Australia: The HFW Bulletin: Commodities - June, 2009 Australian Edition

Last Updated: 23 July 2009

When Can A Contract Be Concluded?

By Chris Lockwood

The recent decision in Petroplus Marketing AG v Shell Trading International Ltd1 has served as a useful reminder as to when a contract can be concluded and that this can happen even when some terms remain to be agreed.

Petroplus were refiners and wholesalers of petroleum products. They sold FOB to Shell a quantity of high sulphur fuel oil and light cycle oil. The contract was made on 10 June 2008 through brokers with neither Petroplus' nor Shell's traders communicating directly. The basic terms were agreed by exchanges between the brokers and emails in identical terms were exchanged confirming the oral agreement. Subsequently, Petroplus sent to Shell a contract confirmation which they said in the preamble cancelled and superseded any earlier communications (written or oral) and in which they set out the formula for determining the price for the cargoes. But the formula for price determination was not what had been orally agreed and confirmed by the email exchange between the brokers. Shell responded and confirmed the agreement subject to amendments to the contract confirmation including the deletion of the preamble. They also sought to introduce their own standard terms and conditions instead of Petroplus'. Petroplus responded by accepting some changes and not others. They also set out a revised pricing clause having rejected the pricing clause suggested by Shell. Shell in turn accepted some of the proposals made by Petroplus but maintained that their standard terms should govern the deal. As for the price, they said that this was not agreed and that the wording previously put forward by Petroplus was maintained. Petroplus said that the wording they had put forward for pricing had been wrong and did not properly record the agreement contained in the broker email exchange recording what had been agreed on 10 June 2008.

It was argued by Shell at the hearing that it is common with international sale and purchase contracts of the kind concluded by Petroplus and Shell for the parties, having agreed the essential terms and made the contract, to agree upon further terms individually. Reliance was placed on two earlier authorities Pagnan SpA v Feed Products Ltd2 and the Harriette N3.

In the former case the court set out their task when reviewing what the parties said or did and what material they have to consider when trying to infer the parties' objective intention as expressed to each other and whether this was to enter into a binding contract. The court said it had to look at what a party said and did and they did not look into a parties' mind and at his intentions at the time.

The court concluded that, where the parties have not reached agreement on terms which they regard as essential to a binding contract, then there is no binding agreement until they do. But just as it is open to parties by their words and conduct to make clear that they do not intend to be bound until certain terms are agreed (even if those terms are minor) the converse is also true. Parties by their words and conduct can make it clear that they do intend to be bound even if other terms have yet to be agreed.

In the Harriette N there was a similar email exchange between brokers as had occurred in the Petroplus case. It was also accepted in that case that it was possible for parties to agree the principal terms of a contract, making it a binding contract, while leaving over other terms to be agreed at a later date. Using the wording in Pagnan the parties can sort out details against the background of a concluded contract and the strict requirements of a positive offer and acceptance will not necessarily apply.

In the Harriette N case, there were exchanges on an "accept/ reject" basis and it was held that the parties did not have to spell out what was being accepted. What they had to do was identify sufficiently where proposed terms were being rejected and where another term was being put forward in its place. In that case the court concluded that even, if all the terms of the contract had not been concluded by the time the fixture recap had been sent out, the parties had shown by their objective intentions as expressed to each other that they had not agreed a particular term in relation to demurrage and so the recap was wrong to suggest otherwise.


Although each contract has to be looked at on its own facts the parties can intend to conclude a binding contract leaving subsidiary and legally inessential terms to be agreed later. If parties are going to negotiate on an "accept/reject" basis then it is not necessary to say expressly what is being accepted as long as the party responding says clearly what terms are being rejected and what terms are being put forward in their place. If it is intended not to be bound until all terms are agreed then a party should make that intention clear as the court will have regard to conduct and not a parties' unstated intention.

New Legislation Affecting Commodities Business

By Hazel Brasington

The law of Victoria now includes provision for the common ownership of goods stored in bulk in certain circumstances. Amendments to the Goods Act 1958 (Vic) and the Warehousemen's Liens Act 1958 (Vic) came into force on 11 February 2009, bringing the law substantially into line with the equivalent legislation in force in New South Wales and South Australia. The common ownership amendments have not been made in Queensland or Western Australia.

The intention behind the changes is to protect the interests of (for example) the owners of siloed or stockpiled bulk commodities in the event the operator of the storage facility becomes insolvent. The provisions (like similar changes to English legislation) are as yet untested in the courts.

The industry also faces a raft of new Commonwealth legislation in the Personal Property Securities Bill 2008 scheduled to become law in May 2010. Any producer or trader who relies on a retention of title provisions as security for payment will need to consider the effects of this Bill, in particular the requirements for registration of retention of title arrangements. A retention of title arrangement will become known as a "purchase money security interest".

Agreement by the grantor (that is, by the buyer as well as the seller) and registration of the interest on the personal property securities register will be essential to have priority over competing security interests or priority in insolvency. It is not yet clear what will be needed to evidence the grantor's "agreement". It will clearly be advisable to retain a copy of an agreement signed both parties.


1. [2009] EWHC 1024

2. [1987] 2 LLLR 601

3. [2008] 2 LLR 685

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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