ARTICLE
17 April 2024

Denial In The Nile: Intention And Contract Formation

GC
Gatehouse Chambers

Contributor

Gatehouse Chambers (formerly Hardwicke) is a leading commercial chambers which specialises in arbitration and all forms of ADR, commercial dispute resolution, construction, insolvency, restructuring and company, insurance, professional liability and property disputes. It also has niche specialisms in clinical negligence and personal injury as well as private client work.
The Court of Appeal in SMIT Salvage BV v Luster Maritime SA [2024] EWCA Civ 260 has dismissed an appeal against the High Court's decision that no contract was agreed for the remuneration...
UK Corporate/Commercial Law
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The Court of Appeal in SMIT Salvage BV v Luster Maritime SA [2024] EWCA Civ 260 has dismissed an appeal against the High Court's decision that no contract was agreed for the remuneration of salvage services provided to refloat the 'Ever Given'.

Introduction

When one of the largest container ships in the world, the 'Ever Given', grounded in the Suez Canal at 05.40 UTC on 23 March 2021, so too did a substantial proportion of global trade. Immediate salvage attempts commenced and the owners of the 'Ever Given' (the 'owners') sought assistance from a leading maritime salvage company ('SMIT'). By the time the vessel refloated on 29 March, SMIT had put a team on board and arranged two tugs that had contributed to the salvage effort.

SMIT's claim for salvage under the International Convention on Salvage 1989 ('the Convention') and/or common law, which the parties agreed would be determined in the English courts, depended on SMIT acting as a volunteer. If so, quantum would be determined by the Admiralty Court. The owners argued, to the contrary, that they and SMIT had agreed a contract fixing SMIT's remuneration if SMIT provided any services and that the contract determined quantum.

This was tried as a preliminary issue before Baker J. The circumstances did not allow the owners to contend that there was a complete contract which covered all relevant terms, but only that there was a binding agreement on remuneration, with other matters left to be agreed. On 30 March 2023 the judge held (see [2023] EWHC 697 (Admlty)) that such an agreement would have been capable of amounting to a binding contract but that the parties did not objectively intend it to be until other terms had been formed.

Almost three years since the vessel's successful refloatation, on 19 March 2024, the Court of Appeal has dismissed the appeal. The lead judgment was given by Males LJ, Popplewell and King LJJ agreeing.

Principles

The legal principles applicable to an allegation that a binding contract has been concluded despite the parties recognising that some matters remain to be agreed are well established (para 18). As summarised by Baker J, there could be a binding contract "if and only if [the parties] communicated with each other as to make it appear, judged objectively, that they had reached agreement upon terms sufficient in law to constitute a contract and that they intended to be bound by those terms whether or not they agreed any more detailed set of contract terms" (paras 29-31 of the first instance judgment). There was no issue concerning sufficiency; the issue was intention. As Males LJ put it, there was "... no doubt that it is possible for parties in a salvage context to conclude a binding contract to the effect alleged", but it was necessary to "examine [their] exchanges ... to ascertain what their intentions were in this case" and whether they "envince[d] unequivocally an intention to be bound" (paras 23, 71).

Key facts

The judge set out the contractual matrix. This included both parties being aware of the usual contractual templates for salvage operations (eg. LOF, SCOPIC, Wreckhire). Risk allocation was also relevant; under LOF terms or without any contract, SMIT risked incurring substantial costs and, if the 'Ever Given' was lost or salved without SMIT contributing to the salvage, receiving no reward at all. It followed that, in salvage cases, mobilisation and assistance do not imply the existence of a contract, because they are also explicable by the hope of either a contract or a remedy under the general law of salvage.

Without rehearsing the exchanges in any detail, SMIT made two offers capable of being accepted to form a binding contract (paras 31, 41). The owners made a counter-offer as to the remuneration terms only, but not the remainder ("we look forward to your agreement and then we can start ironing out the wreck hire draft agreement"), and SMIT responded, "confirmed ... we shall follow up with the drafting of the contract". As it played out, SMIT's tugs helped in the salvage effort and the remaining terms were never agreed (despite internal correspondence on the owners' side at the material time showing a readiness to agree the remainder of SMIT's terms).

Decision

The owners' appeal centred on three ultimatums given by SMIT in the exchanges, essentially requiring "some kind of assurance" before committing themselves to further mobilisation costs. The subsequent mobilisation, it was argued, indicated that SMIT had received the assurance it sought, as did the subsequent lack of urgency towards agreeing the remainder of the terms.

Males LJ held that the owners had "fall[en] some way short" of demonstrating the requisite intention (paras 70-71). SMIT had been consistent in putting forward a complete contractual arrangement which would have left nothing to agree and not indicated a readiness to reach agreement on part only. The parties' exchanges indicated that the remaining terms would fall rapidly into place and so "there was no need for an interim binding contract". The agreement on the remuneration was just one step in the wider negotiation towards a final contract – a "necessary step on the way ... but was never itself the destination". The skeletal nature of the agreement "left basic issues unresolved [including] the services which SMIT was to provide" and did not actually oblige SMIT to do anything. As time passed and other salvage efforts failed, it became more likely that SMIT's help would be needed to salve the vessel, and therefore more likely that SMIT would be entitled to a salvage award even in the absence of a binding agreement. This defused the urgency of agreeing a contract and the risk of acting without one.

Conclusion

Contract formation is a fact sensitive question and an apparent agreement as to remuneration followed by the provision of services may not be what it seems if it lacks the necessary intention on an objective analysis. Although SMIT escaped negative consequences on this occasion, the case illustrates the clarity provided by formulae like 'subject to contract' (or, in maritime speak, 'subject details' or 'fixed on subjects') or, indeed, the contrary, if the parties wish to clarify that they do intend to be bound notwithstanding the lack of a complete agreement.

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.

ARTICLE
17 April 2024

Denial In The Nile: Intention And Contract Formation

UK Corporate/Commercial Law

Contributor

Gatehouse Chambers (formerly Hardwicke) is a leading commercial chambers which specialises in arbitration and all forms of ADR, commercial dispute resolution, construction, insolvency, restructuring and company, insurance, professional liability and property disputes. It also has niche specialisms in clinical negligence and personal injury as well as private client work.
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