Subjects. When a contract is being negotiated, one side makes offers and the unconditional acceptance of these offers by the other side creates an “agreement”.
If other elements of the contract are established, the agreement becomes an enforceable “contract”. Therefore, a conditional acceptance does not form an agreement for the simple reason that what one party offers is not acceptable to the other in the terms the original offer is being made and therefore there is no common or mutual understanding of the terms being negotiated. If this is missing, there is no agreement.
When one side to a negotiation for a charter seems to “accept” the terms offered by the other side but the acceptance is “subject” to other conditions, the acceptance is conditional. During very preliminary negotiations the phrase “subject to contract” may be used and this indicates that the parties have informally agreed to general issues and have yet to make a formal, probably written, contract. The early agreement is only provisional. Because there is no firm contract, either side has the advantage of being able to escape from any “obligations” because these have not yet come into existence and are not yet legally binding.
Either side to a charter can impose conditions, in some cases designed to increase that side’s bargaining strength or to give that side flexibility to look elsewhere for a better deal or, simply, as a delaying tactic. For example, a Charterer can use a “subject stem” to look around for a ship at a lower freight or hire rate. Under English law, a “subject” condition makes the entire agreement invalid. Under American law, if the main terms have been agreed but other procedural details have yet to be agreed (and the charter is subjectto the agreement on these latter details) the contract is considered to be enforceable.
A “subject” condition during negotiations may be considered to be a condition that precedes a firm contract; if it is not complied with, the contract does not come into existence. The nature of the event to which the final agreement is subject is important if the event is only of minor importance, the agreement may be considered to be binding on the substantial (main) or essential terms. This seems to be the American approach.
The negotiations and fixing of a ship occupy two stages. First, the main terms aye agreed, such as the cargo, the freight, the ports of loading and discharging, the loading and discharging rates and the charterparty form to be used. After this has taken place, other details still require to be agreed, for example whether or not the ship is to be provided with an “ITF Blue Certificate”. In some trades this can be one of the main terms.
“Subjects” can restrict the enforceability of a charter. Because many “subjects” affect the shipowner, BIMCO often warns against misuse by charterers of `subjects”. Charterers can use “subjects” to their advantage in many ways, especially in poor freight markets. Explanations of various “subjects” are given below, but it is worthwhile being aware of owners’ concerns with charterers’ misuse of “subjects”.
BIMCO recommends certain principles to be observed in chartering and shipbroking practice when “subjects” are used. Generally, it is recommended that “subjects . . .” should be clearly stipulated and limited by the parties seeking to impose them. Indeed, especially in view of the different approach by American courts, it is better to agree to a ship being fixed subject to precisely specified “details” because then the main terms could form the basis of an enforceable contract.
In practical chartering it should be realised that the party imposing a “subject” restriction or qualification may be doing it for his own bargaining benefit, so as not to be bound by a firm contract.
