Havila Kystruten AS & Ors. v STLC Europe Twenty Three Leasing Limited & Anor.

Contractual rights under interlocking lease and security documents must be construed as a coherent scheme. A lessor’s election to demand a Termination Sum under clause 28.1(e) is inconsistent with foreclosure under clause 28.1(c), and with enforcement of corresponding security rights for the same Termination Event, unless a legally recognised change of circumstances occurs. A fresh non-payment Termination Event may support a later contrary election, but sanctions provisions may excuse the lessee’s non-payment.

Payment into the contractually nominated account constitutes receipt and good discharge even if the account is frozen, where the contract makes payment into that account the agreed method of payment.

The claimants sought summary judgment concerning lease-financing arrangements for vessels under construction. The defendants sought reverse summary judgment on the existence of Termination Events and on their entitlement to enforce security assignments.

The dispute arose after sanctions affected entities connected with the financing arrangements. The principal questions concerned the effect of the lessors’ demands for Termination Sums, the interaction between the bareboat charters and pre-delivery security assignments, and whether payment into a frozen nominated account would discharge the relevant liabilities.

1. Summary judgment procedure. The court applied the ordinary summary judgment test and determined the two core construction issues finally, since they could be resolved on the contractual documents: [2009] EWHC 339 (Ch).
2. Termination Events. Reverse summary judgment was refused on the Capella insurance issue. Cancellation of insurance did not necessarily fall within clause 25.16, although it potentially breached the strict insurance obligation in clause 20.1 and could constitute a Termination Event under clause 25.3(b). Clause 4.3(a) created an arguable sanctions-based excuse. Reverse summary judgment was granted on Castor. The relevant acts remained capable of constituting Termination Events despite having been undertaken in response to sanctions. No sufficient representation supported estoppel or waiver.
3. Election. Clauses 28.1(c) and 28.1(e) provided inconsistent regimes. Clause 28.1(e) kept the charter alive, created an immediate payment obligation and conferred a contingent right of redemption under clause 29. A lessor electing clause 28.1(e) could not also elect foreclosure under clause 28.1(c), or enforce the corresponding clause 7 security rights, for the same Termination Event absent a legally recognised change of circumstances. A fresh non-payment Termination Event could generate a new election. However, clause 4.3(a) excused non-payment while the nominated account was blocked and payment elsewhere risked sanctions. No fresh Termination Event had therefore arisen.
4. Immediate payment. The contractual scheme preserved the lessee’s right to pay despite delay. The strict approach in Union Eagle Ltd v Golden Achievement Ltd [1997] AC 514 did not govern this differently structured agreement.
5. Frozen account. Payment into the nominated account constituted receipt and good discharge under clauses 6.6, 28.1(e) and 29. Immediate access to the funds by the lessor was immaterial. The reasoning relied on the parties’ contractual allocation of the payment mechanism, notwithstanding reliance on The Brimnes [1973] 1 WLR 386.
6. The interim injunction was continued until trial. Declaratory relief was granted reflecting the contractual position, and liberty to apply was granted if payment into the nominated account remained impossible.

The judgment concerned first-instance applications for summary judgment and reverse summary judgment. An interim injunction had previously been granted by HHJ Pelling QC, sitting as a High Court judge, on 15 June 2022. The present court continued that injunction until trial and determined the core contractual construction issues finally.