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Note: To secure the shipment of a consignment of pipes to India, Indian Oil Corporation (Buyer) entered negotiations with M/S Rickmers Verwaltung Gmb H (Carrier). During preliminary negotiations, the parties agreed that Buyer would furnish a standby LC in favor of Carrier and that Carrier would provide a performance bond in favor of Buyer. On reception of the proposals, however, both parties rejected the terms of the other's bond. Unable to reach an agreement regarding the terms of the standby and performance bond, Carrier did not nominate a vessel to carry the pipes within the agreed time period and Buyer was compelled to arrange alternate shipping.

Subsequently, Carrier initiated arbitration proceedings under Clause 53 of the Charter Party Agreement and laid a claim for USD 1,031,668.77. Buyer claimed the Charter Party Agreement did not constitute a binding contract because it was not signed by Buyer and was conditional on the parties agreeing on the format and language of the standby issued in favor of Carrier and the performance bond issued in favor of Buyer. While acknowledging that Buyer did not sign the Agreement, Carrier claimed that mutual assent was indicated by the parties' correspondence. The trial court found that a valid agreement had not been formed and restrained Carrier from proceeding with arbitration.

The Supreme Court of India, in an opinion by Anand, C.J.I., affirmed the trial court's ruling that no binding contract existed. The Court held that the correspondence between the parties indicated that mutual assent was dependent upon both party's acceptance of the standby and performance bond. The Judge emphasized that the Court must only derive intent from the correspondence exchanged and should not create a contract by going outside the clear language used in the correspondence.

To determine whether intent to form a binding contract existed, the Court turned to a fax sent by Carrier that outlined the optimal terms of the standby:

"2. [Buyer] will open a standby irrevocable l/c in regard to the freight amount for the shipments. Funds under l/c for each lot to be available by latest 15th of each month before nomination of the vessel by line. Standby l/c will br issued by sbi india on sbi germany, sbi Germany to be authorized to reimburse themselves. In case any freight amount is not being received by line as per c/p and mentioned below, the amount shall be released on first written demand under standby l/c freight payment will be made through bank transfer at hamburg germany:

a. 50% less 3.75% commission is payable within 7 days on prersaa, 29,90: 2 nos. copy bill of lading Lina's invoice in triplicate
b. 40% is payable within 7 days on presentation of: arrival notice from master (telegram/telex/telefex)
c. 10% is payable within 30 days on presentation of: discharge notice from master (telegram/telex/telefex)

3. require urgently all detls of Ist lot (see Y' days telex) before, we cannot nominate the vessel."

The Carrier's refusal to nominate a vessel to transport the consignment indicated that the execution of the contract was dependent upon acceptance of the standby LC. The Judge ruled that "from a careful perusal of the entire correspondence on the record, we are of the opinion that no concluded bargain had been reached between the parties as the terms of the standby letter of credit and performance guarantee were not accepted by the respective parties. In the absence of acceptance of the standby letter of credit and performance guarantee by the parties, no enforceable agreement could be said to have come into existence."

[JEB/dm]

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