Steamship Mutual
Contract Formation
Rajeev Philip
Steamship Insurance Management Services Limited
Lighthouse: La Corbiere, Jersey, Channel Islands, UK 06.18
Steamship Mutual Intertanko Chartering Seminar - Contract Formation
DO WE HAVE A CONTRACT?
•Frequency of disputes
•Market Assumptions v. Relevant Legal Principles
•Impact of Recent Shipping Market
•Shipping in contrast to other markets
– Lack of formality: Mobile phones and one line
emails
– Genuinely International
April 2008
Steamship Mutual Intertanko Chartering Seminar - Contract Formation
DO WE HAVE A CONTRACT?
• Playing the market
• The importance of contractual certainty in a volatile market
• The “DOUBLE HAPPINESS”
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7 March 2005 Fixed for 2 years at USD 31,500pd (delivery Sept 2005)
End March 2005, Market at 40,000 pd – USD 6m gain
By August 2005 market at USD 10,000 pd – USD 15m loss
Mr. Lee from Charterers office, July 2005:
“Retelcon
as advd I did not have the authority to fix this vsl as
I was no longer the employee of A+O since 07 Feb 2005. I
thoughy I had the authority to fix this vsl but was found out
later I did not have the authority to conclude this business
and or to sign on behalf of A+O Nevis
Sorry for the confusion. Brgds.”
Next step: Speak to the lawyers.
April 2008
Steamship Mutual Intertanko Chartering Seminar - Contract Formation
WHAT LAW APPLIES?
• The “putative proper law” (alleged illegality?)
• Where no jurisdiction referred to in negotiations the Court will
carry out an objective assessment
April 2008
Steamship Mutual Intertanko Chartering Seminar - Contract Formation
Practice Tip 1: THERE IS NO NEED FOR
GOOD FAITH IN NEGOTIATIONS
“The concept of a duty to carry on negotiations in good faith is
inherently repugnant to the adversarial position of the parties
when involved in negotiations.”
• The law is not interested in negotiations – only agreements
• Misrepresentations/reputational issues
April 2008
Steamship Mutual Intertanko Chartering Seminar - Contract Formation
Practice Tip 2: ALL TERMS DO NOT NEED TO BE
FINALISED FOR THERE TO BE A BINDING
CONTRACT
¾
¾
¾
Fulfilling mutual expectations – manifest v. private intentions.
Uncertainty and Enforceability
Filling the Gaps – reference to an objective standard
ƒ THE DIDYMI
Adjustment in hire for outperforming the speed and consumption warranty to be calculated
“equitably … by an amount to be mutually agreed between owners and charterers”
ƒ MAMIDOIL-JETOIL v. OKTA
10 year contract for handling crude shipments for a refinery. Price agreed for first two years,
thereafter negotiated.
No objective pricing standard. Arbitration provision only.
“even in the absence of express language, the Courts are prepared to imply an obligation in terms
of what is reasonable…The presence of an arbitration clause may assist the Courts to hold a
contract to be sufficiently certain to be capable of being rendered so… which can be operated with
the assistance of experts in the field, by which the parties, in the absence of agreement, may
resolve their dispute.”
cf. “DOUBLE HAPPINESS” - Front Carriers Inc./Front Carriers Ltd.
Misnomer v. Mistake as to Identity
April 2008
Steamship Mutual Intertanko Chartering Seminar - Contract Formation
April 2008
Practice tip 3: BE AWARE OF THE KEY TERMS
OF ART
•SUBJECTS! – When does a “subject” mean that neither party
intends to be bound?
A “Fixture” is arrived at by the exchange of “firm offers” between
brokers acting on behalf of their principals, an owner and a
charterer, and when concluded, that is all terms and details
agreed and subjects (if any) lifted, it is an enforceable contract …
It is important to note that no fixture has been concluded until all
“subjects” have been lifted.” Baltic Code 2003
Steamship Mutual Contract Formation
March 2007
“SUBJECTS”
CONDITIONS TO THE EXISTENCE
OF A CONTRACT
v.
CONDITIONS TO PERFORMANCE
Lighthouse: Springpoint, Cape Elizabeth, Maine, USA 06.09
Steamship Mutual Intertanko Chartering Seminar - Contract Formation
CONDITIONS TO THE EXISTENCE OF A
CONTRACT
•
Parties respective positions.
•
Effect of certain terms… in certain jurisdictions
•
Terms of Art: terms with a specific and possibly counter-intuitive
meaning
•
“Subject Details”
– Thoresen v Fathom Marine [2004] 1 LLR 622
Recap:
“Otherwise basis Saleform 93 sub details suitably amended also to
reflect the above terms. Closing to take place in Piraeus ”
April 2008
Steamship Mutual Intertanko Chartering Seminar - Contract Formation
Thoresen v Fathom Marine
¾ The second hand vessel market rising sharply.
¾ All terms agreed by the seller, “subject details”. The seller
waited for confirmation from the buyer.
¾ Mr. Kokkinis - “as per telcon this is the fixing. Pls do best to
get it confirmed timely otherwise sellers may run away”
¾ Mr. Straume - “thus we have full agreement on price/terms,
will also forward recap shortly”. The recap was sent including
the contentious sentence.
April 2008
Steamship Mutual Intertanko Chartering Seminar - Contract Formation
Thoresen v Fathom Marine
“I would respectfully suggest that it is in the interests of the
chartering business that the Courts should recognise the efficacy
of the maritime variant of the well known ‘subject to contract’.
The expression ‘subject to details’ enables owners and
charterers to know where they are in negotiations and to
regulate their business accordingly. It is a device which tends to
avoid disputes and the assumption of those in the shipping trade
that it is effective to make clear that there is no binding
agreement at that stage ought to be respected.”
April 2008
Steamship Mutual Intertanko Chartering Seminar - Contract Formation
The Meaning of “SUBJECT DETAILS”:
English Law we haven’t reached agreement, and neither of us is bound to
do anything
New York (and Norway!)
we will discuss later other terms whose significance is so
slight that agreement upon them now is unnecessary for the
purposes of binding a contract between us
April 2008
Steamship Mutual Intertanko Chartering Seminar - Contract Formation
Practice Tip 4. IT IS IMPORTANT TO DISTINGUISH
“SUBJECTS” THAT QUALIFY THE INTENTION TO BE
BOUND FROM THOSE THAT QUALIFY THE
OBLIGATION TO PERFORM
•
Contingent conditions – the contract exists but performance is
dependent on the occurrence or non-occurrence of an external
event.
– Subject Oil Major Approval
•
“Option Subject” – the Unilateral Contract.
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–
–
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“Subject Stem” – KKK v. Johnson
“Subject Board Approval”
Subject to signing
Withdrawal from the unilateral contract.
April 2008
Steamship Mutual Intertanko Chartering Seminar - Contract Formation
Practice Tip 4. IT IS IMPORTANT TO DISTINGUISH
“SUBJECTS” THAT QUALIFY THE INTENTION TO BE
BOUND FROM THOSE THAT QUALIFY THE
OBLIGATION TO PERFORM
•
Contingent conditions – the contract exists but performance is dependent on
the occurrence or non-occurrence of an external event.
– Subject Oil Major Approval
– Subject to lifting embargo in such and such port by x date
– Subject to charterers’ inspectors satisfaction
The Merak – “subject to superficial inspection”. An objective
standard was to apply and the parties were under an obligation
to exercise best endeavours to facilitate the inspection.
April 2008
Steamship Mutual Intertanko Chartering Seminar - Contract Formation
Practice Tip 5: TIE UP LOOSE ENDS
• When a contract by correspondence is alleged, the court will
look at the correspondence as a whole and not merely at one
or two documents picked out from connected sequence.
• Negotiating in different streams – subjects left hanging may
result in no binding contract
– The Intra Transporter
•
•
•
•
(Signing requirement)
Loading terms
Payment of overage premium
L/C formalities
April 2008
Steamship Mutual Intertanko Chartering Seminar - Contract Formation
Practice Tip 6: POST NEGOTIATION
CONDUCT MATTERS
¾ Waiver
¾ Estoppel
Oceanografia SA de CV v. DSND Subsea AS
[2006] EWHC 1360 (Comm)
April 2008
Steamship Mutual Intertanko Chartering Seminar - Contract Formation
April 2008
Oceanografia SA de CV v. DSND Subsea AS
“Offer subject to the signing of mutually agreeable contract terms
and conditions” “Subject to FMA Approval vessel free for winter season, notice to
be given by 01/10”
Contract terms were never signed.
FMA Approval not given
Steamship Mutual Intertanko Chartering Seminar - Contract Formation
Oceanografia SA de CV v. DSND Subsea AS
Charterers unaware of FMA difficulty:
¾ payment of the mobilisation fee
¾ signing the on-hire statement
¾ accepting the vessel for service
Charterers aware of FMA difficulty
¾ extending the departure date, which was signed by the
Charterers
¾ signing the off-hire statement
¾ agreement by the Charterers to pay the demobilization fee
April 2008
Steamship Mutual Intertanko Chartering Seminar - Contract Formation
WAIVER
¾ ‘a party has acted in a manner which is consistent only with
his having chosen one of the two alternative and inconsistent
courses of action then open to him’
¾ by words or conduct the election must be communicated in
clear and unequivocal terms
¾ the party making the election ‘must be aware not only of the
facts giving rise to his rights but also of the rights themselves’
THE KANCHENJUNGA [1990] 1 Lloyd’s Rep. 391
April 2008
Steamship Mutual Intertanko Chartering Seminar - Contract Formation
April 2008
ESTOPPEL
For estoppel:
¾ party must either agree or conduct themselves in a such a
manner that the other party believes that the other party will
not insist on their strict legal rights.
¾ In addition the other party must rely on the representation
made, such that it would be unjust to allow the representor to
go back on the representation.
-ESTOPPEL-
Steamship Mutual Intertanko Chartering Seminar - Contract Formation
ANY QUESTIONS?
April 2008
Steamship Mutual
“Steamship Mutual’s aim is to provide stable
and secure insurance to a diverse membership
of shipowners and charterers worldwide,
backed by high quality and cost effective service”
Lighthouse: La Corbiere, Jersey, Channel Islands, UK 06.18