Fiona Cain, counsel, Haynes and Boone CDG, LLP, considers two issues that can occur when entering into or resolving issues in respect of newbuilding contracts and charterparties
Does an agreement made ‘subject to board approval’ constitute an offer capable of being accepted?
In Goodwood Investments Holdings Inc. v Thyssenkrupp Industrial Solutions AG, the purchaser of a luxury superyacht, Palladium, made a claim against the builder for breach of warranty in relation to the yacht’s paint system. A settlement offer, made during the course of a subsequent arbitration, included various terms and proposals, one of which required formal approval of the agreement by the builder’s own board of directors.
The purchaser responded to the offer by confirming its acceptance, but the parties did not execute a formal settlement agreement and in later conversations, the builder insisted that no binding settlement had been concluded. The court was asked to determine whether or not the purchaser’s response to the builder’s offer created a binding and enforceable settlement agreement.
The court recognised that it is possible for parties to conclude a binding contract even where a formal document is to follow and will contain terms which have not yet been agreed. However, the court held that the meaning of the words “subject to contract”, which is well established, is the same as “subject to board approval” - that is, such words indicate that the parties do not yet intend to be contractually bound.
More specifically, it does not constitute an offer capable of being accepted so as to give rise to an immediately binding contract, and thus, neither party is bound until such approval is given.
Importantly, however, the court also noted that whether an agreement has been formed ultimately depends on the parties’ intent, emphasising that the whole course of the parties’ negotiations must be considered.
Can a binding agreement be made without the signature of one of the contracting parties?
In IMS S.A. v. Capital Oil & Gas Industries Ltd, IMS’s vessels had been arrested by Access bank which alleged that cargoes of oil due to be delivered on those vessels at the direction of Capital were mis-delivered. IMS sought the losses it had incurred as a result of the arrests under letters of indemnity provided by Capital following the arrests. The parties met to discuss IMS’s claims and IMS alleged that this resulted in the two parties signing separate counterparts of a settlement agreement, which were exchanged by the parties. At trial, however, only one copy was introduced into evidence: IMS’s copy signed by Capital.
In its judgment, the court first addressed the issue of whether a signature was necessary and acknowledged that it is possible for parties to reach a binding oral agreement, even when parties intend to record the agreement in an executed document. However, given that the clear intent of the parties in this case was to require execution of the agreement by both parties, the court then addressed the largely factual question of whether the agreement had indeed been signed by IMS.
The court found that based on IMS’s conduct, it was obvious that IMS believed that it was negotiating and had concluded a binding agreement. Moreover, the court also found that had the parties not intended for the agreement to be valid and binding, then it was inconceivable that Capital would not have said so in response to the many requests for payment from IMS. To have avoided this issue, both parties should have signed both copies of the agreement or taken copies of the counterparts.
Fiona Cain is counsel at Haynes and Boone CDG and has 20 years’ experience of energy, offshore oil and gas construction, and shipbuilding litigation and arbitration. Ms Cain’s practice primarily focuses on legally and technically complex, high-value maritime and offshore construction disputes. She has also worked on a broad range of contractual disputes involving UK and international parties and cross-border issues.