We welcome article submissions from experts in the areas of coal, mining,
shipping, etc.
To Submit your article please click here.
|
|
|
Thursday, 30 March 17
WHERE AN AGREEMENT FAILS TO DELIVER - WATSON FARLEY & WILLIAMS
 KNOWLEDGE TO ELEVATE
Watson Farley & Williams acted for MRI Trading AG in a leading case on ‘agreements to agree’ that was finally decided by the Court of Appeal in 20131 . That decision has recently been considered in the High Court by Mr Justice Walker in Teekay Tankers Ltd v STX Offshore & Shipbuilding Co. Ltd, 2 a shipbuilding case of particular relevance to parties that enter into long-term agreements or options leaving delivery terms to be agreed.
Agreeing to agree
Under English law, you cannot ‘agree to agree’. Where parties agree that they will agree to enter into a contract and no such contract is concluded, that initial ‘agreement’ will be unenforceable or void on the basis of uncertainty. An English court will not step in to complete the parties’ bargain where one or more essential terms of that bargain are uncertain. However, parties may not want to fix every contractual term at the outset of their relationship. For example, in long-term supply contracts, they may wish to finalise certain terms only when future market circumstances are known.
|
“AN ENGLISH COURT WILL NOT STEP IN TO COMPLETE THE PARTIES’ BARGAIN WHERE ONE OR MORE ESSENTIAL TERMS OF THAT BARGAIN ARE UNCERTAIN.” |
A common way for drafters of contracts to achieve this is by reference to an objective standard, such as a published price index, against which a price adjustment can be made. However, even where the chosen mechanism fails or the contract does not provide for such a mechanism, there are circumstances in which English law will nevertheless uphold the parties’ bargain. The English courts have made it clear that each case is to be decided on its own facts and terms, but have identified factors that might indicate that the parties intended their bargain to be enforceable, in which case the courts will strive to give effect to that intention and seek, where possible, to preserve the parties’ bargain.
The facts of Teekay
In Teekay v STX, subsidiaries of Teekay had entered into four shipbuilding contracts with STX (“the SBCs”) and Teekay had entered into an option contract with STX by which Teekay was granted three options to order three additional sets of up to four vessels from STX (“the Option Agreement”). The Option Agreement provided that, on Teekay exercising each option, (subsidiaries of) Teekay would enter into shipbuilding contracts with STX on materially identical terms to the SBCs, but the “Delivery Dates for each [of the] Optional Vessels shall be mutually agreed upon at the time of [Teekay’s] declaration of the relevant option”. Importantly, the clause also provided that STX was to use its “best efforts” to “have a delivery” for each of the first set of optional vessels within 2016 and for each of the second and third sets of optional vessels within 2017.
|
“STX DEFENDED THE CLAIM ON THE GROUNDS THAT IT HAD NO LIABILITY TO TEEKAY BECAUSE THE PROVISION IN THE OPTION AGREEMENT REGARDING DELIVERY DATES AMOUNTED TO AN ‘AGREEMENT TO AGREE’ THAT WAS VOID FOR UNCERTAINTY.” |
The specific Delivery Date for each vessel was integral to the operation of the anticipated shipbuilding contracts that would then be concluded, including the delay, cancellation and liquidated damages provisions. After Teekay exercised the first of the three options, STX’s statements and conduct demonstrated that it would not perform the Option Agreement. Teekay accepted those statements and conduct as a repudiation at common law, as a result of which the Option Agreement came to an end with no agreement having been reached as to the Delivery Dates.
Teekay claimed damages of over US$100m and STX defended the claim on the grounds that it had no liability to Teekay because the provision in the Option Agreement regarding Delivery Dates amounted to an ‘agreement to agree’ that was void for uncertainty.
For each set of vessels, Teekay asked the High Court to imply either of the following terms into the Option Agreement to resolve this apparent uncertainty:
a) the Delivery Date should be a date that STX offered within 2016 (for the first set of optional vessels) or 2017 (for the second and third sets) using its best efforts to do so, or, if STX was not able to offer such dates, the earliest date thereafter which it could offer using its best efforts (“the Offer Date Implied Term”); or
b) the Delivery Date was to be an objectively reasonable date (having regard to STX’s best efforts), to be determined by the Court if not agreed by the parties (“the Reasonableness Implied Term”).
The decision
Mr Justice Walker considered the authorities in detail, including MRI, and found that the starting point should be that the parties had intended the Option Agreement to be legally binding and that the court should strive to uphold the parties’ bargain.
Relevant factors taken into account by Mr Justice Walker in determining this starting point were that the Option Agreement formed part of a package of contracts that had been partially performed and the parties had acted as if the Option Agreement were binding.
|
“THE STARTING POINT SHOULD BE THAT THE PARTIES HAD INTENDED THE OPTION AGREEMENT TO BE LEGALLY BINDING AND THAT THE COURT SHOULD STRIVE TO UPHOLD THE PARTIES’ BARGAIN.” |
From that starting point, Mr Justice Walker sought to determine whether the implied terms contended for by Teekay could properly be regarded as being the objective intention of the parties at the time they entered into the Option Agreement. Mr Justice Walker found that they were not and therefore they could not be implied, as a result of which the Option Agreement was void for uncertainty.
In relation to each implied term, Mr Justice Walker’s reasoning can be summarised as follows:
a) the Offer Date Implied Term would mean that the Delivery Dates would be at STX’s unilateral declaration, which would be contrary to one of the English law tests for implying a contractual term. It was not said to be objectively obvious, at the time that Teekay and STX concluded the Option Agreement, that if a Delivery Date was not agreed STX should unilaterally be able to declare a Delivery Date; and
b) as to the Reasonableness Implied Term, two factors were of particular importance:
(i) the Delivery Date was a critical term in the SBC that affected other provisions of the SBC; and
(ii) the Delivery Date was subject to STX’s “best efforts” obligation. As to the first factor, Mr Justice Walker noted that both parties would want to select a Delivery Date that suited their own commercial interests (which they were entitled to take into consideration) and their respective interests may be in conflict.
As to the second, the language of “best efforts” implicitly recognised that the parties would have contrasting interests in selecting a Delivery Date. Those circumstances precluded an identification of a date based on what would be reasonable; there could hardly be an objectively reasonable outcome if the parties had completely divergent interests. The reference to “best efforts” was, in Mr Justice Walker’s judgment, part of a process of seeking to agree an essential term in the SBC and very different from an enforceable obligation to use best efforts to achieve a result.
|
“TEEKAY DEMONSTRATES THAT, WHERE THERE IS NO CLEAR CONTRACTUAL PATH BY WHICH THE COURT CAN PICK ITS WAY THROUGH THE PARTIES COMPETING COMMERCIAL INTERESTS, IT MAY NOT BE ABLE TO UPHOLD A BARGAIN DESPITE STRIVING TO DO SO.” |
In this sense, the Teekay and STX Option Agreement can be seen as a “one off” contract in which no objective criteria had been specified to determine a Delivery Date. Selecting a Delivery Date would involve both Teekay and STX taking into account a variety of commercial and practical considerations, which might affect their ability and willingness to agree. In those circumstances, “reasonableness” was not a sufficient criterion that would enable the Court to reconcile the parties’ potentially conflicting wishes.
Conclusion
It may come as a surprise to some commercial parties and seem somewhat unjust that otherwise carefully negotiated and detailed agreements might be held to be unenforceable or void because one or more (albeit essential) terms are uncertain. The courts have recognised this risk and have set out a clear and helpful framework against which they might uphold parties’ bargains. However, the courts have stressed that each ‘agreement to agree’ case is to be decided on its own unique facts and terms.
In MRI, the High Court and the Court of Appeal upheld the bargain by implying a term that a price adjustment and delivery schedule should be “reasonable” where the agreement stated that those matters “shall be agreed” but the parties had not agreed them. A key factor in that case was that the agreement had been entered into as part of a settlement agreement compromising a previous dispute and the remainder of that settlement agreement had been fully performed. However, this was in principle similar to Teekay, which involved a suite of contracts.
The court’s attempt to distinguish MRI on the basis that deliveries under commodities contracts were matters of routine was not borne out by MRI, where the London Metal Exchange Tribunal had found as a matter of fact (acknowledged in the appeal proceedings) that shipping schedules were not to be dismissed as matters of detail and involved important considerations concerning the parties’ commercial needs.
Teekay demonstrates that, absent any clear contractual path by which the court can pick its way through the parties’ competing commercial interests, it may not be able to uphold a bargain despite striving to do so. With this in mind, two drafting points of general importance arise from Mr Justice Walker’s judgment.
1. Parties entering into contracts should ensure that all their contractual terms are certain at its outset or, if that is not possible, include a contractual mechanism against which a term can be determined in the absence of agreement.
2. Parties should consider carefully the mechanism that will be used. The inclusion of a non-specific “best efforts” obligation in the Option Agreement may have been intended to compel STX to take appropriate action, but in fact worked against the implication of a term by the court. Teekay would have been in a better position if the Option Agreement had provided for a specific objective mechanism to set the Delivery Date, but may also have been in a better position if they had said nothing about “best efforts” at all.
At the time of writing it does not appear that this decision has been appealed. Perhaps the decision not to do so was for pragmatic reasons owing to the bankruptcy of STX and concerns over the eventual value of the claim even if the decision were to be subsequently overturned.
By: ANDREW HUTCHEON
Partner, Watson Farley & Williams
London
BEN LAMBLE
Senior Associate, Watson Farley & Williams
London
If you believe an article violates your rights or the rights of others, please contact us.
|
|
Wednesday, 12 April 17
SHIPPING MARKET INSIGHT - VASSILIS VASSILIOU
The first quarter of 2017 started relatively busy for the ship repair sector, with most of the repair facilities being nearly fully occupied till t ...
Monday, 10 April 17
THE CAPE INDEX WAS DOWN BY 16.32% WEEK OVER WEEK
COALspot.com: The Freight market was steady week over a week except for Cape. The cape index was down 16.32 percent week over week.
The Baltic ...
Friday, 07 April 17
INDONESIAN GOVERNMENT DECLARED SPOT COAL PRICES STAGE FIRST INCREASE OF THE YEAR
COALspot.com: Indonesian government declared coal benchmark price rose slightly in April, government data showed.
The benchmark price of Indon ...
Friday, 07 April 17
U.S WEEKLY COAL OUTPUT ALMOST FLAT WEEK OVER WEEK - EIA
COALspot.com – U.S., the world’s second largest coal producers have produced approximately totaled an estimated 14.5 million short tons ...
Thursday, 06 April 17
PANAMAX: THE MARKET HAS CONTINUED THE FIRM SENTIMENT FROM LAST WEEK IN BOTH HEMISPHERES - FEARNLEYS
Supramax
With holidays in Asia, the week has started very slow in Pacific. Some fixtures have still been done and levels have remained quite stab ...
|
|
|
Showing 2076 to 2080 news of total 6871 |
|
 |
|
|
|
|
| |
|
 |
|
|
| |
|
- Edison Trading Spa - Italy
- Salva Resources Pvt Ltd - India
- Trasteel International SA, Italy
- Neyveli Lignite Corporation Ltd, - India
- Coal and Oil Company - UAE
- Sree Jayajothi Cements Limited - India
- Kapuas Tunggal Persada - Indonesia
- Aboitiz Power Corporation - Philippines
- Orica Mining Services - Indonesia
- GVK Power & Infra Limited - India
- Karbindo Abesyapradhi - Indoneisa
- Bank of Tokyo Mitsubishi UFJ Ltd
- Tata Chemicals Ltd - India
- Kohat Cement Company Ltd. - Pakistan
- Indika Energy - Indonesia
- Rashtriya Ispat Nigam Limited - India
- Global Coal Blending Company Limited - Australia
- Electricity Authority, New Zealand
- Holcim Trading Pte Ltd - Singapore
- Meralco Power Generation, Philippines
- Medco Energi Mining Internasional
- Deloitte Consulting - India
- Metalloyd Limited - United Kingdom
- Siam City Cement PLC, Thailand
- Jaiprakash Power Ventures ltd
- Gujarat Mineral Development Corp Ltd - India
- Iligan Light & Power Inc, Philippines
- Banpu Public Company Limited - Thailand
- OPG Power Generation Pvt Ltd - India
- Parry Sugars Refinery, India
- Bukit Baiduri Energy - Indonesia
- Samtan Co., Ltd - South Korea
- Semirara Mining and Power Corporation, Philippines
- Global Business Power Corporation, Philippines
- Mjunction Services Limited - India
- GN Power Mariveles Coal Plant, Philippines
- Bangladesh Power Developement Board
- Ministry of Transport, Egypt
- European Bulk Services B.V. - Netherlands
- Indo Tambangraya Megah - Indonesia
- Renaissance Capital - South Africa
- Barasentosa Lestari - Indonesia
- Petron Corporation, Philippines
- Miang Besar Coal Terminal - Indonesia
- Karaikal Port Pvt Ltd - India
- Formosa Plastics Group - Taiwan
- Sarangani Energy Corporation, Philippines
- Bulk Trading Sa - Switzerland
- Bhatia International Limited - India
- Vedanta Resources Plc - India
- MS Steel International - UAE
- Economic Council, Georgia
- Ministry of Mines - Canada
- Jindal Steel & Power Ltd - India
- TeaM Sual Corporation - Philippines
- PNOC Exploration Corporation - Philippines
- Kaltim Prima Coal - Indonesia
- Maharashtra Electricity Regulatory Commission - India
- Chettinad Cement Corporation Ltd - India
- Independent Power Producers Association of India
- Energy Development Corp, Philippines
- Wood Mackenzie - Singapore
- Singapore Mercantile Exchange
- AsiaOL BioFuels Corp., Philippines
- Interocean Group of Companies - India
- Asmin Koalindo Tuhup - Indonesia
- ICICI Bank Limited - India
- Marubeni Corporation - India
- IHS Mccloskey Coal Group - USA
- Ind-Barath Power Infra Limited - India
- Orica Australia Pty. Ltd.
- Altura Mining Limited, Indonesia
- Kideco Jaya Agung - Indonesia
- LBH Netherlands Bv - Netherlands
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Malabar Cements Ltd - India
- Africa Commodities Group - South Africa
- Merrill Lynch Commodities Europe
- McConnell Dowell - Australia
- London Commodity Brokers - England
- Manunggal Multi Energi - Indonesia
- Australian Commodity Traders Exchange
- Indian Oil Corporation Limited
- Oldendorff Carriers - Singapore
- Mercator Lines Limited - India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Coalindo Energy - Indonesia
- PetroVietnam Power Coal Import and Supply Company
- Eastern Energy - Thailand
- Star Paper Mills Limited - India
- Maheswari Brothers Coal Limited - India
- Rio Tinto Coal - Australia
- Bahari Cakrawala Sebuku - Indonesia
- Thai Mozambique Logistica
- Uttam Galva Steels Limited - India
- IEA Clean Coal Centre - UK
- Krishnapatnam Port Company Ltd. - India
- Madhucon Powers Ltd - India
- Minerals Council of Australia
- SN Aboitiz Power Inc, Philippines
- Pipit Mutiara Jaya. PT, Indonesia
- Commonwealth Bank - Australia
- Kobexindo Tractors - Indoneisa
- Kartika Selabumi Mining - Indonesia
- Bhoruka Overseas - Indonesia
- Grasim Industreis Ltd - India
- Savvy Resources Ltd - HongKong
- Jorong Barutama Greston.PT - Indonesia
- Indonesian Coal Mining Association
- Gujarat Electricity Regulatory Commission - India
- Indian Energy Exchange, India
- ASAPP Information Group - India
- Coastal Gujarat Power Limited - India
- CIMB Investment Bank - Malaysia
- Petrochimia International Co. Ltd.- Taiwan
- Makarim & Taira - Indonesia
- SMG Consultants - Indonesia
- Ambuja Cements Ltd - India
- Directorate Of Revenue Intelligence - India
- The University of Queensland
- Sinarmas Energy and Mining - Indonesia
- Sakthi Sugars Limited - India
- Riau Bara Harum - Indonesia
- Directorate General of MIneral and Coal - Indonesia
- Ceylon Electricity Board - Sri Lanka
- SMC Global Power, Philippines
- Globalindo Alam Lestari - Indonesia
- Kepco SPC Power Corporation, Philippines
- South Luzon Thermal Energy Corporation
- Simpson Spence & Young - Indonesia
- Vijayanagar Sugar Pvt Ltd - India
- Bukit Makmur.PT - Indonesia
- Vizag Seaport Private Limited - India
- VISA Power Limited - India
- Therma Luzon, Inc, Philippines
- Global Green Power PLC Corporation, Philippines
- Latin American Coal - Colombia
- Wilmar Investment Holdings
- Bayan Resources Tbk. - Indonesia
- Mintek Dendrill Indonesia
- Parliament of New Zealand
- Aditya Birla Group - India
- Tamil Nadu electricity Board
- GMR Energy Limited - India
- Antam Resourcindo - Indonesia
- Offshore Bulk Terminal Pte Ltd, Singapore
- Leighton Contractors Pty Ltd - Australia
- Timah Investasi Mineral - Indoneisa
- Energy Link Ltd, New Zealand
- Borneo Indobara - Indonesia
- Ministry of Finance - Indonesia
- Larsen & Toubro Limited - India
- Heidelberg Cement - Germany
- India Bulls Power Limited - India
- PowerSource Philippines DevCo
- Australian Coal Association
- Intertek Mineral Services - Indonesia
- Eastern Coal Council - USA
- Lanco Infratech Ltd - India
- Anglo American - United Kingdom
- Chamber of Mines of South Africa
- White Energy Company Limited
- GAC Shipping (India) Pvt Ltd
- Xindia Steels Limited - India
- Central Java Power - Indonesia
- Bukit Asam (Persero) Tbk - Indonesia
- Kalimantan Lumbung Energi - Indonesia
- Standard Chartered Bank - UAE
- Straits Asia Resources Limited - Singapore
- Power Finance Corporation Ltd., India
- Carbofer General Trading SA - India
- Kumho Petrochemical, South Korea
- Indogreen Group - Indonesia
- Posco Energy - South Korea
- Toyota Tsusho Corporation, Japan
- TNB Fuel Sdn Bhd - Malaysia
- Goldman Sachs - Singapore
- Romanian Commodities Exchange
- CNBM International Corporation - China
- Dalmia Cement Bharat India
- Baramulti Group, Indonesia
- Semirara Mining Corp, Philippines
- Attock Cement Pakistan Limited
- Binh Thuan Hamico - Vietnam
- International Coal Ventures Pvt Ltd - India
- San Jose City I Power Corp, Philippines
- Georgia Ports Authority, United States
- Cigading International Bulk Terminal - Indonesia
- Videocon Industries ltd - India
- Bhushan Steel Limited - India
- Meenaskhi Energy Private Limited - India
- Sical Logistics Limited - India
- Billiton Holdings Pty Ltd - Australia
- Planning Commission, India
- Sojitz Corporation - Japan
- New Zealand Coal & Carbon
- Thiess Contractors Indonesia
- Bharathi Cement Corporation - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Alfred C Toepfer International GmbH - Germany
- Gujarat Sidhee Cement - India
- PTC India Limited - India
- Mercuria Energy - Indonesia
- Pendopo Energi Batubara - Indonesia
- Asia Pacific Energy Resources Ventures Inc, Philippines
- The State Trading Corporation of India Ltd
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Agrawal Coal Company - India
- Siam City Cement - Thailand
- Sindya Power Generating Company Private Ltd
- Electricity Generating Authority of Thailand
- Price Waterhouse Coopers - Russia
- Port Waratah Coal Services - Australia
- Cement Manufacturers Association - India
- Central Electricity Authority - India
- The Treasury - Australian Government
- Essar Steel Hazira Ltd - India
|
| |
| |
|
