When is an agreement binding?


Published: 2 August 2006

The question of whether a binding agreement has in fact been made between two parties seems to come up fairly regularly before the courts, and recently the High Court in London had to decide whether a C/P was binding when this was "subject to signing of mutually agreeable contract terms and conditions". This case also raised a question of waiver and estoppel.

The parties started negotiations in 2001 for charter of an offshore supply vessel which was intended for service in the Gulf of Mexico. The owners had in fact the vessel at their disposal under a bareboat charter which required that the head owners could, under certain conditions, insist that the vessel be returned to Finnish waters for icebreaking duties during the winter season.

A number of different documents were exchanged and/or signed during the negotiations process:

Part of the contract terms (an Exhibit A with Pricing and Conditions) was signed by Owners (this included provisions for mobilising and demobilising fees) and later a C/P was prepared on the SUPPLYTIME 89 form (this was also signed by owners). Finally, the terms also provided for a charter guarantee bond to be issued.

It was part of the Exhibit A  that the "offer [for the vessel] is subject to the signing of mutually agreeable contract terms and conditions".

The Charterers confirmed in a fax that they "agreed to the terms and conditions subject to Charter Guarantee Bond" but the C/P was never signed.  The vessel went into service and later when the vessel was returned to Finnish waters, there remained an unpaid demobilisation fee and other outstanding amounts.

The Charterers disputed that there had ever been a binding agreement and the Court in fact upheld this view saying that a "signing subject" to the creation of a binding contract for the hire of the vessel has a very clear and obvious meaning namely that there would be no binding agreement until that "subject" had been fulfilled.

In this particular case, however, the Charterers were nevertheless held to have waived their insistence on the need for a signature of the C/P terms as they had gone ahead with the C/P without signature.

This case therefore once again demonstrates the need to comply fully with any "subjects" that may be included in proposed contract terms. This is so not only because it may prove that there is no binding agreement until all subjects (including a "signing subject") have been fulfilled but also e.g. with regard to some C/Ps which in their demurrage clauses require a signed C/P as part of the documentation necessary to present a claim in the first place.

(2006) 695 LMLN 1