers or indirectly, through a potential claim from the owners. There was also the risk that the owners might pursue a more costly claim against the broker for failing to communicate the navigation restriction.

After the charterers provided clearer substantiation of their losses, the claim was settled in arbitration for approximately $380,000, representing about 70% of the total claimed amount.

Mark Brattman, Claims Director at ITIC, said: “This case serves as a stark reminder of the essential role that precise and timely communication plays in maritime transactions. Brokers must ensure that all critical information, particularly operational limitations, is accurately conveyed to prevent costly disputes and maintain trust within the industry.”