SUBJECT DETAILS By Michael Marks Cohen, Esq. At common law in the mid-Twentieth Century it was assumed that parties did not intend to be bound by a contract if any terms were left open, for example, a charter party where parties did not agree on the freight rate or the cargo quantity. But it is not against public policy to have a binding contract with open terms. Parties must indicate in some way if they want to be bound even though some terms may still be open. For example, assume that in charter negotiations, parties agree to incorporate York-Antwerp Rules for General Average, but forget to discuss whether the 1974 or 1994 versions of the Rules apply. Looking at the negotiations as a whole, a court could conclude that the parties intended to be bound to the charter notwithstanding the open term. There is a distinction between a contract with open terms and a preliminary agreement. Parties could be negotiating a charter with many open terms and agree that the charter was not yet binding, but they might commit themselves to continue negotiations in good faith in an effort to complete them. Lawyers would say this is an agreement to agree. In England, such an agreement is simply unenforceable. But here such arrangements can sometimes be binding as so-called preliminary agreements. The problem with them is damages. There never was a binding charter, just a preliminary agreement. If a charterer runs away from a preliminary agreement, should he be liable for damages under a charter which might never have been agreed? Or should he instead be liable only for the wasteful delay and expenses incurred by the owner in finding new employment for the ship? The term "subject" in a charter party is a buzz word introducing a condition. There are essentially two types of conditions. A condition "precedent" is an event which must occur before there will be a binding contract, e.g. "subject stem." A condition "subsequent" presupposes that there is a binding contract, but if the event occurs, the contract will be terminated early, e.g. war risk clauses which provide that if war breaks out between two members of the U.N. Security Council, the charter comes to an end. Under a decision named the JUNIOR K, in England and virtually everywhere except here, if a contract is subject to later agreement about "details" there is a condition precedent and the contract is not binding until all details have been agreed. As previously noted. If some details are never agreed because, for example, they were overlooked or they were deliberately left open, even in England, there can be a binding charter party if the parties have somehow indicated that they didn't intend the open terms to stand in the way. An advantage of the English position is that when charters are fixed subject details, everyone generally knows where they stand - there is no charter - either party is free to walk away. This is good for trade in a fast moving market. But it can be unjust. Brokers are often the most outspoken because they may have invested large amounts of time and money in a project, only to see a fixture subject details, and their hopes for large commissions, evaporate when negotiations suddenly break off because one party or the other got a better deal elsewhere. BIMCO denounces such conduct as unprofessional. Even those who walk away can at times appear ashamed of themselves, and in an effort to put the blame on the other side, they announce an impossibly short deadline for agreement on details. In effect they are proposing to convert the negotiations into a short preliminary agreement. In rare cases, where this has happened to clients of mine who really need to keep the fixture, I tell them to go back immediately accepting all the details proposed by the party who is threatening to walk. To be sure, my clients may thereby end up with some details they don't like, but they are pretty certain to get the ship and the unfortunate details will not be difficult to live with. Remember, the main terms have been agreed and courts in England and the U.S. in this type of case will not permit an agreed main term to be changed, or a detail to be proposed which in reality is a main term. Starting in the 1970's, judges in the U.S. heard a number of cases involving shipping enterprises which had walked away from a sub details fixture. They treated whether the parties intended there to be a binding charter as a factual issue. At trial, the court was informed that charters on printed forms were fixed in two stages - main terms and details - and that filling in the blanks in the form did not open up the whole earlier negotiations. Indeed in the Great Circle case, the court was advised that when a ship was fixed subject details on a printed form, if the parties failed to discuss a specific term in the printed form, they would be taken as having agreed to that term. This was all true, but the court was never told, and clearly did not understand that if a party gave notice of an objection to a specific term in the printed form, the term was not part of the charter. The judge concluded instead that if one party liked a term in the printed form and the other party did not, they were both bound to the details in the printed form. In short, under the decision in Great Circle, a fixture subject details was not a contract with open terms at all. The fixture was a fully completed contract as provided in the printed form unless the parties later agreed to change them. The Great Circle case introduced a gigantic schism into chartering - and later into ship sales. If suit to compel arbitration went forward in London in a subject details case, the suit would fail. If such a suit were brought in the U.S., arbitration might well be ordered even if the charter party called for arbitral proceedings in London. The BIN HE was just such a case. A Chinese owner fixed a ship with an American charterer through American brokers on a printed form providing for arbitration in London. The ship had several subjects including subject satisfactory inspection and subject details. There was never any negotiation of the details because the parties were waiting to see if the other subjects would be lifted. One of the brokers passed on information that the surveyors had not been happy with the ship. The owner understood this information to mean that the inspection subject would not be lifted and actually sold the ship elsewhere. The charterer protested that what the owner had been told by the broker had not originated with the charterer who felt the inspection was satisfactory and it lifted the inspection subject. When the owner objected that it was too late, the charterer demanded arbitration. I should point out that in one of the cases before Great Circle was decided, an argument had been made that if the printed form contained an arbitration clause, the court should sever the clause and treat it as a separate agreement to arbitrate, thereby sending the parties to arbitrate the issue before shipping people of whether a fixture subject details was binding. But the court did not accept the point and decided itself that the fixture was binding. In subsequent cases occasionally parties would specially agree to send the issue to arbitration. Each time experienced SMA arbitrators found there was no fixture. [SMA No. 3208 (1995); SMA No. 1924 (1983)] In the BIN HE, the owner proposed to arbitrate in London whether or not there was a binding charter. The parties negotiated toward agreeing on a special ad hoc arbitration panel, but at the last minute, the charterer walked away from this side deal, and sued to compel arbitration in London under the charter, asking the court to treat the fixture with all of its subjects as binding. The trial judge ruled that by fixing sub details on a printed form, the parties agreed to arbitrate in London as provided in the printed form. Sua sponte - i.e. not argued by counsel - he went on to hold that it wasn't necessary for him to decide whether the other subjects had been satisfied. He left those issues for the arbitrators. On appeal the owner argued for uniformity. The rest of the world was not going to change. Great Circle was at odds with the JUNIOR K and should be overruled. Three years later the Second Circuit affirmed, deciding all of the issues except subject details. The panel noted that Great Circle was "unpopular" but said it had no power to overrule a precedent, which could be done only by an en banc court of 12 judges. The owner requested an en banc rehearing. The court asked several organizations, including the SMA, for their views. The SMA urged the court to reconsider Great Circle. But after another year and a half, the Second Circuit, without explanation, declined to convene the 12-judge court. The sub details schism between London and New York persists.