Gator Shipping Corporation v Trans-Asiatic Oil Ltd, The Odenfeld: 1978

The parties entered into charter for a basic period of ten years. After the first two years the charter hire rate was to be assessed by the London Tanker Broker Panel, subject to a minimum. A side letter from the owners to the defendants contained a ‘funding arrangement’ under which, if the hire fixed by the Panel was less than the minimum hire specified in the charter, the owners would pay the difference. The defendants knew the documents were written to help the owner raise a loan and that it was at least highly likely that the owner would not disclose to the lender the side letter. After the charter had been made, the owner approached the plaintiffs for a loan, disclosing only the charter and not the side letter. The plaintiffs made a loan of $6,660,000 repayable with interest in 16 instalments over eight years on the security of an assignment of the money due under the charter. They believed that the charter contained all the terms of the bargain. The freight market collapsed, and the Panel fixed a rate below the minimum level in the charter. The owner did not observe the funding arrangement, and the defendants said that they treated the charter as at an end due to the owner’s wrongful repudiation.
Held: The owners were entitled to refuse to accept the repudiation, because the funding arrangement was a separate matter. Neither the owner nor the plaintiffs were precluded or estopped from denying that the side letter and the charter represented one transaction. Alternatively, the defendants were estopped from denying that the charter represented the only material bargain between them and the owner which could affect the obligation to pay hire.
Kerr J said: ‘the defendants’ conduct was at least careless, i.e. negligent in law if they were under a duty to potential lenders not to act in relation to the documents as they did’. The law provided a remedy by the doctrine of estoppel, and the plaintiffs would also have a remedy in negligence.
Reviewing White and Carter and Attica Sea Carriers, Kerr J said that ‘any fetter on the innocent party’s right of election whether or not to accept a repudiation will only be applied in extreme cases, viz. where damage would be an adequate remedy and where an election to keep the contract alive would be wholly unreasonable.’
Reviewing earlier case law, ‘All three judgments proceeded on the basis that the owner’s contention must fail because it amounted to an attempt to enforce the charter by a specific performance and because, on the extreme facts of that case, it was wholly unreasonable to the owners to seek to hold the Charterers to the charter instead of claiming such damages as they could establish. I emphasise the latter part of what I regard as the ratio of the judgments, because I do not regard the case as any authority for a general proposition to the effect that whenever the Charterer repudiates a time or demise charter for whatever reason and in whatever circumstances, the owners are always bound to take the vessel back, because a refusal to do so would be equivalent to seeking an order for specific performance. The consequences of such a proposition would be extremely serious in many cases, and no trace of such a doctrine is to be found in our shipping laws. No such general proposition was laid down. One only has to read the judgment of Lord Denning MR, with which Lord Justices Orr and Browne agreed, to see that his conclusion was based on the extreme facts of the case. In saying this I am in no way belittling the importance of the case in so far as it is a presently binding authority on this court in limiting or qualifying the generality of the principal of a virtually unfettered right of election in favour of the innocent party. This had been stated in the speech of Lord Hodson, and was evidently accepted, subject to the practicalities of the situation, by all three members of the Court of Appeal in the Decro-Wall case. It must be accepted in this court that the generality of this principal is qualified by the later Atticus Sea Carriers decision, since all three judgments deal with the White and Carter case and the Decro-Wall case is also expressly referred to in the judgments of Lords Justices Orr and Browne. However, what was decided in the Atticus Sea Carrier case, to use the language of Lord Justice Orr at the end of his judgment, was that the passages in the judgments in the Decro-Wall case did not apply ‘in the very different circumstances of this case’. It follows that any fetter on the innocent party’s right of election whether or not to accept a repudiation will only be applied in extreme cases, viz. where damages would be an adequate remedy and where an election to keep the contract alive would be wholly unreasonable.’


Kerr J


[1978] 2 Lloyds Reports 357

Cited by:

CitedReichman and Another v Beveridge CA 13-Dec-2006
The defendants were tenants of the claimant. They vacated the premises and stopped paying the rent. The claimant sought payment of the arrears of rent. The defendants said that the claimants should have taken steps to reduce their damages by seeking . .
Lists of cited by and citing cases may be incomplete.


Updated: 02 May 2022; Ref: scu.396613