In Proton Energy Group SA v Orlen Lietuva  EWHC 2872 (Comm), the court was required to decide whether a binding contract had been agreed between the parties. If a contract had been agreed, the court was required to decide whether it contained an implied condition precedent that it would only be binding if the buyer was satisfied with the origin of the cargo, and further whether the buyer was entitled to reject the cargo if it was materially different from its description.
The Claimant Sellers made a “firm offer” by email to the Defendant Buyers for a sale of crude oil at a price “based on five quotations after the bill of lading date”. All other terms were stated to be subject to the Sellers’ standard contract, with terms not indicated to be mutually agreed after negotiation. Attached to the offer email was technical distillation data concerning the cargo. Buyers responded and stated “confirmed”.
Sellers sent a draft contract to Buyers, after which a delivery window was agreed and Sellers chartered a vessel to carry the cargo. Buyers subsequently terminated negotiations, and Sellers claimed that this amounted to a repudiatory breach.
Whether there was a binding contract depended on whether the parties had agreed on all terms which they objectively regarded as essential for the formation of legally binding relations between them. They had done so, and a contract had come into existence. The speed of the market required only main terms to be agreed, with details to be discussed and agreed later. The language showed commitment between the parties, and Buyers had contractually committed themselves as soon as the deal was confirmed.
Although Buyers did have concerns about the origin of the product, there was nothing in the correspondence to justify the implication of a term as to origin. It must be necessary to imply a term, not simply reasonable or useful. There was no such necessity here.
Finally, the court held that the specification of the product was not part of a sale by description. Description had to be distinguished from quality. Whilst the parties are free to make quality a condition, unlike description it is not implied by statute.
Sellers’ claim for breach of contract succeeded, and Buyers were ordered to pay damages.
This case highlights the care that must be taken in contract negotiations. English law does not require all terms to be agreed in order for a binding contract to be made. If parties are not in a position to contractually commit themselves, this must be made absolutely clear in correspondence.
The court also reiterated the English law position on the implication of contractual terms. It is not sufficient that a term would be “useful”. Its implication must be necessary to give business efficacy to the contract. This is a stricter requirement than it may at first appear. If a party wishes to include a particular term, they should seek to agree express wording with their counterpart rather than rely on the law later implying the required term.