Court of Appeal Holds John Frangos Liable for $11.6 Million Payment to Angeliki Frangou

Citation: [2023] EWCA Civ 1320
Judgment on

Introduction

The case of Angeliki Frangou v Ioannis (John) Frangos before the Court of Appeal (Civil Division) engages with contractual interpretation, particularly in context of a family-led bailout arrangement. The judgment scrutinizes the trial judge’s application of legal principles to ascertain the intentions of the parties and the effect of subsequent events on the contractual obligations.

Key Facts

Angeliki Frangou, the appellant, had agreed to bail out her brother, John Frangos, under their father’s instigation. This involved Angeliki’s company, Brandon, acquiring a vessel, m/v Taurus Two, from a company owned by John at a price significantly higher than its market value. This acquisition was part of a family-led rescue to mitigate John’s financial hardships with the bank HSH. The ‘Taurus Two Agreement’ (TTA) set out the terms related to the vessel’s ultimate fate over a four-year loan term and stipulated conditions under which John could purchase the vessel back from Brandon, as well as the consequences if he failed to do so.

The Court of Appeal employed several key legal principles:

  1. Contractual Interpretation: The court reaffirmed the established principle that contract interpretation seeks to ascertain the meaning conveyed to a reasonable person with access to the background knowledge available to the parties at the time of the contract.

  2. Objective Interpretation: The court underscored that interpretation should be based on objective terms, and it is not influenced by the subsequent fortunes of the parties or by hindsight.

  3. Natural and Ordinary Meaning: The words of the contract must be assessed in light of their natural and ordinary meaning, the context of the overall agreement, and the commercial consequences of competing interpretations.

  4. Implied Rescission: The court examined conditions under which a contract may be rescinded by implication, requiring subsequent actions to be so inconsistent with the earlier contract that they suggest an abandonment of its terms.

  5. Commercial Common Sense: The interpretation that would have been perceived as commercially sensible at the time the contract was entered into is usually preferred, provided it does not remake the parties’ bargain.

Outcomes

The Court of Appeal concluded that:

  1. Temporal Limitation: No temporal limitation was present in clause 5 of the TTA. Hence, Angeliki’s right to sell the vessel or refinance it through her company (Brandon) and to subsequently claim a shortfall and accumulated losses from John was not confined to being exercised by a specific date.

  2. Durability Argument: The judge’s determination that Angeliki’s entitlement to indemnification under clause 5 was contingent upon her retaining sole beneficial ownership of Brandon was erroneous, and no such precondition could be implied.

  3. Implied Rescission: The MEH Letter and the 2018 Reconciliation did not evidence a fundamental inconsistency with the survival of the TTA or an intention to abandon the TTA.

Consequently, the court reversed the High Court’s judgment and held John liable for a total payment of US$11,664,290 to Angeliki, covering both the shortfall on the Brandon Loan and accumulated losses from the vessel’s operation and management.

Conclusion

The Court of Appeal’s decision emphasizes the significance of the original language of a contract and its contextual interpretation within the framework of established legal principles. The analysis reiterates the critical importance of commercial common sense and objective interpretation in ascertaining the intentions of contracting parties. Contracts, especially in the context of complex family business arrangements, must be carefully construed to reflect the actual agreement between the parties without unwarranted judicial interference or addition of undisclosed terms.