Rajeev PhilipRajeev PhilipSteamship Insurance Management Steamship Insurance Management

Services LimitedServices Limited

““SUBJECTS” in Charterparty SUBJECTS” in Charterparty Negotiations - Is there a Negotiations - Is there a

Contract???Contract???

““The concept of a duty to carry on negotiations The concept of a duty to carry on negotiations in good faith is inherently repugnant to the in good faith is inherently repugnant to the adversarial position of the parties when adversarial position of the parties when involved in negotiations.”involved in negotiations.”

““Subjects” and IntentionsSubjects” and Intentions

Objective Observation/External EvidenceObjective Observation/External Evidence

v.v.

Private IntentionsPrivate Intentions

Mutual ExpectationsMutual Expectations

Uncertainty and EnforceabilityUncertainty and Enforceability Filling the GapsFilling the Gaps

THE DIDYMITHE DIDYMI

““equitablyequitably … by an amount to be mutually agreed … by an amount to be mutually agreed between owners and charterersbetween owners and charterers””

MAMIDOIL-JETOIL v. OKTAMAMIDOIL-JETOIL v. OKTA

““even in the absence of express language, the Courts even in the absence of express language, the Courts are prepared to imply an obligation in terms of what is are prepared to imply an obligation in terms of what is reasonable…reasonable…

““SUBJECTS”SUBJECTS”

A “Fixture” is arrived at by the exchange of “firm A “Fixture” is arrived at by the exchange of “firm offers” between brokers acting on behalf of their offers” between brokers acting on behalf of their principals, an owner and a charterer, and when principals, an owner and a charterer, and when concluded, that is all terms and details agreed and concluded, that is all terms and details agreed and subjects (if any) lifted, it is an enforceable contract subjects (if any) lifted, it is an enforceable contract … It is important to note that no fixture has been … It is important to note that no fixture has been concluded until all “subjects” have been lifted.” concluded until all “subjects” have been lifted.” Baltic Baltic Code 2003Code 2003

““SUBJECTS”SUBJECTS”

CONDITIONS TO CONTRACTCONDITIONS TO CONTRACT

v.v.

CONDITIONS TO PERFORMANCECONDITIONS TO PERFORMANCE

““SUBJECT DETAILSSUBJECT DETAILS””

Thoresen v Fathom MarineThoresen v Fathom Marine [2004] 1 LLR 622 [2004] 1 LLR 622

““Otherwise basis Saleform 93 Otherwise basis Saleform 93 sub detailssub details suitably amended also to reflect the above suitably amended also to reflect the above terms. Closing to take place in Piraeus terms. Closing to take place in Piraeus ””

Thoresen v Fathom MarineThoresen v Fathom Marine

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

Mr. Straume - “Mr. Straume - “thus we have full agreement thus we have full agreement on price/terms, will also forward recap on price/terms, will also forward recap shortlyshortly”.”.

Thoresen v Fathom MarineThoresen v Fathom Marine

““I would respectfully suggest that it is in the I would respectfully suggest that it is in the interests of the chartering business that the interests of the chartering business that the Courts should recognise the efficacy of the Courts should recognise the efficacy of the maritime variant of the well known ‘subject to maritime variant of the well known ‘subject to contract’. The expression ‘subject to details’ contract’. The expression ‘subject to details’ enables owners and charterers to know where enables owners and charterers to know where they are in negotiations and to regulate their they are in negotiations and to regulate their business accordingly. It is a device which tends business accordingly. It is a device which tends to avoid disputes and the assumption of those in to avoid disputes and the assumption of those in the shipping trade that it is effective to make the shipping trade that it is effective to make clear that there is no binding agreement at that clear that there is no binding agreement at that stage ought to be respected.”stage ought to be respected.”

““SUBJECT DETAILSSUBJECT DETAILS”.”.

English Law - English Law - we haven’t reached agreement, and we haven’t reached agreement, and neither of us is bound to do anythingneither of us is bound to do anything

New York (and Norway!) New York (and Norway!) we will discuss later other terms whose we will discuss later other terms whose significance is so slight that agreement significance is so slight that agreement upon them now is unnecessary for the upon them now is unnecessary for the purposes of binding a contract between uspurposes of binding a contract between us

Losing the ThreadLosing the Thread

When a contract by telex or When a contract by telex or correspondence is alleged, the court will correspondence is alleged, the court will look at the correspondence as a whole look at the correspondence as a whole and not merely at one or two documents and not merely at one or two documents picked out from connected sequencepicked out from connected sequence..

Conditions to PerformanceConditions to Performance

Subject to Oil Major ApprovalSubject to Oil Major ApprovalSubject to Passing an InspectionSubject to Passing an InspectionSubject to Board ApprovalSubject to Board Approval

UNILATERAL CONTRACTSUNILATERAL CONTRACTS

OptionsOptionsObligations on the party with the optionObligations on the party with the option

KKK v. JohnsonKKK v. Johnson: “Subject stem”: “Subject stem”

The position of the party without the optionThe position of the party without the optionWithdrawal of the offerWithdrawal of the offer

CONDITIONAL CONTRACTSCONDITIONAL CONTRACTS??

““Subject Board Approval”Subject Board Approval”

““Subject to drawing up the contract in Subject to drawing up the contract in writing”writing”

-Degrees of Control--Degrees of Control-

BOUND BY CONDUCTBOUND BY CONDUCT

WaiverWaiver

EstoppelEstoppel

Oceanografia SA de CV v. DSND Subsea ASOceanografia SA de CV v. DSND Subsea AS

[2006] EWHC 1360 (Comm) [2006] EWHC 1360 (Comm)

Oceanografia SA de CV v. DSND Oceanografia SA de CV v. DSND Subsea ASSubsea AS

““Offer subject to the signing of mutually Offer subject to the signing of mutually agreeable contract terms and conditions”agreeable contract terms and conditions”

““Subject to FMA Approval vessel free for winter Subject to FMA Approval vessel free for winter season, notice to be given by 01/10”season, notice to be given by 01/10”

Contract terms were never signed.Contract terms were never signed.

No Binding AgreementNo Binding Agreement

WAIVERWAIVER ‘‘a party has acted in a manner which is consistent only a party has acted in a manner which is consistent only

with his having chosen one of the two alternative and with his having chosen one of the two alternative and inconsistent courses of action then open to him’inconsistent courses of action then open to him’

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

the party making the election ‘must be aware not only of the party making the election ‘must be aware not only of the facts giving rise to his rights but also of the rights the facts giving rise to his rights but also of the rights themselves’themselves’

THE KANCHENJUNGATHE KANCHENJUNGA [1990] 1 Lloyd’s Rep. 391[1990] 1 Lloyd’s Rep. 391

ESTOPPELESTOPPEL

For estoppel:For estoppel:

party must either agree or conduct themselves in a such party must either agree or conduct themselves in a such a manner that the other party believes that the other a manner that the other party believes that the other party will not insist on their strict legal rights. party will not insist on their strict legal rights.

In addition the other party must rely on the In addition the other party must rely on the representation made, such that it would be unjust to representation made, such that it would be unjust to allow the representor to go back on the representation. allow the representor to go back on the representation.

-ESTOPPEL--ESTOPPEL-

Oceanografia SA de CV v. DSND Oceanografia SA de CV v. DSND Subsea ASSubsea AS

Charterers unaware of FMA difficultyCharterers unaware of FMA difficulty:: payment of the mobilisation feepayment of the mobilisation fee signing the on-hire statementsigning the on-hire statement accepting the vessel for serviceaccepting the vessel for serviceCharterers aware of FMA difficultyCharterers aware of FMA difficulty extending the departure date, which was signed by the extending the departure date, which was signed by the

CharterersCharterers signing the off-hire statementsigning the off-hire statement agreement by the Charterers to pay the demobilization agreement by the Charterers to pay the demobilization

fee fee -WAIVER--WAIVER-

CONDITIONAL CONTRACTSCONDITIONAL CONTRACTS

Entirely contingent conditionsEntirely contingent conditions- “Subject to weather permitting”- “Subject to weather permitting”

““Subject Superficial Inspection”Subject Superficial Inspection”- - THE MERAKTHE MERAK [1976] 2 Lloyd’s Rep 250 [1976] 2 Lloyd’s Rep 250

““Subject to satisfactory completion of two trial Subject to satisfactory completion of two trial voyages”voyages”- - THE JOHN S DARBYSHIRETHE JOHN S DARBYSHIRE [1977] 2 Lloyd’s Rep 457 [1977] 2 Lloyd’s Rep 457

PRATICE TIPSPRATICE TIPS

Private Intentions IrrelevantPrivate Intentions Irrelevant Awareness of Terms of ArtAwareness of Terms of Art Effect of Genuine “Subjects” v. Conditions to Effect of Genuine “Subjects” v. Conditions to

PerformancePerformance Track progress on termsTrack progress on terms Unilateral Contracts and WithdrawalUnilateral Contracts and Withdrawal Conduct yourself in line with private intentionsConduct yourself in line with private intentions