Ref: DHL Project & Chartering Ltd v Gemini Ocean Shipping Co. Ltd  EWHC 181 (Comm) Jacobs J.
This recent case in the London Commercial Court considered the effect of a “subject shipper/receivers’ approval” provision in a fixture recap message.
The “subject” provision was contained in bold text at the start of the fixture recap. The placement of this provision at the start, and the use of bold text, reflected so the judge held the importance of this provision. In the judge’s view it qualified everything which followed including the arbitration clause itself upon which the claimants sought to rely.
The contractual significance of a “subject” clause of this kind was explained by Foxton J in paragraph 53 of his well -known judgment in The Leonidas:
“… 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.”
Foxton J approved the following passage in Carver on Charterparties 1st edition (2017) at para 2-031:
“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’.”
Wilford on Time Charterparties (4th edition) para 1.11 (also referred to by Foxton J) is to similar effect, under the heading “Words that negative the intention to contract”:
“In practice, parties very often indicate that they do not intend to make a binding contract by saying that their agreement is ‘subject to’ conditions. To say an agreement is ‘on subjects’ means that it is not binding until the ‘subjects’ in question have been ‘lifted’. Generally, only when all subjects are lifted does an agreement become a binding contract. At that point, the ship is ‘fully fixed’.”
The judge had no doubt that the relevant ‘subject’ in the present case – namely “shipper/receivers approval” – fell into the category described by Foxton J, Carver and Wilford.
As the judge explained the commercial purpose of such a subject is obvious: the charterer does not wish to make any binding contract at all unless and until both shipper and receiver have approved the vessel which the charterer is proposing to use. There may be any number of reasons why the shipper or receiver might decline to do so. These may relate to the quality of the ship, its dimensions or broader commercial considerations including market conditions and freight costs which may still be under negotiation.
A charterer will wish to reserve its position fully, in terms of a contractual commitment to the owners, pending receipt of the approvals and even sometimes beyond that time. A binding contract will therefore only come into existence as and when the Charterers communicate to the Owners that the subjects are lifted. This is a very long standing and well-recognised practice in the chartering market.