In Nautica Marine Limited -v- Trafigura Trading LLC  EWHC 1986 (Comm), the dispute concerned whether the negotiations for a tanker voyage charter “crossed the finish line” and the effect of “on subjects”
In Nautica Marine Limited -v- Trafigura Trading LLC  EWHC 1986 (Comm), the claimant (Nautica), the registered owner of the tanker Leonidas, and the defendant (Trafigura) were engaged in negotiations for the chartering of the vessel for the carriage of crude oil. The parties had reached what was agreed to be a non-binding agreement in principle, which was stated to be “on subjects”. It was common ground that on 13 January 2016, Trafigura offered to lift all of the subjects with the exception of the suppliers’ approval subject, in return for a reduction of the demurrage rate to US$75,000 and an extension of the deadline for lifting the “subjects”.
In an email exchange, Nautica referred to the fixture as concluded, save “subjects” being lifted. Trafigura reported it was unable to lift “subjects”. Nautica responded to Trafigura saying it considered the charterparty was over, that Trafigura had breached the contract and Nautica fixed another vessel. That charterparty was less profitable and Nautica claimed the difference in earnings of US$491,690.67 as damages from Trafigura.
After a lengthy argument and dissection of the meaning of “on subjects”, the judge held that no contract had been concluded and therefore Nautica was not entitled to damages.
Hill Dickinson comment
This case highlights the importance of seeing matters both from a legal and commercial perspective.
The use of phrases such as “subject to contract” and “subject to details” was to enable either party to avoid entering into contractual relations by not reaching agreement on any outstanding terms, as the case might be.
But the case revealed a surprising degree of uncertainty as to what the suppliers’ approval subject meant. Nautica had originally pleaded that the phrase had a customary meaning, namely the approval of the terminal at which the cargo would be loaded.
“The judge held that no contract had been concluded and Nautica was not entitled to damages”
Trafigura contended that the expression meant approval of the seller from whom the charterer was acquiring the cargo. Neither expert called by the parties was able to point to any third-party source shedding light on the question. Given the degree of uncertainty as to the meaning of the expression, the judge found that it was highly unlikely that the suppliers’ approval subject was intended to create a contractual obligation of some kind, which would be the inevitable consequence of classifying it as a performance condition.
As the judge noted, the strongest point in Nautica’s favour was that if the 13 January exchange did not lead to a legal commitment of some kind, it might well be asked what Nautica had got in return for agreeing to reduce the demurrage rate to $75,000 a day, and what the significance of lifting three pre-conditions to a contract was, if Trafigura retained an absolute right not to proceed with the charterparty by reason of the fourth.
That point clearly had force, but it involved analysing what was essentially a commercial negotiation from a purely legal perspective. For so long as no binding contract had been concluded, Trafigura had no more ‘bagged’ a reduced demurrage rate than Nautica had secured the fixture.
Trafigura’s offer to remove most of those “subjects” was a negotiating signal that the parties were moving closer to a deal but, in contractual terms at least, no more than that.
Lewis Moore is partner, shipping, Hill Dickinson LLP, London