In UK commercial contracting, is nothing agreed until everything is agreed?

Best practice dictates that an agreement for the provision of services is signed before the work starts. But what if the agreement is still not signed after the provision of services has ended? Will there be a binding agreement between the parties to ensure that the service provider gets paid the agreed fee?

In Smit Salvage BV & Ors v Luster Maritime SA & Anr, the High Court held that there was no binding agreement between the parties. While the parties had reached an agreement on remuneration, the court found that they were still negotiating the contract terms by which they would be bound and that there was no mutual intention to be bound at that stage.

Salvage services agreed?

The case concerns the grounding in the Suez Canal of "Ever Given", a huge container ship that blocked the canal in 2021 and made headlines around the world. One of the claimants in the case, SMIT, a leading maritime salvage company, was involved in the vessel's salvage effort. Primarily, SMIT's involvement was providing technical advice, but it also engaged its team on site and chartered two tugs. While the importance of its contribution was subject to some debate, SMIT played a part in the successful refloating of "Ever Given".

The salvage company started the provision of its services, notwithstanding the fact that the parties were still negotiating the relevant agreement. By exchange of emails and conversations the parties agreed on the terms of remuneration; however, the main agreement had not been signed. At first, the vessel's owners reassured SMIT that there were to be no major amendments to the proposed terms. However, when they later gave a fuller response to the proposed terms, they were significantly amended. Even after "Ever Given" was finally refloated, the parties still had not finalised the contract.

The issue in question was whether there was a binding agreement between the parties for the provision of salvage services. SMIT argued that there was no binding agreement and that it was entitled to salvage under the terms of the International Convention on Salvage 1989 or at common law. The vessel's co-owners, however, insisted that the parties concluded a binding contract by means of an exchange of emails.

Binding agreement?

After a thorough investigation of the communications between the parties, judging them objectively and in context, the High Court found that there was no binding agreement between the parties. 

The court stated that the "contract formation issue is intention to be bound"; therefore, the fundamental question was what was the parties' intention: was it that the agreement should immediately become binding when they reached agreement on fees or were the parties still negotiating its terms?

In this case, the parties had not made it clear if they intended to be bound there and then, or only when they agreed the detailed contract. In such situation, the issue of contractual intent should be considered by looking at the parties' communications and conduct. The judge noted that "an intention to be bound cannot be found where it is not the only reasonable connotation of the parties' exchanges and conduct, taken as a whole" and that there can only be a contract when there have been unambiguous communications.

The court found that the tenor of the parties' communications was that they had agreed on the terms of remuneration and that enabled them to discuss the broader terms. Further, the court found that the parties made it clear to each other at the time that they were still negotiating the contract and, importantly, did not communicate to each other an intention to be bound in the absence of completing that work of negotiating and agreeing a detailed set of contract terms.

Osborne Clarke comment

This case is another reminder to get the agreement signed before any work starts. (Though interestingly, in this case, it was the service provider that argued that there was no contract in place!)

A binding agreement was not found; notwithstanding that the parties had agreed on the remuneration for the provision of services and work had been carried out – and completed.

It is worth remembering that the broad principle is that nothing is agreed until everything (considered by the parties (viewed objectively) to be essential) is agreed.

Anna Matsiienko, a Paralegal at Osborne Clarke, co-authored this Insight.