Angeliki Frangou v Ioannis (John) Frangos

A contractual option to sell or refinance an asset, coupled with an indemnity for any resulting shortfall and accumulated losses, must be exercised within the period identified by the agreement, subject to any reasonable period needed for the election. A party cannot ordinarily retain an open-ended indemnity where the contract contains no provision extending it beyond the specified financing term. The court may also find that the contractual premise for an indemnity has failed where the asset’s beneficial ownership has subsequently become shared with the indemnifying party. An estoppel by convention cannot readily resurrect or retrospectively vary an expired contractual obligation without clear and compelling evidence of a common assumption.

The claimant sought US$11,866,844, alternatively damages, under a written agreement concerning the ownership, financing and eventual sale of a vessel. The agreement gave the defendant a conditional buy-back option during the four-year term of the vessel’s financing and then gave the claimant an option to sell or refinance, with a covenant requiring payment of any financing shortfall and accumulated trading losses.

The financing was restructured after its original maturity date, the vessel’s beneficial ownership later became shared between the parties, and the vessel was sold in 2020. The claimant argued that the payment covenant remained effective. The defendant contended that it had expired when no election was made at or shortly after the original maturity date, alternatively when ownership became shared. The claimant also relied on estoppel by convention.

1. Claim dismissed. The payment covenant in clause 5 expired when the claimant did not elect to sell or refinance the vessel on or about 1 September 2015, the maturity date of the four-year financing term. The agreement contained no other temporal marker capable of sustaining the covenant indefinitely.
2. The first sentence of clause 5 conferred an option requiring an election. The claimant did not need to have completed a sale or agreed refinancing by the maturity date, but the election between selling, refinancing, or doing neither had to be made by that date, subject to a de minimis or reasonable period. An election made only in 2020 was ineffective.
3. The contrary construction would impose a lengthy and unilateral financial burden on the defendant while the vessel remained under the claimant’s control. Accepting it would rewrite the parties’ imperfect bargain. The conclusion followed from ordinary principles of construction, without resort to contra proferentem.
4. As an independently sufficient alternative, the court would have accepted that the covenant expired or was discharged when beneficial ownership of the vessel became equally shared between the parties, at the latest on 21 September 2017. The indemnity’s premise was that the claimant beneficially owned the vessel and that losses suffered by its owning company could be treated as hers.
5. The claimant’s estoppel by convention failed. The evidence did not establish a common assumption that the defendant remained liable under clause 5 after the original maturity date. The absence of contemporaneous documentation, the claimant’s uncertain evidence, and the parties’ prolonged failure to mention the agreement were significant. An estoppel arising after expiry would in substance require a retrospective variation, novation, or resurrection of the agreement, requiring clear and compelling dealings.
6. The court did not determine the defendant’s alternative implied-rescission, estoppel and waiver arguments because the primary construction conclusion disposed of the claim. It observed that implied rescission requires subsequent contractual relations so inconsistent with the original contract that the parties are taken to have discharged it by implied consent. The quantum observations, including treatment of a release fee as part of the financing shortfall, were likewise unnecessary to the result.