In Teekay Tankers Ltd (a company incorporated in the Marshall Islands) v STX Offshore & Shipbuilding Co Ltd (a company incorporated in the Republic of Korea) [2017] EWHC 253 (Comm) the Commercial Court found an option agreement entered into between the parties to be void for uncertainty as certain essential terms were left to be agreed.


Background

Teekay Tankers Ltd (the buyer) and STX Offshore & Shipbuilding Co Ltd (the shipbuilder) had entered into an option agreement under which the buyer had the option of ordering three additional sets of up to four vessels. In this case, the buyer claimed that the shipbuilder repudiated the option agreement and that the buyer was entitled to terminate the agreement and claim damages as compensation. The shipbuilder denied liability and advanced a counterclaim against the buyer for breach of confidentiality (in respect of arbitrations between the parties for repudiation of other shipping contracts).

Decision

The background and context of the option agreement showed an intention by the parties for the option agreement to be binding and enforceable. However, the court held that the option agreement was uncertain and consequently void.

The buyer argued that the court could imply various terms to make the option agreement sufficiently certain. While the court agreed that it should strive to give effect to the parties' intentions, it emphasised that it could only do so consistently with established principles. Importantly, the court found it well established that there is a distinction between agreeing to use best efforts or best endeavours to achieve a particular result and agreeing to use best efforts or best endeavours to reach agreement on an essential term of a contract.

In this case, the option agreement specified that the delivery dates for each of the optional vessels was to be mutually agreed upon at the time of the buyer's declaration of the relevant option. The option agreement also specified that the shipbuilder will make best efforts to have the delivery within certain periods of time. The buyer sought to characterise the shipbuilder's best efforts obligation as an obligation to provide the initial proposal for the delivery date. The court disagreed, finding that the use of "best efforts" was part of a process of seeking to agree the delivery date rather than an enforceable obligation to use best efforts to achieve a result.

What does this mean?

This case highlights the importance of certainty. The courts will not always save an agreement that is uncertain, even if the parties had intended for the agreement to be legally binding. It is imperative to agree all essential terms, as leaving these to be agreed at a later stage may result in the court finding that there is no bargain to enforce.

Key contacts

Lyndal Sivell

Lyndal Sivell

Managing Associate (Australian Qualified), Commercial Services
London

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