Angeliki Frangou v Ioannis (John) Frangos

A written contract is interpreted objectively, by considering its language, relevant background, purpose and commercial consequences as a whole. A family context does not justify assuming that a party agreed to terms contrary to her commercial interests.

A contractual right arising after a specified period does not acquire an unexpressed time limit or election requirement merely because liability may otherwise remain contingent for a long period. Nor should restrictions on ownership or commercial freedom be implied without clear language or necessity.

Rescission may be implied only where the parties’ subsequent agreement or common intention concerns the same subject matter and is so fundamentally inconsistent with the earlier contract that abandonment is the only possible inference.

The claimant caused her company to acquire a loss-making vessel at an overvalue and personally guaranteed acquisition finance as part of a family-arranged bailout of her brother. Clause 5 of their agreement required the defendant to meet any shortfall and accumulated operational and management losses if the vessel was later sold or refinanced.

The Commercial Court dismissed the claim in [2022] EWHC 3129 (Comm). It held that the claimant had to elect to sell or refinance on or about 1 September 2015, when the original loan term ended. It alternatively held that liability could not survive the claimant ceasing to be the vessel-owning company's sole beneficial owner, although it rejected implied rescission.

The appeal concerned the duration and durability of clause 5, alleged implied rescission through later arrangements, and the recoverable amount following the vessel's sale in 2020.

1. Appeal allowed unanimously. Clause 5 contained no express limit upon the time for exercising the right to sell or refinance. The words referring to the end of the four-year tenor identified the condition upon which the claimant's right arose: the defendant had failed to satisfy the repurchase conditions and the vessel remained with the claimant's company. They did not require a sale, refinancing or election on or about 1 September 2015.

2. The agreement contained no language granting the claimant an option, requiring an election or prescribing how one should be made. Introducing an unwritten election would create practical uncertainty and would amount to judicially remaking the parties' bargain. Although commercial common sense informs objective interpretation, it cannot supply a bargain which the parties did not make. The family context did not justify construing the agreement on the assumption that the claimant accepted commercially adverse terms when allocating the risks of the bailout.

3. The defendant's liability was not conditional upon the claimant remaining the sole beneficial owner of the vessel-owning company. No express term imposed that restriction, and it was neither obvious nor necessary. The relevant losses arose from the claimant's personal guarantee and her ownership of the vessel manager. They did not depend upon her continuing ownership of the vessel-owning company.

4. Implied rescission required any subsequent agreement or common intention to concern the same subject matter and to be so fundamentally inconsistent with the earlier agreement that abandonment was the only possible inference, applying Morris v Baron, Beningtons v North Western Cachar Tea Company and Cobalt Data Centre 2 LLP v Revenue & Customs Commissioners [2022] EWCA Civ 1422. Neither the 2017 trustee letter nor the 2018 cash reconciliation met that standard.

5. The defendant was liable for the shortfall and accumulated losses down to the 2020 sale. The losses were not capped at 2015 or reduced because of later co-ownership. Profits from another vessel were excluded because they did not arise from operating or managing the vessel governed by the agreement. An order was substituted requiring payment of US$11,664,290, with interest and consequential orders.

1. Court of Appeal (Civil Division): The court unanimously allowed the appeal from [2022] EWHC 3129 (Comm), rejected the respondent's notice and substituted an order for payment of US$11,664,290, together with interest and consequential orders.
2. Commercial Court: In [2022] EWHC 3129 (Comm), Stephen Houseman KC, sitting as a Deputy High Court Judge, dismissed the claim. He held that the clause 5 indemnity depended upon an election on or about 1 September 2015 and alternatively would not have survived the later division of beneficial ownership. He rejected the alleged implied rescission.