Exploring vessel hire agreements' terms and financing complications: The subtle might of Enjoyment assurance letters in silence
In a significant ruling, the court affirmed the mortgagee's right to act in its own commercial interest in the case of CHLOE V, a decision that has far-reaching implications for financiers and shipowners alike.
The court concluded that any discretion involving approval from the financier would be more in the nature of an unfettered discretion or absolute right. This means that financiers should ensure that loan documentation preserves absolute discretion and maintain clear internal policies on Letter of Quiet Enjoyment (LQE) issuance.
The case centred around a shipowner who was required, under the facilities agreement, to obtain the financier's approval before entering into certain charterparty negotiations. However, the court did not find any breaches of implied duties by the financier in withholding approval.
The bank that decisively influenced the case, CHLOE V SGHC 142, by refusing to issue the LQE, was the mortgagee bank itself. The specific name of the bank is not provided in the search results; however, the bank providing the financing for the ship involved in the case is also not named in the available documents.
The court found that the financier's refusal to issue the LQE was lawful and commercially rational. Furthermore, the court determined that the bank had no duty to give reasons for refusing to issue an LQE. The financier initially provided an in-principle agreement to issue the LQE, but later decided not to issue it.
The court's findings suggest that the bank had legitimate concerns about the borrower's financial health, the sufficiency of charter hire, and the risk of a security shortfall. This case underscores the importance of shipowners securing the necessary pre-approvals from financiers before concluding charterparty negotiations to avoid potential disputes.
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