How Commission Is Earned

In law, a broker's commission is not earned by effort. Or by strategy. Or marketing. Or patience. It’s earned only when a specific event happens: A completed sale—and only if the broker was the effective cause of that event. Miss either requirement and you get nothing. Not a reduced fee. Or a consolation prize. Nothing. Brokers engaged on a "no sale, no fee" basis bear the entire risk. If the deal falls through—even if the owner is the one who calls it off—the broker doesn’t get a bean, and cannot claim anything for time and money spent.

Which brings us to the "effective cause" test itself: a phrase the courts use constantly but which isn’t defined that clearly. The phrase was first used in a legal case back in 1903, in which it was decided that this means more than simply "cause". The question is whether the broker's actions actually brought about the relationship of buyer and seller. In other words, plenty of things contribute to a sale happening. A yard's sales director might explain the specification. A captain might quietly recommend the boat to his employer. A manager might personally broker the introduction between the parties. All of these things can be happening at once, and more than one of them can, in principle, count as a legally effective cause. The law does not require the broker to have been the sole cause—merely a cause substantial enough to matter.

Cause In Effect

The phrase was examined in the 2011 decision of Berezovsky v Edmiston. The 110-meter Lürssen motor yacht Darius, built for the late Boris Berezovsky, and sold while it was still under construction to the Al Futtaim family of the UAE for €240 million. Berezovsky had engaged leading brokers Edmiston & Co on a non-exclusive basis. As is common practice, Edmiston worked with other brokers, including Merle Wood & Associates, who happened to know a captain who happened to work for the Al Futtaims. The captain showed his employer some Edmiston-branded photographs of the boat and interested was piqued. The buyer negotiated the purchase directly with Berezovsky's own assistant, cutting the brokers out entirely.

Berezovsky’s lawyers argued, not unreasonably, that a broker who is excluded from the negotiations and never even discusses the price with the buyer cannot have been the effective cause of the sale. Fair point. But the judges ruled that simply making an introduction can be the effective cause even where the principal later takes the negotiation into his or her own hands.

Merle Wood & Associates, meanwhile—who had done a lot of legwork—discovered the hard way that being useful to Edmiston's case was not the same as having a contract with the yacht's owner. Sub-brokers have no claim against the owner and their commission comes out of the head broker's pocket under whatever private arrangement was made with that head broker.

Close But No Commission

Now compare that case with the 2016 judgment in Moran Yacht & Ship v Pisarev. Moran managed the 47-meter 4YOU for Kirill Pisarev and acted as her exclusive chartering agent. In May 2010, a Moran broker showed the boat to a wealthy acquaintance, Alexander Miliavsky, who spent about a half hour on board and made it perfectly clear he had no interest in buying her. Moran's people had no further contact with him. Twenty-one months later, over dinner in Moscow, Pisarev happened to mention that the 4YOU was still for sale and had come down in price. Miliavsky remembered the boat, and his finances had improved considerably since. In February 2012 he bought her for €19.8 million—with Moran nowhere in sight, its retainer having terminated some months earlier.

Moran sued for commission and lost. The court held that even if there had been a brokerage agreement in place (which, on the facts, was doubtful) showing a boat to a man who says he isn’t interested, and then having no further contact with him for nearly two years before the actual owner reopens the conversation entirely off his own bat over dinner, does not make you the effective cause of whatever deal eventually results. The passing of time, and the buyer’s own change of circumstances, combined to break whatever causal thread had ever existed.

Avoiding Public Gaze

Given media interest in matters involving superyachts, it’s surprising that any disagreements involving them are litigated. But being unable to settle your differences doesn’t mean that you must always bring the matter to an open, public court. There’s an alternative which is all too often overlooked: Arbitration.

Think of it as a private, confidential court, convened by you, where you choose the arbitrators (typically senior, independent lawyers well-versed in matters maritime). No case documents are made public, and the decision (known as an award) is often easier to enforce abroad than a court judgment. A downside is that you pay for the arbitrators’ time—but this can be a drop in the ocean. No one other than the parties and lawyers involved need ever know that a dispute ever arose.

Arbitration does need the agreement of both sides to take this course of action, and may not always be suitable. A surprising aspect of the Cecil Wright case is that €17.5 million is being claimed in respect of a breach of an agreement which was never formalized into a written agreement. This has resulted in court documents being available to anyone who asks and pays a nominal fee—and they reveal plenty of names and details which the parties would doubtless prefer were kept private.

The Bottom Line

So what does all this mean in practice? Whatever your role, make sure every brokerage agreement is contained within a single written document, and there’s provision for arbitration.

If you're a broker, register every prospective buyer’s interest promptly and in writing. Being frozen out of the final negotiation is not fatal to a commission claim, provided your original introduction can be shown to have actually set the transaction in motion. A fleeting, unsuccessful contact followed by two years of total silence almost certainly won’t earn you anything. And above all, never assume that graft alone entitles you to anything: no sale, or no provable causal link to the sale, means no fee, full stop-no matter the sheer effort invested.