The English High Court’s decision in PT Berlian Laju Tanker TBK & Brotojoyo Maritime PTE Ltd v Nuse Shipping Ltd [2008] EWHC 1330 (Comm) (The “Aktor”) shows the importance of clear and unequivocal contractual terms, that even common practice in ship sale transactions or the terms concluded in recap emails must be expressly spelt out in the formal written contract, failing which may cause a party’s breach of the contract enabling the other party’s termination. The undesirable outcome of this case has contributed to amendments of international standard agreements for sale of second hand vessels such as Norwegian Sale Form 1993 (“NSF 1993”). 

The facts
The “Aktor” concerns a dispute relating to the sale of vessel “Aktor” on the amended NSF 1993 terms. In 2004, an Indonesian company (the “buyers”) agreed to purchase a vessel from a Maltese company (the “sellers”) for USD 8.4 million. The deal was made through shipbrokers in London which subsequently set out the terms in a recap email (the “Recap”). The Recap provides, among others, that (1) a deposit of 10% of the purchase price shall be paid to a bank in Singapore nominated by the sellers and (2) the balance of 90% shall be paid on the day of delivery at a bank nominated by the sellers. Subsequently, the sellers nominated HSBC Singapore for payment of the 10% deposit and National Bank of Greece Piraeus (“NBG Piraeus”) for payment of the 90% balance. The buyers then paid the deposit to HSBC Singapore. However, the parties further entered into a Memorandum of Agreement (“MOA”) (based on the NSF 1993), which provides materially different terms, amongst other terms:-

Clause 2 provides that a deposit of 10% of the purchase price shall be paid to a bank in Singapore nominated by the sellers to be released in accordance with joint written instructions of the sellers and the buyers. 

Clause 3 provides that the purchase price shall be paid in full to a bank nominated by the sellers. 

Clause 8 provides that the place of closing and exchange of delivery documents shall be in Singapore in exchange for payment of the purchase price.

Clause 13 provides that if the buyers defaulted in payment of the purchase price, the sellers would be entitled to forfeit the deposit together with the interest earned. 

The disputes
The disputes arose out of the construction of the MOA and specifically what is at issue is how and where the buyers were obliged to pay the purchase price of the vessel.  The buyers insisted that pursuant to the Recap, they were required to pay the 90% balance at HSBC Singapore and release the 10% deposit at HSBC Singapore as part payment. The sellers’ case was that, under clause 3 of the MOA, they were entitled to 90% to be paid at NBG Piraeus and also to have the 10% make available to them there. 

The buyers then made some concessions and paid the 90% at NBG Piraeus, but the dispute over the place of payment for the 10% remained unresolved.  Failing to have the 10% made available to the sellers at NBG Piraeus by the buyers, the sellers terminated the MOA and forfeited the 10% deposit under clauses 3 and 13 of the MOA. 

The parties then engaged in arbitration, and the tribunal found in favour of sellers. The buyers appealed against the arbitral award to the English High Court. 

The buyers’ appeal
The buyers’ appeal was based on three grounds, namely, (1) under the MOA the buyers were not bound to pay any part of the purchase price in Greece, alternatively, (2) the buyers were obliged to pay 90% of the purchase price in Greece and 10% in Singapore, and alternatively, (3) even though the buyers were obliged to pay 100% of the purchase price in Greece, their failure to do so did not constitute a breach of a condition and thus the sellers were not entitled to terminate the contract and forfeit the deposit. 

Ground 1
As to ground (1), the buyers argued that the arbitrators failed to construe the MOA as a whole by taking into account clause 8 of the MOA, under which Singapore shall be the place of closing and exchange. The buyers were therefore entitled to pay in Singapore or at least remit from Singapore. This is consistent with clause 3 which requires the prices should be paid “to” the sellers’ nominated bank, not “at” the bank. 

The Court upheld the arbitrators’ decision to reject ground (1) above and held that in ship sale transactions, it was common to involve activities in multiple jurisdictions. It was held to be commercially sensible for the place for payment of the purchase price to be different from the agreed place for documentary closing because the seller or the mortgagee bank may have specific requirements as to the place of payment of the purchase price or redemption of the mortgage. Theoretically, the fact that documentation was to be furnished in exchange for payment under clause 8 does not follow that payment of the purchase price was to be made at or from the place of closing. The language of clause 3 of the MOA was clear that payment was to be made to the sellers’ nominated bank, which was NBG Piraeus. 

The Court further held that a deposit was conceptually fundamentally different from a part payment. A deposit was an earnest of payment and not part payment. The payment of the purchase price was therefore governed by clause 3 and not clause 2 of the MOA. 

Ground 2
As to ground (2), the buyers referred to the Recap and argued the fact that the wordings of clause 3 of the MOA deviated from the Recap required rectification of the MOA on the ground of common mistake. 

Again, ground (2) above was rejected by the Court. The Court accepted the arbitrators’ factual conclusion made based on their experience that where a formal MOA was drawn up after terms have been agreed, the parties’ intention was generally assumed to record exclusively and comprehensively the agreement between the parties. It was held that such assumption was not rebutted and thus the Recap was superseded by the MOA. The Court emphasised its resolute resistance to consider any challenge to the arbitrators’ factual conclusions (which the Court was not supposed to rule on) disguised as points of law. 

Ground 3
Finally, the buyers argued that the obligation in respect of where and how to pay the remaining 10% was an innominate term and not a condition. If the buyers failed to pay at the right place, the sellers would only be entitled to recover any proven loss resulting from the 10% payment being made to HSBC Singapore instead of NBG Piraeus. 

The Court also rejected ground (3) above.  The payment of the purchase price and delivery of the vessel were concurrent conditions. That alone was held to suffice to make the obligation to pay in accordance with the contractual terms (which specify how payment was to be made) a condition. The sellers therefore were entitled to terminate the MOA for non-payment under clause 13 of the MOA. The buyers’ appeal was accordingly dismissed.

Subsequent development
Taking into account the decision in The “Aktor”, the NSF 1993 (the most widely used and internationally recognised standard agreement for the sale and purchase of second hand vessels) was updated in the Saleform 2012 with an express confirmation that the deposit should now be considered as forming part of the purchase price (see clause 3(i) of the Saleform 2012). Other international standard forms for ship sale, such as the Singapore Ship Sale Form 2011, have also been updated accordingly. 

Practical implications
In the shipping industry, agents are commonly involved in contracting that it may be inherently difficult for the buyers and sellers to personally review the detailed terms of a contract for ship sale (for example, in The “Aktor”, the seller company was Maltese, the ship management company was Greek, the buyer company was Indonesian, its nominee company was Singaporean, and the shipbrokers were in London). Existing sale forms may help to standardise the contractual terms and simplify the drafting and reviewing process, but the devils are always in the important details to be filled in the blanks in the standard forms. Also, a party shall not slack off upon an initial agreement being reached (e.g. the Recap) after cut-throat negotiation. It is not an end and may be superseded by any subsequent formality (e.g. MOA), unless the parties state clearly that the previous agreement shall prevail in case of any difference between the two contracts. Finally, legal advice should be sought before entering into a commercial contract, as the preventive efficacy of reviewing the contractual terms with legal advice is generally more worthy of the money spent than the remedial effort in resolving preventable contractual disputes.

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Important: The law and procedure on this subject are very specialised and complicated. This article is just a very general outline for reference and cannot be relied upon as legal advice in any individual case. If any advice or assistance is needed, please contact our solicitors.