URSABLOG: Thumbs Up?
One of the most important things for a shipbroker to know is exactly the moment a contract becomes effective. Apart from the obvious that once a deal is confirmed you can fist pump the air, give your colleagues high fives, or go down the pub to celebrate, it is also the point from which if either party does something against the agreement, or doesn’t do something that has been agreed, then they are in default and will have to rectify that default one way or the other, or end up in Arbitration or worse, the courts. Surprisingly however few practitioners in the shipping industry, and in particular sale and purchase brokers, seem to be aware of the law behind it.
Under English Law, the law that governs by far the majority of global shipping contracts, the point that a contract becomes effective is when all terms have been agreed and all subjects are lifted. A subject – for example “subject Buyers Board of Directors approval”, or “subject mutual agreement of terms” – is an obstacle to a full agreement that has to be removed before a contract is considered in existence.
We shipbrokers are always in a hurry to get a deal done and a contract in place. During negotiations everything else stops – holidays, weekends, parties, weddings (hopefully not our own), dinners, bar mitzvahs – until a contract is in place. The world changes quickly: the competition may pile in with a better offer, a better ship may come into play, Russia may invade Ukraine, anything could change the viability of a deal. So getting to a place where all terms are agreed and all subjects are lifted is a race against time. Once a deal is done, whatever happens in the world, or in other deals, does not – or should not – affect what had been agreed in our deal. And before you start, force majeure is not a concept recognized in contracts governed by English Law, unless of course such a provision has been included in the terms that have been agreed.
I am fond of saying that a contract is simply an agreement between two parties with a price attached. The written terms that are then signed or executed are simply evidence of the contract, evidence of what has been agreed. In ship sale and purchase this is emphasised by the title of the document we use: Memorandum of Agreement (MOA), a written record of what has been agreed.
How the contract is confirmed agreed is almost irrelevant. The final agreement of the terms can be made by a short email, a handshake, a phone call, a text via SMS, WhatsApp, SKYPE, ICE, Viber, Messenger or whatever – although Snapchat is not recommended – a fax even, but – counterintuitively for many cultures – it does not need two signatures on a piece of paper (unless of course such a provision has been included in the terms that have been agreed).
This confusion as to when a contract is effective is perhaps understandable, especially when – as in ship sale and purchase – there is so much money at stake, and where there are many things to do after the sale has been confirmed, outright, like signing the MOA, lodging the deposit, to give everyone comfort that things are moving ahead properly. But there is also a lot at stake: failure to sign an MOA, or lodge a deposit does not release either party from the consequences of what they have agreed. For example, if proven, failure by the Buyers in a ship sale and purchase contract to sign the MOA, or lodge the deposit, could result in damages to be paid, the minimum being the amount they had agreed to lodge as a deposit.
In many ways I am a frustrated lawyer. I like the law, I find it interesting, and actually enjoy reading law reports and cases if they are in an area that interests me. But perhaps I didn’t study hard enough at school, or wasn’t aware of the possibility of a career in law, or was simply too cool for school to pay attention. A career in shipbroking, and the studying and learning that went with it, has in many ways redeemed me from a life of underachievement. The fact that most shipbrokers I know perpetually feel that they are underachieving – they could always do more, do better, be better – it perhaps part of the crucial psychological set up of shipbroker anyway. But these things matter: knowing when a deal exists, and the point the contract became effective is surely one of the most important pieces of knowledge that a shipbroker should have. It is one of the most valuable lessons I learnt on my journey to become a member of the Institute of Chartered Shipbrokers.
So I read with some amusement, and also some concern, a story passed to me by a colleague about a Canadian farmer, Chris Achter, who was ordered to pay over US$ 60,000 in damages for non-performance of a contract, because he responded to a picture of a flax-buying contract sent to him via a smartphone with an emoji of a thumbs-up. The buyers thought they had a deal, the farmer thought he was just acknowledging receipt of the message. The judge, based in Saskatchewan, agreed with the buyers. In is summary judgment, Judge T.J. Keene said:
“I am satisfied on the balance of probabilities that Chris okayed or approved the contract just like he had done before except this time he used a thumbs-up emoji…In my opinion the signature requirement was met by the thumbs-up emoji originating from Chris and his unique cell phone.”
As far as I am aware this has yet to be tested in the English courts, but the implications are profound. Emojis, that useful tool of modern communication, can be legally binding. But also consider that this was only a thumbs-up emoji, one of the most commonly used. What about all the other emojis used – the rolling of the eyes, the smiley face, the non-smiley face, the melting face – in common text conversations. Will we start getting lengthy judgments from judges about the use and meaning of these in commercial negotiations? I think we will.
As being officially classed as ‘old school’ – if not mocked to my face, I am tolerated for my backwardness – this seems again to show that putting things in writing, by email that can be recorded in an appropriate database, is not something that can go out of fashion. So much correspondence these days is by ‘chatting’ without an actual spoken conversation taking place. I have to clarify with colleagues and friends what they mean when they were chatting: on the phone, face to face, or by text? In such important things as commercial negotiations, however they take place, it is always a good idea to take a note – in a day book for example – or send the correspondence via text as a screenshot, or very simply reconfirm discussions by an email, preferably without emojis.
I am sure that I am not alone, especially those of us in age group that did not grow up with the internet let alone mobile phones, who have been misunderstood – or worse caused offence – by using an emoji we thought meant one thing and it turned out to be understood by the recipient in a completely different way. Imagine the complications of this in commercial negotiations for contracts worth millions of dollars. The simple solution is – call me old-fashioned if you like – is to follow up phone calls, chats, texts, whatever, with an email that says clearly and simply what you want to say, or what has been said. Further if you are unclear about what a red heart, blue heart or any other emoji means, ask for clarification. It could save you a great deal of heartache in the long run.