WhatsApp-enned here?! Salutary lessons when negotiating subjects over social media | ZFZ Postcard Cases

Similarly prevalent in broking are charterparty ‘subjects’, where parties confirm their acceptance of terms subject to, for example, approval of charterers’ management, often abbreviated to a ‘CMA’ subject. Subjects serve a useful purpose in allowing commercial parties a final ‘barrier’ before a contract is formed and also in providing ‘commercial pressure’ [1] for a party to conclude the agreement. At the same time, subjects can give rise to disputes if the parties to the purported charterparty disagree on whether a contract has been concluded or not.

In an early Easter egg to the broking industry, the Commercial Court has addressed both issues, in Southeaster Maritime Ltd v Trafigura Maritime Logistics Pte Ltd, “The Aquafreedom”.

Southeaster Maritime Ltd v Trafigura Maritime Logistics Pte Ltd: The Aquafreedom [2024] EWHC 255 (Comm)

Trafigura (for simplicity referred to as “Charterers”) and Owners were both represented by brokers from the same broking firm in negotiations to charter the vessel, Aquafreedom. The brokers would negotiate, and also communicate with their respective principals, via WhatsApp. Noting that both brokers belonged to the same broking firm, the Court stated that a message from a principal to its broker, and which got no further, would not be deemed as a message to the other party.[2] On occasions when Owners and Charterers communicated directly, they would use email.

The recap prepared by the parties referred to an agreement based on terms used for a previous charterparty between Charterers and other owners.[3] The recap provided for those terms to be reviewed and also contained a CMA subject. [4] It remained for the parties to continue negotiations on clauses covering new regulations on carbon emissions, amongst others.

Owners’ penultimate message disagreed with proposals for different terms made by Charterers. Eventually, Charterers messaged Owners expressing their agreement to Owners’ penultimate message and that they would revert about lifting the CMA subject as soon as possible. [5] Charterers’ time ran out when Owners’ broker communicated Owners’ withdrawal from negotiations via WhatsApp. [6]

Minutes later, but crucially after Owners’ withdrawal from negotiations, Charterers sent Owners an email lifting the CMA subject.[7]

A flurry of arguments and interpretations were put forward by Charterers in support of the proposition that the charterparty had been validly concluded. They claimed to have only made mere enquiries rather than counter-offers, so the terms of Owners’ penultimate message were on the table for them to accept. Charterers argued that, in any case, lifting the CMA subject was not necessary, as the agreement to proceed on previous terms was sufficient. Meanwhile, Owners stuck with the orthodoxy: Charterers’ counter-offer destroyed any previous offers; ‘subjects’ are a condition precedent to contract formation and therefore no contract was formed since subjects had not been lifted at the time of Owners’ withdrawal.

The Decision
The Court sided with Owners. The Court found numerous bases for concluding that no contract had been formed in this case:

1. According to the recap, the subjects could only be lifted once the previous terms had been reviewed and all terms had been agreed; [8]
2. All the terms had not been agreed, as:[a] a reference to ‘previously agreed terms sub review both sides’ in the recap did not create a contract, as these terms were copied over from a previous contract      between Charterers and other owners. The parties had not reached an agreement on the revisions; [9][b] The recap was incomplete. It failed to address crucial matters such as trading area exclusions and the wording of the cargoes to be carried.[10]
3. The back and forth in the parties’ negotiations (i.e. a counter-offer negates an original offer) meant that there was no Owners’ offer for Charterers to accept when they purported to do so and before the CMA subject was lifted; [11]
4. In any case, a contract could not arise since subjects had not been lifted by the time that Owners withdrew from the negotiations (by WhatsApp). [12]

On the issue of subjects, the Court followed the recent case of The Leonidas [2020] EWHC 1986, in which the court found that a subject may be a pre-condition or a performance condition. [13] If the subject is a pre-condition, a contract does not arise until the subject is lifted. [14] On the other hand, if the subject is a performance condition, a contract will be formed even where the subject is not satisfied. [15] In this regard, a performance condition follows conclusion of the contract but may excuse performance of the contract.

The Leonidas expressed that ‘an important factor in determining whether a “subject” is a pre-condition or a performance condition’ is who controls the lifting or the satisfaction of the subject. [16] If the subject’s lifting or satisfaction depends upon the decision of a contracting party, the subject is most likely a pre-condition. Whereas, if the subject’s satisfaction depends upon a third party’s decision, the subject is most likely a performance condition. [17]

In The Aquafreedom, despite their arguments, Charterers were found to be the only party capable of lifting the CMA subject and therefore the subject was a pre-condition to the charterparty. [18]

In the alternative, Charterers challenged the validity of the WhatsApp messages themselves as a form of communication, not least since Owners’ withdrawal was sent by WhatsApp whereas Charterers lifted the CMA subject via email.

The Court preferred Owners’ position, stating that there was no indication that WhatsApp communications should be of less value in contractual construction than email. [19] They are, of course, both written communications. Indeed, the Court recognised the utility of WhatsApp messages as superior to verbal communication (which is also capable of contract formation), as with WhatsApp ‘there is a record of what is said’. [20]

It was left somewhat open as to what would have been needed for the Court to find that it should disregard the WhatsApp messages: presumably this would require an express agreement between the parties themselves. It is hard to imagine that being implemented in practice as that would mean the brokers going back to email exclusively. Given the fast-paced nature of their business, presumably, this would be considered little improvement on pigeons.

What does this mean?
This case gives three words of advice for parties negotiating a charterparty: subjects, subjects, and subjects. If there was any doubt before, the English Courts have clarified that an agreement will not be binding until subjects have been lifted.

For brokers and parties, the decision provides affirmation that WhatsApp negotiations are as acceptable as any other written form of communication when it comes to contract formation.

Therefore, if you are about to negotiate a multimillion-dollar charterparty, contract of affreightment or any other contract over social media and think that those communications are not legally binding – beware – the courts think otherwise.

Jody Wood (Partner), Augusto Garcia Sanjur (Associate), Jakub Mikulski (Paralegal)

To read the full decision, please click here 

References:
1 Southeaster Maritime Ltd v Trafigura Maritime Logistics Pte Ltd: The Aquafreedom [2024] EWHC 255 (Comm) [106].
2 ibid 5.
3 ibid 24.
4 ibid 9.
5 ibid 68.
6 ibid 71.
7 ibid 74.
8 ibid 109.
9 Ibid 56, 109.
10 ibid 111.
11 ibid 56.
12 ibid 116, 125-137
13 Nautica Marine Ltd v Trafigura Trading LLC: The Leonidas [2020] EWHC 1986 [47]-[48].
14 ibid 47.
15 ibid 48.
16 ibid 49.
17 ibid.
18 The Aquafreedom (n 1) 108, 116.
19 ibid 129.
20 ibid 130.