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Transport

Binding contract on carriage by sea – despite ”unfinished” negotiations

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Legal news
calendar 8 March 2015
globus Denmark

An American freight forwarder must pay 160,000 USD in damages to a Danish shipping company after having rejected a contract at the last minute and at the same time hired another shipping company to conduct the carriage. The Danish Maritime and Commercial High Court found that the freight forwarder and the shipping company had entered into a binding agreement even though certain conditions still were under discussion.

An American freight forwarder was to carry goods from Thailand to Izmir in Turkey and to Tartous in Syria. On 31 May 2011 the freight forwarder received an offer from a Danish shipping company regarding the carriage and in the following days the parties negotiated via e-mail. Among other things, remarks on the principles of calculation of the freight rate was made and it was discussed whether the goods should be loaded in several levels. The parties disagreed on the loading because stacking of the goods could cause a greater risk of damage but at the same time it was less costly.

On 6 June 2011 the freight forwarder wrote that the draft of booking note regarding the carriage to Syria was OK but that the other booking note should be corrected.

Booking notes ready for signature

The parties continued the discussions concerning the loading and the freight forwarder sent a new draft of booking note for the Turkish carriage. The freight forwarder noted that “Both b/ns are good per discussion now” and asked for formal versions of the two booking notes for signature and stamping. At the same time the freight forwarder requested a final answer to the question of freight rate and stowage of the goods, including whether the goods should be carried by one or two ships.

The discussions about freight rate, stowage and expected arrival continued after the original booking notes had been sent for signing.

… but no carriage anyway

On 11 June 2011 the freight forwarder wrote in an e-mail that the two “unfinalized” bookings could not be carried out because of unclarified technical aspects and because the freight forwarder’s customer had instructed the freight forwarder not to continue with the Danish shipping company. A couple of days later it appeared that the freight forwarder had hired another shipping company which was cheaper.

Subsequently, the Danish shipping company brought legal actions against the freight forwarder and claimed its lost profit.

The Danish Maritime and Commercial High Court: A binding contact was entered and breached

In view of the parties’ e-mail correspondence, the Danish Maritime and Commercial High Court determined that contract on the terms of carriage including prize, vessel and special terms was reached. The terms appeared from the draft of booking note which the freight forwarder had sent to the shipping company on 6 May 2011 and which the freight forwarder had agreed to.

The court emphasized the expert lay assessor’s statement that contracts of carriage of this kind usually are agreed and executed without any signed documents and that it is common that technical questions not are finally clarified until the contract of carriage is agreed. Furthermore, the court noted that the parties’ ongoing negotiations about loading, among other things, could not result in other conditions for the transport than what they had agreed on 6 May 2011. For that reason, the parties had entered into a binding contract.

The freight forwarder had breached the contract by rejecting it and by entering into a new contract of carriage with a new shipping company and the freight forwarder became liable in damages for almost 160,000 USD to the Danish shipping company.

IUNO’s opinion

The judgment illustrates that a contract can be binding even though the parties disagree on certain terms and even though the documents are not signed and stamped.

According to Danish law, an agreement is binding when the parties have agreed upon all of the essential terms and the court found that it was the case in this situation. The last conditions in the contract were of no particular importance to the formation of contract.

IUNO recommends that a party takes particular note whether the other party has the same understanding during the negotiations. Even very few terms – or practical terms – can have a fundamental impact on whether a party is interested in entering the contract. To prevent “being trapped” by negotiations in cases like this it should be strongly emphasized during the negotiations if the concerned terms are vital for the formation of the contract.

The judgment has been appealed to the Danish Eastern High Court and we will return when the High Court has handed down the judgment.

[Judgment of the Maritime and Commercial High Court, 10 September 2014, case no. S-17-11]

An American freight forwarder was to carry goods from Thailand to Izmir in Turkey and to Tartous in Syria. On 31 May 2011 the freight forwarder received an offer from a Danish shipping company regarding the carriage and in the following days the parties negotiated via e-mail. Among other things, remarks on the principles of calculation of the freight rate was made and it was discussed whether the goods should be loaded in several levels. The parties disagreed on the loading because stacking of the goods could cause a greater risk of damage but at the same time it was less costly.

On 6 June 2011 the freight forwarder wrote that the draft of booking note regarding the carriage to Syria was OK but that the other booking note should be corrected.

Booking notes ready for signature

The parties continued the discussions concerning the loading and the freight forwarder sent a new draft of booking note for the Turkish carriage. The freight forwarder noted that “Both b/ns are good per discussion now” and asked for formal versions of the two booking notes for signature and stamping. At the same time the freight forwarder requested a final answer to the question of freight rate and stowage of the goods, including whether the goods should be carried by one or two ships.

The discussions about freight rate, stowage and expected arrival continued after the original booking notes had been sent for signing.

… but no carriage anyway

On 11 June 2011 the freight forwarder wrote in an e-mail that the two “unfinalized” bookings could not be carried out because of unclarified technical aspects and because the freight forwarder’s customer had instructed the freight forwarder not to continue with the Danish shipping company. A couple of days later it appeared that the freight forwarder had hired another shipping company which was cheaper.

Subsequently, the Danish shipping company brought legal actions against the freight forwarder and claimed its lost profit.

The Danish Maritime and Commercial High Court: A binding contact was entered and breached

In view of the parties’ e-mail correspondence, the Danish Maritime and Commercial High Court determined that contract on the terms of carriage including prize, vessel and special terms was reached. The terms appeared from the draft of booking note which the freight forwarder had sent to the shipping company on 6 May 2011 and which the freight forwarder had agreed to.

The court emphasized the expert lay assessor’s statement that contracts of carriage of this kind usually are agreed and executed without any signed documents and that it is common that technical questions not are finally clarified until the contract of carriage is agreed. Furthermore, the court noted that the parties’ ongoing negotiations about loading, among other things, could not result in other conditions for the transport than what they had agreed on 6 May 2011. For that reason, the parties had entered into a binding contract.

The freight forwarder had breached the contract by rejecting it and by entering into a new contract of carriage with a new shipping company and the freight forwarder became liable in damages for almost 160,000 USD to the Danish shipping company.

IUNO’s opinion

The judgment illustrates that a contract can be binding even though the parties disagree on certain terms and even though the documents are not signed and stamped.

According to Danish law, an agreement is binding when the parties have agreed upon all of the essential terms and the court found that it was the case in this situation. The last conditions in the contract were of no particular importance to the formation of contract.

IUNO recommends that a party takes particular note whether the other party has the same understanding during the negotiations. Even very few terms – or practical terms – can have a fundamental impact on whether a party is interested in entering the contract. To prevent “being trapped” by negotiations in cases like this it should be strongly emphasized during the negotiations if the concerned terms are vital for the formation of the contract.

The judgment has been appealed to the Danish Eastern High Court and we will return when the High Court has handed down the judgment.

[Judgment of the Maritime and Commercial High Court, 10 September 2014, case no. S-17-11]

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Lars

Rosenberg Overby

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Poulsen

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