Worldwide: Shipbroker Sued For Breach Of Warranty Of Authority, And Of Sections 52, 53(bb) And 53(d) Of The Trade Practices Act; No Implied Term That Ship Broker Provide Relevant Information To Its Principal

Last Updated: 20 October 2009
Article by Michael Mitchell

BHPB Freight Pty Limited v Cosco Oceania Chartering Pty Limited & Anor (No. 3) [2009] FCA 1087

Federal Court of Australia1

In Brief

  • The time charterer of a bulk carrier sued a shipbroker which had mistakenly represented that it acted on behalf of a prominent exporter. The time charterer succeeded in claims for breach of warranty of authority, and of sections 52 and 53(bb) of the Trade Practices Act.
  • Section 53(d) of the Trade Practices Act does not apply to shipbroking.
  • The time charterer failed in an action against its own broker, which exercised reasonable skill and care. There is no implied term that a shipbroker must pass on information relevant to the negotiation or operation of a charterparty to its principal.

Background

The applicant ("BHPB") was the time charterer of the bulk carrier "Global Hawk". On 30 September 2004, BHPB's chartering division sent an email to several ship brokers advising that the Global Hawk would become "open" on 12 October 2004 at the port of Lianyungang. One of the brokers, Seawise, passed this message on to another broker, Cosco. On 5 October 2004, Cosco made a "firm" offer for the Global Hawk for the account of New Century International Leasing Corp ("NCI") for delivery at Lianyungang and redelivery in Singapore or Japan.

Cosco believed that it was acting for NCI through a third party called "Jacky" via email.

On 11 October 2004, Jacky by email offered to charter the Global Hawk on behalf of NCI at a hire of US$24,000 daily. Cosco passed this on to Seawise. Later that day, BHPB rejected Jacky's offer and responded with a counter-offer for daily hire of US$25,300, with full voyage hire to be paid "in advance on delivery".

BHPB had not previously dealt with NCI and requested references. Cosco duly forwarded documents showing that NCI was a legitimate and large leasing corporation jointly funded by large US and Chinese corporations. BHPB also obtained an independent report from Lloyd's MRC to the same effect.

Later that same day, Cosco emailed Seawise indicating that it should negotiate directly with Jacky to finalise the time charter. Seawise did so, as BHPB's broker. In the course of direct negotiations with Jacky, certain terms were changed, but on the following day (12 October 2004) Seawise completed its negotiations with Jacky, and the time charter of Global Hawk to NCI was fixed clean.

On 13 October 2004 the master of the Global Hawk sent BHPB the voyage instructions which he had received. These identified the charterer as "Nera Shipping Limited" ("Nera") and the operator as "Super Shipping of Hong Kong". The charter operations manager at BHPB assumed that these entities were either sub-charterers or operational divisions of the charterer, NCI, and therefore did not find cause for alarm in them. He sent the voyage instructions on to Seawise.

Seawise then drew up the draft voyage charterparty showing the charterer as NCI. Seawise emailed Jacky nominating the surveyor for the on-hire bunker and condition survey and requesting his "full style". At 1525 hours Jacky by email stated "Our full style asf: Nera Shipping Co Limited". Seawise used this information in completing the charterparty, but did not send it on to BHPB.

The vessel was delivered to Nera on 14 October 2004.

Although the terms of the fixture provided that NCI would pay the hire in advance of delivery, in fact standard practice was to send the first hire invoice on the day of delivery as bunkers could not be surveyed until delivery. On 14 October 2004 BHPB sent the first hire invoice to Seawise in the sum of US$669,533.96, for delivery to NCI. The invoice was not paid; nor were further invoices which BHPB raised up until 15 November 2004.

On 27 November 2004, BHPB re-took possession of the Global Hawk. BHPB commenced arbitration proceedings against Nera in London and received an award in its favour for US$1,063,316.19, which went largely unsatisfied. In 2006, BHPB began proceedings in the Federal Court of Australia against its own broker (Seawise) and the ostensible broker of NCI (Cosco). BHPB succeeded in some claims against Cosco, but failed against Seawise.

The Claims Against Cosco

Finkelstein J found that Cosco was liable to BHPB for breach of warranty of authority, and for breaches of its statutory obligations under sections 52 and 53(bb) of the Trade Practices Act 1974 (Cth). He rejected a claim that Cosco had breached s 53(d) of the Trade Practices Act.

Breach Of Warranty Of Authority

In respect of the claim for breach of warranty of authority, the court found that the brief emails from Cosco to Seawise were more than enough to constitute a representation that Cosco had authority to act on behalf of NCI, in the context of the shipbroking trade. There was also ample evidence from which to infer that Jacky had never acted for NCI: Cosco was aware that a number of other charters which Jacky had attempted to arrange had fallen through, and in at least one email to Cosco he admitted that he was not connected with NCI.

The court also found that BHPB had relied on the representation. It did not matter that the charterparty had been concluded during direct negotiations between Seawise and Jacky since "the true or effective cause of the problem which has arisen here is Cosco's representation that it was authorised to act for NCI and it was on that basis Seawise concluded the fixture with Jacky".2 Finkelstein J noted English authority that it is not necessary for a plaintiff to enter into a transaction with a supposed principal in order to establish an action for breach of warranty of authority.3

Section 53(bb) Trade Practices Act 1974 (Cth)

Cosco was found to have breached s 53(bb) of the Trade Practices Act, which provides that a corporation shall not "in trade or commerce, in connection with the supply or possible supply of goods or services or in connection with the promotion by any means of the supply of goods or services: ... (bb) falsely represent that a particular person has agreed to acquire goods or services". Cosco argued that it was necessary that the representation concern the same goods or service which are being supplied. Finkelstein J rejected this argument: Cosco contravened the section by falsely representing that it was supplying ship broking services to NCI, and it was irrelevant that this arose in connection with the supply of other services to BHPB.

Negligence And Section 52 Trade Practices Act

Cosco was found liable to BHPB in negligence and for breach of s 52 of the Trade Practices Act (misleading or deceptive conduct). Cosco argued that damages in these claims should be reduced, as BHPB was partly responsible for its loss by negligently delivering the vessel to Nera, notwithstanding that it had received the voyage instructions from the master which should have alerted it that something was amiss. Finkelstein J rejected this argument, and held that the operations manager of BHPB (who was very experienced in chartering) had acted reasonably in assuming that references to Nera and Super Shipping were references either to a sub-charter, or to an internal operating division of NCI.

Section 53(d) Trade Practices Act

However, Finkelstein J rejected BHPB's claim based on s 53(d) of the Trade Practices Act, which provides that a corporation shall not in trade or commerce "represent that the corporation had a sponsorship, approval or affiliation it does not have". The representation that Cosco was NCI's ship broker was a representation about the existence of an agency relationship which is an arm's length commercial dealing and of a different category to "sponsorship, approval or affiliation".

BHPB's Claims Against Its Own Broker – No Implied Term To Supply Information

BHPB contended that its retainer with Seawise contained an implied term that Seawise would bring to BHPB's attention any information of which Seawise became aware, relevant to the negotiation, fixing, operation or performance of the charterparty. This was said to ground claims in negligence and breach of contract.

Finkelstein J rejected this argument, noting that such an obligation would have to be imposed in all ship broking contracts. He could find no authority (even from textbook writers) for such a "bold" claim.

His Honour agreed that the retainer was subject to the usual implied term that Seawise would exercise reasonable care and skill in carrying out the services. However, he did not accept that Seawise had breached that duty: BHPB's charter operations manager had seen the voyage instructions (which referred to delivery of the vessel to Nera) but had not thought anything amiss thereby, assuming they referred to a sub-charter or internal operational division of NCI. Given his wide experience, it was unreasonable to expect Seawise to have realised that something was amiss.

Implications

It will be of some relief to shipbrokers that the Federal Court declined to find any implied term that a broker must forward relevant information concerning the negotiation or operation of a charterparty to its principal. Shipbrokers' liability to their principals remain regulated by the general implied duty to exercise reasonable skill and care.

The relevance of the Trade Practices Act 1974 (Cth) to international shipping operations has been further expanded by this application of section 53(bb) to the shipbroking relationship.

The judgment emphasises the importance of established relationships for shipbrokers. Although Cosco had received indications that "Jacky" in fact did not act for NCI, the lack of such indications will not necessarily protect a broker against an action for breach of warranty of authority, nor under section 53(bb) of the Trade Practices Act.

Footnotes

1. Finkelstein J, 25 September 2009

2. Judgment at paragraph 48

3. Firbank's Executors v Humphreys (1886) 18 QBD 54 at 60; See also Penn v Bristol and West Building Society [1997] 1 WLR 1356

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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Authors
Michael Mitchell
 
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