Formation of charterparty – lifting of subjects
This was a trial conducted by video link before Foxton J.
Trafigura claimed damages from Nautica, owners of the oil tanker, managed by NJ Goulandris Maritime, for the reduction in profit obtained in a replacement voyage in a falling market. Nautica relied on repudiatory breach by Trafigura of a voyage charterparty involving a single voyage from Aruba and St Eustatius (Statia) in the Caribbean to the Far East.
Negotiations took place between two representatives from brokers, Dietze, each on opposite sides of the bargaining table, a representative from NJ Goulandris and number Trafigura employees, communicating mainly by email over 3 days in January 2016.
Presumably because of the volatility of the market, owners were anxious to obtain closure and a deadline for acceptance by charterers was set at 17h00 Houston Time (“HT”) on 13 January 2016.
The final deadline was fixed in an exchange which occurred at midday on 13 January 2016 (“the crucial meeting”) in which owners agreed to lower the demurrage rate in return for a truncated deadline and the lifting of subjects by the charterers save for one, namely, “Suppliers’ approval”.
The subjects had been at the outset: “subject to Chtrs’ S/S/R/MGT approval …” ie Stem (subject to enough material), Suppliers’/Receivers’/Management’s approval.
The court found that owners and charterers were at cross purposes on the meaning of “Suppliers’ approval”.
Owners thought it was confined to approval of the nominated vessel by the respective terminals at Aruba and Statia. But, as the cargo was being sourced by charterers from Petroleos de Venezuela SA (PdVSA) via Rosneft, charterers intended the phrase to include approval from these entities also.
Owners contended that a binding contract had come into being and that charterers had a duty to bring about “Suppliers’ approval” (as they understood it) in the crucial meeting.
Charterers contended that the existence of the contract depended on the fulfilling of the pre-condition of “Suppliers’ approval” (as they understood it) by the cut-off time. As this did not occur on any interpretation of the phrase, there was no contract.
Foxton J sought to solve the problem by distinguishing between “pre-conditions” and “performance conditions”. Performance conditions are generally those dependent on some external event eg obtaining an export permit. Pre-conditions include a subjective choice to made by the party in whose favour the stipulation is made eg subject to a satisfactory survey.
Outstanding performance conditions do not prevent a contract from coming into being. They also impose a duty on the relevant party to act reasonably to bring about the fulfilment of the condition.
Before pre-conditions are fulfilled, there is no contract. Axiomatically, there is no duty to bring about the fulfilment of a pre-condition.
Foxton J determined that “Suppliers’ approval” was a pre-condition. Failure of its occurrence was therefore fatal to the owners’ claim.
At odds with reality, but in order to deal with the argument presented to him, Foxton J went on to examine whether, if he had found that “Suppliers’ approval” was a performance condition and therefore that a binding contract had come about, whether charterers had taken reasonable steps to obtain such approval.
He found that charterers’ understanding of the content of the condition was the correct one ie it depended on approval from PdVSA and Rosneft (actual suppliers) and also the Aruba and Statia terminals.
Even if they had tried, charterers could not have obtained approval from the suppliers in time. This was the second main reason for dismissing the claim.
The outcome seems right. The reasoning is, however, circular.
At the outset of the judgment, the trite principle set out in RTS Flexible Systems v Molkerei Alois Muller(2010 UKSC) is quoted. The test for the formation of a contract is what the parties agreed, a question determined by the external manifestation of their wills.
Instead of following this simple formula, the judge identified categories developed in the cases (by necessity inconsistent) said to give rise to pre-determined conclusions. Colloquially put, he solved a complex legal problem by ticking boxes.
In logic, there is no real distinction between the consequences of “pre-conditions” and “performance conditions”. The question is what the parties have agreed in any given case. In this case the question was whether the meeting said by the owners to have given rise to a binding contract, did in fact and in law, do so.
The circularity in reasoning is perhaps most evident in paragraph 60 of the judgment:
“Given the uncertainty as to the meaning of the expression, it seems highly unlikely that the Suppliers’ Approval Subject was intended to create a contractual obligation of some kind, which would be the inevitable consequence of classifying it as a performance condition.”
This a dense, erudite judgment containing many useful references for students of shipping contracts.
It also shows that an accurate analysis of the facts is more than half the battle in arriving at the right result.
In this case, no consensus was reached in the crucial meeting and therefore no contract arose.
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