‘No consensus’ in shipping contract

Posted: 14th March 2013

Arbitrators had no jurisdiction to resolve a contractual dispute between shipping companies because there had never been any binding charterparty between them, the High Court has ruled. A close analysis of email traffic between representatives of the two companies revealed that the agreement had remained conditional and that no consensus had been achieved between the parties.

shipThe owner of a raw material consignment had negotiated with the vessel’s operators to transport the cargo from Houston, Texas, to the US gulf via the Orinoco River, in Venezuela. The bareboat charter under which the vessel was operated had limited its voyages to safe ports and ice-free areas and, in particular, forbade its use on the Orinoco River.

Negotiations for the contract had reached an advanced stage before the effect of the latter embargo was realised and the operator withdrew from the negotiations. The cargo’s owner asserted that the operator was in repudiatory breach of contract and sought damages. Arbitrators subsequently accepted that there had been a binding charterparty and ruled in favour of the cargo owner.

Allowing the operator’s appeal, the High Court said that emails exchanged between the parties revealed that final agreement had always been subject to an objective review of the terms of the bareboat charter. The emails did not employ the clear language usually found in binding charters and it was ‘inconceivable’ that the operator would have entered into a contract that would have put it in automatic breach of its obligations under the head charterparty. There had been ‘no consensus and therefore no binding contract’ between the parties and there was thus no arbitration agreement on which the jurisdiction of arbitrators could bite.