• In the case of Nisshin Shipping Co Ltd v Cleaves & Co Ltd [2004] 1 Lloyds Rep 38, two contracting parties were conflicted on whether a clause in a charterparty could confer on it a benefit of 1% commission.
  • This contract case concerned charterparties, shipping and privity of contract.

Facts of the Case

  • C negotiated charterparties with D. C initially consented to paying a commission then later refused.
  • D pursued arbitration under s 1 and s 8 of the Contracts (Rights of Third Parties) Act 1999.
  • Nisshin Shipping contested this decision arguing that they do not have to pay for the Cleaves commission.

Issues

  • Whether the commission clauses could be enforced by D.
  • Whether this case should have been referred to the arbitration tribunal.

Held by High Court

  • Commission clauses should be enforced – judge agreed with the arbitrators that s 1 of the Contracts (Rights of Third Parties) Act 1999 enforced the clauses in question.

Colman J

Arbitration

  • The contracting parties both intended to establish a trust enforceable by the charterers thus the brokers should not impact the contract.
  • “First, although the parties to the charterparties clearly expressed their mutual intention that their disputes should be arbitrated, that mutual intention is entirely consistent with a mutual intention that the brokers should be obliged to recover their commission by court action rather than by arbitration. Secondly, if, on the proper construction of the 1999 Act, the third party is obliged to enforce the commission benefit by arbitration, even where the agreement does not on its proper construction provide for any participants in an arbitration other than the parties to the main contract, identification of the intention to be imputed to the parties as to enforceability of the third party commission benefit clearly has to take this into account.” [21]

Intention

  • “Prior to the 1999 Act it would be the mutual intention that the only available facility for enforcement would be deployed by the broker does not lead to the conclusion that, once an additional statutory facility for enforcement had been introduced, the broker would not be entitled to use it, but would instead be confined to the use of the preexisting procedure… There are therefore very strong grounds pointing against any mutual intention to confine the brokers to the old procedure and to deny them the right to rely on the 1999 Act.” [31]
  • The substantive term could be enforced by D therefore commission must be paid to the brokers as promised.

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