Atlas Maritime Company SA v Avalon Maritime Ltd (The Coral Rose)

JurisdictionEngland & Wales
Judgment Date21 November 1990
Judgment citation (vLex)[1990] EWCA Civ J1121-6
Docket Number90/1033
CourtCourt of Appeal (Civil Division)
Date21 November 1990
Atlas Maritime Co. S.A.
Respondents (Plaintiffs)
Avalon Maritime Ltd.
Appellants (Defendants)

[1990] EWCA Civ J1121-6


Lord Justice Neill

Lord Justice Stocker


Lord Justice Staughton







Royal Courts of Justice

Mr. I. MILLIGAN (instructed by Messrs Clyde & Co.) appeared on behalf of the Appellants (Defendants).

MR. K. ROKISON Q.C. and MR. SCHAFF (instructed by Messrs Stephenson Harwood) appeared on behalf of the Respondents (Plaintiffs).



This is an appeal by Avalon Maritime Ltd. Avalon) from the order dated 13th February 1990 of Mr Justice Hobhouse in the Commercial Court whereby he dismissed the application by Avalon to discharge an order of Mr Justice Steyn dated 21st March 1989. By the order of Mr Justice Steyn Avalon were enjoined from paying to Marc Rich & Co. AG (Marc Rich) the sum of US $ 3 million plus interest.


In the action Atlas Maritime Co. SA (Atlas), a company incorporated in Liberia, claim that by a contract made orally over the telephone on 6th June 1988 Avalon agreed to sell to Atlas the vessel "Coral Rose" at the price of US $15.5 million cash. It is said that the oral contract was made between Mr Alexatof of Inter Ocean Chartering Ltd. on behalf cf Atlas and Mr Vintiadis of Niva Shipping Ltd. on behalf of Avalcn and that the contract was evidenced by a telex from Niva Shipping Ltd. to Atlas's agents, Brokerhouse Inc., dated 6th June 1988.


In the action it is further alleged that in February 1989 Avalon wrongfully and in breach of contract repudiated their obligation under this contract and purported to claim that no such contract had been concluded. Atlas accepted this repudiation by a telex dated 20th February 1989. Atlas claim a declaration that a valid and binding contract was concluded on 6th June 1988 and also claim damages based on the difference between the market value of the vessel at the date of the acceptance of the repudiation and the contract price.


The Facts


Mr Richard Morrison is a director of Stewart Marine (Sale & Purchase) Limited (Stewart Marine), a firm of ship brokers. Stewart Marine are, inter alia, the London agents for Drake Maritime SA, a technical management company.


In 1987, Mr Morrison heard that a vessel "Red Sea" (subsequently renamed "Coral Rose") was for sale. The vessel was then in a damaged condition but Mr Morrison thought that after repair it might be a profitable proposition. Mr Melville Price, a technical consultant of Drake Maritime in the Arabian Gulf was asked to carry out a preliminary evaluation. Following this evaluation, which was reasonably optimistic, Mr Morrison and Mr Price approached Mr Jeffrey Cooper of Marc Rich and asked whether his company would be interested in buying the vessel. Marc Rich declined to buy the vessel in their own name, but agreed that they would advance sufficient funds to a company called Avalon which had been purchased for this purpose by Nala Transport Incorporated, a Liberian Company which was a subsidiary of Marc Rich. Avalon had been incorporated in Gibraltar on 2nd October 1986.


The agreement between Mr Cooper on the one hand and Mr Morrison and Mr Price on the other hand was that the project involving the "Coral Rose" was to be administered by Mr Morrison and Mr Price.


On 28th September 1987 Avalon, acting by Mr Brown, a nominee director, appointed Mr Morrison as the attorney of the company:

  • "1. To open and operate a bank account in any currency in any part of the world as the attorney shall think fit.

  • 2. To do all such acts and things, conduct and finalise any and all matters, and execute all such deeds, agreements and instruments as may be necessary as the attorney shall think fit in relation to any and all matters as we ourselves could do."


On 2nd October 1987 Avalon were granted an exemption certificate under the Companies (Taxation and Concessions) Ordinance of Gibraltar whereby the company was registered as an exempt company for the purposes of taxation on the condition that the company carried on the business of a shipping company.


In October 1987 Avalon bought the "Coral Rose" for US $7,925,000. The vessel, however, required substantial repairs which were then put in hand. In his affidavit sworn on 22nd January 1990 Mr Morrison explained the position as follows:

"The formation of Avalon, the purchase, repair and operation of the Coral Rose were all funded by way of loan to Avalon from Marc Rich. No formal loan agreement was ever drawn up, but throughout the repair period I reported regularly to Mr Cooper on the progress of repairs, accounts to be paid, and all other relevant matters."


Between the date of the purchase of the vessel in October 1987 and May 1988 extensive repairs to the "Coral Rose" were carried out in the Arabian Gulf but they proved to be insufficient. In June or July 1988, following a major engine breakdown, the vessel was towed to Singapore where further repairs were undertaken.


It is not necessary for the purpose of this appeal to refer in detail to the documents relating to the sale of the vessel by Avalon to Atlas or to its subsequent history. It is sufficient to record:

  • (a) That in May 1989 the "Coral Rose" was sold to a third party for a net sum of about US $10.7 million.

  • (b) That, apart from the moneys restrained by injunction (as will shortly be mentioned) the proceeds of sale have been paid over by Avalon to Marc Rich.


The writ in the action was issued on 16th March 1989. On that day Mr Justice Steyn granted leave to issue and serve the writ outside the jurisdiction and at the same time granted a Mareva injunction restraining Avalon from dealing with any of their assets save in so far as they exceeded US $7.5 million.


The injunction provided, however, that Avalon could sell the "Coral Rose" on condition that US $7.5 million from the proceeds of sale was paid into a bank account in London. On 21st March 1989 Mr Justice Steyn varied his order by substituting the sum of US $3 million for the sum of US $7.5 million. This reduction was based on fresh estimates of the damages which might be recovered by Atlas.


The case came before the court again on 30th January 1990. On that occasion there were three applications which were heard by Mr Justice Hobhouse:


(a) An application by Atlas under Order 14 for a declaration that on or about 6th June 1988 a valid and binding contract was concluded between Atlas and Avalon for the sale of the vessel.


(b) An application by Atlas for a stay of the proceedings pending arbitration.


(c) An application by Avalon to discharge or vary the Mareva injunction.


Mr Justice Hobhouse granted the declaration sought and stayed the proceedings pending arbitration, holding that there was no triable issue as to whether a contract had been made.


On 13th February 1990 Mr Justice Hobhouse gave judgment in open court dismissing Avalon's application to discharge or vary the injunction.


The basis of Avalon's application before the judge, as it has been before us, was that Avalon were indebted to Marc Rich in a sum in excess of US $7.75 million, which Avalon had received from Marc Rich and had used to pay the original purchase price of the "Coral Rose" and subsequent expenses. Therefore they should be permitted to pay the sum of US $3 million to Marc Rich in part satisfaction of this debt.


On behalf of Atlas: on the other hand it was contended

  • (a) that in the circumstances of the case it was just and convenient for the court to grant a Mareva injunction in the exercise of its general discretion;

  • (b) that furthermore Avalon had acted as the agent of Marc Rich in and about the purchase and operation of the "Coral Rose" and that any sum owed by Avalon to Marc Rich was subject to and thus cancelled by a cross-claim by Avalon for an indemnity.


We were told in the course of the hearing that the issue of agency was a matter which was raised by the judge himself. However that may be, it seems clear that the judge reached his conclusion to continue the Mareva injunction in the sum of US $3 million on the basis of a finding that arguably the relationship between Marc Rich and Avalon was one of principal and agent or was a relationship very nearly equivalent thereto. At J13A Hobhouse J. said this:

"……..the question is whether or not the relationship of the defendant company to Marc Rich was one of agent and principal or simply one of debtor and creditor. All the evidence is in favour of the relationship being one of agent and principal with one exception. The exception is that the defendant company was after about one year charged interest in the account. If an agent is performing tasks for a principal, even if using the principal's funds to do so, it is not appropriate, other things being equal, that the agent should pay the principal interest. Indeed, the position should, be the other way round; the principal should be paying some form of remuneration to the agent. However the fact remains that the defendant company was in reality a mere nominee of Marc Rich and had nothing more than the barest legal existence independently of Marc Rich."


The judge then examined what he considered to be weaknesses in the argument put forward on behalf of Avalon that the relationship was that of debtor and creditor. He continued at J.13D:

"If the relationship was as the defendant company before me has submitted, there are a number of surprising features. First, Marc Rich itself has not intervened to ask for a payment to be made to it. Secondly, there has been a long delay before this...

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