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Steamship Mutual. Contract Formation. Rajeev Philip Steamship Insurance Management Services Limited. Lighthouse: La Corbiere, Jersey, Channel Islands, UK 06.18. DO WE HAVE A CONTRACT?. Frequency of disputes Market Assumptions v. Relevant Legal Principles Impact of Recent Shipping Market

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Steamship Mutual

Contract Formation

Rajeev Philip

Steamship Insurance Management Services Limited

Lighthouse: La Corbiere, Jersey, Channel Islands, UK 06.18


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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


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DO WE HAVE A CONTRACT?

  • Playing the market

  • The importance of contractual certainty in a volatile market

  • The “DOUBLE HAPPINESS”

    • 7 March 2005 Fixed for 2 years at USD 31,500pd (delivery Sept 2005)

    • 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.


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WHAT LAW APPLIES?

  • The “putative proper law”

  • Where no jurisdiction referred to in negotiations the Court will carry out an objective assessment


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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


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Practice Tip 2: ALL TERMS DO NOT NEED TO BE FINALISED FOR THERE TO BE A BINDING CONTRACT

  • Fulfilling mutual expectations

  • Uncertainty and Enforceability

  • Filling the Gaps – reference to an objective standard

    • 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”

    • 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


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Practice tip 3: BE AWARE OF THE KEY TERMS OF ART THERE TO BE A BINDING CONTRACT

  • 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


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Steamship Mutual THERE TO BE A BINDING CONTRACT Contract Formation

March 2007

“SUBJECTS”

CONDITIONS TO THE EXISTENCE OF A CONTRACT

v.

CONDITIONS TO PERFORMANCE

Lighthouse: Springpoint, Cape Elizabeth, Maine, USA 06.09


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CONDITIONS TO THE EXISTENCE OF A CONTRACT THERE TO BE A BINDING 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 ”


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Thoresen v Fathom Marine THERE TO BE A BINDING CONTRACT

  • The second hand vessel market rising sharply.

  • All terms agreed by the seller, “subject details”. The seller waited for confirmation from the buyer.

  • Mr. Kokkinis - “as per telcon this is the fixing. Pls do best to get it confirmed timely otherwise sellers may run away”

  • Mr. Straume - “thus we have full agreement on price/terms, will also forward recap shortly”. The recap was sent including the contentious sentence.


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Thoresen v Fathom Marine THERE TO BE A BINDING CONTRACT

  • “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.”


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The Meaning of “SUBJECT DETAILS”: THERE TO BE A BINDING CONTRACT

  • 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


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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.

    • “Subject Stem” – KKK v. Johnson

    • “Subject Board Approval”

    • Subject to signing

    • Withdrawal from the unilateral contract.


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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

      Parties cannot walk away from the contract, and in the context of the last subject, must act in good faith – Astra Trust v. Adams “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.


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Practice Tip 5: TIE UP LOOSE ENDS “SUBJECTS” THAT QUALIFY THE INTENTION TO BE BOUND FROM THOSE THAT QUALIFY THE OBLIGATION TO PERFORM

  • 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


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Practice Tip 6: POST NEGOTIATION CONDUCT MATTERS “SUBJECTS” THAT QUALIFY THE INTENTION TO BE BOUND FROM THOSE THAT QUALIFY THE OBLIGATION TO PERFORM

  • Waiver

  • Estoppel

  • Oceanografia SA de CV v. DSND Subsea AS

  • [2006] EWHC 1360 (Comm)


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Oceanografia SA de CV v. DSND Subsea AS “SUBJECTS” THAT QUALIFY THE INTENTION TO BE BOUND FROM THOSE THAT QUALIFY THE OBLIGATION TO PERFORM

  • “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


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Oceanografia SA de CV v. DSND Subsea AS “SUBJECTS” THAT QUALIFY THE INTENTION TO BE BOUND FROM THOSE THAT QUALIFY THE OBLIGATION TO PERFORM

  • Charterers unaware of FMA difficulty:

  • payment of the mobilisation fee

  • signing the on-hire statement

  • accepting the vessel for service

  • Charterers aware of FMA difficulty

  • extending the departure date, which was signed by the Charterers

  • signing the off-hire statement

  • agreement by the Charterers to pay the demobilization fee


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WAIVER “SUBJECTS” THAT QUALIFY THE INTENTION TO BE BOUND FROM THOSE THAT QUALIFY THE OBLIGATION TO PERFORM

  • ‘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’

  • by words or conduct the election must be communicated in clear and unequivocal terms

  • 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


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ESTOPPEL “SUBJECTS” THAT QUALIFY THE INTENTION TO BE BOUND FROM THOSE THAT QUALIFY THE OBLIGATION TO PERFORM

  • For estoppel:

  • 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.

  • 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-


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  • ANY QUESTIONS? “SUBJECTS” THAT QUALIFY THE INTENTION TO BE BOUND FROM THOSE THAT QUALIFY THE OBLIGATION TO PERFORM


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Steamship Mutual “SUBJECTS” THAT QUALIFY THE INTENTION TO BE BOUND FROM THOSE THAT QUALIFY THE OBLIGATION TO PERFORM

“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


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