Teekay Tankers Ltd v STX Offshore & Shipbuilding Co. Ltd

An agreement may be binding in intention yet void for uncertainty if an essential term is left to future agreement and no objective criterion can determine it. The court will strive to preserve a commercial bargain where the parties intended enforceability, but implication cannot rewrite the parties’ scheme. An obligation to use best efforts to reach agreement on an essential term remains materially different from an obligation to use best efforts to achieve a specified result. Where the parties’ interests are opposed and no objective standard is readily applicable, such an obligation is aspirational and unenforceable. A clear and unequivocal indication that a party cannot or will not perform essential obligations may amount to renunciation. Damages for loss of an exercised option are assessed by the cost of obtaining the replacement bargain, rather than by the value of later performance of a contract which was never made.

Teekay Tankers Ltd and STX Offshore & Shipbuilding Co. Ltd entered into an option agreement under which STX granted options for additional oil tankers. The agreement required delivery dates to be mutually agreed when an option was exercised, while STX promised to make best efforts to have deliveries within specified years.

Teekay exercised two options and later alleged that STX had repudiated or renounced the agreement. STX defended the claim on the basis that the agreement was void for uncertainty, and disputed liability and quantum. Teekay also relied on arbitral findings and alleged abuse of process. The central issues were whether the delivery provisions were enforceable, whether STX had renounced the agreement, and what damages would have been recoverable if liability had been established.

1. Liability. The claim was dismissed because the option agreement was void for uncertainty. The parties intended the agreement to be binding, but delivery dates were an essential term. Clause 4 required them to be mutually agreed when an option was declared, without prescribing an objective method for resolving disagreement.
2. The court considered the principles in MRI Trading AG v Erdenet Mining Corp LLC [2013] EWCA Civ 156 and the associated Rix/Chadwick principles. A court should strive to preserve an intended commercial bargain where possible. It may imply a term or provide machinery where the outstanding matter is objectively determinable. It cannot substitute a unilateral scheme for an express requirement of mutual agreement.
3. The proposed term making the delivery date the date offered by STX was inconsistent with clause 4 and could not be implied. The alternative reasonable-date term also failed. The parties had conflicting commercial interests, and neither “best efforts” nor “reasonableness” supplied an objective standard readily capable of reconciling them. The best-efforts provision was therefore aspirational in this context.
4. If the agreement had been enforceable, STX’s words and conduct would have amounted to renunciation. The communications showed that refund guarantees were practically unavailable and that there was no realistic intention to enter into the required shipbuilding contracts. The draft contracts did not alter that conclusion because delivery dates were left blank. Teekay’s separate repudiatory-breach case was not established, but this did not affect the alternative renunciation conclusion.
5. If liability had been established, damages would have been compensatory. For the exercised options, the appropriate date was on or shortly after 6 February 2014, measured by the cost of replacement shipbuilding contracts. For the unexercised third option, damages were assessed by reference to replacement contracts during the option period. The provisional total was US$116,920,000, subject to a possible allowance for staged payments.
6. Teekay was not in privity of interest with the subsidiary buyers in the arbitrations. Its estoppel and abuse of process assertions therefore failed. The counterclaim for breach of arbitral confidentiality also failed because the disclosures were made in the interests of justice, in support of an arguable case and after warning STX.