It is trite that agents owe fiduciary duties to their principals, and an agent means one who holds power to affect the legal relations of his principal. In CH Offshore Limited v Internaves Consorcio Naviero SA, Maritima Altair Petromar SA, Lamat Offshore Marine Inc.  EWHC 1710 (Comm), the court discussed whether intermediaries are agents and whether they owe any fiduciary duties.
The Plaintiff in the case was the owner of two vessels (the "Vessels") and its brokers were known as Seascope in the judgment. PDV Marina SA ("PDVSA") invited tender to enter into charterparties for two vessels from a number of entities which it considered might be interested and which included a company controlled by one of the Defendants. The invitation was in turn passed on to Seascope and the Plaintiff provided a proposed bid accordingly.
There were several rounds of negotiations but all bids pursuant to the tender expired as none of the bids complied fully with the requirements of the tender. However, one of the Defendants enquired whether PDVSA was still interested in the bid from the Plaintiff which had expired. Having obtained confirmation from the Plaintiff that it was interested in renewing its proposal to PDVSA, Seascope provided a proposal to the Defendants who then submitted it to PDVSA. PDVSA later informed one of the Defendants that the offer had been accepted subject to details, and negotiations continued.
One of the Defendants later learned that PDVSA was looking to charter a second vessel and the Plaintiff offered the second vessel to one of the Defendants through Seascope and that Defendant passed the offer to PDVSA. Subsequently, the agreements for commission between the Plaintiff and the respective Defendants were signed (the "Agreements"), and the Plaintiff and PDVSA signed the charterparties for the Vessels.
However, it was later discovered that a company within the PDVSA group has already entered into an agreement for two different vessels with another company so the Vessels were not needed. When no instalments of hire were made, the Plaintiff demanded redelivery of the Vessels. There were disputes as to the unpaid commissions under the Agreements and the matter went to arbitration. In essence, the Plaintiff alleged that the rate of hire paid by PDVSA under the charterparties was inflated by secret commissions, which were siphoned off by the Defendants in breach of the obligations owed to the Plaintiff.
The key issue before the Tribunal was whether the Defendants were to be treated as the Plaintiff's agents, either because they were the Plaintiff's brokers or because they were joint intermediary brokers. The Plaintiff argued that, if the Defendants were agents, the commission and the Agreements were unenforceable because they had been procured in breach of duty owed to the Plaintiff. If the Defendants were intermediary brokers, the Plaintiff then argued that their failure to disclose to the Plaintiff and PDVSA of the fact that they had an interest in keeping the spread between the rate of hire paid by PDVSA and the rate of hire as received by the Plaintiff as wide as possible to enable them to claim the maximum amount of commission was a breach of duty.
By a majority, the claims of the Defendants for commissions or damages under the Agreements succeeded. The Plaintiff then made an appeal to set aside the award.
Issue and the law
One of the questions before the court was: What duties are owed by an intermediary broker to its principals?
The court noted that the above question assumed that the relationship is one of agency which attracts fiduciary duties, so the court referred to Bowstead & Reynolds on Agency (21st Ed) and the relevant paragraphs reads: "...not every person who can be described by the word "agent" is subject to fiduciary duties; and that a person who certainly is so to be described may owe such duties in some respects and not in others. Hence it is said that there may be a "non-fiduciary agent", and that in some functions an acknowledged agent may not act as fiduciary at all. Rather than talk of a "non-fiduciary agent" it seems better to say that where an agent does not act in a fiduciary capacity (e.g. because he simply carries out specific instructions), this is a reflection of the scope of his duties and the boundaries of the equitable rules."
There is a clear finding of fact by the Tribunal that the Defendants were not acting as more than mere intermediaries and could not be regarded as agent of either party to the charterparties. Further, neither the Plaintiff nor PDVSA appeared to have interest in the precise amount of the commission which would be paid to the various brokers involved.
Given the above findings of fact, the court held that the Defendants were not agents in what Bowstead refers to as the "full legal sense" in that they did not have the power to bind either party. Further, the commercial relationship between the Plaintiff and the Defendants did not justify interference by the imposition of the full scope of fiduciary duties, and the nature of the intermediary relationship in the circumstances was such that it could not be said either of the party to the charterparties was entitled to the "single-minded loyalty" of the Defendants and the obligations of a fiduciary.
The court further doubted if the Defendants could be regarded as the Plaintiff's agent at all as they were not acting for the Plaintiff who had its own broker i.e. Seascope. Even if intermediary brokers owe some fiduciary duties, the scope of those duties is limited to reflect the limited role which they carry out. For pure intermediaries, their only role and authority was to transmit the communications of the one to the other. Accordingly, the duties on such intermediaries are to communicate messages honestly.
The Plaintiff argued that there was a breach of duty because the Defendants were pulling the parties apart by seeking to increase the differential between the amount paid and the net amount received. However, the court held that, if the only duty is to transmit communications honestly then no such duty was breached by the underlying commercial motivation on the part of the Defendants to maximise their commission, and in fact there was no finding by the Tribunal of dishonesty on the part of the Defendants. The Defendants who were not agents did not have a duty not to put themselves in a position of conflict.
The Plaintiff also sought to argue that the Defendants had a duty to disclose the full facts of the transactions. The court held that the only fact that the Plaintiff did not know was the commercial position of PDVSA which underlay the terms which were negotiated and agreed in the charterparties. Whilst the duty on an intermediary is to pass on communications honestly, the case laws do not support any wider duty to disclose details of the commercial position or the Defendants' "interest" (i.e. widening the spread between what is paid and received) when the mere rationale of their involvement was to earn commission.
This case clarifies intermediaries' positions and their duties. In sum, intermediary brokers are not agents and do not owe any fiduciary duty to the owners/charterers. Even if they are subject to some fiduciary duties, the duties are confined to communicating messages of the one to the other honestly.
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