Imagine the situation. You are a Japanese company. Your container ship has become stuck in the Suez Canal, preventing other ships from passing through. Your ship, the Ever Green, is headline television news in nearly every country of the world. International trade is severely disrupted. To take a small example, garden centres all over the UK are unable to get new deliveries of outdoor furniture from China in time for the new season. Overall, potential liability claims run into the millions, if not billions.
But you have a solution. A major salvage company based in the Netherlands has invested equipment, manpower and technical skill into refloating your ship. You have agreed a price for their services, but it is subject to agreeing the detailed terms of a contract. The salvage company proposes terms based on a template published by a shipowners’ association, the Baltic and International Maritime Council. The template agreement is called WRECKHIRE – see https://www.bimco.org/contracts-and-clauses/bimco-contracts/wreckhire-2010
You are presented with three, successive ultimatums by the salvage company, that if you don’t agree terms they will stop work. You persuade them to stay by offering to increasing their mark-up from 25% to 35%. But still no agreement on contract terms.
They are successful, the ship is refloated and moved, and the Canal is able to take traffic again.
But the parties still haven’t agreed on the detailed contract terms. Do they have an agreement on price and on the essential terms, resulting in a contract, as you argue. Or is there no contract, so that the salvage company is entitled to a much larger amount under the law of salvage, i.e. a percentage of the value of the property saved?
The parties agree to refer their dispute to the English courts, applying English law. In the High Court, the judge says there is no contract, therefore the law of salvage applies. IP Draughts reported on that decision at https://ipdraughts.wordpress.com/2023/05/06/the-ship-that-got-stuck-was-there-a-salvage-contract/
You appeal against the decision. The Court of Appeal agrees with the judge. Decision here: https://www.bailii.org/ew/cases/EWCA/Civ/2024/260.html
Oh dear. In negotiations, it is received wisdom that negotiators should keep in mind their BATNA, or best alternative to a negotiated agreement. Here, the alternative could be viewed as WATNA, or worst alternative to a negotiated agreement. (Or would it have been worse if the ship were left straddling the Canal, resulting in more recoverable losses?)
Why couldn’t the owners agree the contract? Were they hoping to negotiate better terms? Was it just too fast-moving a situation? The negotiations were compressed into a very short space of time, due to the urgency of moving the ship out of the Canal. The owners and their insurers are Japanese, and in IP Draughts’ experience, sometimes decision-making in Japanese companies is slow and thorough. According to the Court of Appeal, the owners’ solicitors were English – Stann Law Limited. Did they advise their client on the legal implications of not reaching a contract? Were they even asked to do so?
Sometimes, it pays to cut through the discussions and just sign the d__________ contract. Particularly where the terms offered are based on a published template issued by the leading ship owners’ assocation.
Mr Pettifog
Mark Anderson
Paul Maclennan
Stephen Brett
Victor Warner
IP Draughts 
Thanks, interesting take. On the thinking of the Japanese parties, I have some ideas, but I would be speculating. On the approach of the English court, you’ve raised some doubts in my mind, but I would need to study the judgments very carefully before reaching the conclusion that they have messed up. In general, parties need to agree on more than price in order for a contract to come into existence. If important terms have not been agreed, no contract.
My major point is that where the alternatives are agreeing contract terms or possibly being caught by worse terms under the law of salvage, a wise negotiator will find a way of closing the deal.
Skimming through that pair of judgments, I’d guess the main difficulty is in convincing the Japanese bosses that the British Court would have reached such a manifestly absurd and substantively unfair conclusion.
Let me ensure I got the essence of this straight: A and B were in the middle of negotiating a contract and even locked down the basic terms like the price, but are circling the wagon on the details. Exploiting their superior position, A was constantly trying to extort better terms even in the sections that were already agreed – a situation that would hardly sit well with B. They could never finalize the details so it goes to court.
And the court ended up effectively deciding A deserves even more than what it had been arguing for in the negotiations?
Shouldn’t the very choice of the salvage company to negotiate a contract that even at its best would be less advantageous than what they can get under salvage laws be considered an admission by said company that this is not a salvage situation and salvage law should not apply?
If nothing else, the policy implications of this ruling seems horrendous. Ever since, salvage companies in this situation (already the stronger side) would be completely disincentivized from negotiating in good faith on contracts, simply because they know they can keep insisting they never agreed and then get that much larger payout from salvage law. The ideal of contracts is equality and voluntariness, and this further skews the deck against that.
Don’t get me wrong – this is a great post. I just don’t like the implications very much.