Fixtures "Subject to Details" - English Courts Provide Further Guidance

(Sea Venture Volume 19)

A decision of the English High Court in the case of the ''Bay Ridge''¹ has provided guidance in considering the issue as to when a binding contract comes into existence (previously discussed in ''Sea Venture'' Vol.s 12 (1989) and 16 (1995)).

The decision of Mr. Justice Steyn in the ''Junior K''² (reported in ''Sea Venture'' Vol. 12) affirmed a principle, established in English law, that where in the context of negotiations terms such as ''subject to details'' are used, it can be inferred that the parties do not intend to be bound by what has already been agreed, until such time as the negotiation process is completed.

In Granit S.A. v. Benship³ (reported in ''Sea Venture'' Vol. 16) the court extended this principle in finding that if a term such as ''subject to details'' is not used, there can be a binding contract if the parties contemplate that a fixture has been concluded, even if some of the terms of the contract remain to be agreed.

The ''Bay Ridge'' case concerned negotiations for the proposed sale of a tanker: The court was asked to consider whether a binding contract had been concluded where the final recap included the following terms: -

'' … otherwise NSF – 87 [Norwegian Sale Form 1987 revision]… to be mutually agreed and to incorporate agreed terms and conditions …''.

''… after conclusion/confirmation of the sale by telex/fax …''

Based on the principles outlined in the ''Junior K'', it was held that no binding contract had been concluded. The Court recognised that terms such as ''subject to details'' are used in the shipping business to enable owners, charterers, sellers and buyers to know where they stand in negotiations and to regulate their business accordingly. The assumption of those in the shipping trade that it was effective to make clear that there was no binding agreement ought to be respected.

Drawing, in particular, on the judgement in Pagnan S.p.A. v. Feed Products Ltd⁴, the Commercial Court laid down the following guidelines to determine when a contract had been concluded.

1. The parties to a contract are the masters of their own contractual fate, and the Court's duty is to give effect to the parties' intention. In determining what that intention is, the Court will have regard to the factors below.
2. The courts will look at what the parties said and did to determine what their objective intentions were, as opposed to looking at what they might subjectively have intended.
3. In circumstances where a contract by written exchanges is in the process of being agreed, the court will not look merely at a selection of exchanges in isolation, rather it will look at the correspondence as a whole to ascertain the objective intentions of the parties.
4. Where the parties have not reached agreement on terms which they regard as essential, there can be no binding agreement until they do agree those terms.
5. The parties may, however, by their words and conduct make it clear that they do intend to be bound, even though there are other terms, important or unimportant, yet to be agreed.
6. The more important the term, the less likely it is that the parties will have left it for future decision. However it is legally possible for the parties to agree to be bound now, while deferring important matters to be agreed later.
7. Even if the parties have reached agreement on all the terms of a proposed contract, they may intend that the contract shall not become binding until some further condition has been fulfilled, such as the lifting of subjects. This is the normal ''subject to contract'' case.
8. Where they do choose to bind themselves to the agreed terms, and it is subsequently not possible to reach agreement on outstanding terms, the parties will remain bound to the terms already agreed, unless the failure to reach agreement on the further terms renders the contract unworkable or void for uncertainty.

This ''freedom to choose'' approach adopted in English law can give rise to uncertainty. The parties may not always be on an even footing when conducting their negotiations. The ''Bay Ridge'' case involved brokers whom the court concluded to be inexperienced and who had not previously had dealings with each other in relation to the sale and purchase of ships. These factors led one party into believing that a contract had been concluded, whilst the other party believed that no commitment had been agreed or entered into.

It is advisable for words such as ''subject to details'' to be used throughout the course of negotiations until such time as those conducting them feel that they (or their principals or clients, in the case of brokers or lawyers) are ready to be bound

^{1[1999] 2 Lloyd's Rep 227
2[1988] 2 Lloyd's Rep 583
3[1994] 1 Lloyd's Rep 526
4[1987] 2 Lloyd's Rep 601}