AS Klaveness Chartering v Pioneer Freight Futures Co Ltd & Anor

A contractual requirement that amendments or waivers be in writing does not prevent the parties making a separate collateral contract temporarily suspending performance. Equitable forbearance may also prevent a party from relying on non-payment as a default where it represented that payment would be suspended and the other party relied on that representation. Such forbearance may be ended by reasonable notice.

An agreement to set off sums due under related transactions may satisfy a contractual requirement for written agreement where the relevant terms appear in an email, even if acceptance was oral. A party cannot rely on a payment default, cure notice or termination mechanism inconsistently with its own representation or agreed arrangement.

Klaveness claimed sums due under forward freight agreements with Pioneer Freight Futures Co Ltd, together with up to US$10 million under a guarantee given by Pioneer Metals Co Ltd. The agreements incorporated the 1992 ISDA Master Agreement and provided for early termination and calculation of losses.

Following a proposed novation involving Duferco, the parties agreed that December settlement sums would be suspended pending completion of the novation. Pioneer later issued cure notices and failed to pay the January settlement after the December sums had been agreed to be set off. The principal issues were whether the December sums were payable, whether the cure notices were effective, whether the set-off agreement complied with the contracts, and whether Klaveness was entitled to terminate and recover its losses.

Judgment was given for Klaveness against PFF for US$30,517,912.25 and against PM for US$10 million under the guarantee, subject to submissions on interest.

1. The telephone agreement of 30 December 2008 suspended the December settlement sums pending completion of the proposed novation. It was supported by consideration, namely Klaveness’s continued willingness to negotiate and keep the proposed transaction available to PFF.
2. The agreement was collateral to the Master Agreement and therefore did not itself require writing under section 9(b). The authorities cited at L.R. 10 QB 174, [1959] Ch 129 and [1991] 1 WLR 853 supported that conclusion. Alternatively, PFF’s representation that payment was suspended gave rise to equitable forbearance. Klaveness relied on it by not paying, and PFF could not resile without reasonable notice: [2003] EWHC 1393 (Ch).
3. The 6 January cure notices were ineffective. PFF’s later email represented that they were mistakes, and Klaveness relied on that representation. PFF therefore could not rely on them as establishing an Event of Default.
4. By 5 February the parties agreed that the January settlement would be paid after crediting both December amounts. The agreement satisfied the written set-off requirement because its terms appeared in the email of 3 February. The reasoning was supported by analogy with [1986] 2 Lloyd’s Rep. 225. In any event, the subsequent request, issue and acceptance of the revised invoice represented acceptance of the set-off arrangement.
5. PFF’s failure to pay the resulting January balance constituted a default. Klaveness was entitled to serve a cure notice, designate an Early Termination Date and recover its properly calculated Loss under the Master Agreement. The guarantee entitled Klaveness to recover US$10 million from PM.