View source for Southeaster Maritime v Trafigura Maritime Logistics - The Aquafreedom

DMC/SandT/24/06

'''England'''

'''Southeaster Maritime Ltd v Trafigura Maritime Logistics Pte Ltd (The “Aquafreedom”)'''

'''English Commercial Court: Jacobs J: [2024] EWHC 255 (Comm): 8 February 2024'''

Judgment Available on BAILII @ https://www.bailii.org/ew/cases/EWHC/Comm/2024/255.html
 
Charles Holroyd (instructed by Hill Dickinson International) for SML (Owners)

Timothy Young KC and Michal Hain (instructed by Schjødt LLP) for TMLPL (Charterers)

'''TIME CHARTER: WHETHER TIME CHARTER CONCLUDED: IMPACT OF A “SUBJECT” OF “CHARTERERS’ MANAGEMENT APPROVAL” WHERE “ALL TERMS” NOT AGREED BY THE PARTIES BEFOREHAND: APPLICATION FOR DECLARATION THAT NO LEGALLY BINDING CONTRACT CONCLUDED'''

'''Summary'''

In granting Owners’ application for a declaration that no binding contract had been concluded, the High Court held that, with the parties having agreed “Terms: As per previously agreed terms sub review both sides. Subs: Charterers management approval latest 2 working days after all terms agreed.”, the “Terms” and the “Subs” provisions worked in tandem as conditions precedent, to the effect that the parties had agreed upon a sequence of events: (a) review of the previous terms by both sides followed by (b) agreement on "all terms" which would be (c) the trigger for the start of two working days for Charterers to lift their management approval subject.

Since there could be no contract during the period of two days triggered by agreement on “all terms”, there could have been no binding contract at any prior stage.  Therefore, Owners had been free to withdraw from the negotiations for the fixture at the stage when the parties had not agreed on “all terms”.


Case note contributed by Jim Leighton, LLM (Maritime Law), LLB (Hons), BSc (Hons), Solicitor Advocate of England & Wales, IMI Qualified Mediator, LMAA Supporting Member and International Contributor to DMC’s Case Notes

'''Background'''

The dispute concerned whether a 4-year time charterparty contract had been concluded between Owners of the vessel “Aquafreedom”, SML, and the purported Charterers of that vessel, TMLPL, during negotiations in late January and early February 2023.

The negotiations took place through brokers and consisted of four phases: (1) initial talks culminating in a "recap" on 30 January, (2) exchanges seeking to agree further terms ending 2 February, which did not end in agreement, (3) a four day hiatus, and (4) communications on 6 February.
 
During phase (1), the parties had agreed in the “recap”, amongst other things, to the following provisions:

“Terms:

As per previously agreed terms sub review both sides

Subs:

Charterers management approval latest 2 working day after all terms agreed.”

SML had earlier accepted – on TMLPL’s insistence – the deletion of Owners’ BOD (“Board of Directors”) approval “subject”, and so Owners’ BOD subject did not make it into the “recap”, whereas TMLPL’s Charterers’ management approval (“CMA”) subject did.

During phase (2), the exchanges between the parties, in reviewing the terms, addressed clauses concerning CII (“Carbon Intensity Indicator”), EEXI (“Energy Efficiency Existing Ship Index”), ETS (“EU Emissions Trading System”), trading area, CPP (“Clean Petroleum Products”), sanctions, and drydocking.

Phase (3) arose because SML, which hesitated in replying to TMLPL’s last message, had concerns about TMLPL’s conduct in relation to another vessel, “Aqualoyalty”, which SML had regarded as “outrageous”.  As such, SML had apparently begun to have hesitations about proceeding with the fixture for “Aquafreedom”.

During phase (4), TMLPL purported to accept the terms of SML’s last message (“Owners’ Last”).  SML objected, stating that terms had not been agreed.  TMLPL then purported to lift all subjects and declared that the charter had been fully fixed.  SML maintained its position, on the basis that no agreement on terms had been reached and TMLPL’s management approval subject could not be lifted.

As TMLPL maintained its position, SML applied to the Court for a declaration that no binding contract had been concluded, which application TMLPL contested.

TMLPL’s position was that the “recap” was binding on 30 January and the “review” and “management approval” provisions were conditions subsequent, with the result being that any dispute over whether terms were later agreed was to be resolved in arbitration as per the arbitration agreement in the “recap”.

SML’s position was that the “recap” clearly envisaged further agreement of all terms before subjects could be lifted, and so no binding contract could have been formed, by TMLPL lifting its CMA subject, until all terms were first agreed.

'''Judgment'''

Following a review and analysis of the evidence, the Court concluded that “Owners’ Last" was not capable of clean acceptance at the time due to counter-proposals having been made by TMLPL on 1 and 2 February.

Those counter-proposals concerned clauses like the one related to CII (in which SML wanted an absolute obligation for the return of the vessel with a minimum C rating whereas TMLPL repeatedly countered for a “reasonable endeavours” qualification to apply thereto) and the drydocking notice period (on which SML had proposed no figure for the number of days’ notice required for a drydocking and TMLPL had proposed a figure of 120 days).

As a matter of analysis, TMLPL’s counter-proposals amounted to a rejection preventing any later acceptance of “Owners’ Last” by TMLPL.  Therefore, as of 6 February, the parties had not reached full agreement on all terms as required by the “recap” provisions.

The Court agreed with SML that the “recap” did not constitute a binding agreement when concluded on 30 January.  The “review” and “management approval” provisions in the “recap” were linked and clearly envisaged a sequence of events:

(a) the review of previous terms by both parties;

(b) the agreement on all terms; and

(c) TMLPL’s management approval within two working days.

The Court was of the view that the agreement on “all terms” was the critical trigger for lifting subjects.  The terms agreed prior to that were just a starting point; they required a review and further agreement.

Since the parties had not reached full agreement, as the “recap” required, before 6 February, the Court considered that no binding contract was formed.  On that basis, the Court granted the declaration sought by Owners, that no binding contract was concluded, either on 30 January or on 6 February 2023.

'''Comment'''

This judgment is another reminder that, in the ship-chartering context, the “lifting” of “subjects” is ordinarily considered to be a pre-condition to an in-principle fixture “recap” becoming legally binding, in line with The “Leonidas” (fn.1) and The “Newcastle Express” (fn.2).

The additional twist in this instance is that, even if a “recap” has been agreed in principle, the “lifting” of an approval “subject”, which may cause the “recap” to become binding, may itself be subject to the fulfilment of another pre-condition.

As such, in this case there was a need to agree to “all terms”, following the review of a document incorporated by the “recap”, as another pre-condition, with the result that TMLPL purporting to “lift” the CMA “subject” was of no effect.

Given the above, if a party is desirous of achieving a binding contract at the earliest possible time, simply obtaining the agreement of the other party to forgo its own approval “subjects” – Owners’ BOD subject in this case (which the prospective charterers had, incorrectly, considered to be enough to achieve their goal) – may turn out to be insufficient.


Footnote 1:	

[2020] EWHC 1986 (Comm) – see DMC’s Case Note at https://www.onlinedmc.co.uk/index.php/Nautica_Marine_v_Trafigura_Trading_-_the_Leonidas

Footnote 2:

[2022] EWHC 181 (Comm) – see DMC’s Case Notes at https://www.onlinedmc.co.uk/index.php?title=DHL_Project_%26_Chartering_v_Gemini_Ocean_Shipping_-_The_Newcastle_Express - which was upheld by the Court of Appeal [2022] EWCA Civ 1555 – see the Court of Appeal’s judgment at https://www.bailii.org/ew/cases/EWCA/Civ/2022/1555.html