The “AQUAFREEDOM” – “A ‘subject to contract agreement’ is no agreement at all”

This involved an application for summary judgment by the Owners of the vessel, Aquafreedom, (Southeaster Maritime Ltd) against Trafigura Maritime Logistics Pte Ltd (“Trafigura”)[1], who purported to be the charterer following a series of negotiations for a time charter.

Owners sought summary judgment on the basis Trafigura had no realistic prospect of successfully resisting Owners’ application for a declaration that no binding charterparty had been concluded.

The Facts
Negotiations, which were being conducted by brokers, began on 25 January and culminated in a recap that was circulated on 30 January 2023. The recap included the following terms:

Trading
WW trade with exclusions to be agreed
Cargo
Normal DPP/Crude – wording to be mutually agreed
Terms:
As per previously agreed terms sub review both sides.
Subs:
Charterers management approval latest 2 working days after all terms agreed.

During 1^st and 2^nd February, there were further exchanges between the parties concerning additional terms. The key points of which to note are:

1. on 1^st February Owners sent an email to Trafigura containing amended and/or additional terms including a revised drydock clause, CII, EEXI and ETS clauses;
2. there was no clean acceptance of this email by Trafigura; but
3. instead, Trafigura sent various comments to the Owners’ clauses over two subsequent emails, some of which Mr Justice Jacobs determined amounted to a counter-offer.

It appears Owners then began to have second thoughts about entering into the contract with Trafigura and stopped responding.

On 6^th February, Trafigura purported to accept Owners’ offer of 1^st February advising they would revert regarding the subject “Charterers management approval” as soon as possible.  However, prior to that subject being lifted, Owners asked the brokers to inform Trafigura that they were not on subs, as terms had not been agreed. That message was passed to Trafigura after which, Trafigura purported to lift its subject.

The Arguments
Owners’ case was that there was no binding contract on 30^th January. The relevant arguments for the purpose of this article are that the recap included a subject and it was a condition precedent that the parties reach agreement on all terms before the time period for the subject “Charterers’ management approval” would run. Owners further argued there was no binding contract on 6^th February because their email of 1^st February was not one that was capable of acceptance.  Even if it was, it had been rejected by Trafigura’s subsequent counter offer(s).

Trafigura took the opposite position.  They contended that a binding contract had been concluded on either 30^th January or 6^th February:

1. In respect of 30^th January, they argued that “as per previously agreed terms sub review both sides” meant that the parties had agreed to be bound, even if further terms were agreed. From that it must follow that the subject requiring “Charterers management approval” was also a condition subsequent.
2. In respect of 6 February, they argued that Owners’ offer of 1 February was one that was capable of acceptance. It had not been rejected by Trafigura by way of counter-offer but had instead been cleanly accepted on 6^th.

The Court’s Decision
The Owners succeeded in their application for summary judgment.

Mr Justice Jacobs considered that it was beyond any serious argument that the subject in the recap must be interpreted in line with the existing authorities (The Leonidas[2] & The Newcastle Express[3]), namely, that there was no contract between the parties until the subject had been lifted.  Mr Justice Jacobs affirmed the view of Lewison LJ in an earlier judgment “in short, ‘a subject to contract agreement’ is no agreement at all[4]”. The subject ‘Charterers management approval’ was a condition precedent to the conclusion of a binding contract.

Mr Justice Jacobs also concluded that on the facts, the parties had not reached an agreement on all terms by 6 February, or at all. The Owners’ email of 1^st February was not an offer that was capable of being accepted by Trafigura, because it called on Trafigura to propose wording for at least one clause. Mr Justice Jacobs further concluded that even if that email did amount to an offer capable of acceptance, Trafigura had not accepted. The emails sent by Trafigura on 1^st and 2^nd February, amounted to counter offers.

Comment
This case provides further confirmation and upholds the existing line of authority (The Leonidas and The Newcastle Express) that an agreement made on subjects is not a binding contract and does not become a binding contract until subjects are lifted. Put simply, either party is free to walk away without legal consequences until the subject(s) have been lifted.

The case also provides a valuable reminder that under English law, the legal effect of making a counter-offer is to reject the offer currently on the table. Once rejected, an offer is not capable of acceptance at a later date. This applies equally whether negotiating a contract or a for example, a settlement of a claim.

As the law stands, there is a distinction between what is a mere inquiry for further information/clarification and a counter-offer. A mere inquiry will not be treated as a rejection to an offer, whereas a counter-offer will. Careful thought should therefore be given by our Members when responding to an offer so as not to (inadvertently) reject it, if that is not what is intended.

[1] Southeaster Maritime Ltd v Trafigura Maritime Logistics Pte Ltd [2024] EWHC 255 (Comm)

[2] Nautica Marine Ltd v Trafigura Trading LLC [2020] EWHC 1986

[3] Dhl Project & Chartering Ltd v Gemini Ocean Shipping Co. Ltd [2022] EWCA Civ 1555

[4] Above at 1, para 107, as per Lewison LJ Generator Developments Ltd v Lidl UK GmbH [2018] EWCA Civ 396 at 79.