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Contract can be formed by company's actions, High Court rules

Bad news for oil company fighting over typo in written freighting contract

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The actions of two companies can lead to a binding contract being formed even if there is a mistake in the terms of the contract itself, the High Court has ruled.

The High Court determined that a contract had existed between Statoil ASA and TTMI Sari because Statoil had paid TTMI for delivering its freight – even though there was no such written agreement between the companies.

TTMI had chartered a ship to carry cargo and brokers set about constructing a sub-contract agreement with Statoil to pick up and deliver their freight on the way. A mistake was made in writing the contract when a broker wrongly named TTMI's then parent company Sempa Energy as the contractor instead of TTMI, the court ruling said.

"I have concluded that, objectively viewed, a contract was formed between them," Mr Justice Beatson said in the High Court ruling.

"I refer in particular to the combination of the fact that TTMI instructed the vessel to take on Statoil's cargo, the Notices of Readiness which were accepted on behalf of Statoil's managing agents identified TTMI as the time charterer, the full performance of the voyage, the demand that freight be paid to TTMI in terms which stated the 'total amount due TTMI' and requiring payment to TTMI's bank account, and the payment of the freight by Statoil to TTMI," the judge said.

TTMI had appealed an original decision taken by an arbitrator that rejected its claims that Statoil were bound by a contract between the companies.

Further matters will now be determined by an arbitrator. An underlying dispute exists between TTMI and Statoil over who is responsible for fees of more than $322,000. The fees were incurred as demurrage, the charges that a contractor pays to the owner of a ship for extra use of its vessel.

Copyright © 2011, OUT-LAW.com

OUT-LAW.COM is part of international law firm Pinsent Masons.

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