#6671 - The Odenfeld - Commercial Remedies BCL

The Odenfeld

Facts

The events concern a tanker of about 95,000 tons deadweight, formerly named Arnsberg and then renamed Odenfeld. The story began during the tanker boom in 1973 and ended during the slump in 1976, when she was laid up. The plaintiffs form part of a group of finance companies owned and controlled from the United States and specialise in shipping finance. Their president is and was at all material times a Mr. Shapiro who lives in London. The defendants are a Panamanian company carrying on business in Israel. They were formed in 1969 to operate the oil pipeline across Israel from the Persian Gulf to the Mediterranean and own and charter tankers in this connection… The defendants to counterclaim (Occidental) were the owners of the vessel and one of a large number of one-ship subsidiaries owned or controlled by Maritime Fruit Carriers (MFC), a company based in Israel and itself largely owned by a Panamanian company, Pan Maritime S.A.

It was in this atmosphere that Dr. Dinstein urged MFC to make a large tanker available to the defendants. MFC were then in the process of selling the Arnsberg (to be renamed Odenfeld) and another vessel to American buyers. But they agreed to consider a deal with the defendants instead, provided that a satisfactory agreement could be reached which would provide them with some immediate cash.

For this purpose they required a tong-term time charter at a fixed or at least a minimum rate of hire; a "bankable charter", as they referred to it during the negotiations. They did not regard a charter with an uncertain and fluctuating rate as any use for their purposes; nor would it have been on the banking evidence before me. They were therefore only willing to charter the vessel out on the basis of market rates if the charter provided on its face for a fixed or minimum rate of hire, so that it could be used as the basis for a loan.

It consists of having a charter at a fixed or minimum rate of hire which is capable of being presented to a potential lender for what it appears to be, but which is at the same time supplemented by a "side letter" arrangement to the effect that, in one way or another, the charterers will in fact only be assuming responsibility for hire at the market rate. On seeing the charter-party and taking it at its face value, a bank would then be willing to consider a loan, but without knowledge of the side letter arrangement. This device had been successfully used between the parties in the case of Idan on terms to which I shall have to return.

The charter was concluded in the autumn of 1970 for a period of six years from delivery. On its face it showed a fixed rate of hire for the entire period. However, by a side letter both parties were given the option of applying to the London Tanker Brokers' Panel to fix a market rate for the last three years of the charter, and the defendants' obligation thereafter was only to pay the market rate. MFC (through the subsidiary which owned the Idan) then applied for a loan to an associate company of the plaintiffs, GG Mortgagee Corporation ("GG"), the security being a mortgage of the vessel and the assignment of the hire payable by the defendants under the charter.

The next event is that by April, 1975, the freight market had collapsed. The defendants applied to the London Tanker Brokers' Panel to fix a market rate under cl. 42 for the following two years. They fixed it at $1.50, i.e. a little over a third of the previous rate and less than half of the minimum rate. For some months MFC made the funding payments to the defendants as required under cl. 1 of the side letter. However, by about September they ceased to do so. The MFC group had by then got into serious financial difficulties. MFC claimed to justify the non-payments on the ground that they were entitled to a set-off against the defendants for hire due under other charter-parties and contended that the defendants had made wrongful deductions from hire under them. The defendants dispute both contentions, but these do not fall to be investigated at the present stage. From September to December, 1975, the defendants continued to pay the full hire to the plaintiffs, but on or about Jan. 6, 1976, they refused to continue to do so and said that they treated the charter-party as at an end due to Occidental's wrongful repudiation of it. When the plaintiffs inquired about the grounds they learned about the side letter for the first time.

Question

The further issue which the defendants then raise on this basis is whether Occidental were bound to accept this repudiation and sue for damages, or whether they were entitled not to do so, with the result that the plaintiffs remained entitled to hold the defendants to the payment of hire.

Holding

Defendant’s contention: It is common ground that if Occidental did not repudiate the charter, as I have held in issue I, then the defendants repudiated it on or about Jan. 6, 1976. The defendants contend that Occidental thereupon came under a duty to accept the repudiation and to treat the charter as at an end; they contend that this was the only reasonable course for Occidental to take in the circumstances. They say that thereafter Occidental were not entitled to elect to hold the defendants to the charter, that the charter must therefore be deemed to have come to an end on Jan. 6, 1976, and that the plaintiffs accordingly cannot thereafter sue as assignees of the hire.

Attica Carriers case: But this was clearly not the view of the Court of Appeal in the more recent Attica Sea Carriers case which now binds me.

All three judgments proceeded on the basis that the owners' contention must fail because it amounted to an attempt to enforce the charter...