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.
|
|
Friday, 24 March 17
U.S COAL PRODUCTION ESTIMATE DECLINE 4.4% W/W - EIA
COALspot.com – U.S., the world’s second largest coal producers have produced approximately totaled an estimated 14.1 million short tons ...
Thursday, 23 March 17
CAPESIZE: TAKING A BREATHER AFTER RALLYING - BUT OUTLOOK FOR WEEKS TO COME NOT SCARY - FEARNLEYS
Supramax
In the Pacific the market seems somewhat slower this week, although healthy rates still being achieved said Fearnleys in its latest week ...
Thursday, 23 March 17
KOREA MIDLAND POWER COMPANY LIMITED INVITES BIDS FOR TOTAL 4.77 MILLION TONS OF BITUMINOUS COAL FOR ITS BORYEONG POWER PLANT
COALspot.com: South Korea state-owned utility Korea Midland Power (KOMIPO) issued a new tender for 2,090,000 Metric Tons of Bituminous coal f ...
Wednesday, 22 March 17
THE DRY BULK MARKET HAS UNDOUBTEDLY REBOUNDED SINCE THE SAME PERIOD LAST YEAR - KONSTANTINOS KONTOMICHIS
The Dry Bulk market has undoubtedly rebounded since the same period last year and currently enjoys healthier freight rates. The positive reversal i ...
Tuesday, 21 March 17
DESPITE THE CHALLENGING MARKET SITUATION IN 2016 THE DELTA DUNIA MAKMUR HAS ACHIEVED A NET PROFIT OF US$37 MILLION
COALspot.com: PT Delta Dunia Makmur Tbk. has announced its financial results for the period ended December 31, 2016.
Despite challenging marke ...
|
|
|
Showing 2091 to 2095 news of total 6871 |
|
 |
|
|
|
|
| |
|
 |
|
|
| |
|
- Intertek Mineral Services - Indonesia
- Kumho Petrochemical, South Korea
- Parliament of New Zealand
- CNBM International Corporation - China
- Siam City Cement - Thailand
- Barasentosa Lestari - Indonesia
- The Treasury - Australian Government
- Maharashtra Electricity Regulatory Commission - India
- Rio Tinto Coal - Australia
- Africa Commodities Group - South Africa
- IEA Clean Coal Centre - UK
- Baramulti Group, Indonesia
- ICICI Bank Limited - India
- Bhushan Steel Limited - India
- Cement Manufacturers Association - India
- Bhoruka Overseas - Indonesia
- Trasteel International SA, Italy
- Coal and Oil Company - UAE
- GVK Power & Infra Limited - India
- San Jose City I Power Corp, Philippines
- Indian Oil Corporation Limited
- Binh Thuan Hamico - Vietnam
- SMG Consultants - Indonesia
- Lanco Infratech Ltd - India
- Neyveli Lignite Corporation Ltd, - India
- Bukit Asam (Persero) Tbk - Indonesia
- Pendopo Energi Batubara - Indonesia
- Sindya Power Generating Company Private Ltd
- Pipit Mutiara Jaya. PT, Indonesia
- Aditya Birla Group - India
- Medco Energi Mining Internasional
- Bangladesh Power Developement Board
- Alfred C Toepfer International GmbH - Germany
- Gujarat Sidhee Cement - India
- Borneo Indobara - Indonesia
- Georgia Ports Authority, United States
- India Bulls Power Limited - India
- The University of Queensland
- Posco Energy - South Korea
- Therma Luzon, Inc, Philippines
- Singapore Mercantile Exchange
- Ministry of Mines - Canada
- Marubeni Corporation - India
- Directorate General of MIneral and Coal - Indonesia
- Orica Mining Services - Indonesia
- Central Java Power - Indonesia
- Jorong Barutama Greston.PT - Indonesia
- Attock Cement Pakistan Limited
- GAC Shipping (India) Pvt Ltd
- The State Trading Corporation of India Ltd
- Xindia Steels Limited - India
- Ceylon Electricity Board - Sri Lanka
- Indo Tambangraya Megah - Indonesia
- Asmin Koalindo Tuhup - Indonesia
- Anglo American - United Kingdom
- Kepco SPC Power Corporation, Philippines
- Kapuas Tunggal Persada - Indonesia
- Directorate Of Revenue Intelligence - India
- Kartika Selabumi Mining - Indonesia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Vijayanagar Sugar Pvt Ltd - India
- Karaikal Port Pvt Ltd - India
- Electricity Generating Authority of Thailand
- Rashtriya Ispat Nigam Limited - India
- Essar Steel Hazira Ltd - India
- Bharathi Cement Corporation - India
- Wood Mackenzie - Singapore
- Australian Commodity Traders Exchange
- Sical Logistics Limited - India
- Kideco Jaya Agung - Indonesia
- CIMB Investment Bank - Malaysia
- Krishnapatnam Port Company Ltd. - India
- Maheswari Brothers Coal Limited - India
- Romanian Commodities Exchange
- Larsen & Toubro Limited - India
- Indogreen Group - Indonesia
- Central Electricity Authority - India
- SMC Global Power, Philippines
- Bank of Tokyo Mitsubishi UFJ Ltd
- Price Waterhouse Coopers - Russia
- Aboitiz Power Corporation - Philippines
- AsiaOL BioFuels Corp., Philippines
- Merrill Lynch Commodities Europe
- Global Business Power Corporation, Philippines
- Bhatia International Limited - India
- IHS Mccloskey Coal Group - USA
- Goldman Sachs - Singapore
- Coastal Gujarat Power Limited - India
- Mercuria Energy - Indonesia
- Thai Mozambique Logistica
- Holcim Trading Pte Ltd - Singapore
- Metalloyd Limited - United Kingdom
- Kalimantan Lumbung Energi - Indonesia
- Deloitte Consulting - India
- Planning Commission, India
- SN Aboitiz Power Inc, Philippines
- TeaM Sual Corporation - Philippines
- Energy Link Ltd, New Zealand
- Meenaskhi Energy Private Limited - India
- Standard Chartered Bank - UAE
- Sarangani Energy Corporation, Philippines
- Iligan Light & Power Inc, Philippines
- Manunggal Multi Energi - Indonesia
- Altura Mining Limited, Indonesia
- Ind-Barath Power Infra Limited - India
- Indika Energy - Indonesia
- Gujarat Electricity Regulatory Commission - India
- Wilmar Investment Holdings
- Toyota Tsusho Corporation, Japan
- Bukit Makmur.PT - Indonesia
- Leighton Contractors Pty Ltd - Australia
- MS Steel International - UAE
- Global Green Power PLC Corporation, Philippines
- LBH Netherlands Bv - Netherlands
- Ministry of Finance - Indonesia
- Uttam Galva Steels Limited - India
- Samtan Co., Ltd - South Korea
- Sojitz Corporation - Japan
- Heidelberg Cement - Germany
- Offshore Bulk Terminal Pte Ltd, Singapore
- VISA Power Limited - India
- Mercator Lines Limited - India
- Bulk Trading Sa - Switzerland
- Mjunction Services Limited - India
- Sakthi Sugars Limited - India
- Kobexindo Tractors - Indoneisa
- Billiton Holdings Pty Ltd - Australia
- GN Power Mariveles Coal Plant, Philippines
- Jaiprakash Power Ventures ltd
- Australian Coal Association
- Grasim Industreis Ltd - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Electricity Authority, New Zealand
- Simpson Spence & Young - Indonesia
- Siam City Cement PLC, Thailand
- Mintek Dendrill Indonesia
- Star Paper Mills Limited - India
- GMR Energy Limited - India
- Karbindo Abesyapradhi - Indoneisa
- South Luzon Thermal Energy Corporation
- Parry Sugars Refinery, India
- ASAPP Information Group - India
- Eastern Energy - Thailand
- Independent Power Producers Association of India
- Economic Council, Georgia
- PNOC Exploration Corporation - Philippines
- OPG Power Generation Pvt Ltd - India
- Timah Investasi Mineral - Indoneisa
- Commonwealth Bank - Australia
- TNB Fuel Sdn Bhd - Malaysia
- Port Waratah Coal Services - Australia
- Indonesian Coal Mining Association
- Chettinad Cement Corporation Ltd - India
- Vedanta Resources Plc - India
- Petron Corporation, Philippines
- Miang Besar Coal Terminal - Indonesia
- European Bulk Services B.V. - Netherlands
- Kaltim Prima Coal - Indonesia
- Tamil Nadu electricity Board
- Salva Resources Pvt Ltd - India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Power Finance Corporation Ltd., India
- Bayan Resources Tbk. - Indonesia
- Oldendorff Carriers - Singapore
- Banpu Public Company Limited - Thailand
- Eastern Coal Council - USA
- Riau Bara Harum - Indonesia
- Gujarat Mineral Development Corp Ltd - India
- Chamber of Mines of South Africa
- Agrawal Coal Company - India
- Jindal Steel & Power Ltd - India
- International Coal Ventures Pvt Ltd - India
- Straits Asia Resources Limited - Singapore
- Tata Chemicals Ltd - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Sree Jayajothi Cements Limited - India
- Semirara Mining Corp, Philippines
- Interocean Group of Companies - India
- Meralco Power Generation, Philippines
- Semirara Mining and Power Corporation, Philippines
- Sinarmas Energy and Mining - Indonesia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- New Zealand Coal & Carbon
- Carbofer General Trading SA - India
- Global Coal Blending Company Limited - Australia
- McConnell Dowell - Australia
- Madhucon Powers Ltd - India
- Formosa Plastics Group - Taiwan
- Indian Energy Exchange, India
- Thiess Contractors Indonesia
- PetroVietnam Power Coal Import and Supply Company
- Cigading International Bulk Terminal - Indonesia
- Ambuja Cements Ltd - India
- Ministry of Transport, Egypt
- Petrochimia International Co. Ltd.- Taiwan
- PTC India Limited - India
- Globalindo Alam Lestari - Indonesia
- Edison Trading Spa - Italy
- Dalmia Cement Bharat India
- Minerals Council of Australia
- Videocon Industries ltd - India
- Kohat Cement Company Ltd. - Pakistan
- London Commodity Brokers - England
- Vizag Seaport Private Limited - India
- Renaissance Capital - South Africa
- Bahari Cakrawala Sebuku - Indonesia
- Orica Australia Pty. Ltd.
- Bukit Baiduri Energy - Indonesia
- White Energy Company Limited
- PowerSource Philippines DevCo
- Malabar Cements Ltd - India
- Antam Resourcindo - Indonesia
- Energy Development Corp, Philippines
- Savvy Resources Ltd - HongKong
- Coalindo Energy - Indonesia
- Latin American Coal - Colombia
- Makarim & Taira - Indonesia
|
| |
| |
|
