Contract formation – agreement to agree not enforceable – shipbuilding contracts.
The Facts
Teekay Tankers Ltd, incorporated in the Marshall Islands and listed on the New York Stock Exchange, a subsidiary of Teekay Corp, operate a fleet of oil tankers from Vancouver.
Teekay contracted with STX, Korea to build 16 aframax tankers.
The first 4 vessels were purchased on completed contracts. The remaining 12 were purchased in terms that gave Teekay an option of purchasing on predetermined conditions save for delivery dates.
The clause which gave rise to the despute read as follows:
“4.1. Delivery dates for each of the optional vessels shall be mutually agreed upon at the time of Teekay’s declaration of the relevant option.
4.2. But STX will make best efforts to have a delivery within 2016 for each of the first optional vessels, within 2017 for the each of the second optional vessels and within 2017 for each of the third optional vessels.”
Findings
In a trial, Walker J found that the delivery dates were an essential term upon which there was no agreement.
“Best efforts” qualified the putative obligation to agree and not an obligation objectively ascertainable.
Commentary
The tension between dates “to be mutually agreed upon” and “best efforts” to deliver was decided by Walker J in favour of the absence of agreement.
Walker J referred to Little v Courage Ltd where Lord Millet said as follows: “an undertaking to use one’s best endeavours to obtain planning permission for an export license is sufficiently certain and is capable of being enforced. An undertaking to use one’s best endeavours to agree, however, is no different from an undertaking to agree, to try to agree or to negotiate with a view to reaching agreement; all are equally uncertain and incapable of giving rise to an enforceable legal obligation.”
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