Back to formalities: recap fixture held insufficient evidence of charter contract

03 July 2019 

Introduction

The Tribunal of Milan recently published a judgment analysing a common occurrence in shipping matters where a contract of charter is not incorporated into an agreement duly executed by both parties, but instead is contained in a recap fixture exchanged via email.

The decision was issued in the context of an insolvency procedure to which an important Italian steel plant and charterer was recently admitted and is noteworthy as it reaches conclusions (significantly different from prevailing Italian case law) which deserve to be carefully considered when concluding charter parties.

Facts

The case concerned a recap fixture contained in an email exchange between a broker and a shipowner.

The recap was quite concise, as it only stated:

• the vessel's name and main characteristics;
• the charterers' names (by using the expression "account of"); and
• a few specific provisions of particular importance regarding the voyage charter stipulated thereby (eg, the loading and discharge ports, type of cargo and amount of freight).

The full regulation of the charter was instead contained in another charter party (duly executed), enclosed in the email reporting the fixture, to which reference was made through a specific clause in the recap (i.e., "otherwise as per c/p dated").

Decision

The Tribunal of Milan held that the recap fixture was insufficient evidence of the charter concluded between the parties. As a result, its terms and conditions were considered inapplicable.

In particular, the tribunal stated that:

• since the recap was contained in an email exchange between a broker and a ship owner, the expression used therein (i.e., "account of") was incapable of demonstrating the charterers' intention to be bound by said recap; and
• the other charter party, to which reference was made for the remaining provisions, had no value at all as it concerned different parties and a different ship.

In conclusion, the tribunal found that the recap fixture had failed to demonstrate a valid and enforceable contract between the parties.

Comment

The Tribunal of Milan's judgment is questionable, as it contradicts prevailing Italian case law, which generally considers a recap fixture contained in an exchange of emails as sufficient evidence of the conclusion and the terms and conditions of a contract of charter, especially where the charter was subsequently performed, at least to a certain extent.

In fact, while Article 420 of the Code of Navigation simply requires that a contract be proven in writing, the wider interpretation mentioned above is based on a general favour to the business transactions and the opportunity to affirm the validity of all such agreements which, even if not specifically executed, demonstrate that a charter contract was concluded in accordance with business customs and practice.

Instead, the Tribunal of Milan followed the opposite reasoning by referring to the need that in insolvency procedure cases, there should be a higher level of certainty and evidence.

In any case, the tribunal's decision is significant, as it illustrates the revival of a formalistic approach in the shipping industry and can be taken as a warning, especially for shipowners or charterers that have dealings with Italian companies in financial distress.

In such circumstances, apart from the obvious risk assessment relating to the capability of a counterparty to perform in general, it should be considered that in the event that a dispute matter ends up in court by applying such a formalistic approach, any contract of charter not incorporated into an executed contractual document may not be considered sufficient evidence of the relevant charter.