Ming Ren Navigation Co Ltd S.A. v. Seawise Navigation Panama S.A. and Another

HCA000446/1977

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

ACTION NO. 446 OF 1977

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Coram: McMullin, J. in Chambers

Date of Judgment: 18th April, 1977.

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JUDGMENT

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1. The plaintiff and the first defendant engaged in a joint venture to operate a merchant vessel called "Quarry Bay" trading between ports in the Far East and the Middle East over a period of eight months the basis of the venture being that they would share the profits realised from freight charges levied in respect of goods shipped between these ports. For this purpose they entered into a charter-party agreement with a firm known as "Narcissus" to charter the "Quarry Bay" for the eight month period. They also entered into an agreement between each other setting out their mutual obligations and liabilities as to the operation and management of the vessel and the manner in which the freight earnings would be shared between them. These two agreements were entered into between these several parties on the 14th of January 1977. Clauses 2 and 3 of the agreement between the plaintiff and the first defendant are in the following terms :

The vessel proceeded to Taiwan and between the 18th and 26th of January and there took on a cargo which earned a payment in freight of about US$155,000 after which she left Kaoshiung, Taiwan on the 26th of January for Pusan in South Korea to receive further cargo there. Between the 26th of January and the 7th of February the plaintiff became increasingly concerned that as yet no money had been deposited in the joint account in accordance with Clause 2 of the agreement. Between the 1st and 7th of February a series of telex messages passed between the parties and their agents in Taiwan, Korea and in Hong Kong concerning the absence of such payments. In one of these communications the plaintiff was informed that a partial remittance amounting to US$48,000 was to be paid into a certain bank account at the Banque Nationale De Paris in Hong Kong. This led the plaintiff to form the view that the first defendant was wrongfully, and in breach of its contract, purporting to deal with freight money by paying it to an unauthorised account. It was because, at that stage, the plaintiff did not know precisely who owned the account that the second, third and fourth defendants were brought in as parties to the original application for interim relief. As it now transpires that the account belonged to the second defendant the proceedings against the third and fourth defendants were discontinued by notice on the 11th of March 1977. Since no result favourable to the plaintiff had come about as a result of these exchanges the application for interim injunctions was made on the 25th of February. Two restraining orders were made on that date, the first enjoining the first, second and third defendants from disposing of the freight and other earnings received in respect of the cargo loaded aboard the "Quarry Bay" on the 26th of January at Taiwan otherwise in accordance with the terms of the agreement between the plaintiff and the first defendant. The second was directed to the fourth defendant enjoining it from dealing in any manner to the debit of Account No. 041-01295-01 (the account which is conceded to be that of the second defendant at the Banque Nationale de Paris). The plaintiff does not now seek to have this latter injunction continued and presses only for the continued restraint of the first and second defendants in the terms of the first order made on the 25th of February.

2. The plaintiff's case is that the restraining orders are clearly necessary in view of what it regards as an obvious breach by the first defendant of Clause 2 of the agreement between them dated 14th of January 1977. The first defendant does not deny that freight money has not been paid into the joint account in accordance with that clause but states that this is due entirely to the fact that the plaintiff is itself delinquent in respect of the provisions of Clause 6 of the agreement between the plaintiff, first defendant and the owners of the vessel of the same date. That clause provides :

The first defendant reads this clause in conjunction with Clause 9 of the agreement between itself and the plaintiff, which is in the following terms :

It is the defendant's contention that these provisions, culled from the two agreements, obliged both parties to pay into the joint account relating to their joint venture a sum of $24,000 each i.e. US$48,000 in all which was to be a kind of capital fund to finance the venture at its outset. It is common ground that neither party did pay in any such preliminary sum although it is also agreed that the first defendant did pay to the owners of the vessel a sum equivalent to one and a half months' charter hire. The first defendant says also that the plaintiff is in breach of Clause 3 of their agreement under which a sum equivalent to US$100,000 in the form of two cheques was lodged with the plaintiff by the first defendant as a security against the first defendant's obligation to pay in freight received to the joint account in accordance with the contract. It is common ground that upon the plaintiff's suspicions arising, as a result of the failure of the defendant to pay in of any freight money, the plaintiff caused these cheques to be cashed and now holds US$100,000 of the first defendant's funds. As to this sum the first defendant says, firstly, that if the cheques totalling US$100,000 were to be regarded purely as security against performance by the first defendant of its obligations then the plaintiff has effectively realised its security and is therefore not entitled to take further steps to oblige the first defendant to pay freight into the joint account. The parties, it says, had provided alternative methods of dealing with their mutual suspicions and the plaintiff has in effect chosen (the defendant would say unjustifiably chosen) to implement one of them. Secondly, the defendant says that in any event this sum is not to be regarded as security inasmuch as the cheques were in fact given as a pre-estimate of the expected freight earnings in Taiwan following upon the plaintiff's failure to pay in jointly with the first defendant the sum of $48,000 to the joint account and that the sum of $100,000 is therefore to be regarded as "freight earnings" with in the meaning of Clause 2 of the agreement between the parties. The defendant says that as such it should have been paid into the joint account in accordance with that clause. The first defendant complains that the plaintiff is also in breach of its obligations by issuing instructions to the Master of the ship in Korea interrupting the voyage and instructing the ship to return to Hong Kong whereas the management of the ship is clearly left by Clause 1 of the agreement wholly in the care of the first defendant.

3. The root of the trouble between the parties appears to me to be the discrepant interpretations given by each of the disputing parties to the relevant clauses in these two agreements. In particular Clause 6 of the first agreement (the three-cornered arrangement between the two parties and the owner of the vessel) and Clause 9 of the second agreement (the joint venture agreement between the parties themselves). Mr. Peard for the plaintiff does not deny that the interpretation of these clauses raises some difficulty but he says that the two agreements were entirely separate and that Clause 6 of the first agreement relates to the duties of the first defendant and the plaintiff vis-a-vis the owners exclusively and Clause 9 of the second agreement is to be understood purely as machinery for estimating the mutual state of accounts at the close of the common venture. In other words if both parties had obeyed Clause 6 and if each had paid a deposit to the owners of the vessel of one month's hire the sum so arrived at would be credited to each of them at the final clearing of the accounts. Mr. Ming Huang for the first defendant says that the two clauses read together mean that a working capital was going to be supplied at the outset by both parties and he reads Clause 9 of the second agreement as clearly referable to Clause 6 of the first agreement and he asks, rhetorically, how the parties can have their deposits of one month's charter hire refunded to them in accordance with Clause 9 (second agreement) if there has been no deposit of such funds in accordance with Clause 6 (first agreement). It is certainly very unfortunate that the parties did not make their intentions a little clearer but to my mind Mr. Peard's interpretation of these clauses is the correct one. Both parties were obliged under the first agreement to pay a deposit of hire charges to the owner. Neither party has done so and the only person offended by that is the owner and not either one of the present parties. That clause was no doubt inserted at the instance of the owner to secure due performance by the other two parties of their obligations under the three-cornered arrangement. Had that clause been obeyed by both parties then at the conclusion of the joint venture credit would have had to be given to both parties in the clearing of accounts of an amount equal to the sum thus paid by way of deposit to the owner of the vessel. On the other hand it appears to me that there was legitimate ground for dispute between the parties as to the meaning of these two agreements. It is clear from an early date that the first defendant was making the claim that the plaintiff was under the obligation to pay its share of $48,000 into the joint deposit account (this emerges from the text of several of the telex messages). It appears to me there is some substance in Mr. Ming Huang's contention that the plaintiff was precipitate in moving to rectify what it considered to be a breach by the first defendant of its duties by the rather drastic expedient of tying up $100,000 of the first defendant's funds by cashing the two cheques left with it ostensibly as security for due performance of the contract. However justified the plaintiff's initial suspicions as to the intentions of the first defendant may have been this action certainly had the effect of upsetting and somewhat embittering relations between the parties which from the outset, in any event, appear to have included a very high degree of suspicion on the side of the plaintiff vis-a-vis the intentions of the first defendant, as witness the very terms of Clause 3 themselves. This common venture which has some six months yet to run is, by the admission of Mr. Peard himself, at present in ruins but he maintains that the injunction is necessary to restore as he puts it the substratum of the contract by enforcing payment in of freight moneys by the first defendant. Only in this way he says can the contract be brought to a successful conclusion.

4. A more difficult question arises in relation to the nature of the funds realised as a result of the cashing of the cheques paid ostensibly by way of security. Mr. Ming Huang relies upon the affidavit of his client, Mr. Chow who states that this $100,000 was by way of an advance estimate of the worth of the freight earned at Taiwan and, as a result, therefore, not paid by way of security at all. Mr. Chow exhibits to his affidavit a document which he alleges is a receipt signed by an agent of the plaintiff on behalf of the plaintiff certifying that the cheques have been received and describing their purpose as "the advance charge to the estimated freight earned at Kaoshiung for the M.V. 'Quarry Bay'". Mr. Ming Huang says that this clinches the matter and that it is clear that these funds are to be regarded as earnings and therefore are funds which ought to have been deposited by the plaintiff in the joint account. I find it difficult to resolve this question on the state of evidence as it appears upon the affidavits. The same may be said of the issue arising out of the payment of the sum of $48,000 to the account of the second defendant with the Belgian Bank, the matter which raised the plaintiff's suspicions in the first instance. It is said by the first defendant that this latter sum relates to a matter between the first and second defendants and has nothing whatsoever to do with the joint venture. That again is a matter which one would not wish to decide in the absence of evidence of a more detailed and formal sort. The plaintiff of course admits that it may have been in breach of the agreement inasmuch as the orders given to the Master of the ship may have cut across the terms of the agreement by intruding upon an area of responsibility assigned exclusively to the first defendant. Mr. Peard however says that if such delinquency is to be attributed to the plaintiff it is a small matter in relation to the overall picture which is one of a total failure by the first defendant to observe a primary duty under the contract as a result of which the joint venture has practically foundered. In the upshot however I think the practical view to take of the state of affairs between the parties is that the plaintiff has effectively exercised a right which it conceives as being available to it in face of what it regards as a fundamental breakdown of the contractual relations between itself and the first defendant. In view of the nature of the claim as it now appears in its amended form, which includes claims in respect of damages for conspiracy to defraud, it is difficult to regard the joint venture at the present moment as a very viable affair. Ideally the matter is one for resolution between the parties themselves if the whole venture is not to come to grief and any such resolution would necessarily, I think, involve the restoration of the $100,000 to the account of the first defendant. I think it would be oppressive to order the continuation of the present injunction in the light of the existing circumstances which involves the holding by the plaintiff of funds which, as I think it is conceded, are likely to be considerably in excess of the profits to be realised by either party from the venture as a whole. The ex parte injunction is therefore dissolved as regards both the moneys received in respect of Korean and Taiwan freight. Costs to first and second defendants. Costs of third defendant as from date of discontinuance of proceedings.

5. Certificate for counsel.

Representation:

Wilson and peard of J.S.M. for Plaintiff.

Ming Huang (Hon & Co.) for 1st, 2nd and 3rd Defendants.

Miles of Deacons for 4th Defendant