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True brokers may be paid a secret commission (UK)

27 May 2021 Patrick Bracher, Norton Rose Fulbright
Patrick Bracher, Norton Rose Fulbright

Patrick Bracher, Norton Rose Fulbright

In negotiations between parties who were negotiating charterparty terms for the chartering of two vessels, third parties involved in the negotiations received commission unknown to the party paying the price for the charter of the two vessels.

It was held that although the third parties were intermediaries they were not agents in the full legal sense but true brokers.  They did not owe any single-minded loyalty to the party chartering the vessels.  Their duties were limited to communicating messages honestly.  If the only duty of the intermediaries was to transmit communications honestly, such duty was not breached by their underlying commercial motivation to maximise their commissions.

The agreement pursuant to which a broker receives secret commission or other payments is not unenforceable on the grounds of public policy or illegality in circumstances where the fact of the payments was known to the parties and it was open to the party who was aware of the market rates but unaware of the amount payable to the brokers to enquire as to the amount of the payments but chose not to do so.

The distinction is important.  Parties often use phrases like “on behalf of” and create an agency when it is a true broking arrangement where a principal/agent relationship need not be created.  The second principle, is applicable to intermediary commission.  For example, an insured cannot complain they did not know the intermediary was earning commission from the premium paid when this is well-known and ascertainable in relation to any insurance transaction.

[CH Offshore Limited v Internaves Consorcio Naviero SA [2020] EWHC 1710 (Comm)]

First published by: Financial Institutions Legal Snapshot

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