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You will be estopped if you cross the line

News / / London

Geoquip Marine Operations AG v (1) Tower Resources Cameroon SA (2) Tower Resources PLC [2022] EWHC 531 (Comm)

Estoppel is a useful tool in litigation, which is usually used to bind one party to a statement or a promise that it has previously expressed causing another to accept or adopt it for the purpose of their legal relations. The Court’s recent ruling in Geoquip Marine Operations AG v (1) Tower Resources Cameroon SA (2) Tower Resources PLC addresses estoppel by convention and recognises the requirement for the common assumption created between the parties to be clear and unequivocal. In this article we focus on the specifics of the Court decision.

Background

In late October 2019, the Claimant (“Geoquip”) and the first defendant (“Tower Cameroon”) entered into a contract for the provision of offshore geotechnical investigation services in relation to Tower Cameroon’s proposed drilling project off the coast of Cameroon (the “Contract”). The second defendant (“Tower plc”) guaranteed the payment obligations of Tower Cameroon and was also a party to the Contract. 

Geoquip’s service vessel (the “Vessel”) arrived in Cameroon and was ready to commence work in December 2019. Tower Cameroon paid the first instalment under the Contract, but owing to delays in renewing its drilling licence and obtaining certain permits from the authorities in Cameroon, the Vessel could not mobilise to the work site. An extension to the Contract was signed by Geoquip and Tower Cameroon (but not Tower plc) recording the parties’ understanding of the standby hours to be incurred by the Vessel (the “Extension Contract”).  Eventually, the work under the Contract commenced on 4 February 2020 and was completed on 7 February 2020.

The issues

Geoquip commenced legal action claiming the balance due for services provided under the Contract. The defendants alleged that their liability to pay was not triggered because of Geoquip’s failure to issue a compliant preliminary report by the contractual deadline.

In addition, Geoquip sought to recover standby costs for delays incurred by the Vessel. Geoquip contended that these costs were payable under the terms of the Contract, or alternatively pursuant to the doctrine of estoppel by convention and/or by contract. The Defendants denied liability for standby costs under the Contract or by estoppel.

Judgment

The Court addressed the following questions:

1. Was Geoquip entitled to payment of the balance of the lump sums claimed for the work done under the Contract?

As a matter of interpretation, the Court noted that a compliant report was required to trigger payment. The fact that Geoquip’s first preliminary report was non-compliant due to an omission of data, entitled Tower Cameroon to withhold payment, but only until the second report was produced, which rectified the earlier omissions. Geoquip was entitled to payment after this point.

It was immaterial that the second report was produced after the contractual deadline as time was not of the essence. Even if it were, the Court concluded that Tower Cameroon’s rights would be to terminate the Contract or claim damages. As such, Geoquip succeeded in its claim for the balance of the lump sums due under the Contract.

2. Was Geoquip entitled to recovery of the standby costs pursuant to the terms of the Contract?

There was no dispute between the parties that delay to the Vessel’s mobilisation was the result of the lack of permits and licence extension. Geoquip referred the Court to (among others) a specific clause confirming Tower Cameroon’s responsibility for late provision of these permissions and licences.

The Court noted that, read in isolation, such a clause could support Geoquip’s claims, but it could not properly apply since the very existence of the Contract, even though contrary to the parties’ subjective understanding, depended on acquiring those permissions and licences. It concluded that the parties could not have objectively contemplated Tower Cameroon’s contractual duties as falling due under this clause before the Contract came into force. The terms under the Contract did not support Geoquip’s entitlement to standby costs.

3. Was Geoquip entitled to recovery of the standby costs on the basis of an estoppel by convention?

Geoquip asserted that Tower Cameroon was prevented from disputing liability on the basis that the parties shared common assumption that the vessel was incurring standby costs; alternatively, Geoquip held that assumption and Tower Cameroon “acquiesced”. Geoquip argued that this was evident in the parties’ communication amongst themselves and with the Cameroonian authorities and was also acknowledged in the Extension Contract.

The Court analysed the requirements for estoppel by convention and clarified that it was important that the relevant assumption was clear and unambiguous “in its meaning, in its scope and in its impact on the legal relationship between the parties” and “something… must have crossed the line between the parties which manifested an assent to the assumption”.

Whilst some previous authorities indicated that clarity over what comprises the common assumption would be determined by the Court rather than the parties, the Court would not interpret an assumption that was vaguely or ambiguously expressed. The Court clarified that this was to protect the parties’ expressed contractual intentions from undesirable alteration. On the facts, the Court was not convinced that the parties clearly shared a relevant assumption and found no clear evidence that Tower Cameroon assumed liability for standby costs. Thus, Geoquip’s claim for these costs on the basis of an estoppel by convention failed.

4. Was Geoquip entitled to recovery of the standby costs on the basis of an estoppel by Contract?

Geoquip relied on the Extension Contract, which provided that standby accrued and continued to do so for certain periods. However, the Court rejected that an estoppel has arisen in contract since such provisions were not more than mere records of facts that did not assist Geoquip’s claim for standby costs.

5. Was Tower plc liable as guarantor?

It is an established principle of English law that the liability of the guarantor under certain types of guarantee can be discharged if the underlying contract is materially varied without its consent. Here, both Tower Cameroon and Tower plc had the same CEO, who signed the Contract on their behalf. The CEO, however, did not mention his position as a Tower plc representative when he signed the Extended Contract. A question, therefore, arose as to whether Tower plc could be discharged as a guarantor under the Contract on the basis that it was not a named signatory in the Extended Contract.

The Court noted that, as a CEO of both companies, the representative must have been familiar with their closely connected activities and thus likely to have approved the extension on behalf of Tower plc as well. This was supported by an anti-oral variation provision in the Contract requiring all amendments to be signed by the parties to the Contract. This meant that the CEO must have approved the extension on Tower plc’s behalf for it to be deemed valid. As such, Tower plc’s liability was not discharged as a guarantor.

Comments

The Court’s ruling highlights the importance of clarity of assumption in estoppel by convention and notes that unequivocal communication or representation between the parties is required for it to determine whether estoppel operates. It further shows that in certain guarantee contexts a company’s assent can be presumed where its representative signs, although on behalf of another company, a closely connected agreement.

Chris Kidd

Chris Kidd Head of Shipbuilding and Offshore Construction, Joint Head of Energy & Infrastructure, Partner

Tarek Taha

Tarek Taha Associate

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