Proton is a Swiss company in the business of international oil trading. Orlen is a petroleum refining company incorporated in Lithuania. Following preliminary negotiations, Proton sent an email to Orlen making what was described as a "firm offer" to sell to Orlen a certain quantity of crude oil. The offer amounted to three pages and contained references to price, delivery period, discharge ports etc; it stated that the offer was valid until the close of business that day. Emails were exchanged later the same day with Proton agreeing certain changes and responding on a fourth issue stating: "contractual price is fixed as per the confirmed offer. All other contractual terms not indicated into the offer shall be discussed and mutually agreed between the parties on contractual negotiations." Orlen replied soon afterwards saying: "confirmed". The question arose as to whether a contract came into existence at this point.
If there was a contract, prompt action was needed. To this end, Proton entered into a contract to buy the crude oil from its supplier and arranged for the seller to charter a vessel, which was confirmed by Orlen as acceptable. Two weeks later, the parties had fallen out. Orlen failed to open the required letter of credit which Proton treated as a repudiatory breach of contract.
Proton argued that an objective appraisal of its words and conduct demonstrated that the parties here intended to be bound immediately after "confirmed" was inserted into the email exchange. The offer was expressed to be a "firm offer" which was language requesting a definite acceptance or rejection in reply. Second, there was a same day time limit which "did not admit of languid negotiation" but demanded an immediate, binding commitment. Third, this was spot business which required an urgent commitment from Orlen. Fourth, the urgency was further highlighted by the fact there was very little time until performance of the deal. Fifth, the offer made express provision for the negotiation of further, more detailed terms, but the parties agreed "to be bound forthwith even though there were further terms still to be agreed", as described in the leading RTS v Muller decision of the Supreme Court. Subsequent conduct also showed the existence of a contract, such as Proton contracting at once to purchase the necessary oil.
Orlen argued that the terms were to be agreed later and that no contract had been concluded. The approval as to the vessel was not conduct indicating that an agreement had been formed. It was an internal matter dealing with intra-group politics.
The High Court held that there was a contract for the reasons put forward by Proton. There were some factors in favour of Orlen, but the overall picture was clear, namely that the language was one of commitment. Proton committed to its supplier contractually as soon as the deal had been confirmed which showed that it regarded itself as committed. On the evidence, Orlen's subsequent conduct also showed that it saw itself as committed.
Orlen had also argued that there was an implied term as to the origin of the product, namely that it had to be reasonably satisfied by a certain date as to this (the concern being that the oil should not have come from Iran). The judge rejected this argument. Orlen had some concerns about origin and raised them with Proton. Answers were given and the matter remained live, but there was no hint in the correspondence to justify an implication in the form alleged. Terms were not implied because it would be reasonable or useful to do so; necessity was still required.
This is just the latest of several cases which make it clear that it is perfectly possible for a contract to be formed even though not all the terms have been agreed. As ever, if there is any risk at all that a contract may be unintentionally entered into, the words "subject to contract" or similar must be used.
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