Incomplete, but binding nonetheless

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In today’s fast-moving commercial world where email negotiations abound, and particularly in spot-market transactions such as the crude oil trading that was the subject of Proton Energy Group SA v Orlen Lietuva [1], it is all too easy for parties to become inadvertently bound to unsuitable contracts.

In this case the claimant sent an email to the defendant making a “firm offer” for the sale of oil to a certain specification; setting out certain key terms; and demanding a same day response. In a subsequent exchange of emails the claimant agreed that “other contractual terms not indicated… shall be discussed and mutually agreed”. On the same day, the defendant responded by email saying “confirmed”.

Some days later the relationship between the parties broke down and the claimant alleged that the defendant had committed a repudiatory breach of contract. The defendant argued that no contract had been formed. In the alternative, it alleged that if there was a contract it contained an implied condition precedent that the oil must not be from Iran (which was a matter about which the defendant had expressed concerns during the email exchange). Further in the alternative the defendant argued that it would have been entitled to reject the oil under section 13 of the Sale of Goods Act 1979 (SGA) in any event, because it differed from the emailed specification.

The Commercial Court found that a contract had been formed. The key point to take away from this case is that both parties used the language of commitment, and this was in the context of a market and a commercial transaction in which speed was required and acknowledged, and so they became bound. If there had been no contractual intention, the parties could have used the words ‘subject to contract’ so to indicate.

The case also highlights some other interesting points. The judge refused to imply a condition precedent as to the origin of the oil, despite the defendant’s articulated concerns, because a contractual term can only be implied if it is necessary, not because it is reasonable or useful. Parties requiring particular terms or preconditions must make sure that these are expressly incorporated. Furthermore, section 13 of the SGA can be invoked only where a contract is entered into in reliance on a specific description, which was not the case here. The email specification originally provided by the claimant related to quality only – not to a particular description or type. Whilst concepts of description and quality can, in practice, often overlap, the distinction can be vital.

[1] [2013] EWHC 2872 (Comm)