John Manners & Co Ltd v. Eastland Navigation & Commerce Ltd and Others
Read the full judgment text of HCA 1311/1968 on BabelCite. This High Court CFI judgment was delivered on 23 October 1969.
1. The plaintiffs' claim is for the sum of $166,972:01 together with interest thereon from the 10th April, 1968 to the date of judgment at the rate of 1.2% per month and costs of this action.
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HCA001311/1968 IN THE SUPREME COURT OF HONG KONG ORIGINAL JURISDICTION ACTION NO. 1311 OF 1968 -----------------
----------------- Coram: Morley-John, J. Date of Judgment: 23 October 1969 ----------------- JUDGMENT ----------------- 1. The plaintiffs' claim is for the sum of $166,972:01 together with interest thereon from the 10th April, 1968 to the date of judgment at the rate of 1.2% per month and costs of this action. 2. Briefly it was agreed on 10th September 1966 that the plaintiffs would lend to the 1st defendant or alternatively the 1st and 2nd defendants the sum of $6,350,000.00 plus interest, and that the security for this loan would be the Panama vessel m.v. Eastland Trader (later to be named the m.v. San Antonio) then being converted into a bulk carrier. 3. The terms of the agreement of 10th September 1966 were set out in a letter of that date (Document 8 in the agreed bundle of documents). Although Mr. Litton who appears on behalf of the plaintiffs has said that the wording of this letter is quite clear, I agree with Mr. Ching who appears on behalf of the defendants that this is not the case. The 1st paragraph of this letter states: "This confirms our agreement to lend you HK$6,350,000 at 1.15% per month against the security of the Panamanian m.v. "Eastland Trader", ex Spica at present being converted into a bulk carrier of about 15,300 tons d.w. (as per particulars and specifications attached) to our entire satisfaction, and that of B.V. Classification requirements with Special Survey passed, to enable the vessel duly converted to a bulk carrier to be delivered to Messrs. Kowa Kaiun Kaisha Ltd. before 31st December for three years time charter in accordance with a Charterparty dated 8th August 1966, which is to be assigned to our nominee, San Antonio Steamship Company S.A., Panama." 4. Mr. Ching points out that this paragraph can be interpreted in that at the time this letter was written the m.v. Eastland Trader was being converted to the plaintiffs' entire satisfaction and that of B.V. i.e. Bureau Veritas Classification requirements with Special Survey then passed. However I am of the opinion that when the letter is read as a whole this is certainly not the interpretation that the plaintiffs intended when they wrote the letter. 5. Sub-paragraphs (a) and (b) of this paragraph deal with the method of payment of the loan. Subparagraph (a) states that $3,850,000 is to be paid by the plaintiffs to Messrs. Wheelock Marden & Co. Ltd. in exchange for a duly notorised clean unencumbered Bill of Sale of the vessel, this is not in dispute, plus a letter of undertaking to fulfil the conversion to a bulk carrier to the entire satisfaction of the B.V. Register of Shipping; this to be jointly guaranteed by the 3rd defendant personally. From this subparagraph it would appear that at the time the letter was written the conversion had not been so effected. Subparagraph (b) of the letter is not in issue in this case. The other paragraph in this letter of interest is the 3rd paragraph which gives the plaintiffs or the San Antonio Steamship Company an option to purchase the vessel, and it goes on to say "This option to purchase is valid until the vessel has been satisfactorily coverted to a bulk carrier and ready for delivery to Messrs. Kowa Kaiun Kaisha Ltd. as aforementioned." Again indicating that at the time the letter was written the conversion had not been effected. This in fact has been born out by the evidence. 6. On the 14th September 1966 the defendants wrote a letter (Document 11 in the agreed bundle of documents) jointly guaranteed by the 1st and 2nd defendants and personally guaranteed by the 3rd defendant. This letter stated as follows:-
7. On 30th December 1966 (Document 19 in the agreed bundle of documents) the plaintiffs exercised their option to purchase the m.v. Eastland Trader by then renamed the San Antonio "in accordance with our agreement dated 10th September." That agreement as I have already said stated that the option was valid until the vessel had been satisfactorily converted and ready for delivery to Messrs. Kowa Kaiun Kaisha Ltd. Howeve the letter went on to say "We shall in due course send you a list of work not yet completed which we agree for you to defer until the next dry docking of the vessel or earlier, e.g. pipe leading from wing tanks to bilge", however evidence has been led that this vessel was never purchased under a Memorandum of Agreement as specified in the letter of guarantee of 14th September. 8. The 1st defendant acknowledged the receipt of that letter by signing and returning a copy of the letter, as requested. But in addition to acknowledging receipt added the following endorsement:
9. The m.v. San Antonio was duly surveyed by Mr. J.G. Pasteuning, the representative of the Bureau Varitas in Hong Kong and he issued a certificate (Document 18 in the bundle of agreed documents) dated 28th December 1966. This certificate is described therein as a provisional certificate, and it also states that it takes the place of the certificate of classification until definite agreement by the Head Office. On this certificate was a requirement that the Overboard deballasting valves from the topside tanks were to be blanked off when underwater. This was a relatively small job. 10. As I have said the plaintiffs then exercised their option to purchase by letter of 30th December 1966 and evidence was given and not disputed that the m.v. San Antonio sailed from Hong Kong on Charter at 18.30 hours on the same day 30th December, 1966. The Bureau Veritas issued their Certificate of Classification on 25th May 1967 but on this certificate there were two requirements, namely that scupper pipes leading from the topside tanks to the bilge slope tanks complete with valves and extension spindles and also additional deck doublers each side 300 c.m.2 (this area was subsequently reduced) were to be fitted at the latest at the next annual survey of the ship. 11. This was the work that was done on the plaintiffs' instructions by the Hakodate Dock Company in Japan from 18th January to 25th January 1968 at the cost of $9,843,050 Japanese yen. The equivalent of HK$166,972:01. This sum has been paid by the plaintiffs and it is this sum together with interest thereon that they are claiming from the defendants. The plaintiffs' claim in paragraph 5 of their Statement of Claim that this work was required to be done at the next annual survey before a full class certificate for the San Antonio could be issued by Bureau Veritas and that therefore the conversion into a bulk carrier of the vessel by the China Pacific Engineering Company Limited, an associated company of the defendants did not entirely satisfy the Bureau Veritas, in accordance with the Agreement and Grarantee of the 10th and 14th September 1966 respectively to which I have already referred. 12. Setting aside for the moment that the plaintiffs did not purchase the vessel under a Memorandum of Agreement what I must first decide is what interpretation should be placed on the words "conversion of the vessel to the entire satisfaction of the Bureau Veritas of Shipping with Special Survey passed in Hong Kong between November/December but not later than 31st December 1966. It is obvious that entire satisfaction of the Bureau Veritas cannot be to its entire satisfaction in perpetuity. The question is when was the Bureau Veritas entirely satisfied with the conversion of this vessel? 13. From the evidence adduced in this case, the plaintiffs wished to charter this vessel to the Kowa Kaiun Kaisha Company. According to the Uniform Time-Charter Ex. G. the optional date of cancelling was 31st December 1966. However the vessel was duly chartered and sailed on 30th December 1966. Before the 31st December the vessel had been surveyed by Mr. Pasteuning of the Bureau Veritas, and the plaintiffs had exercised their option to purchase. 14. It was only later that the plaintiffs were informed that the Bureau Veritas recommended or required certain additional work to be done on the vessel before her next annual survey. The plaintiffs in paragraph 5 of their Statement of Claim state that the Bureau Veritas required this additional work to be done at the next annual survey before a full class certificate for the vessel could be issued and that therefore the Bureau Veritas was not entirely satisfied, but this is not born out by the evidence adduced on behalf of the plaintiffs. 15. Mr. Pasteuning of the Bureau Veritas gave evidence that he in fact surveyed the vessel and issued his certificate on 28th December 1966, and he was quite categorical that the vessel was in class from 28th December 1966. He said that the two requirements endorsed on the certificate of Classification issued from Paris by the Bureau Veritas (Document 31 in the agreed bundle of documents) were not conditions for putting the vessel in class, and he reiterated that the vessel was put in class on 28th December 1966. Also the Seventh Supplement to the Bureau's 1967 Register of Shipping was produced (Exhibit F) and on page 21 thereof the details of the m.v. San Antonio ex East-land Trader, ex Spica ex Baron Kilmarnock appear as definitive class as opposed to contemplated class, and the date of this classification appears as December 1966. The Full Certificate of Classification was issued by Paris dated 25th May 1967 whereas the additional work was not performed on the vessel until January 1968, so there can be no doubt that this work did not have to be done before a full class certificate for the vessel would be issued by the Bureau Veritas as alleged by the plaintiffs in paragraph 5 of their Statement of Claim. 16. Mr. de Lasala, the Managing Director of the plaintiff company gave evidence that if a vessel was not classed any insurance premium on that vessel would be excessive. He agreed that the vessel was insured when the vessel was chartered, that his company had experienced no difficulty in having it insured and that the premium was at a perfectly ordinary reasonable rate. Also under cross examination Mr. de Lasala admitted that the vessel was classed he said "she went through classification here, supervised by Bureau Veritas representative.". He later said that the vessel was classed on a provisional basis, but when he was shown Ex.F the supplement to the Bureau Veritas Register he agreed that the entry therein in relation to the San Antonio meant that the vessel was fully classed in December 1966. 17. It is therefore clear to me that the plaintiffs' contention as set forth in paragraph 5 of the statement of claim that the work of conversion of the San Antonio into a bulk carrier carried out by the China Pacific Engineering Company Limited did not entirely satisfy the Bureau Register of Shipping which required certain additional work to be done at the next annual survey before a full class certificate for the said vessel could be issued must therefore fail. 18. I should like to refer briefly to two further matters which have been argued in this case. Firstly concerning the letter of guarantee signed by the three defendants dated 14th September 1966 (Document 11 in the agreed bundle of documents) which guaranteed to fulfil the conversion of the San Antonio to the entire satisfaction of the Bureau Veritas with Special Survey passed in Hong Kong between November/December but not later than 31st December 1966. The survey was according to the evidence of Mr. Pasteuning carried out by him in December 1966. But the consideration for the plaintiffs giving this guarantee, according to the letter of guarantee of 14th September 1966 (Document 11 in the agreed bundle of documents) was that the plaintiffs purchase the above vessel under a Memorandum of Agreement to be drawn up in due course, but according to the evidence adduced before me no such Memorandum was ever drawn up. Mr. de Lasala after first saying that the letter of 30th December 1966 (Document 13 in the agreed bundle of documents) was tantamount to a memorandum of agreement later agreed that in the event of his company exercising its option to purchase he had agreed with the 3rd Defendant that there would be a memorandum of agreement. I do not consider that the letter of 30th December 1966 constituted a memorandum of agreement, and therefore I consider that the guarantee given by the three defendants is ineffective for lack of this consideration. 19. If a full and proper Memorandum of Agreement had been drawn up I doubt if this action would ever have arisen. 20. The second matter is that concerning the letter of 30th December 1966 (Document 19 in the agreed bundle of documents). In this letter the plaintiffs purported to exercise their option to purchase the San Antonio in accordance with the agreement dated 10th September 1966 (document 8 in the agreed bundle of documents). The second paragraph of this letter goes on to say:
A copy of this letter duly signed by the 1st defendant acknowledging receipt was returned to the plaintiffs with the following endorsement thereon:
21. Under cross-examination in relation to this letter, Mr. de Lasala said:
Mr. de Lasala said that the work mentioned in the second paragraph of the letter meant that anything that had to be done to satisfy his company could be deferred. 22. With regard to the defendants endorsement on the letter he said that he did not object to it. He also said that after he had spoken to the 3rd defendant personally he agreed to the stipulation contained in the endorsement. He then admitted that he agreed that the endorsement meant that any outstanding recommendations as required by Bureau Veritas would be completed by China Pacific Engineering Company Limited when the vessel returned to Hong Kong, and that he agreed to this stipulation. 23. It is clear from the wording of the endorsement that the 3rd defendant's endorsement made on behalf of the 1st defendant went much further than merely agreeing to do any work to the satisfaction of the plaintiffs, it was, I might say dangerously wide, it agreed to complete any outstanding recommandations as required by Bureau Veritas when the vessel returns to Hong Kong. There is no evidence before me that the vessel has yet returned to Hong Kong. If the plaintiffs had arranged for the Charterers to bring the vessel to Hong Kong in trade, then I am of the opinion that this endorsement would have bound the defendants, however as I have said there is no evidence that the vessel has been brought back to Hong Kong. Certainly she was not brought back to Hong Kong for the work to be performed on her as was required to be done by the Bureau Veritas at her next annual survey which was due in December 1967. 24. In conclusion it is clear in this case that the plaintiffs lent money to the defendants and that the security for this loan was the conversion of the vessel Eastland Trader later renamed San Antonio then being converted to a bulk carrier. The Plaintiffs or their nominees also had an option to purchase this vessel. The vessel was to be chartered by the Kowa Kaiun Kaisha Ltd. and the vessel was to be delivered to their company by 31st December 1966. It must be remembered that in paragraph 1 of the letter of 10th September 1966 (Document 8 in the agreed bundle of documents) the object of the conversion to the satisfaction of the plaintiffs and of Bureau Veritas was to enable the vessel duly converted to be delivered to Messrs. Kowa Kaiun Kaisha Limited before 31st December 1966. The vessel was duly converted and on 28th December 1966 the local agent for the Bureau Veritas issued his provisional certificate, as I have already said, and the vessel was classed by Bureau Veritas as from that date. The plaintiffs exercised their option to purchase the vessel on 30th December 1966 (though not under a Memorandum of Agreement) the vessel was duly delivered to Kowa Kaiun Kaisha Ltd. and sailed on 30th December 1966, and commenced trading. It was not until much later that the Bureau Veritas required certain work to be done on the vessel, such work to be done at the latest at the vessel's next annual survey due in December 1967. However this was not a requirement that had to be done before a full class certificate for the vessel could be issued as pleaded by the plaintiffs, the Certificate of Classification was signed in Paris on 25th May 1967 whereas the work required was not carried out in the vessel until January 1968. The vessel was fully classed according to the Bureau's Register of Shipping in December 1966. The vessel was classed by the Bureau Veritas as a bulk carrier to their entire satisfaction, until the next annual survey due in December 1967 when certain work was required to be done to keep her in class. If the Bureau Veritas had not been satisfied that the ship was up to class and therefore fit for the purpose for which she had been converted then they would not have issued their certificate. 25. After the vessel had sailed the 1st defendant undertook with the agreement of the plaintiffs that any outstanding recommendations by the Bureau Veritas should be completed by the China Pacific Engineering Company Limited when the vessel returned to Hong Kong. However the plaintiffs chose to have the work required by Bureau Veritas to be performed by the Hakodate Dock Company in Japan instead of bringing the vessel back to Hong Kong and therefore with regard to this work the 1st defendant's undertaking contained in the endorsement on the letter of 30th December 1966 is ineffective. 26. Under the circumstances the plaintiffs' claim must fail and I give judgment for the defendants together with costs.
Representation: H. Litton (Deacons) for the Plaintiff. C. Ching (D'Almada Remedios & Co.) for the Defendants. Judgment Read. |