Compania Financiera "Soleada" SA v Hamoor Tanker Corporation Inc. ; The Borag
| Jurisdiction | England & Wales |
| Judge | THE MASTER OF THE ROLLS,LORD JUSTICE SHAW |
| Judgment Date | 19 December 1980 |
| Judgment citation (vLex) | [1980] EWCA Civ J1219-4 |
| Docket Number | 155/79 |
| Court | Court of Appeal (Civil Division) |
| Date | 19 December 1980 |
[1980] EWCA Civ J1219-4
The Master of the Rolls
(Lord Denning)
Lord Justice Shaw and
Lord Justice Templeman
In The Supreme Court of Judicature
Court of Appeal
On Appeal from the High Court of Justice Queen's Bench Division (Commercial Court)
(Mr. Justice Mustill)
MR. KENNETH ROKISON. Q. C. and MR. JULIAN COOKE (instructed by Messrs. Holman Fenwick & Willan) appeared on behalf of the Appellants.
MR. DAVID JOHNSON. Q. C. and MR. PETER RAWSON (instructed by Messrs. Hedleys) appeared on behalf of the Respondents.
In this case a vessel was wrongfully arrested. It was afterwards released on the owner providing security. The question is: What is the proper measure of compensation for the owner?
The facts of the case are set out in the judgment of Mr. Justice Mustill. We have been told that it has already been reported in Lloyd's List. So I need only state sufficient of them today to set the scene.
The owners of the vessel the "Borag" were a Liberian or Morovian company. They were quite inexperienced in the management of vessels of that type. They therefore employed a company called Compania Financiera "Soleada" S. A. to manage the vessel. A management agreement was made in 1969 whereby the managers were to manage the vessel with the utmost eare, as if they themselves were the owners of it - as if they were managing it in their own interests - managing it as a dedicated paterfamilias.
The managers managed the vessel from 1969 "to 1971. They were financed by the owners, who put them in funds at the beginning of each month. In addition, when extra expenses had been incurred, the managers would recoup them, on proper vouchers being produced.
Then in 1971 a special situation arose. The "Borag" entered into dry dock at Cadiz for repairs and survey. The account came to much more than was anticipated. The managers required to be put in funds to meet these extra expenses: and, of course, they wanted their monthly payment at the beginning of each month. But unfortunately, at the beginning of December, the managers had not been paid anything to meet the expenses. In particular they had not received the monthly advance forDecember 1971.
The managers were disturbed about this. So they made a demand on the owners for payment: otherwise, they said, they would take steps on their own behalf to see that they received payment. That was in December 1971.
I should say that a little time later the owners did pay the agreed sum of U. S. s'55,000 by way of the monthly payment: and said that they would pay any extra amount against vouchers. But this was too late for the managers: because meanwhile the managers decided to protect their interests as best they could. They did it in a most unfortunate way.
The vessel was at Cadiz. She was due to go round the Cape to the Gulf. She put in at Dakar on the way. The managers had arranged for one of their employees, Mr. Van Brakel, to sail with the ship to Dakar. He was subsequently instructed to remain on board while the vessel went round the Cape. The usual practice was that the vessel would not go into the port at Capetown (because she might be arrested). She would only stop outside to pick up mail: and then continue on her voyage to the Gulf. Instead on this occasion - on Mr. Van Brakel's instructions - the vessel did put' in to the port of Capetown. The captain kept it quiet. He did not tell the owners anything about it. Mr. Van Brakel told him to keep it quiet. So the vessel put in to the port at Capetown unbeknown to the owners. The managers there applied to the South African courts to arrest the ship in rem because, they said, they had these moneys due to them. The vessel was arrested in Capetown on the 17th December, 1971.
The owners were very upset. The conduct of the managers was a subterfuge. It was completely unjustified.
After the arrest, the owners took steps to get the vesselreleased. Their agents at Capetown took the matter up: hut they were very dilatory about it. Banks in Capetown, Kuwait and the like had to be communicated with. At all events, it was a fortnight before the vessel was eventually released - on the 30th December, 1971. So she was held up in Capetown for 14 days owing to the wrongful arrest.
As it happened, the 14 days were four days longer than they should have been. If the owners' agents had acted as promptly and expeditiously as they should have, the vessel would only have been under arrest for ten days. At all events, the vessel was out of action for at least 14 days by reason of the wrongful arrest.
All sorts of trouble arose - repudiation and cancellation of the arrangement and the like - which we need not go into at all. Those matters were thrashed out in the course of a London arbitration of tremendous length. The hearing lasted 17 days, with leading counsel on both sides, and so forth. But I need not go into all the details because the umpire who heard the case (Mr. Kingsley) held - after going through all the accounts - that the amount due from the owners to the. managers was U. S. $113,908.65. He was ready to award that sum as a final award in favour of the managers. The managers were entitled to that sum on the final statement of account - subject to this one point, on which the umpire stated a special case for the opinion of the court - What sum should be allowed to the owners as compensation for the wrongful arrest?
The owners' claim for compensation was put under three main heads. (1) The first was a perfectly legitimate head.
It was the overheads and expenses thrown away by reason ofthe arrest and delay whilst the vessel was held up in Capetown.
The salaries of the crew, insurance and the like, were all clearly expenses consequent on the wrongful arrest. (2) There was also a claim for the cost of providing the security and obtaining the release of the vessel. (3) In addition there was a claim for the loss of the profit the vessel would have made but for the wrongful arrest.
We are not concerned with the claim for overheads and expenses: because that has been settled in the sum of about $30,000. Nor are we concerned with loss of profit: beeause it turned out that this was not a profit-making concern. What we are concerned about are the expenses of and incidental to obtaining the release of the vessel. They were divided into two main parts. The first was the cost of actually getting the guarantee and the bank charges incurred in doing it. That came to roughly $30,000. We are not concerned with that. We are concerned with an interest charge coming to some $100,000 as part of the expense of getting the vessel released.
The way in which the owners say they incurred that expense is very strange. It is so complicated that the umpire had to hear a lot of evidence in an attempt to sort it out. I will read the paragraphs of the award which deal with it.
Paragraph 34: "The Bank Guarantee put up to procure the vessel's release from arrest was arranged by Owners through the National Bank of Kuwait… The guarantee was actually furnished by the United Bank of Kuwait Limited against a counter-guarantee from the N. B. K. The N. B. K. was not required to provide a deposit with the United Bank of Kuwait Ltd. As counter-security for the guarantee".
Paragraph 35: "Total commission charges made by theN. B. K. to the Owners amount to the agreed figure of Kuwait Dinars 9,208.07 or US Dollars 32,044.08 …"
Then comes paragraph 36 which deals with the point:
"In addition to the bank charges or commission mentioned above under paragraph 35 the N. B. K. raised interest charges against the Owners. Most of the December 1977 Hearing was taken up with controversy regarding this issue. On the very involved and detailed evidence I find that the interest charge arose from the fact that the Owners and their associated companies operated on the basis of a very substantial bank overdraft (finding this method of conducting their business convenient in view of their policy of making long-term investments abroad) and that consequently the N. B. K. found it right and necessary to increase the current overdraft by the amount of the Guarantee. The Managers were not informed by the Owners of the incurring of this interest charge; nor could they reasonably have foreseen that as a result of their demand for the establishment of a Bank Guarantee the payment of interest charges, in addition to bank charges or commission would flow as a natural and foreseeable consequence".
It sounds very complicated: but the net result of it was that the owners were debited in their overdraft with the full amount of the sum guaranteed, and they had to pay interest on it. Not only simple interest: but compound interest. In other words, they had to pay interest on the full amount involved - in contrast to a small sum used as a guarantee.
The whole question in the case is: Can the owners recover this interest charge of such a large amount - it ran from 1971 to 1976 - and not merely the cost of providing a guarantee which might never be called upon? That is the realpoint in the case.
The umpire held that the compound interest was not a consequence of the guarantee which was established to procure the vessel's release from arrest: but it flowed from the owners' financial policy in the conduct of their business. So he knocked that out.
As to the overdraft, he said this at paragraph 12(c): "The Owners are entitled to damages in respect of their reasonable foreseeable and naturally flowing costs and expenses of obtaining the vessel's release from wrongful arrest"...
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