Court of Appeal Confirms: No Contract Between EVER GREEN Owners and Salvors
Published: April 12, 2024
On the 19 March 2024 the Court of Appeal delivered its judgment in the case of SMIT SALVAGE B.V. AND OTHERS (SMIT)v LUSTER MARITIME S.A. AND ANOTHER (Owners). Appealing the Admiralty judge’s decision, the Owners argued that a contract as to the remuneration to be paid to the salvors had been concluded, precluding a claim for salvage under the International Convention on Savage 1989 or at common law. The Court of Appeal disagreed.
Reaffirming the legal principles related to contract formation, the case highlights that careful consideration must be given when trying to agree terms via email and/or telephone exchanges.
Facts and background
The facts surrounding the dispute are well known. The EVER GIVEN, a container ship, ran aground in the Suez Canal on 23 March 2021, blocking the Canal. The vessel was refloated six days later.
SMIT, a leading salvage company, contributed to the refloating and argued that it rendered services entitling it to salvage. The Owners, however, argued that the services were performed pursuant to a pre-existing contract.
Under English law, a right to salvage arises when a person, acting as a volunteer (i.e. without a contractual or other obligation to act) contributes to saving a vessel from danger. If no sum is fixed and the salvage is successful, the salvor is entitled to recover remuneration not exceeding the value of the property salved. If, however, a contract as to the remuneration to be paid is concluded, the salvor is only entitled to what is agreed.
The Admiralty court judge, Mr Justice Andrew Baker, held last year that the exchanges between the parties showed that whilst they had reached agreement on the remuneration terms, enabling them to move on to discuss and negotiate the detailed contract terms, no binding contract was ever concluded.
His judgment contains a 40-page appendix with a complete run of the exchanges between the parties spanning 9 days from the 23rd to the 31st of March 2021 and can be found here.
The Court of Appeal Judgment
The Law
In his judgment Males LJ said “The principles to be applied in deciding whether parties have concluded a legally binding contract even though they recognise that some matters are still to be agreed are well established.”. These were summarised as:
The whole course of the parties’ negotiations must be considered.
It is possible for parties to conclude a binding contract even though it is understood or agreed that a formal document will follow which may include terms not yet agreed.
Whether this is what the parties intend to do must be determined by an objective appraisal of their words and conduct.
The burden of proof lies on the party asserting that a contract has been concluded.
Though terms such as ‘subject to contract’, ‘subject details’ or ‘fixed on subjects’ can be used to make clear that parties have not yet reached the stage of a binding contract, the absence of such terms (as in this case) is not decisive. What matters is the parties’ words and conduct towards each other, considered in their context.
It follows from the above that each case will necessarily turn on its own facts/ exchanges.
Owners’ case
Although the Court of Appeal took into account all the exchanges between the parties, the following exchange on 26 March was crucial:
An email sent at 11:35 UTC, from WK Webster & Co Ltd, as agent for owners’ hull and machinery underwriters, to SMIT, copied to various others, stating:
“We refer to our telephone conversation subsequent to my previous email and my further conversation with Japan. As agreed over phone, I am pleased to confirm as below on behalf of Owners of Ever Given. Owners agree to the following: The tugs, dredgers, equipment engaged by SCA and their subsequent salvage claim are separate to the Smit’s offer of assistance.
SMIT personnel and equipment to be paid on Scopic 2020 rates
Any hired personnel and equipment, out of pocket expenses of SMIT to be paid on scopic 2020 rate + 15% uplift
Refloatation Bonus of 35% of Gross invoice value irrespective of the type of assistance rendered.
Refloatation bonus not to be calculated on amounts chargeable for quarantine or isolation waiting period.
Refloatation bonus to SMIT will be applicable if refloatation attempt by SCA on 26 March 2021 is unsuccessful.
We look forward to your confirmation. We can then start ironing out the wreck hire draft agreement so that the same can be signed at the earliest.”
SMIT replied at 11:40 UTC stating:
“…. confirmed which is very much appreciated. I shall inform our teams accordingly and we shall follow up with the drafting of the contract upon receipt of your/your client’s feedback to our draft as sent last night.”
Owners argued that at this stage a binding contract as to the remuneration terms was concluded with other terms to be agreed thereafter. In particular, Owners argued the above should be read as an agreement having been reached since it was preceded by three ‘ultimatums’ given by SMIT (via telephone and on email on the same day) which indicated that a binding agreement on the remuneration terms had to be reached before they would incur significant costs of hiring tugs to assist in the refloating operation.
SMIT’s case
SMIT, on the other hand, argued, inter alia, that:
Salvors will often mobilise before any binding agreement is concluded;
SMIT had sent detailed terms on 24 and 25 March, indicating that they were not willing to agree some terms only (in this case, remuneration) without discussing the terms of a more detailed contract;
The exchanges indicated that an agreement on all terms could have been reached relatively quickly; agreement on remuneration was a critical step, but was not the end to a binding contract; agreement on remuneration left basic issues unresolved, including the identification of the services which SMIT was to provide; and
There was no pressure on SMIT to conclude a binding contract (as Owners appeared to argue), instead it was Owners who were under pressure since they had a ship blocking the Canal and initial refloating attempts had failed, it was very likely that SMIT’s assistance was going to be needed and that SMIT would be entitled to some form of salvage award anyway.
The decision
Agreeing with the Admiralty judge’s decision, the Court of Appeal concluded that the parties’ exchanges fell ‘considerably sort’ of unequivocally evincing an intention to be bound, essentially for the reasons put forward by SMIT.
Comments
The case is a reminder that a court will always look at the whole course of negotiations between the parties and will take into account the facts known to both parties at the time to see if it can be said that a binding contract was concluded. The court should not, however, strain to impose on parties a binding contract when it is not clear they had reached a stage at which there was an intention to be bound. When negotiating a contract, parties must be clear as to whether/when they want to conclude a contract. They are advised to include, in communications, terms such as ‘subject to contract’ and to be careful with the language used in the course of negotiations if they do not want to run the risk of reaching a binding agreement unintentionally, or alternatively use clear language if they do want to be bound by the terms that have been agreed.
An earlier article on the Steamship Mutual website discussing when a binding contract comes into existence can be found at Fixtures "Subject to Details" - English Courts Provide Further Guidance.
