[2003] EWHC 2602 (Comm)
Edited by the Editors of All England Direct New Law Journal, 14 November 2003
Reproduced by permission of Reed Elsevier (UK) Ltd. trading as LexisNexis UK Commercial Court
Colman J
7 November 2003
A chartering broker is entitled to recover commission agreed to be paid to him under a charterparty by a direct claim agianst owners under s 1 of the Contract (Rights of Third
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Parties) Act 1999; if the charterparty contains an arbitration clause wide enough to covers a claim by charterers to enforce that promise to pay commission against owners, the char-tering brokers must refer their claim to arbitration under s 8 of the 1999 Act.
Philippa Hopkins (instructed by Ince & Co) for the claimant Michael Ashcroft (instructed by Jackson Parton) for the defendant
The respondent chartering brokers negotiated nine time charters on behalf of the applicant owners. Each charterparty provided for commission to be paid to the brokers. Each char-terparty also contained an arbitration clause. The clause referred to disputes between the
‘parties’ to the charterparty or between owners and charterers. In each case the wording was in terms wide enough to cover a claim by the charterers against the owners for failure by the owners to perform their promise to pay commission to the brokers. The owners chal-lenged the entitlement of the brokers to commission on the principal ground that the brokers were in repudiatory breach of the agency relationship. The owners purported to accept that breach as terminating the agency relationship. The brokers referred the issue of entitlement to commission to arbitration, not-withstanding that they were not a party to any of the nine arbitration agreements. They relied on ss 1 and 8 of the Contracts (Rights of Third Parties) Act 1999 (C(RTP)A 1999). The arbitrators ruled that they did have jurisdic-tion, and the owners brought a challenge to that finding under s 67 of the Arbitration Act 1996.
COLMAN J:
Whether the broker fell within s 1 of C(RTP)A 1999
The owners argued that on the proper construction of the charterparties the parties to them did not intend the commission clause to be enforceable by me brokers and accord-ingly s 1( l )(b) of C(RTP)A 1999 was disapplied by s 1(2).
First, the owners argued that the arbitration clauses in all of the charterparties did not make express provision for enforcement by a broker of a claim for commission.
All of the charterparties except those numbered (viii) and (ix) included substantially the standard New York Produce Exchange arbitration clause. Charterparties (viii) and (ix) substantially incorporated the Shelltime 4 standard claims, and also referred to the LMAA arbitration clause.
His Lordship held that as a matter of law under C(RTP)A 1999, it made no difference to the broker’s ability to enforce his right to commission benefit that no express provision was made for that in the arbitration agreement. Accordingly, the strength of any inference derived from the absence of such express provision could be little more than negligible.
Second, it was argued by the owners that there was no positive indication in the charter-parties that the charter-parties did intend the brokers to have enforceable rights. Whether the con-tract did express a mutual intention that the third party should not be entitled to enforce the benefit conferred on him or was merely neutral was a matter of construction having regard to all relevant circumstances. In the instant case, apart from the owners’ third point, the charterparties were indeed neutral in the sense that they did not express any intention contrary to the entitlement of the brokers to enforce the commission term.
Third, the owners submitted that the parties’ mutual intention on the proper construc-tion of the contracts was to create a trust of a promise in favour of the brokers – a trust enforceable against the owners at the suit of the charterers as trustees. That being the proper construction of the contracts by reference to the state of the law at the time when
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C(RTP)A 1999 came into force, the very same contract wording did not, subsequently to that, evidence a different mutual intention.
The fact that prior to C(RTP)A 1999 it would be the mutual intention that the only available facility for enforcement would be deployed by the broker did not lead to the conclusion that, once an additional statutory facility for enforcement had been introduced, the broker would not be entitled to use it, but would instead be confined to the use of the pre-existing procedure.
It followed that the brokers were entitled to enforce the commission clauses in their own right by reason of s 1 of C(RTP)A 1999.
Whether the enforcement of those rights was subject to the arbitration agreements in the charterparties It was conceded by the brokers that they had to rely on s 8 of C(RTP)A 1999 in bringing arbitration proceedings.
The promise under the charterparties to pay commission to the brokers was clearly a promise made to and enforceable by the charterers. Failure to perform that obligation would clearly fall within the scope of all the arbitration clauses. If the charterers had assigned their cause of action for failure to pay commission to the brokers by a statutory assignment the latter could only have enforced that promise if they resorted to arbitration against the own-ers. The transference by assignment of the substantive chose in action necessarily involved the transference of the procedural means of enforcement of it.
It was against this background that one had to consider the words in subsection (1) ‘…
the third party shall be treated for the purposes of that Act as a party to the arbitration agreement…’. Those words clearly reflected and were entirely consistent with the assign-ment analogy.
Since the scope of the disputes covered by all nine arbitration agreements was wide enough to embrace a dispute between owners and charterers about payment of the brokers’
commission, in the instant case the brokers were entitled and, indeed, obliged to refer those disputes to arbitration and the arbitrators had jurisdiction to determine them.
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Question 1 Multiple-choice selection
1.1 The vast majority of contracts are ‘simple’. What is the meaning of the word ‘simple’
in this context?
(A) The terms of the contract are set out in writing.
(B) The contract does not need to be in any particular form to be binding.
(C) The contract contains fewer than ten provisions.
(D) The contract is not supported by consideration.
1.2 A Ltd placed the following advertisement in a local newspaper.
‘We are able to offer for sale a number of portable colour television sets at the specially reduced price of £5.90. Order now while stocks last.’
The advertisement contained a mistake in that the television sets should have been priced at £59.00. B Ltd immediately placed an order for 100 television sets.
Which one of the following statements is correct?
(A) B Ltd has accepted an offer and is contractually entitled to the 100 television sets.
(B) A Ltd can refuse to supply B Ltd as the advertisement is not an offer, but an invitation to treat.
(C) A Ltd can only refuse to sell the television sets to B Ltd if it has sold all its stock.
(D) As B Ltd has not yet paid for the television sets, the company has no contractual right to them.
1.3 Dennis wrote to Mark, offering to sell him a Renoir painting for £100,000. One week later, Mark wrote back saying he would pay that amount but not for another two months. Dennis did not respond and Mark, who decided that he wanted the painting, then heard that Dennis had sold the painting to Tom. Was there a contract between Dennis and Mark?
(A) Yes. Dennis has made a valid offer which Mark has accepted.
(B) Yes. Mark’s response was a request for further information and he was able to accept the offer afterwards.
(C) No. Mark’s response constitutes a counter-offer which effectively destroyed Dennis’s original offer.
(D) No. Dennis’s letter to Mark constituted an invitation to treat, not an offer.
Revision Questions
2
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1.4 In relation to a valid enforceable contract, which one of the following statements is untrue?
(A) Consideration must not be past.
(B) Consideration must move from the promisee.
(C) In certain circumstances a promise may be binding without consideration.
(D) Consideration must be adequate.
1.5 Which one of the following statements is correct?
(A) If the creditor agrees to accept less than the full amount due, the debt is dis-charged at common law.
(B) At common law, a creditor who has agreed to accept less than the full amount due, may go back on his word and recover the balance.
(C) Payment of less than the full amount due by a third party cannot discharge the whole debt.
(D) Payment of less than the amount due cannot discharge the whole debt, even if made early at the request of the creditor.
1.6 The law of contract is of special importance in providing a legal framework within which businesses can operate. Which one of the following statements is correct?
(A) A contract need not necessarily be in writing.
(B) A contract is always binding even when the parties do not intend the agreement to be legally binding.
(C) A contract comes under the remit of criminal law rather than civil law.
(D) A contract by a corporate body is always valid.
1.7 X Ltd makes an offer by post to Y Ltd, sending X Ltd’s standard written terms. Y Ltd agrees to it, sending Y Ltd’s standard terms (which are different from X’s). X Ltd starts to perform the contract without writing back to Y Ltd. Which one of the fol-lowing statements is correct?
(A) There is no contract.
(B) There is a contract on X Ltd’s terms.
(C) There is a contract on Y Ltd’s terms.
(D) There is a contract on reasonable terms to be settled by the courts.
1.8 Which of the following statements is correct?
(A) Misrepresentation always renders the contract voidable.
(B) Misrepresentation always gives the party deceived an absolute right to damages.
(C) The contract is only voidable if the party deceived can prove that the misrepre-sentation was negligent.
(D) The contract only gives a right to damages if the party deceived can prove that the misrepresentation was negligent.
Question 2
Beryl enters a shop to purchase a new dress. She tells the shop assistant that she would like to buy the blue dress which is displayed in the shop window and priced at £100. The assistant
removes the dress from the window for Beryl, but when she tries to pay for it at the till the man-ager informs her that it is not for sale. He tells her that the dress is for display purposes only.
Requirement
Delete as appropriate and complete the following sentences:
Beryl is/is not (1 mark) entitled to the dress because the display of the dress in the shop window constitutes an ……… (3 words) (2 marks) and not an ……… (1 word) (2 marks). It follows that Beryl does not have/has (1 mark) a contract with the shop own-ers who have/have not (1 mark) acted in breach of contract. (Total marks ⴝ 7)
Question 3
Vendor owned a factory. He persuaded Mr Purchaser to sign a contract to buy it, and to pay a deposit of £50,000. During negotiations he told Purchaser that the local authority had no plans to build a rumoured road nearby. In fact the local authority had decided to build the road and was about to commence work. This might have been discovered by checking at the Town Hall, but Vendor genuinely believed what he had said.
Requirement
Delete as appropriate and complete the following sentences:
Vendor appears to have made a ……… (1 word) (2 marks) to Purchaser. This renders the contract ……… (1 word) (2 marks) and if Purchaser acts quickly, he will be able to ……… (1 word) (1 mark) the contract which means that Vendor and Purchaser will be returned to their pre-contract position. Purchaser will/will not (1 mark) be obliged to pay the rest of the price and he will/will not (1 mark) be able to recover his deposit. In addi-tion Purchaser may be able to recover damages from Vendor unless Vendor can show that he was not negligent under the ……… Act 1967 (1 word) (1 mark). (Total marks ⴝ 8)
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Solution 1
1.1 Answer: (B)
Most contracts are binding irrespective of their form, and in this respect are described as ‘simple’, (A) which refers to written contracts is therefore inaccurate. The number of provisions as identified in (C) is of no relevance. Further, a contract is only recog-nised where consideration is provided by both parties, therefore ( D) cannot be correct.
1.2 Answer: (B)
Both (A) and (C) are incorrect as no contract between A Ltd and B Ltd exists. B has merely made an offer. Whether or not B Ltd has paid for the television sets is on the facts of no significance. The offer made by B Ltd would have to be accepted by A Ltd for a contract to exist.
1.3 Answer: (C)
(A) is not true, because Mark did not accept Dennis’s offer in full, by the fact that he introduced a further term, that is that he would pay in two months’ time. B is not true, because Mark did not request further information. (C) is the correct answer, because Mark is trying to impose his own terms, and thus is making a counter-offer which is capable in turn of acceptance, and which destroys Dennis’s original offer. See Hyde v.
Wrench (1840). ( D) is not correct, because the language used indicates that a definite offer is being made by Dennis, indicating a definite intention to be bound.
1.4 Answer: (D)
(A) is true: consideration cannot consist of work already done, or goods already deliv-ered, as the benefit has been received. (B) is true: only the person who has given value in relation to the contract may enforce it. (C) is also true: although normally a prom-ise is not enforceable as lacking consideration, it may be enforceable if contained in a deed. ( D) is untrue, and therefore the right answer. Consideration need not be ade-quate, as parties will not be protected by the courts where they make a bad bargain.
1.5 Answer: ( B)
A promise to accept less than the full contract price due is unenforceable unless the promise is ‘brought’, in other words consideration for the promise is provided. A party can therefore go back on a promise in isolation to accept a lesser sum. ( B) is therefore the correct answer.