Palmali Shipping SA v Litasco SA

A transaction entered into for a Swiss company is void where the officer acted under a sufficiently serious conflict of interest, failed to neutralise the conflict, and the counterparty acted in bad faith. A transaction may also be void where it is objectively contrary to the company’s interests and the counterparty knew, or ought to have known, that this was so.

Ratification requires proof that the alleged ratifier had full knowledge of the material facts. An agreement which leaves an essential term, such as price, to future agreement is generally unenforceable unless the uncertainty is resolved by the parties’ subsequent agreement. Contractual waiver requires acceptance; waiver by estoppel requires reliance and detrimental alteration of position.

Palmali Shipping SA brought a claim for damages alleging that Litasco SA had breached a 2005 contract of affreightment requiring the supply of substantial monthly cargo volumes for carriage. It also brought a separate claim for unpaid sums under charterparties and bills of lading. Litasco counterclaimed for sums due under a loan, an overpayment, and money paid in relation to the vessel Minerva Zoe.

The principal issues were whether the contract of affreightment was binding, whether it was void under Swiss law because of conflicts of interest or because it was contrary to Litasco’s interests, whether it had been ratified, and whether Palmali’s later claims had been waived or abandoned.

1. 2017 Claim. The contract of affreightment was void under Swiss law. The evidence established a sufficiently serious conflict between the Litasco officer’s duties and his personal or family interests in companies used to carry the contractual cargoes. The conflict was not disclosed to, or neutralised by, Litasco’s board. Palmali, through its controlling individual, knew of the conflict and therefore did not act in good faith.
2. Independently, the agreement was contrary to Litasco’s interests. Objectively assessed at the date of contracting, it imposed substantial obligations despite the absence of any identified shortage of carrying capacity, the closure of the river route for several months each year, the availability of rail and pipeline alternatives, and the commercially irrational cost of shipping cargo in small lots. The counterparty knew the relevant circumstances.
3. As an alternative, the parties did not intend the agreement to have legal effect. Its commercial and operational consequences were highly improbable, its freight-rate clause left an essential term to future agreement without an ascertainable mechanism, and the parties in practice operated through annual river agreements and separate charterparties. The agreement therefore created no binding obligation except to the extent later agreements fixed rates and other essential terms for particular voyages.
4. Ratification was unavailable. Palmali neither pleaded nor proved that the relevant Litasco decision-makers had full knowledge of the material facts constituting the conflict when the alleged acts of ratification occurred.
5. Counterclaim and 2018 Claim. The admitted loan debt and overpayment were recoverable. Litasco was also entitled to restitution of the sum paid for the Minerva Zoe but retained by Palmali. Palmali’s agreed 2018 claim of US$3.85 million succeeded, but was set off against the larger counterclaim. The waiver and estoppel defences failed because Litasco had not accepted the proposed waivers and had not relied on them.