Electrosteel v.Scan-Trans

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Electrosteel Castings Limited -v- Scan-Trans Shipping and Chartering SDN BHD
English Commercial Court: Gross J.: 9 October 2002: [2002] EWHC
Michael Collett, instructed by Hardwick Stallards, for Electrosteel Castings
Michael Ashcroft, instructed by Holman Fenwick & Willan, for Scan-Trans Shipping
This case raised a number of issues on the construction of a contract, in particular whether the court can look at a previously concluded agreement between the parties when construing the contract in question - and if it can, in what circumstances the prior agreement will be of any help. The decision also emphasises the importance the court will attach to the qualifying words "as agents only" added to a signature.

DMC Category Rating: Developed

This case note is based on an Article in the October 2002 Edition of the ‘Bulletin’, published by the Marine and Insurance teams at the international firm of lawyers, DLA. DLA is an International Contributor to this website.

The dispute concerned a claim for demurrage brought by the carrier, Scan-Trans, against the cargo owner, Electrosteel. Electrosteel applied under section 67 of the Arbitration Act for an order setting aside the arbitrator's award on the grounds that Scan-Trans was not a party (as principal) to any contract with Electrosteel, so there was no valid arbitration agreement between them and no entitlement to claim demurrage or damages for detention.

All negotiations between Scan-Trans and Electrosteel for the carriage of the cargo were conducted through Marcons Shipmanagement Pvt Limited in October 2000. After some to-ing and fro-ing about the terms, Scan-Trans sent a "recap telex" to Marcons on 28 October setting out what had been agreed. This identified Scan-Trans as the carrier and asked Marcons to draw up a Booking Note. But the telex included two provisos ("subjects") - "checking expenses in Algeria" and "Master's approval of stowage".

No further negotiations took place, and on 30 October, Marcons drew up a Booking Note which was signed by both Electrosteel and Scan-Trans. This comprised three pages:

  1. Page 1 of the "Conlinebooking Liner Booking Note" form. This was a pre-printed form headed "full terms of the Carrier's Bill of Lading Form". It was not signed by the parties. Clause 17 provided:           "The Contract evidenced by this Bill of Lading is between the Merchant and the Owner of the vessel named herein … It is further understood and agreed that as the Line Company or Agents who has executed this Bill of Lading for and on behalf of the Master is not a principal in this transaction, said Line, Company or Agents shall not be under any liability arising out of the contract of carriage, nor as Carrier nor bailee of the goods".
  2. Page 2 of the "Conlinebooking Liner Booking Note" (amended). This contained a number of boxes completed by Scan-Trans and Electrosteel. Both parties had signed and stamped this page, Scan-Trans under the heading "Signature (Carrier)", but "as agents only".
  3. A document headed "Additional clauses to MV "SOCOFL STREAM" - Conline B/N dated 30.10.2000" containing typed clauses, including one that provided for arbitration in London and English law to apply. This page was also signed by both parties. Scan-Trans signed under the heading "FOR CARRIERS", again "as agents only".

The Arbitrator’s Award
The arbitrator inferred that the two provisos had been lifted at some point before the Booking Note, so that there was a binding contract between the parties on the terms of the recap telex, and that Scan-Trans had signed the contract as principal. The Booking Note was simply evidence of the earlier contract.

He also held that Clause 17 was not incorporated because that page of the Booking Note merely advised the parties of the terms which would be contained in the Bills of Lading. The fact that two pages of the Booking Note were signed by Scan-Trans "as agents only" was not determinative because a binding contract had already come into existence before signature. Scan-Trans and Electrosteel were, therefore, parties to the contract evidenced by the Booking Note containing an agreement to London Arbitration.

Electrosteel applied under section 67, arguing that there could have been no concluded contract unless and until the "subjects" in the recap telex had been lifted. The only binding contract was the Booking Note and the dominant feature of the Booking Note was the signature by Scan-Trans "as agents only". In addition, clause 17 had been incorporated into the Booking Note, showing that Scan-Trans had contracted as agents for the owners of the vessel. Even if clause 17 was not incorporated, Scan-Trans had still contracted as agents, albeit for an undisclosed principal.

The High Court agreed with the arbitrator that a contract had been concluded on the terms of the recap telex. It was right to infer that the two subjects had been lifted before the signature of the Booking Note, on the simple grounds that it would have been odd to execute a formal Booking Note while subjects remained outstanding and the Booking Note itself said nothing about any subjects.

But it did not follow that the Booking Note had no status greater than evidencing the prior contract. The Booking Note was a complete and self-contained document, signed and stamped by the parties. Nothing in it suggested that the parties intended that the terms of the contract were contained in any other document. There were, therefore, two contracts.

This raised the question whether the earlier recap telex contract could be referred to in attempting to construe the Booking Note. Under the parol evidence rule, when a contract has been wholly reduced into writing, neither party can adduce evidence of the discussions between them to try to contradict or vary its meaning. Whilst this prevents a court from looking at prior negotiations, it does not bar prior contracts, which should always be admissible as part of the factual matrix surrounding the later contract. This point was recently highlighted by the Court of Appeal in HIH v New Hampshire [2001] 2 Lloyd's Rep 161.

How much help the prior contract can be is a different question. Where the later contract is clearly intended to supersede the prior contract, the prior contract will be of no assistance. Where the later contract is identical in its terms, its construction can stand on its own feet. Where the later contract differs from the earlier contract, then the general assumption will be that the difference was a deliberate decision by the parties to depart from the earlier wording. There may, however, be circumstances where the prior contract is relevant (such as where there is evidence of an intention for the two to co-exist). In such cases, the Court of Appeal advised against dogmatism in applying the parol evidence rule to exclude evidence, although it also recommended a "cautious and sceptical approach" to finding any assistance in the earlier contract.

Following these guidelines, the judge held that the court could consider the terms of the recap telex when construing the Booking Note. But since he found no evidence of an intention that the two contracts were intended to co-exist, the implication was that the parties intended the Booking Note to supersede the recap telex and embody their agreement. Consequently, the Booking Note had to form the starting point of any enquiry into the parties' contractual intention.

On the documents, the judge agreed with the arbitrator that clause 17 had not been incorporated into the Booking Note contract. He was satisfied that the parties had intended that the contract for carriage contained in the Booking Note would be followed by separate and subsequent contracts of carriage contained in or evidenced by bills of lading. Clause 17 was therefore only intended to apply when bills of lading came to be issued.

But since the Booking Note was a contract in its own right, the fact that Scan-Trans signed "as agents only" could not be ignored. The importance of this sort of qualified signature was emphasised by the House of Lords in Universal Steam Navigation Co v James McKelvie & Co [1923] AC 492. James McKelvie & Co was described in the body of the charterparty as charterers but signed the charterparty as agents. The House of Lords held that the company was not liable as principal to pay demurrage. The qualification had to be taken as a deliberate expression of intention to exclude any personal liability on the part of the signatory.

Although that decision was concerned with the liability of the signatory, the same would apply to the signatory's right to sue. But in this case, there was a concluded contract prior to the signature of the Booking Note contract, which Scan-Trans had signed as principal. How could this be reconciled with the signature "as agents only"?

The judge's conclusion was that it could not. Neither the documents nor the context supported the notion that the later Booking Note contract was incorporated into or had to give way to the prior contract. The only inference that could be drawn, therefore, was that the Booking Note was intended to govern and that the signature evidenced a deliberate decision to depart from the earlier contract.

Put simply, Scan-Trans had, for whatever reason, decided not to contract as principal and this meant that it was not party to an arbitration agreement and could not, in any event, pursue a claim for demurrage. Its principal remained unidentified, but this was not an issue for the court to decide at this hearing.

The judge also dismissed a last-ditch attempt by Scan-Trans to argue that the document should be rectified to show it had contracted as principal. As the party seeking rectification, Scan-Trans had to prove that the Booking Note was not in accordance with the parties' true intentions at the time of execution. There was no evidence that this was the case.



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