Oil & Gas: Limited duties of ‘pure intermediaries’  

In CH Offshore Limited v Internaves Consorcio Naviero SA, Maritima Altair Petromar SA, Lamat Offshore Marine Inc., the Commercial Court has rejected an argument that an intermediary owed a vessel owner a wide ranging fiduciary duty akin to an agent in arranging what the intermediaries termed, in their own words, “the deal of a lifetime”. The Commercial Court decision emphasises the limited scope of fiduciary duties owed by pure intermediaries.

Background

CH Offshore Limited (“CHO”) was the owner of two tug supply vessels ‘AMETHYST’ and ‘TURQUOISE’, which were chartered to PDV Marina SA (“PDV Marina”) the chartering arm of Petroleos de Venezuela SA (“PDVSA”), the state-owned Venezuelan oil and gas company. References to “PDVSA” below are to PDV Marina or its parent as the context may require.

Internaves Consorcio Naviero SA (“Internaves”), Maritima Altair Petromar SA, a Panamanian company, (“Maritima”) and Lamat Offshore Marine Inc. (“Lamat”) are brokers. References below to the “Brokers” are to Internaves, Maritima and Lamat both individually and together, as the context may require. The sole owner of Internaves was Ms Daphne Grek (“DG”) and the sole owner of Maritima was Mr Christobel Schlaubitz (“CS”). Lamat was jointly owned by DG and CS.

In late November 2007, PDVSA invited tenders for the charter of two vessels from a number of entities which it considered might be interested, and which included Maritima Altair Petromar CA, a Venezuelan company controlled by CS. When CS, on behalf of Maritima, received the invitation to tender from PDVSA, he passed it on to DG on behalf of Internaves and DG in turn passed the invitation to tender on to Mr Malvisi of Seascope/Braemar (“Seascope”), shipbrokers.

CHO tendered for the charterparty of a vessel with PDVSA through its own broker, Seascope. Representatives from two of the Brokers passed on details of the offers and counteroffers made by CHO (through Seascope) and PDVSA. During this time, CHO tendered a daily rate of USD 47,000 at 2.5% commission before indicating, at one of the Brokers’ request, that it could accept a daily rate of USD 42,850 inclusive of 2.5% commission.

None of the offers met the tender requirements and the tender lapsed. However, the Brokers then informed CHO (through Seascope) that PDVSA (or its affiliate, PDV Marina) would still be interested in the charterparty. Having obtained confirmation from CHO that it was interested in renewing its proposal to PDVSA, Seascope provided a proposal to Internaves, which passed it on to Maritima and it was submitted to PDVSA. The proposal included a hire rate of USD 47,600, which was accepted by PDVSA. The Brokers agreed with CHO commission for the charterparties under three agreements: Internaves and Maritima under brokerage commission agreements and Lamat under a consultancy agreement (the “Commission Agreements”). In proceedings, the Brokers stated their objective had been to persuade CHO to reduce its rate from USD 47,000 so they could “make the difference” between the net rate that CHO indicated and the rate PDVSA would agree to.

It transpired that the charterparties were not needed by PDVSA, which failed to pay instalments of hire, and CHO demanded redelivery of both vessels. The Settlement Agreement between CHO and the PDVSA entities referred to “claims for outstanding hire” for the two charterparties. The Brokers claimed they were owed commission under the Commission Agreements, at the rate agreed, applied to the amount in the Settlement Agreement, and the arbitral tribunal agreed.

Award and Appeal

The arbitral tribunal decided by a majority that under the Commission Agreements the Brokers were entitled to commission on the amounts paid under the Settlement Agreement which retained the character of ‘Charter Hire’. The tribunal found, on the facts, that it could not accept that Internaves or Maritima had acted as brokers or agents for PDVSA or its affiliate PDV Marina, nor that they had a duty of disclosure to CHO. CHO accepted there was no suggestion the defendants had received additional amounts over and above the commission payable under the Commission Agreements.

Amongst other things, CHO raised a question of law, which it appealed to the Commercial Court under s.69 of the Arbitration Act 1996, whether the Brokers owed CHO and PDVSA fiduciary duties, as agents, to disclose the full facts of the transaction and to disclose that CHO was getting less hire than PDVSA had agreed to pay (and whether the Commission Agreements were therefore unenforceable due to breach of these duties by the Brokers).

Decision

The Commercial Court dismissed CHO’s appeal. It held that there was no fiduciary duty of the nature argued.

In Medsted Associates Ltd v Canaccord Genuity Wealth (International) Ltd [2019] EWCA Civ 83 Longmore LJ cited with approval New Zealand Netherlands Society “Oranje” Inc v Kuys [1973] 1 WLR 1126 at 1130: “The precise scope of [the obligation] must be moulded according to the nature of the relationship.”

The arbitral tribunal expressed the view that “the broking arrangements with which we were concerned in this dispute were far from normal (in fact, without parallel, in our experience)”, but the Brokers “were not acting as more than mere intermediaries who could not be regarded as the agent of either party to the charterparties.”

The Brokers were not agents in what Bowstead & Reynolds on Agency, a legal text the court consulted as authority in this area, refers to as the “full legal sense” in that they did not have power to bind either party. It is doubtful whether they could be regarded as an agent at all. They were not acting for CHO, which had its own broker, Seascope. The arbitral tribunal also found, as a matter of fact, that the Brokers were not acting for PDVSA.

In such a situation, the Brokers were “pure intermediaries, that is to say, their only role and authority on behalf of either party was to transmit the communications of the one to the other” (The Mercedes Envoy [1995] 2 Lloyd's Rep 559). The court applied Re Coomber [1911] 1 Ch. 723 that “the nature of the fiduciary relation must be such that it justifies the interference [of the court]”. It was a commercial relationship between CHO and the Brokers which did not justify interference by the imposition of fiduciary duties.

Neither CHO nor PDVSA was entitled to the “single-minded loyalty” (Bristol and West Building Society v Mothew [1998] Ch. 1) of the Brokers and there was no duty on the Brokers not to put themselves in a position of conflict. Imposing such a duty would cause commercial absurdity by preventing an intermediary from acting between two parties to facilitate a relationship, a role “inherent” in that of an intermediary. The court also found the Brokers were not under a duty to disclose the commercial position of PDVSA to CHO or disclose their own “interest” in the transaction. The Brokers’ “interest” in the transaction (in this case their interest in widening the spread between what was paid and received) was the rationale for their involvement with the transaction in the first place.

Comment

The decision of the Commercial Court confirms that the scope of a duty owed to a principal by a broker or agent depends upon the relationship. It should not be assumed that all intermediaries are agents, nor that they owe the full suite of fiduciary duties that an agent would owe to a principal.

In this case, the relationship between the Brokers and the other parties could be contrasted with Seascope’s relationship with CHO. The Brokers were limited by their position sitting between the two parties, which was apparently different to that of CHO’s appointed broker, Seascope.

The Commercial Court emphasised that where brokers act as intermediaries, arranging contact between two parties and passing offers between them, the brokers’ duties likely extend to the loyal exercise of that obligation but no further.

CH Offshore Limited v Internaves Consorcio Naviero SA, Maritima Altair Petromar SA, Lamat Offshore Marine Inc. [2020] EWHC 1710 (Comm).