Nautica Marine Ltd v Trafigura Trading LLC (Rev 1)

There was little dispute as to the generally applicable legal principles, which Lord Clarke JSC set out in RTS Flexible Systems v Molkerei Alois Muller [2010] 1 WLR 753, [45] in the following terms:

“Whether there is a binding contract between the parties and, if so, upon what terms depends upon what they have agreed. It depends not upon their subjective state of mind, but upon a consideration of what was communicated between them by words or conduct, and whether that leads objectively to a conclusion that they intended to create legal relations and had agreed upon all the terms which they regarded or the law requires as essential for the formation of legally binding relations. Even if certain terms of economic or other significance to the parties have not been finalised, an objective appraisal of their words and conduct may lead to the conclusion that they did not intend agreement on such terms to be a precondition to a concluded and legally binding agreement”.

In formulating this summary, Lord Clarke JSC at [49] referred with approval to the oft-cited summary of Lloyd LJ in Pagnan SpA v Feed Products Ltd [1987] 2 Lloyd’s Rep 601, 619:

“As to the law, the principles to be derived from the authorities, some of which I have already mentioned, can be summarized as follows:

(1)

In order to determine whether a contract has been concluded in the course of correspondence, one must first look to the correspondence as a whole (see Hussey v. Horne-Payne).

(2)

Even if the parties have reached agreement on all the terms of the proposed contract, nevertheless they may intend that the contract shall not become binding until some further condition has been fulfilled. That is the ordinary "subject to contract" case.

(3)

Alternatively, they may intend that the contract shall not become binding until some further term or terms have been agreed; see Love and Stewart v. Instone, where the parties failed to agree the intended strike clause, and Hussey v. Horne-Payne …

(4)

Conversely, the parties may intend to be bound forthwith even though there are further terms still to be agreed or some further formality to be fulfilled (see Love and Stewart v. Instone per Lord Loreburn at p. 476).

(5)

If the parties fail to reach agreement on such further terms, the existing contract is not invalidated unless the failure to reach agreement on such further terms renders the contract as a whole unworkable or void for uncertainty.

(6)

It is sometimes said that the parties must agree on the essential terms and that it is only matters of detail which can be left over. This may be misleading, since the word ‘essential’ in that context is ambiguous. If by "essential" one means a term without which the contract cannot be enforced then the statement is true: the law cannot enforce an incomplete contract. If by ‘essential’ one means a term which the parties have agreed to be essential for the formation of a binding contract, then the statement is tautologous. If by ‘essential’ one means only a term which the Court regards as important as opposed to a term which the Court regards as less important or a matter of detail, the statement is untrue. It is for the parties to decide whether they wish to be bound and, if so, by what terms, whether important or unimportant. It is the parties who are, in the memorable phrase coined by the Judge, ‘the masters of their contractual fate’. Of course the more important the term is the less likely it is that the parties will have left it for future decision. But there is no legal obstacle which stands in the way of the parties agreeing to be bound now while deferring important matters to be agreed later. It happens every day when parties enter into so-called ‘heads of agreement’”.

In RTS, Lord Clarke JSC noted that sometimes the parties agree that no contract will be concluded until some formal step (such as the signing of a written contract) takes place ([46]). This is frequently done by using the “subject to contract” rubric. In those circumstances, Lord Clarke JSC noted at [55]:

“the question is whether the parties have nevertheless agreed to enter into contractual relations on particular terms notwithstanding their earlier agreement or understanding.”

Lord Clarke JSC noted at [56] that whether, against the background of “subject to contract” dealings, the parties have agreed nonetheless to enter into a contract without signing a written contract will “depend upon all the circumstances of the case, although the cases show that the court will not lightly so hold”. He held that an agreement to be bound notwithstanding the absence of a written contract need not be express ([67]). In that case, the Supreme Court concluded that the parties had agreed to enter into contractual relations notwithstanding the absence of a signed contract because “any other conclusion makes no commercial sense” ([86]).

In addition to agreeing, by the use of “subject to contract” or some similar rubric, that there will be no binding contract until a written contract has been signed, the parties may agree that there will be no binding contract until all terms of the proposed contract have been agreed, whatever their relative importance to the parties’ overall bargain. A well-known formulation which achieves that effect in the charter market is to provide that agreement is “subject to details”. In the leading authority on those words, Star Steamship Society v Beogradska Plovidba (The Junior K) [1988] 2 Lloyd’s Rep 583, Steyn J held that the effect of the phrase was to prevent any contract being concluded until all of the terms had been agreed. He stated at p.588:

“I would respectfully suggest that it is in the interests of the chartering business that the Courts should recognise the efficacy of the maritime variant of the wellknown ‘subject to contract’. The expression ‘subject to details’ enables owners and charterers to know where they are in negotiations and to regulate their business accordingly. It is a device which tends to avoid disputes and the assumption of those in the shipping trade that it is effective to make clear that there is no binding agreement at that stage ought to be respected.”

However, as with “subject to contract”, so with “subject to details” it is possible for parties who have initially agreed to proceed on the basis that there will be no concluded contract until all the terms have been finalised, to decide nonetheless to enter into contractual relations on those terms which have been agreed while continuing to negotiate the outstanding terms (i.e. a contract of the type envisaged by Lloyd LJ in stage (4) of his summary in Pagnan).

The legal effect of the phrases “subject to contract” and “subject to details” is, therefore, to enable either party to avoid entering into contractual relations by refusing to sign a written contract or reach agreement on any outstanding terms, as the case may be. Similarly, no contract comes into existence when an agreement is reached “subject to board approval” by one or other party, because the effect of those words is to postpone the decision on whether to enter into legal relations to a subsequent stage. In Goodwood Investments Holdings Inc v Thyssenkrupp Industrial Solutions AG [2018] EWHC 1056 (Comm), a case involving a settlement agreement which was subject to one party obtaining board approval, Males J held (at [33]) that the agreement was not binding on either party until board approval was given.

When the event on which the entry into contractual relations depends is a decision by one or both parties to undertake a legally binding commitment, there is no room for the argument that some form of preliminary agreement comes into existence imposing an obligation on one or both of the parties to seek to complete the bargain. This is both because the purpose of the “subject” is to signal that the parties have not yet reached the stage of any legal commitment (as Devlin J noted in Windschuegl (Charles H) Ltd v Pickering & Co Ltd (1950) 84 Ll L LR 89, 92) and because of the traditional hostility of the common law to “agreements to agree” given the difficulties of enforcing them (Chitty on Contracts 33^rd edn. paras. 2-144 to 2-147).

In contrast, there are cases in which an agreement is said to be “subject” to some event within the control of someone other than one of the parties, and in which it has been held that the “subject” is not a “pre-condition” which prevents a binding contract coming into existence, but instead has the effect that performance does not have to be rendered if the “subject” is not satisfied for reasons other than a breach of contract by one of the parties (“a performance condition”). This is the position where a contract for international sale is made subject to obtaining an export licence (Brauer v James Clark [1952] 2 Lloyd’s Rep 147) or an import licence (Windschuegl (Charles H) Ltd v Pickering (Alexander) & Co Ltd supra), and where a contract for the sale of land is made subject to obtaining planning permission (Batten v White (No 2) (1960) 12 P&CR 66, 71).

I accept Mr Pearce’s submission that an important factor in determining whether a “subject” is a pre-condition or a performance condition is whether the satisfaction of the “subject” depends upon the decision of a contracting party, or on that of a third party. However, not all “subjects” fit easily into one or other of these categories. One commonly encountered “subject”, which has divided judges as to its classification, is when a contract is made subject to survey or subject to satisfactory survey. There are a number of cases which have treated this expression as a pre-condition: for example Graham and Scott (Southgate) Ltd v Oxlade [1950] 2 KB 257, 261, Marks v Board

However, similar language has been held to create a performance condition, albeit in cases in which a seller has sought to rely on the buyer’s entitlement to conduct a survey as a reason why the seller is not bound. In Varverakis v Compagnia de Navegacion Artico SA (The Merak) [1976] 2 Lloyd’s Rep 250, the Court of Appeal held that an agreement incorporating the terms of the Norwegian Sale Form (“NSF”) for the sale of a ship, which was made “subject to superficial inspection”, was a binding contract which obliged the seller to offer the ship for inspection and the buyer to conduct a survey. The Court reached this conclusion because the NSF imposes an obligation on the buyer to inspect the ship, and to do so on a timely basis, and gives the buyer (but not the seller) the option to cancel or maintain the contract after the survey. Ee v Kakar (1980) 40 P&CR 223 is another case in which the seller wanted to rely on the words “subject to survey” to relieve it of liability for breach of contract, albeit Walton J was clearly of the view that the buyer was bound to perform such a survey, or lose the benefit of the condition, and was bound to act bona fide if presented with a report which was “basically a satisfactory one”.

The courts have frequently (but not invariably) treated “subjects” dependent on one party concluding a contract with a third party as pre-conditions rather than performance conditions (e.g. Beazley Underwriting v Travellers Companies [2011] EWHC 1520 (Comm) and Dany Lions v Bristol Cars Limited [2014] EWHC 817 (QB)). Just as the courts are reluctant in “subject to approval” and “subject to details” cases to determine what an objectively reasonable outcome of the contracting parties’ negotiations would be, they are similarly reluctant to undertake such an enquiry in relation to the putative contract between the contracting party and a third party. However, the cases addressing this issue are not all to the same effect. While the words “subject to the purchaser obtaining a satisfactory mortgage” were held to be a pre-condition in Lee-Parker v Izzet (No 2) [1972] 1 WLR 775, largely because the provision was held to be too uncertain to be enforceable, the decision has been criticised (e.g. in Lewison, The Interpretation of Contracts 6^th para. 16.05) and a different conclusion on similar language was reached in Janmohamed v Hassam [1976] 24 EGLR 609.

While each case will depend on its own individual facts and commercial context, it is clear that a “subject” is more likely to be classified as a pre-condition rather than a performance condition if the fulfilment of the subject involves the exercise of a personal or commercial judgment by one of the putative contracting parties (e.g. as to whether that party is satisfied with the outcome of a survey or as to the terms on which it wishes to contract with any third party).

While these general principles apply to contracts whether they pertain to the domain of land rats or water rats, there is a particular feature of negotiations for the conclusion of contracts for the employment of ships which should be noted. When the main terms for a charterparty have been agreed but the parties have yet to enter into contractual relations, this is generally referred to by shipowners, charterers and chartering brokers as an agreement on “subjects” or “subs”, an expression which signals that there are pre-conditions to contract which remain outstanding. The conclusion of a binding contract in respect of such an agreement is seen as dependent on the agreement of the relevant party or parties to “lift” (i.e. remove) the subjects. The position is accurately summarised by the editors of Carver on Charterparties (2017) at para. 2-031 as follows:

“The parties may agree the terms of a charterparty and one such term may be a condition precedent that unless and until the condition precedent is satisfied, no binding contract comes into being. In charterparty negotiations, such conditions precedent are often referred to as ‘subjects’ and the satisfaction of those conditions precedents is referred to as ‘lifting the subjects’”.

(To similar effect see Wilford on Time Charterparties (4^th) para. 1.11).

Where a “subject” is only resolved by one or both of the parties removing or lifting the subject, rather than occurring automatically on the occurrence of some external event such as the granting of a permission or licence, the “subject” is likely to be a pre-condition rather than a performance condition.

Turning to the specific phrase at issue in this case, Mr Pearce for Nautica rightly accepted that the reference to “MGT Approval” creates a pre-condition. Further, there is long-standing authority that “subject to stem” is a pre-condition, rather than a performance condition. This issue arose in Kokusai Kisen Kabushiki Kaisha v Johnson (1921) 8 Ll L Rep 434. In a judgment which is a model of concision, Rowlatt J held at p.435:

“The point is whether that means that the whole thing is in abeyance as an actual contract; whether it is held up until Friday and then goes off if there is not a stem confirmed, or whether it only goes off if there is not a stem and if the absence of the stem cannot be attributed to the failure of the charterer to try and arrange one”.

Holding that the former analysis was correct, the Judge held:

“There is no reason, having regard to the shortness of the days and the situation of the parties, why this should not be regarded as meaning that the charterer is saying to the owner: ‘we have arranged this charterparty, but I am not in a position to tell you if I can undertake to load this ship until I have found out whether I shall have a stem on Friday’”.

The KKK decision has been cited as authority as to the effect of a “subject to stem” provision in successive editions of the leading maritime law textbooks – for more recent examples, see Carver on Charterparties (1^st) para. 2-031; Scrutton on Charterparties and Bills of Lading (24^th) para. 2-004 and Voyage Charters (4^th) para. 1.23. Mr Pearce did not invite me to reach a different decision, but in any event I would not have been willing to depart from the accepted interpretation of the expression which has stood for nearly 100 years (cf. Sunport Shipping Ltd and others v Tryg-Baltica International (UK) Ltd (The Kleovoulos of Rhodes) [2003] 1 Lloyd’s Rep 138, [25]-[28]).

In circumstances in which the first and last parts of what is a compendious phrase create pre-conditions and not performance conditions, it would to my mind be surprising if the two intermediate elements had a different status. That is all the more so when all are described as “subjects”, and the same tight deadline by which they have to be approved or lifted applies to all. As Rowlatt J noted in KKK, the “shortness of days” for compliance is a factor which supports a pre-condition, rather than performance condition, analysis. Further, the first three subjects – stem, suppliers and receivers’ approval – all relate to matters which bear on the commercial desirability for the charterer of entering into the charterparty: can the charterer procure a cargo for carriage on this vessel, which can be loaded on and discharged from the vessel, and is the vessel acceptable to the suppliers and receivers? In my opinion, Mr Bovensiepen is correct in submitting that “subjects” which relate to matters affecting the commercial desirability for the charterer of the decision to charter the ship are qualitatively different from matters such as the obtaining of import and export licences in sale of goods contracts.

There are other reasons why I prefer Mr Bovensiepen’s submission that the Suppliers’ Approval Subject, in its ordinary usage, is a pre-condition and not a performance condition. There appears to be a surprising degree of uncertainty as to what the

It is clear on the contemporaneous documents that the parties in this case had similarly divergent understandings. I accept Mr Margetis’ evidence, which is supported by the terms of his email of 15.56 HT on 13 January, that he understood the expression to mean the approval of the terminal from which the cargo was to be loaded. However, I also accept Mr Christensen’s evidence that the understanding within Trafigura was that the Suppliers Approval Subject was concerned with the approval of the seller from whom the cargo was to be acquired, not simply that of the terminal from which the cargo was to be loaded. It is noteworthy that in relation to both the Vessel, and the alternative ship which Trafigura chartered in its place, it was the sellers of the cargo to whom Trafigura nominated the ship and from whom it sought approval. The only exception related to a cargo already owned by Trafigura, which was to be loaded at Aruba, for which the only approval sought was that of the terminal. However, the fact that, in relation to the cargo to be loaded at Aruba, the only supplier-side approval Trafigura needed to gain for its own commercial purposes was that of the terminal (because it owned the cargo) cannot, in my view, have the effect of narrowing the meaning of subject when used in relation to cargos to be sourced from a third party.

Given the degree of uncertainty as to the meaning of the expression, it seems highly unlikely that the Suppliers’ Approval Subject was intended to create a contractual obligation of some kind, which would be the inevitable consequence of classifying it as a performance condition.

I prefer Trafigura’s contention that the phrase encompasses all those approvals which the charterer commercially wishes to obtain on the supply side (with the Receivers’ Approval Subject having an equivalent meaning so far as the delivery side is concerned), and it can only be said to have been satisfied when the charterer lifts or waives the term. It is clear that FOB suppliers of oil cargoes will frequently wish to approve the vessel into which cargo is to be delivered: not simply to ensure that the vessel is dimensionally capable of accessing the load-point, but with regard to matters such as the vessel’s physical and documentary condition, flag and trading history. This was the evidence of Mr Henry, Trafigura’s expert, and it was supported by a number of sets of standard sale and purchase terms which Mr Bovensiepen referred me to. For example Shell International Trading and Shipping Company Limited’s “General Terms & Conditions for Sales and Purchases of Crude Oil” (2010 edition) provides at Section 5.5 that the seller can reject a vessel nominated by the buyer on any reasonable ground, including by reference to the seller’s internal ship vetting system and internal ship vetting policy. BP Oil International Limited’s “General Terms and Conditions for Sales and Purchases of Crude Oil” (2015 edition) are to similar effect. There were broadly similar provisions in the contract of sale concluded between Rosneft and Trafigura (by reason of the incorporation of PdVSA’s general terms and conditions). In these circumstances, I see no reason to read the Suppliers’ Approval Subject down so that it encompasses only one, rather than all, of the approvals which a charterer might wish to obtain in relation to the sourcing and loading of the cargo onto a particular vessel before committing itself to a charter.

The conclusion I have reached as to the true scope of the Suppliers’ Approval Subject provides further strong support for the classification of this phrase as a pre-condition and not a performance condition. It is for the charterer to determine who its contractual supplier will be. It may be in discussions with more than one potential supplier at the same time or in quick succession, or have a choice between loading a cargo it already owns or buying cargo in from a third party. In these decisions, a wide range of commercial considerations will be in play. It would be wholly unreal against that background to suggest that the charterer was under an obligation to the owner to obtain the suppliers’ approval from “whoever the defendant intended to be the suppliers” or “the approval of the supplier who they said they were waiting for the approval of” when the subject was imposed (which was Mr Pearce’s submission if I rejected his construction of the Suppliers’ Approval Subject). This would constrain the charterers’ choice of supplier, hinder its ability to “change horses” during a negotiation and commit it to obtaining the approval of a particular supplier even after negotiations with that supplier had broken down and the “supplier” had no reason to engage with requests that it approve a vessel to lift a cargo which it was not going to supply.

Even on Nautica’s construction of the Suppliers’ Approval Subject, there remains the difficulty that the precise point at which a vessel would load (and in respect of which terminal approval would be required) may change depending on the commercial choices which the charterer makes either as to the seller with whom its contracts, or the particular source of cargo which it decides to lift. By way of example, it was common ground in this case that the Vessel could access the SPM at Statia, but not the jetties there. Similarly, the confirmation which Trafigura obtained at Aruba concerned the Vessel’s ability to load from a specific tank (tank 956) but it is, of course, possible, that the Vessel might not have been approved by the terminal for loading from a different tank. These considerations, and the difficulties of reconciling any duty to the owners with the charterers’ general freedom of action in relation to sourcing cargo, weigh heavily against the suggestion that, even if the Suppliers’ Approval Subject bears the narrow meaning for which Nautica contends, it is a performance condition and not a pre-condition.

Mr Bovensiepen argued that there was a further obstacle to the conclusion of a binding contract, namely that the parties had yet to agree all of the terms on which agreement was required before a binding contract was concluded.

There are three specific terms in issue, which I deal with in turn.

First, there is the issue of the identity of the charterer. The Preliminary Recap had provided that the fixture was “for account of Trafigura Trading LLC or nominee”. In responding to those terms for Nautica at 05.55 HT on 11 January, Mr Margetis had asked for Trafigura to guarantee the obligations of any nominee. In response, Nautica

Second, the Preliminary Recap contained the Interim Port Clause (regulating Trafigura’s right to ask the Vessel to call at further ports in the course of the voyage),

I do not accept Trafigura’s argument that Mr Margetis’ failure to delete the words

“SUBJECT REVIEW/AGREEMENT” from Trafigura’s original formulation of the Interim Port Clause had the effect that Nautica was itself reserving its right to make further amendments to this clause before agreeing to it. These words were simply a drafting legacy from the Preliminary Recap. Nautica had reviewed the clause, put forward its own amendments for agreement, and Trafigura had agreed to them. Agreement on this term was not, therefore, outstanding after Mr O’Gorman’s email of 15.32 HT on 11 January 2016.

Finally, the Preliminary Recap provided that the Charterparty would be “otherwise as per the attached Trafigura/NJG terms which subject review/agreement”. When responding at 05.55 HT, Mr Margetis did not include the reference to “otherwise as per the attached Trafigura/NJG terms which subject to review/agreement”, nor did he strike through these words in the way in which he did for other parts of the Preliminary Recap with which he was not in agreement.

In the course of his cross-examination, Mr Margetis stated that he had deliberately omitted this term, because Nautica was content to contract on the basis of an unamended BPVOY 3 form, which he regarded as a better charter. I am unable to accept this evidence. It is extremely rare for a charterparty to be concluded on the basis of a standard form without amendments or additions in “rider clauses”, amendments which, in the case of what are essentially charterer-friendly standard forms produced by the oil majors, are frequently included to render the charterparty more balanced from the owner’s perspective. Further, I am satisfied that if Mr Margetis had been intending to signal a change in the proposed contractual terms by omitting the reference to the Trafigura/NJG Terms, he would have left the reference in but shown the text in strike-through. It seems to me much more likely that Mr Margetis simply omitted the reference to the Trafigura/NJG Terms by accident.

Nor can I accept the suggestion that Mr Margetis, by omitting any reference to the Trafigura/NJG Terms from his email ,was objectively signalling agreement to those terms without any further amendments, nor that Mr Christensen’s “all else OK” can somehow to be taken as agreement to proceeding on this basis. The Trafigura/NJG Terms are lengthy and detailed provisions on matters of obvious importance, and it cannot lightly be assumed that Trafigura and Nautica had decided to commit to them without the review referred to in the Preliminary Recap. The objective interpretation of the exchanges is that the parties had not yet got to round to finalising this part of their negotiations.

In these circumstances, I am satisfied that, subject once again to the effect of the 13 January Exchange, the issue of which of the Trafigura/NJG Terms would form part of the Charterparty and whether any further amendments were necessary to those terms was one which the parties contemplated would be resolved as part of their final bargain. The parties’ failure to return to those issues before the deadline for lifting “subjects” expired reflected the fact that their attentions were diverted elsewhere, rather than the fact that they had already put these issues to bed.

I will refer to the two matters on which I have found agreement remained outstanding as “the Outstanding Terms”. Mr Bovensiepen did not suggest that either of the Outstanding Terms involved matters on which agreement was essential to avoid the resultant contract being too uncertain to be legally enforceable. However, he did submit, and I accept, that these were matters which the parties had identified as requiring agreement as part of the process of concluding a contract. I accept that in relation to each of the Outstanding Terms, Nautica may well not have regarded them as sufficiently important to be worth “dying in the ditch” over, if it made the difference between securing the fixture or losing it. However, that position had not been reached prior to the 13 January Exchange.

The key issue in this case is whether all that changed as a result of the 13 January Exchange. Nautica needs to establish that the effect of that exchange was to accomplish all of the following things:

At this point, it is necessary to explore in a little more detail what the content of the 13 January Exchange was. It involved a proposal communicated “across the line” by

The only participant in the 13 January Exchange from whom I heard oral evidence was Mr Margetis, and I had no evidence at all from Mr O’Gorman or Mr Reed. Nonetheless, the following matters are sufficiently clear:

As I have noted, parties who have been negotiating within a “subject to contract” or similar framework can conclude a contract without expressly addressing that “subject”, where a decision to do so is objectively clear from their conduct: RTS at [67]. However, this is not something which will lightly be inferred (see RTS at [56] and Rock Advertising Ltd v MWB Business Exchange Centres Ltd [2018] UKSC 24 at [29]-[30] per Lord Briggs JSC). It must be a rare case in which something short of the parties proceeding to perform the agreement which they had negotiated subject to an unsatisfied pre-condition would be sufficient to constitute an implicit agreement to waive or remove that pre-condition.

In my view, the 13 January Exchange did not effect the radical change in the nature of the parties’ dealings which Nautica’s case presupposes:

The strongest point in Nautica’s favour is that if the 13 January Exchange did not lead to a legal commitment of some kind, it might well be asked what Nautica had got in return for agreeing to reduce the demurrage rate to $75,000 a day, and what the significance of lifting three pre-conditions to a contract was if Trafigura retained an absolute right not to proceed with the Charterparty by reason of the fourth. That point clearly has force, but it involves analysing what was essentially a commercial negotiation from a purely legal perspective. For so long as no binding contract had been concluded, Trafigura had no more “bagged” a reduced demurrage rate than Nautica had secured the fixture. Nautica was not obliged to keep its offer open until

If I had concluded that the Suppliers’ Approval Subject was a performance condition, then I would have accepted Mr Pearce’s submission that Trafigura was under an implied obligation to take reasonable steps to obtain that approval. That conclusion is amply supported by authority, including cases such as Brauer v James Clark at p.154; Windschugel (Charles H) Ltd v Pickering (Alexander) & Co Ltd at p.93 and

Mr Bovensiepen sought to distinguish the licence cases because “the subject of the relevant approval is the owner’s vessel”. While I accept that this meant that information emanating from Nautica was of obvious relevance to obtaining the approvals, that is no reason why Trafigura should not be under an obligation in relation to those matters which were within its control – obtaining the relevant information from Nautica, providing it to the third parties whose approval was required, and making reasonable efforts to obtain decisions from the third parties before the deadline.

In the import and export licence cases, it is clear that burden is on the party who owes the obligation to take reasonable steps to obtain the licence to show that it complied with that obligation: see e.g. Brauer v James Clark, pp.152-153; 154; Windschuegl, p93 and Malik v Central European Trading Agency [1974] 2 Lloyd’s Rep 279, 282.

Mr Bovensiepen resisted the application of that approach in this case because, he said, the matters on which the obtaining of approval might turn were likely to relate to the physical characteristics and history of the Vessel, rather than matters which were Trafigura’s responsibility.

This issue turns on what Trafigura actually did (as to which there is no gap in the evidence) and what it should have done (a question for the Court). The incidence of the burden of proof is of no material significance to the resolution of these questions and I do not propose to resolve this issue.

In so far as Trafigura can be said to have had an intended supplier for loading at Statia, it was Rosneft. Trafigura nominated the Vessel to Rosneft at 13.47 HT. That communication did not identify the need for any particular urgency in responding, and did not inform Rosneft of the 17.00 HT deadline for lifting subjects. Nor was there any attempt to follow-up the communication as the deadline approached.

The duty to take reasonable steps to obtain approval must include taking reasonable steps to obtain a timely approval, particularly when the approval will only be of commercial significance if obtained by a particular deadline. In these circumstances, if Trafigura did come under an obligation to take reasonable steps to obtain Rosneft’s approval by 17.00 HT, it did not discharge that obligation.

Once again, it is clear that Trafigura did not take reasonable steps to obtain the approval of NuStar, the terminal at Statia. The obvious way to seek that approval would have been to contact NuStar directly, supply them with the completed NuStar questionnaire and ask them to provide their approval before the 17.00 HT deadline. However, Trafigura did not contact NuStar prior to the expiry of the 17.00 HT deadline, not even after they had been told by their agents at Statia, Rocargo, at 14.27 HT that NuStar would need to vet the Vessel. Instead, as I have noted, it contacted Rosneft at 13.47 HT, but that communication did not ask Rosneft to seek NuStar’s approval or refer to the 17.00 HT deadline for lifting the Suppliers’ Approval Subject.

Nor do I accept Trafigura’s submission that if the Suppliers’ Approval Subject required only NuStar’s approval, it could not have sought that approval directly from NuStar. Trafigura felt able to approach NuStar directly when disingenuously seeking a rejection of the Vessel for loading at berths one and two to show to Nautica, and received a prompt reply. There is no reason why Trafigura could not have made a similar approach to NuStar before the 17.00 HT deadline.

This aspect of Nautica’s case gives rise to three interesting issues of law.

First, the cases addressing the obligation to take reasonable steps to obtain an import or export licences suggest that if such steps are not taken, the burden of proving that

That formulation admits of a possible distinction between a party who takes no steps at all, and one who takes insufficient steps. However in Overseas Buyers Ltd v Granadex SA [1980] 2 Lloyd’s Rep 608, 612, Mustill J formulated the position as follows:

“(1)

The seller must first set out to prove that he used his best endeavours to obtain any necessary permission to export, but nevertheless was unsuccessful.

(2)

If the seller fails to satisfy this requirement, he is liable for failure to ship, unless he can prove that nothing which he could have done would have enabled him to ship.

It will be seen that the second stage of the enquiry, on the cases as they now stand, postulates a stricter test than the first. The seller has to exclude the possibility that any steps, not any reasonable steps, would have been successful. The reasons for this contrast may one day have to be explored, but it is important to note that where (as here) the seller has tried to obtain permission to ship, he need do no more than prove that his efforts were reasonable.”

In Brauer v James Clark, p.154, Lord Denning said that to avoid liability the party in breach was “required to show it was useless for him to take any such steps, or any further steps, because it was quite impossible for him to obtain a licence”. Other cases have suggested that the seller has to show there was “no reasonable possibility” of securing the licence, or that any attempt to obtain a licence would “necessarily” have been unsuccessful (see Professor Bridge, The International Sale of Goods (4^th) para. 5.28).

Mr Pearce relies on these authorities to suggest that Trafigura must show that “any steps it could have taken to obtain its suppliers’ approval would necessarily have been unsuccessful, failing which it cannot rely on its failure to obtain its suppliers’ approval to escape its obligations”. Mr Bovensiepen argues that the principle in the licence cases does not apply because “it was not … a matter for Trafigura to satisfy or persuade any supplier as to the qualities of Nautica’s vessel”, merely to “check with its suppliers whether Nautica’s vessel was acceptable”.

Accordingly the first issues of law which arise are:

Second, there are a number of cases which suggest that where a party is in breach of an obligation to assist in satisfying a condition, then the court will proceed as if the condition was satisfied (rather than engage in an assessment on conventional principles of the loss suffered by reason of the breach). Rix LJ had cause to consider the juridical basis of this approach in Compagnie Noga d’Importation et d’Exportation SA v Abacha (No 3 [2002] CLC 207, [95]-[108]. He considered the judgment in Mackay v Dick (1881) 6 App Cas 251, the facts of which he summarised as follows:

“A contract for the sale of a digging machine was subject to a condition precedent that it should be shown to be capable of excavating a given quantity of clay in a fixed time at a defined site. If it failed the test, the buyer was entitled to return the digger within two months. The buyer did not co-operate in carrying out the contractual test but purported to reject the digger nevertheless. The seller sued for the price and obtained judgment for it.”

He noted that Lord Blackburn had analysed the case as one of waiver (by refusing to permit the test, the buyer had waived the right to return the digger if it failed the test). Lord Watson, in resolving what was a Scottish appeal, relied on a doctrine of

“deemed fulfilment” taken from the civilian text Bell’s Principles. Lord Selborne LC agreed with both speeches. Rix LJ traced the subsequent judicial consideration of the different approaches in Mackay v Dick. At [106]-[107] he concluded:

“In these circumstances, there is the rather odd situation where Mackay v Dick is regarded as authority for a well-founded and general principle of English law, but there is a certain divergence of opinion as to how that principle can best be expressed. It is at any rate clear that there must be a relevant breach of contract on the part of the defendant: by relevant, I mean causatively relevant. The breach must bear on the condition which otherwise needs to be fulfilled. A doctrine of waiver perhaps sounds more like the common law than a doctrine of deemed fulfilment taken from the civil law: but they are both fictions designed to achieve the right result to which common sense and fairness seem to point.

In the present case, it seems to me that Mackay v Dick is not only authority for the implication of the implied term of co-operation, but also authority for the potential waiver or deemed fulfilment of the condition precedent …

Thus there is no necessary dichotomy between damages and debt. On suitable facts, a claimant … may be entitled to relief in both. Where the subject matter of the dispute is a payment, it seems to me that the primary relief should be in debt, if that is possible, unless an element of damages is necessary to ensure that the value of that debt at a later time matches the value of its earlier payment, in a case where earlier payment has been delayed by the defendant's breach”.

In this case, Mr Pearce contends that he can rely on the principle in Mackay v Dick in support of the argument that damages should be assessed on the basis that the Suppliers’ Approval Subject had been lifted, on which basis, damages should not be assessed on a “loss of a chance” basis, but on the basis that Trafigura repudiated a contract which was not subject to a performance condition. The second issue of law for determination is whether damages fall to be assessed on the assumption that the Suppliers Approval Subject was satisfied.

Third, where the loss suffered by a claimant depends on how a third party would have acted if the defendant had complied with rather than breached its obligations, the claimant must show that there was a significant chance of the third party acting in a way which would have benefited it. If that burden is met, the court will then award damages based on its assessment of the chance that has been lost (so-called “loss of a chance” damages). That principle of law was first clearly formulated in Allied Maples Group Ltd v Simmons & Simmons [1995] 1 WLR 1602, and was subject to detailed analysis by Bryan J in Assetco plc v Grant Thornton UK llp [2019] Bus LR 2291. Cases in which the decision or approval of a third party such as a licensing authority is a performance condition which one party has a contractual duty to try and satisfy can be analysed as “loss of a chance” cases (namely the loss of the chance that the third party would have acted in such a way as to satisfy the performance condition), but this is not the basis on which those cases have been reasoned.

Mr Bovensiepen argues that Nautica’s claim, properly analysed, is one in which causation of loss depends on the hypothetical action of a third party, and that the claim is, therefore, governed by the loss of a chance doctrine. Mr Pearce, in response, argues that the loss of a chance doctrine has only a residual role in a case in which a party has breached its obligation to take reasonable steps to satisfy a performance condition to obtain a decision from a third party. Mr Pearce submits that if Trafigura can meet the burden of showing that Suppliers’ Approval would not have been forthcoming even if reasonable steps had been taken, it is nonetheless open to Nautica to recover substantial damages on a loss of a chance basis if it could show that there was at least a real or substantial chance of such approval having been forthcoming.

The final issue of law which arises, therefore, is whether there are any, and if so what, circumstances in which Nautica’s loss falls to be quantified on a loss of a chance basis.

The principles relating to the burden and standard of proof where a seller or buyer breaches its duty to take reasonable steps to obtain an export or import licence, and the cases in which those principles were formulated and applied, do not appear to have been applied outside their specific context. For example in Dany Lions v Bristol Cars Limited [2014] EWHC 817 (QB), [62], when addressing an alleged failure to exercise reasonable endeavours to conclude a contract for work to be done on a car in order to satisfy a condition precedent to a contract to sell the cargo, Andrews J applied the conventional approach that the burden of proving causation lay on the party seeking to recover damages.

The rationale given in the licence cases for the incidence of the burden of proof is that the seller is relying on the absence of a licence as an excuse for non-performance of its otherwise strict obligation to deliver the goods, and that the words “subject to licence” in that context operate as something akin to an exemption or force majeure clause. In Windschuegl, for example, Devlin J suggested that the seller was seeking to establish that it was “excused by the condition in the contract ‘subject to licence’ from being obliged to perform their part of it and tender the goods”. In Agroexport v Cie Europeene de Cereales [1974] 1 Lloyd’s Rep 499, 506, Ackner J referred to the

I have concluded that it would not be appropriate to apply the particular principles on burden and standard of proof in the import and export licence cases in the present case, because the Suppliers’ Approval Subject does not have a status akin to a “special exemption clause” qualifying otherwise strict duties.

In those circumstances, it is not necessary to consider how far the observations on the standard of proof in the licence cases can be reconciled with statements of high authority that in civil cases, there is only one standard of proof, and that it is the balance of probabilities: (In re H (Minors) (Sexual Abuse: Standard of Proof) [1996] AC 563; In Re B (Children) (Care Proceedings: Standard of Proof (CAFCASS intervening) [2009] 1 AC 11 and Braganza v BP Shipping Ltd and another [2015] 1 WLR 1661, [34]. Either the standard of proof applicable in such cases is one which arises as a matter of substantive law on the proper construction of the “special exemption”, or the statements are not postulating a higher standard of proof as such, but recognising that meeting the conventional civil burden may be particularly difficult in such cases.

The precise status of the Mackay v Dick rule is one which may well merit exploration by a higher court on a future occasion. There will be cases in which a failure to take steps which a contracting party is obliged to take which are necessary for the satisfaction of a condition which operates in its favour can readily be seen as a waiver of that condition. Mackay v Dick, in which the buyer’s refused to permit the contractual test which was a condition of its right to return the machinery after two months, is just such a case. Another example is that of the buyer who purchases property subject to a performance condition, rather than pre-condition, of a satisfactory survey, who then fails to commission a survey (considered by Walton J in Ee v Kakar p.228).

There are other cases, however, where the waiver argument (at least as that concept is conventionally understood) is much more difficult, particularly where the complaint is not that no steps were taken towards satisfying the condition, but rather that the steps

The editors of Chitty on Contracts (33^rd) at para. 2-166 comment on the decision that the buyer was liable in debt in Mackay in the following terms:

“In principle it seems wrong to hold him so liable, for such a result ignores the possibility that, in that case, the machine might have failed to come up to the standard required by the contract, even if proper facilities for trial had been provided. It is submitted that the correct result in cases of this kind is to award damages for breach of the subsidiary obligation; in assessing such damages, the court can take into account the possibility that the condition might not have occurred, even if there had been no such breach. To hold the party liable in breach for the full performance promised by him, on the fiction that the condition had occurred, seems to introduce into this branch of law a punitive element that is inappropriate to a contractual action. The most recent authority rightly holds that such a doctrine of fictional fulfilment does not form part of English law”.

The “most recent authority” referred to is the decision of Scott J in Thompson v ASDA-MFI Group Plc [1988] Ch 241, 266, a case which was reviewed by Rix LJ in his later decision in Abacha (No 3). Rix LJ concluded that Thompson was addressing a different point (whether the cause of the failure of the condition had to be a breach of contract) and that Mackay v Dick remains authority for the view that where one party’s breach of contract has caused the failure of a condition to the accrual of a debt in favour of the counterparty, an action in debt may nonetheless be permitted on the basis of “deemed” compliance, even if the financial consequences of doing so (in that case in terms of interest payable) are different to those of a claim in damages. In Société Générale (London Branch) v Geys [2012] UKSC 63, [131], Lord Sumption JSC referred in his dissenting judgment to:

“the doctrine of deemed performance endorsed by the House of Lords in Mackay v Dick (1881) 6 App Case 251, according to which a party who is prevented by the non co-operation of the counterparty from satisfying a condition precedent to his right to receive remuneration may be deemed to have earned it notwithstanding the condition”.

Here too, Lord Sumption JSC was referring to Mackay v Dick as a rule which allowed a party to bring a claim for debt or an agreed sum when the counterparty had, in breach of contract, prevented satisfaction of a condition precedent to the right to payment.

Whatever the position in such cases, in the present case Mr Pearce seeks to rely upon “deemed fulfilment” not to accrue a claim in debt, but to argue for a different approach to assessing damages for breach of contract (and in particular to avoid the loss of a chance doctrine when it would otherwise apply). I am not persuaded that it is possible to “deem” compliance with the Suppliers’ Approval Subject for this purpose, even assuming it were otherwise a condition of a kind of which “deemed fulfilment” was possible. In circumstances in which Nautica’s complaint is breach of an obligation to take reasonable steps, I can see no good reason why the ordinary legal principles of causation and quantification of loss should not apply, including the doctrine of loss of a chance. Although the point does not appear to have been argued,

For the reasons set out above, I am satisfied that Nautica’s claim for damages for breach by Trafigura of an obligation to take reasonable steps would have fallen to be assessed on “loss of a chance” principles, it being a case in which the “lost” benefit for which Nautica claims it is entitled to compensation – the loss of profit under the Charterparty – was dependent on the decision of a third party to approve the Vessel.

Had I concluded that the principles applicable in the import and export licence cases were applicable, then I would have rejected Trafigura’s argument that the principles set out in those authorities should now be made subject to the general principles of loss of a chance. In my view, the principles in the licence cases governing the circumstances in which a party can escape liability for non-performance of its otherwise strict duty to make or accept delivery represent a self-contained and special principle of law, to which the principle of loss of a chance does not apply. I would further note that there may be some difficulty in applying loss of a chance principles to a case in which the burden of disproving causation is placed on the defendant.

I would in any event have rejected Nautica’s submission that it was entitled to “fall back” on a loss of a chance if its claim had not otherwise been made good. It has been held by Bryan J in Assetco and by Nugee J in Wellesley Partners llp v Withers llp [2014] PNLR 22 that in those circumstances in which it applies, the loss of chance doctrine is mandatory rather than permissive, and that a claimant is not entitled to choose whichever approach best serves its interests.

If the Suppliers’ Approval Subject required Rosneft’s approval, then I find that there was no realistic chance of Rosneft providing its approval by 17.00 HT had reasonable steps been taken by Trafigura to obtain it.

Rosneft would not have provided its approval without first obtaining PdVSA’s approval as its intended supplier. When the Vessel was nominated to Rosneft at 13.47 HT on 13 January, no sale contract had yet been concluded with Rosneft nor between Rosneft and PdVSA. It is not clear when Rosneft sent the nomination to PdVSA, but it had done so by 09.15 HT on 14 January 2016 when Rosneft sent an email suggesting that it might be necessary to move the loading window for the Vessel to 14-16 February if the Vessel was to be accepted. At 14.33 HT on 14 January 2016, PdVSA had still not responded to the request for acceptance, and Rosneft informed Trafigura that they did not expect a formal confirmation from PdVSA that day. That remained the position as at 13.34 HT when Trafigura’s operations team were told that Trafigura was no longer pursuing its nomination of the Vessel.

At some point between 09.50 HT and 10.12 HT on 15 January 2016, Trafigura nominated the proposed substitute vessel, the BUNGA KASTURA LIMA, to Rosneft, and shortly after 15.08 HT, Trafigura asked for approval of another vessel, the OLYMPIC LUCK. PdVSA did not revert on those nominations until 10.15 HT on 18 January, when it raised certain questions. It was only at 11.23 HT on 19 January 2016 that the vessels were finally accepted by PdVSA.

Against that background, in circumstances in which no agreement had yet been concluded between PdVSA and Rosneft or Rosneft and Trafigura for the supply of the cargo, and when the loading window for the cargo was still under negotiation, I have concluded that there was no realistic prospect of PdVSA (and hence Rosneft) approving the Vessel before 17.00 HT on 13 January 2016, even if an urgent request for such approval stressing the deadline for lifting the subjects on the Vessel had been sent to Rosneft immediately after the 13 January Exchange.

If Suppliers’ Approval meant the approval of NuStar, then I find that there was a very high likelihood that such approval would have been obtained by 17.00 HT if Trafigura had taken reasonable steps to seek it from NuStar:

Even approaching this issue on a loss of a chance basis, the chance lost is sufficiently high that no discount for a realistic possibility that approval may not have been forthcoming in time need be given (see McGregor on Damages (20^th) para. 10-094).

If I had found that, but for Trafigura’s breach of contract, the Suppliers’ Approval Subject would have been satisfied (or that by reason of such breach it is to be treated as satisfied), then I would have accepted Nautica’s case that it suffered loss of $491,690.67 calculated as follows:

For the reasons set out above, Nautica’s claim for damages fails, because no contract was concluded and, because, on the proper construction of the Suppliers’ Approval Subject, there was no realistic chance of such approval being forthcoming by 17.00 HT on 13 January even if Trafigura had taken reasonable steps to obtain that approval.