When is a Charterparty not a Charterparty? A Salutary Tale for Negotiating Parties

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TTMI Sarl v Statoil ASA (‘The Sibohelle’) [2011] EWHC 1150 (Comm)

This is a case dealing primarily with the validity of a contract and, specifically, whether the contract in question actually existed. While the case is of general interest to all parties conducting business, it will be of particular interest to the shipping community because the issue of concluding an agreement by way of recap was examined. As Beatson J points out (at paragraph 27): “it is common for charterparties to be concluded by an exchange of emails or faxes, with the terms being recapitulated in a “fixture recap”, and they can be concluded orally and recapitulated”.

The underlying dispute involved a claim by disponent owners, TTMI, against charterers, Statoil, for unpaid demurrage following a voyage from Norway to Texas on the basis of a fixture recap email dated 17 October. Arbitration was commenced. Statoil rejected the claim, stating that there was no contract in existence with TTMI because on drawing up the recap, the brokers had mistakenly identified the parent company as the vessel’s time chartering owner, rather than the tanker chartering arm of the company who were actually the disponent owners with whom the charterers would do business. 

The case came before the Commercial Court. TTMI applied under s.67 Arbitration Act, to strike out the decision of the arbitrator: as there was no valid contract, there was, therefore, no arbitration clause incorporated and, as such, the dispute was not within his jurisdiction to determine. Beatson J was asked to determine whether a contract had been validly formed and considered, inter alia: (i) the effect of the error in naming the parties (ii) conclusion of a contract by performance and (iii) in the event that a contract was concluded, the inclusion of terms.

(i)            Was the error in naming the correct parties fatal to the validity of the contract?

In the circumstances, Beatson J was unable to conclude that there was a contract formed between TTMI and Statoil on 17 October. At para 31 he states:

“In the present case, it is not possible to say that the bargain had been made in all its essentials prior to 17 October and at a time when “Sempra” was named as the time-chartering owner. Even where a written recap is preceded by an oral agreement, the importance of the terms of the written recap should not be underplayed.”

The “Rhodian River” and The “Rhodian Sailor” [1984] 1 Lloyd’s Rep. 373 and The “Double Happiness” [2007] 2 Lloyd’s Rep. 131 could also be distinguished because in these cases the charter-party had been agreed or substantially agreed before the mistake as to the name the time-chartering owner.

The overriding problem in this case was that it was not possible to infer that an oral contract had been made prior to the recap of the 17 October because there was no evidence as to when such a contract could have been concluded. There was simply no reference in the documents to the parties’ negotiations and, since the recap was the charterparty and it named the wrong party, it was not possible to conclude that Statoil had contracted with the vessel’s disponent owner.

He also held that TTMI were not able to bring the claim against the charterers as “undisclosed” principal of the parent company actually named in the recap, because there was no evidence that the parent company had any such authority to enter the charterparty as agent for TTMI. Furthermore, in the absence of any evidence to the contrary, Beatson J was unable accept the arguments of TTMI that a contract between TTMI and Statoil was in existence where such assertion was fundamentally at odds with, and undermined by, the express terms of the recap email before him.

(ii)           Was the contract concluded by performance?

Notwithstanding his decision that there was no written contract between the parties to the dispute, Beatson J held that a contract had been concluded by the performance of the voyage. The documents clearly demonstrated the essential elements of performance; the lifting of the cargo by TTMI, the Notices of readiness tendered on behalf of TTMI, the payment by Statoil of the freight and the invoicing of the transactions as between TTMI and Statoil. In particular, the payment of the freight by Statoil to TTMI was considered a ‘relevant factor’ by the Judge, and he stated at para 43:

“It is common ground between the parties that courts have regarded the fact that services are rendered, work undertaken, or payment is made as “a very relevant factor” in deciding whether a binding contract is made.”

(iii)          If a contract is in existence, does it incorporate an arbitration clause?

Counsel for the Charterers had submitted that in respect of any contract which came into existence by performance there could be no arbitration agreement in writing entitling TTMI to seek to rely on the relief provided under section 67 of the Act but Beatson J rejected this assertion (as set out at para 49): “…both parties proceeded on the basis that the terms recorded in the recapping emails applied and that they were performing the transaction reflected in them.”

The recapping email stated that the vessel was to be chartered on Shellvoy5 terms, which contained at clause 43 a provision for disputes to be resolved in London arbitration, and the Navion amendments to Shellvoy July 2002 which, against the clause which provided for London arbitration, stated “ok”.

The difficulty though was Statoil’s argument that the recap mistakenly referred to the parent company of the disponent owner and not TTMI. 

However, the Notices of Readiness tendered referred to “the terms and conditions of the recap email dated 17 October 2005”. Those terms made express reference to the arbitration clause in the standard Shellvoy 5 form and that clause was expressly agreed in the recap. Counsel for TTMI was thus successful in arguing that it was not necessary to have the arbitration agreement in writing. Rather, there could be a wide concept of “agreement in writing”.

Thus the Judge held that TTMI’s application to set aside the Award would be upheld and the claim would be referred back to the arbitrator for review. The case demonstrates the need for accurate recording and conclusion of charterparties. This is a statement which one might consider obvious, but in an industry in which there are intense time pressures and which often relies on email recaps, perhaps it is a statement which bears repeating.

Article by Sarah McGuire