CREDIT SUISSE AG v Owner of the vessel(s) CHLOE V (IMO No. 9457452)

Facts

Credit Suisse AG, later replaced as plaintiff by UBS AG after their merger, lent money to Chloe Navigation Ltd, owner of the very large crude carrier CHLOE V, under a Facilities Agreement dated 26 June 2019 governed by English law and secured by a mortgage over the vessel. The owner belongs to a group of companies owned by the Ghandour family. Clause 21.7.1 required the bank's approval before the owner entered certain charter commitments, including any capable of lasting more than 12 months.

After Koch Shipping Pte Ltd redelivered the vessel on 14 May 2021, the owner agreed in principle a new charter with Koch, subject to a condition that the vessel's financiers provide a letter of quiet enjoyment (LQE) on terms acceptable to Koch. On 20 May 2021 the owner sought the bank's approval of the charter and its agreement to issue an LQE. The bank had no objection to the charter terms but on 28 May 2021 refused to provide an LQE or any comfort letter, saying it would limit its rights under the finance documents. The charter fell through. Koch later arrested the vessel, the bank accelerated the loan after events of default and rearrested her, and she was judicially sold. The bank obtained summary judgment in Admiralty in Rem No 102 of 2021.

The owner counterclaimed, alleging that the refusal breached implied terms requiring the bank to act rationally and in good faith, not to withhold approval unreasonably, not to reach a Wednesbury-unreasonable decision, and not to prevent the owner performing the loan documents.

Issues

1. Whether approval of a charter commitment under Clause 21.7.1 included a decision to issue an LQE.
2. Whether any discretion to issue an LQE was subject to the Braganza duty of rationality and good faith.
3. Whether the bank breached that duty in refusing to issue an LQE.
4. Whether an implied term against prevention required the bank to issue the LQE.

Holding

The High Court dismissed the owner's counterclaim in its entirety. Having failed on liability, the damages claimed did not need to be decided. Costs were to be heard separately.

Reasoning

Applying English law, the court held Clause 21.7.1 protects the bank as mortgagee by restricting the owner's freedom to charter. Approval meant lifting that restriction; the bank was always free to decide whether to contract with a charterer through an LQE, and requiring it to approve its own contracts would turn the clause on its head. Though the LQE was a pre-condition to the charter, the bank only had to approve the proposed charter terms.

Even if the clause covered an LQE, any discretion was absolute and outside Braganza v BP Shipping Ltd and another [2015] 1 WLR 1661. The parties were sophisticated and dealing at arm's length, the bank had no conflict of interest since a good charter would help repay its loan, and issuing an LQE meant taking on obligations to a stranger.

In any event the decision was not irrational. There was no duty to give reasons, and the bank gave one. An LQE, especially the form Koch proposed, necessarily curtailed enforcement such as arrest; the owner's own expert said he would advise a bank absolutely not to accept it, and Mr Ghandour had told Koch the request was completely unreasonable. The bank had no duty to negotiate carve-outs. Its other considerations were legitimate: a likely security shortfall, the owner's history of defaults, which were not merely technical, hire it was entitled to view as insufficient once drydocking costs were included, and a weak financial position. Possible family funding was speculative, and the authority complaint was unpleaded and unfounded.

The prevention term does not extend to positive steps, the refusal was not wrongful, and such a term would conflict with the bank's express enforcement rights.

From the judgment