Members “should be careful not to be bound unintentionally”

Shipowners Club’ claims handler Fiona Pounds has written on the matter of when fixtures became binding and warned members to “always be conscious that jurisdictions take different approaches as to whether there is a binding fixture or not”.

Pounds noted that parties in more procedurally conservative jurisdictions could be surprised at the ease with which a binding contract could be created under English law.

In the context of charterparty negotiations it was generally the case that an agreement would be deemed binding prior to a formal charter being drawn up and signed.

Whilst under English law there was no fundamental requirement for a contract to be in writing or signed, Pounds said that parties were not generally bound by an agreement until they had agreed all its essential terms and expressed an intention to be legally bound by them.

Fixture negotiations tended to take place in two stages.

Initially the main terms were agreed and set out in a ‘fixture recap’, with the phrase ‘subject to details’ or similar wording included.

Those details would then be negotiated and agreed individually.

Under English law, the expression ‘subject to details’ is accepted to mean that the parties do not intend to be bound at this stage. As such, there would be no binding contract while the stage two details were being negotiated.

However, at the point at which the parties agree on all the second stage details, it would normally be considered that a binding contract had been formed.

The Baltic Code also states that, until there was complete agreement on all details, there was no enforceable contract.

Pounds said that The Baltic Exchange and other respected commentators had recognized one particular drawback; that the power of subjects could be misused.

Pounds said that it was perhaps in this context that a recent Singapore Court of Appeal decision in Toptip v Mercuria could be best understood. In this case the Court found that there was a binding contract, despite the existence of a ‘subject to review’ phrase. In doing so, they concluded that the word ‘subject’ was not in itself determinative; whether a fixture had been concluded depended on all the circumstances.

There were few other situations than charterparty fixtures where complex contracts were concluded with such speed and efficiency. To this end, wrote Pounds, the phrase ‘subject to details’, under English law at least, still provided a degree of certainty that the parties did not wish to be legally bound.

However, Pounds said that it was important not to rely too heavily on the use of this phrase alone. As was made clear from several legal cases, actions and communications inconsistent with the position that a contract had not yet been formed could be taken into account.

Toptip Holding Pte Ltd v Mercuria Energy Trading Pte Ltd and another appeal [2017] SGCA 64

The Pacific Champ [2013] EWHC 470 (Comm)