In the recent judgment in Southeaster Maritime Ltd v. Trafigura Maritime Logistics Pte Ltd (“The Aquafreedom”) [2024] EWHC 255 (Comm), the High Court dismissed the charterers’ assertion that a charterparty had been validly formed. Neil Jackson, Managing Associate, and William Reed, Trainee Solicitor provide a summary.
Facts
In January and February 2023, Southeaster Maritime Ltd (“Owners”) and Trafigura Maritime Logistics Pte Ltd (“Trafigura”) were negotiating a four year time charter of the “AQUAFREEDOM” (“the Vessel”) via Arrow Tankers P/S (“Brokers”), who acted on behalf of both parties. The communications were sent via a mix of emails and WhatsApp messages.
Initial negotiations included an offer made by Owners on 26 January 2023 which stated “Terms: As per previously agreed terms sub review both sides.” It also contained two further “Subs” (i.e., subjects), which were Owners’ board of directors’ approval, followed sequentially by Trafigura’s management approval, in both cases “… after all terms agreed.” On 30 January 2023, a recap was circulated containing all of those elements except the Owners’ board of approval subject – a deletion which Owners had accepted. However, there was nothing in the exchanges to identify what set of “previously agreed terms” the parties were referring to. Those “previously agreed terms” were not identified until shortly after the recap had been circulated.
The parties then began negotiating amendments to the previous set of terms. On 1 February 2023 Trafigura responded to Owners on the issues that were yet to be agreed. Owners replied on the same day with various comments. On 1 and 2 February 2023 Trafigura replied to Owners by email, but neither of those emails contained an acceptance of the terms put forward by Owners.
Owners did not respond. At 10:08hrs on 6 February 2023 Trafigura, apparently sensing that Owners intended to pull out of the negotiations entirely, sent a message to Owners purporting to revoke their counter-proposals and instead accept the terms that Owners had previously put forward on 1 February 2023. At 10:42hrs Owners sent a message via WhatsApp stating that they were no longer willing to contract with Trafigura. At 10:49hrs Trafigura sent a further message purporting to lift the subject requiring their management approval.
Owners argued that no binding charterparty had been formed. Trafigura argued that the communications on either 30 January or 6 February 2023 resulted in a binding charterparty and that Owners were in repudiatory breach of that charterparty. Additionally, Trafigura challenged the use of WhatsApp as a permissible platform for the brokers to use to communicate information relevant to the potential formation of the contract.
Owners sought a declaration that no binding charterparty had been concluded and applied for summary judgment to that effect, on the basis that Trafigura had no realistic prospect of showing that a binding charterparty had been formed.
Judgment
Regarding the issue of whether a binding charterparty had been formed on 30 January 2023, the Court acknowledged the general principle, as set out in the earlier cases of The Leonidas and The Newcastle Express, that where an agreement is made on “subs” or “subjects”, this indicates that there are preconditions that remain outstanding such that a binding contract will not be formed unless and until those subjects are “lifted” (i.e. removed).
Trafigura argued that both “subjects” contained within the recap circulated on 30 January 2023 were conditions subsequent, and so did not prevent a binding contract coming into existence. The Court disagreed. The legal effect of the “subjects” was to negative contractual intent, akin to where negotiations are marked “subject to contract”. The “subjects” in the recap were therefore conditions precedent, not conditions subsequent. It would never have been possible for a contract to be formed by virtue of Trafigura’s unilateral acceptance of the terms. What was required for those subjects to be lifted was for both parties to review and agree the previous set of terms, and only then would Trafigura be able to lift the management approval subject. The Court, noting that the “previously agreed terms” had not even been identified at the time that the recap was circulated, distinguished this from the situation where a charter refers to a specific previous charter which is to be used with logical amendments. The Court also noted that significant gaps on which agreement was required still remained. Trafigura’s argument that a contract had been formed based on their acceptance of the recap therefore failed.
Regarding Trafigura’s argument that a binding contract was formed on 6 February 2023 (by way of Trafigura’s message in which they purported to accept Owners’ previous terms) the Court found that (i) in some instances Owners had called for a proposal (for example, Owners’ request for Trafigura to put forward wording of an amended emissions trading scheme clause), such that no offer capable of a “clean” acceptance had been made by Owners; and (ii) in other instances Trafigura had rejected the proposals made by Owners and responded with counter-offers of their own. In accordance with the well-established principle under English law that a counter-offer is, in effect, an implied rejection of the offer to which it responds the Court held that even if Owners’ offer had been capable of acceptance in the first place, the effect of Trafigura’s emails of 1 and 2 February 2023 was that it could no longer be accepted. Trafigura were not able to re-instate the validity of the offer that they had already rejected, so their purported acceptance of Owners’ terms on 6 February 2023 could not result in the formation of a binding agreement.
The Court described Trafigura’s argument that the message sent by Owners on 6 February 2023 (in which Owners notified Trafigura that they were no longer willing to contract with them) should not be treated as an official statement of Owners’ position on account of it having been sent by WhatsApp rather than email as “… fanciful, and without any real prospect of success …”. The judge described the WhatsApp communications as “generally businesslike” and said that any reasonable recipient would understand Owners’ message as meaning that they were no longer prepared to contract. Trafigura were not allowed to ignore the effect of that message simply because it had been sent by WhatsApp rather than email.
Comment
The Aquafreedom is a useful case study regarding fundamental aspects of contractual offer and acceptance under English law. It reconfirms the position, as in earlier cases such as The Leonidas and The Newcastle Express, unless and until all “subjects” have been lifted, a binding contract cannot be formed and either or both parties are free to walk away from the negotiations. It also reconfirms the principle that the effect of a counter-offer is to automatically reject the other party’s previous offer and that the other party will be under no obligation to reinstate the rejected offer.
The case also indicates that, in principle, there is nothing preventing negotiations leading to the formation of an enforceable contract from being conducted via instant messaging services such as WhatsApp. This is an important point that chartering personnel and brokers should bear in mind when conducting negotiations. Absent some expression of a contrary intention, messages sent using instant messaging services may well be treated as having equal importance as emails or any other form of written communication.
Source: https://www.cjclaw.com/site/news/contract-in-force-when-conditions-allow