Isabella Shipowner SA v Shagang Shipping Co Ltd [2012]

Court: High Court (Commercial Court)

Facts: The case involved a time charter in which the charterers informed the ship owner, Isabella Shipowner SA, of their intention to prematurely return the ship. The arbitrator ruled that the ship owner could not refuse redelivery and was not entitled to affirm the charterparty. The ship owner contested this decision, leading to a review by the High Court.

Issue: Can an innocent party affirm a repudiated contract when the contract breaker claims that damages would be an adequate remedy and that affirming the contract would be unreasonable?

Held: The High Court overturned the arbitrator’s decision, holding that the ship owner was entitled to affirm the contract. It was determined that the charterers had the burden to prove that damages were an adequate remedy and that affirming the contract was unreasonable. The court found that damages were inadequate due to potential disputes over mitigation and the charterers' financial difficulties, and that requiring the ship owner to find a new charterer was not unreasonable in the circumstances.

Key Judicial Statement: "The right to affirm a repudiated contract is the general principle, and the burden of proof lies on the contract breaker to demonstrate that there is no legitimate interest in affirming the contract."

💡Leveluplaw: This case reinforces that an innocent party can affirm a repudiated contract unless the contract breaker can prove that damages are sufficient and that affirming the contract would be wholly unreasonable. It clarifies the burden of proof and sets guidelines for when the right to affirm can be denied.