The Alaskan Trader [1984]
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The Alaskan Trader [1984] 1 All ER 129 establishes the principle that affirmation of a repudiated contract is precluded when there is no legitimate interest in doing so. In this case, the charterers sought to prematurely return the ship to the owners during a time charter, constituting a repudiatory breach of contract.
Despite the repudiation, the owners proceeded with expensive repairs and maintained a crew ready to sail. Subsequently, the owners sought an arbitral award for the contract price under the charter. The arbitrator, however, held that the owners had no legitimate interest in affirming the contract.
When the case reached the High Court on appeal, the legitimate interest test, as laid down by Lord Reid in White and Carter, was challenged. It was argued that the test was obiter dictum in White and Carter, as no argument was presented on it during that case.
The High Court, under Lloyd J, held that the arbitrator had not erred in applying the legitimate interest test. Lloyd J emphasised that there is a constraint on the innocent party's right to not accept a repudiation in extreme cases if there is no legitimate interest in performing the contract rather than claiming damages. For there to be no legitimate interest, the conduct of the innocent party in affirming the contract must be deemed wholly unreasonable, not merely unreasonable.
Lloyd J clarified that in cases where affirmation is fettered, it is more accurate to say that the court, on equitable grounds, refuses to allow the innocent party to enforce full contractual rights. This restriction pertains to the range of remedies available rather than the right to elect to affirm or terminate.
The case underscores the principle that affirmation of a repudiated contract is contingent on the presence of a legitimate interest and is denied only in extreme cases. This principle was later affirmed in Isabella Shipowner SA v Shagang Shipping Co Ltd [2012].
Despite the repudiation, the owners proceeded with expensive repairs and maintained a crew ready to sail. Subsequently, the owners sought an arbitral award for the contract price under the charter. The arbitrator, however, held that the owners had no legitimate interest in affirming the contract.
When the case reached the High Court on appeal, the legitimate interest test, as laid down by Lord Reid in White and Carter, was challenged. It was argued that the test was obiter dictum in White and Carter, as no argument was presented on it during that case.
The High Court, under Lloyd J, held that the arbitrator had not erred in applying the legitimate interest test. Lloyd J emphasised that there is a constraint on the innocent party's right to not accept a repudiation in extreme cases if there is no legitimate interest in performing the contract rather than claiming damages. For there to be no legitimate interest, the conduct of the innocent party in affirming the contract must be deemed wholly unreasonable, not merely unreasonable.
Lloyd J clarified that in cases where affirmation is fettered, it is more accurate to say that the court, on equitable grounds, refuses to allow the innocent party to enforce full contractual rights. This restriction pertains to the range of remedies available rather than the right to elect to affirm or terminate.
The case underscores the principle that affirmation of a repudiated contract is contingent on the presence of a legitimate interest and is denied only in extreme cases. This principle was later affirmed in Isabella Shipowner SA v Shagang Shipping Co Ltd [2012].
