In Pacific Maritime (Asia) Ltd v Holystone Overseas Ltd – Butterworths Law Direct 11.10.07 a dispute arose under a memorandum of agreement, pursuant to which the Claimant agreed to sell an accommodation barge. The first Addendum to the MOA gave the Defendant the option of taking the vessel to Batan for removal of the forward block of accommodation units and having the vessel repaired there or somewhere else in the Far East. It became apparent that the Defendant was not minded to take the vessel to Batan and that the Claimant wanted a cash settlement. The Claimant obtained a freezing injunction pursuant to s 44(3) of the Arbitration Act 1996 which restrained the Defendant from removing from England and Wales or disposing of, dealing with, or diminishing the value of any of its assets and in particular the vessel up to the value of $4m. The injunction was obtained upon the basis that the Claimant had a good arguable case that the Defendant was obliged to provide it with an accommodation unit but had failed to do so. A figure of $4m was derived from a quote from one of the Claimant’s associate companies which was said to be the best evidence of the cost of constructing the unit in accordance with the MOA and the addendum. The Defendant applied to discharge or vary the order.
The Commercial Court held that in this case the Claimant had an arguable claim to a freezing order for the highest amount. On the true construction of the agreement, the primary obligation was to deliver the old forward block, but if the Defendant did not do that, then it was to supply an equivalent. It found that there was a potentially important difference between the principle as stated in case law (that where a man was bound by covenants to do one of two things, and did neither, then in an action by the covenantee, the measure of damages was in general the loss arising by reason of the covenantor having failed to do that which was least beneficial to the covenantee), and that stated in the academic authority (that where the defendant had the option of performing a contract in alternative ways, damages for breach by him had to be assessed on the assumption that he would perform it in the way most beneficial to himself). The former assumed that the contract breaker would do that which was least beneficial to the covenantee. The latter assumed that the covenantor would perform in the way most beneficial to the covenantor. The two were often two sides of the same coin, but not necessarily.
It analysed which course would be least beneficial to the Claimant in this case and which would be most beneficial to the Defendant. It found that in cases where the formulation of the assumption made a difference, the assumption should be that the defendant would perform in the way most beneficial to itself, not that it should perform in the way least beneficial to the covenantee.
On the facts and evidence in this case it was held that the appropriate figure to take as representing the Claimant's best arguable case was the value of new equivalent accommodation units.