Recent volatility in the freight markets, and in particular the bulker market, has resulted in dramatic shifts in the stances taken by parties to charter negotiations. In the event of a sharp turn in the market, where one party stands to suffer substantial losses they would naturally seek to withdraw from negotiations. Sometimes, however, it is too late to do so as a binding agreement has been reached. At that point, alternative approaches have to be looked at and in recent months the Club has had to advise Members on how to deal with a variety of arguments used by counterparties looking to get out of (or bind) agreements. These arguments range from the highly technical to the more "imaginative" and speculative.
An example of the tactics parties may deploy to extricate themselves from a bad bargain can be found in a very recent English High Court judgment. In Front Carriers Ltd. v Atlantic & Orient (the “Double Happiness”)7 March 2005 with a US$ 31,500 daily rate of hire. By the end of March the market had gone up to US$ 39,000 a day. In early April, the market began to fall, and by August, the market had fallen to US$ 10,000 per day – a potential US$ 15m loss for charterers. , the vessel, which was due to delivered in September 2005, was fixed by charterers for two years. The fixture was made on
In mid-July 2005, Mr. Lee, the person from charterers’ office with whom owners had negotiated, sent the following email message.
“Retelcon as advd I did not have the authority to fix this Imabari vsl as I was no longer the employee of A+O since 07 Feb 2005. I thought I had the authority to fix this vsl but was found out later I did not have the authority to conclude this business and or to sign on behalf of A+O Nevis
Sorry for the confusion. Brgds.”
Charterers were seeking to argue that no valid contract had been agreed on the basis that the individual negotiating on their behalf did not have authority to do so.
In early August 2005 charterers instructed London lawyers who then took the case in a different direction, attempting to argue that there was no fixture because the recap referred to the disponent owners as Front Carriers Inc., a company that did not exist, when it should have referred to Front Carriers Ltd.
During the hearing the point on Mr. Lee’s authority was conceded by charterers’ counsel. Mr. Lee, for reasons the Court found less than convincing, was unable to attend to give evidence.
This left the question the identity of the disponent owners. The identity of the parties to a contract is usually an essential term and in such circumstances, a mistake in respect of same would prevent the contract from coming into existence.
However, the English Courts will always endeavour to find there to be a binding contract, insofar as it is possible, where the parties have evinced an intention to be bound. Charterers’ attempt to argue that no contract existed, on the basis of the incorrect naming of the disponent owners, was unsuccessful. Dismissing this argument the Court found it to be clear from the negotiations that the parties intended to be bound by the agreement of 7 March and it was equally clear that charterers were not so much concerned with the name of the disponent owning company, but rather that it was confirmed as being part of John Fredriksen’s Golden Ocean Group of companies. The pre-fixture exchanges made it quite clear that which company it was in that group was incidental. As such, Langley J held there to have been no mistake as to the identity of the owning company, but rather only a misnomer which should be rectified.
The overwhelming impression is that this was a very speculative piece of litigation. However, in the context of a US$ 15m loss, spending a few hundred thousand pounds attempting to avoid such considerable commercial losses is not an unattractive proposition, even with poor prospects of success. It is reassuring, therefore, to see the English Court taking a practical approach to contract formation and a commercially realistic view of the objective intentions of the parties.
