Haugland Tankers As v RMK Marine Gemi Yapim Sanayii Ve Deniz Tasimaciligi Isletmesi AS

In a unilateral option contract, an option must be exercised in exact compliance with the offer. Where the agreement requires notice declaring the option and payment of a commitment fee simultaneously, both acts must occur at the same time. Payment is therefore a condition precedent to valid exercise where the contractual language and structure show that result.

If payment were instead a separate promissory obligation, whether time was of the essence would depend on the nature of the contract and obligation. Commercial context, urgency, volatility, the importance of security and the parties’ conduct are relevant. In the circumstances considered, non-payment would not, without more, have entitled termination.

The claimant purchased a vessel under a shipbuilding contract and received an option to purchase an additional vessel from the defendant. The option agreement required the claimant to declare the option within six months after payment of the first instalment and to pay a 1% commitment fee simultaneously. The claimant served notice within time but did not pay the fee.

The defendant argued that the option had not been validly exercised and had expired. The claimant sought declarations that the option had been validly exercised, remained binding and required the defendant to enter into the option contract. The central issues were the meaning of “simultaneously”, whether payment was a condition precedent, and, alternatively, whether late payment breached a promissory condition.

1. Construction. The word “simultaneously” required payment of the 1% commitment fee at the same time as service of the notice declaring the option. The agreement did not support the claimant’s argument that payment was deferred until the option contract became effective (paras [16], [23]).
2. Condition precedent. The option agreement was a unilateral contract. The defendant’s promise constituted an offer which could be accepted only by exact compliance with its terms. Clause 2 referred to exercise of the option “as per clause 4”, while clause 4 linked declaration and payment in strong and immediate terms. Payment of the commitment fee was therefore a condition precedent to, or requirement for, valid exercise of the option (paras [17]-[18], [23]-[25]).
3. Alternative issue. The judge considered, obiter, that if payment were merely a separate promissory obligation, the question whether time was of the essence would depend on the nature of the particular contract and obligation. Relevant considerations included the commercial significance of security, urgency, the volatility of the asset, the time scale, and the parties’ conduct. The circumstances did not involve a volatile asset or genuine urgency. The defendant’s failure to request payment or set a deadline meant that, if the issue had arisen, non-payment would not without more have entitled it to terminate (paras [26]-[32]).
4. Disposition. The claimant was not entitled to any of the declarations sought. Ancillary issues were reserved for further hearing if not agreed (para [33]).

First-instance decision. The judgment does not state any prior appellate decision.