UK: Establishing Contractual Terms Where There Is No Signed Contract

Last Updated: 22 June 2011
Article by Ian Chetwood, Matthew Moore and Victoria Ogden

Tryggingarfelagio Foroyar P/F v CPT Empresas Marítimas SA ('M/V Athena') [2011] EWHC 589 (Admlty)

In this case, Ince & Co acted for Chilean salvage and maritime logistics provider, CPT Empresas Marítimas SA.

Parties can sometimes agree on the main terms of their contract but intend to add to those terms later. The basic agreement may be a standard form contract, with amendments to be made or bespoke clauses to be added subsequently. Under English law, a contract may be binding between the parties even if certain terms have not been finalised where the Court concludes that the parties had intended to create legally binding relations and the essential terms had been agreed (see, for example, RTS Flexible Systems v Molenski Alois Muller [2010] UKSC 14). The test as to the parties' intention is objective not subjective. Where contractual negotiations do not culminate in a clear recap or a signed contract, disputes may arise as to whether a contract was in fact concluded and, if so, on what terms. In the present case, Mr Justice David Steel gave some useful guidance on the principles that apply in deciding such disputes.

Background to the dispute

The M/V Athena was a large factory trawler owned by Thor Fisheries ("Thor"). Thor engaged CPT Empresas Marítimas SA ("CPT") to provide fire fighting and associated services to the Athena when she suffered a fire off Chile in 2007. The contract for salvage type services was negotiated in urgent circumstances, largely by e-mail and telephone between the parties' commercial agents. However, no contract was drawn up and signed. During the course of the fire fighting operation, the fire re-ignited and spread, causing further damage to the vessel. Thor alleged that this was due to CPT's negligence and terminated their services.

Thor's Hull and Machinery underwriters, Tryggingarfelagio Foroyar P/F ("TF"), settled the insurance claim and commenced a subrogated claim against CPT in Chilean proceedings for some US$37 million. CPT contended in response that the Chilean Courts did not have jurisdiction to determine the dispute, on the grounds that the parties had contracted on BIMCO Wreckhire 99 terms that incorporate a London arbitration clause. A further very important point was that the BIMCO Wreckhire 99 terms include a "knock for knock" liabilities clause which, if applicable, would exempt CPT as the contractors from liability for "loss or damage of whatsoever nature sustained by the Vessel, whether or not the same is due to breach of contract, negligence or any other fault" on their part or the part of their servants or agents.

CPT commenced arbitration proceedings in London pursuant to the London arbitration clause in the BIMCO Wreckhire form and sought a declaratory award on jurisdiction from the arbitrator. CPT further sought an interim anti-suit injunction from the English Court to restrain the Chilean proceedings, which the English Court granted pending a full hearing of the dispute. TF disputed that BIMCO Wreckhire 99 terms were ever agreed. TF applied to the English Court for, among other things, a declaration that there was no valid London arbitration agreement between the parties and to set aside the injunction.

The Admiralty Court decision

The Judge reviewed a number of cases, including Pagnan SPA v Feed Products Ltd [1987] 2 Lloyd's Rep 601, which was specifically approved in RTS Flexible Systems. In Pagnan SPA, the Court of Appeal stated that in order to determine whether a contract has been concluded in the course of correspondence, it is necessary first to look to the correspondence as a whole. The parties may have reached agreement on all the terms of the proposed contract but intend that the contract shall not become binding until some further condition has been fulfilled or further terms have been agreed. Alternatively, they may intend to be bound by the agreement straightaway even though there are further terms to be agreed or some formality still to be fulfilled. In those circumstances, if the parties do not then reach agreement on such further terms, their existing contract will not be invalidated unless it is as a whole unworkable or void for uncertainty.

It was common ground between the parties in the present case that a contract had been concluded, although they differed as to when and on what terms. The Judge stated that the time when the contract was concluded in this case was not determinative as to the terms, because a perfectly workable contract may be concluded as to essential terms but be subsequently supplemented by additional provisions which sort out the detail.

As to the form of agreement, he heard oral evidence and took a broad view of all the material communications, keeping in mind that the parties were faced with an emergency in which the negotiation of detailed terms inevitably took a back seat. He also took into account evidence that the salvage industry would only undertake daily rate services on standard terms and that any provision of services of this character by a professional salvor would be on a standard form as a matter of almost invariable practice. Mr Justice Steel had to consider, therefore, which standard form had been intended by the parties to form the basis of their agreement.

From the correspondence, a Lloyd's Open Form had clearly not been acceptable to Thor and was therefore ruled out. There had however been a written proposal from CPT's agents of a finalised agreement being on "BIMCO" terms, which had not been expressly rejected by Thor or their agents. In fact, from Thor's correspondence after that written proposal was received, it could be inferred that they were happy for CPT to commence their services and to do so on BIMCO terms.

As to which BIMCO form was intended, the Judge concluded that it must have been the Wreckhire rather than the Towhire form, partly because the latter was inappropriate given the absence of a need for a tow. Furthermore, once CPT were dismissed, the replacement salvors were immediately engaged on Wreckhire terms. Having regard to the evidence as a whole, the Judge concluded that CPT had made out its case that Thor had assented to the incorporation of BIMCO Wreckhire 99 terms, including the London arbitration provision, into the agreement. CPT were therefore entitled to a permanent anti-suit injunction.

Comment

Where there has been performance or part-performance by one or both parties, it is likely to be hard to argue that there was no contract but there may remain nonetheless considerable scope for debate as to the terms agreed. This dispute serves as a reminder of the benefits of ensuring that a single written contractual document is in place, which embodies all the applicable contractual terms

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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