Sea Emerald SA v Prominvestbank Joint Stockoint Commercial
| Jurisdiction | England & Wales |
| Judge | MR JUSTICE ANDREW SMITH |
| Judgment Date | 11 August 2008 |
| Neutral Citation | [2008] EWHC 1979 (Comm) |
| Docket Number | Case No: 2006–1067 |
| Court | Queen's Bench Division (Commercial Court) |
| Date | 11 August 2008 |
[2008] EWHC 1979 (Comm)
Mr Justice Andrew Smith
Case No: 2006–1067
Approved Judgment
Hearing dates: 12, 13, 14, 16, 19 and 20 May 2008
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
This is a claim under a “Refund Guarantee” (the “Guarantee”) that was signed by the late Mr N T Skock, an employee of Commercial Industrial Investment Bank (Joint Stock Company), which trades as Prominvestbank, (“the Bank”). The Guarantee was provided to Sea Emerald SA (“the Buyer”) and was in respect of obligations of the “shipyard named after 61 Communars” of Nikolaev, Ukraine (“the Yard”) under a shipbuilding contract dated 9 December 1993 (“the Contract”). The Buyer seeks (along with other relief) payment of US$17,258,750.63 as being due under the Guarantee. The Bank says (i) that Mr. Skock was not authorised (either actually or ostensibly) to give the Guarantee on its behalf; (ii) that, even if the Guarantee was binding upon it when given, it has been discharged because the Contract was varied by the parties and not carried out according to its original terms; and (iii) that, in any case, the greater part of the Buyer's claim is not covered by the Guarantee.
The Bank was incorporated under Ukrainian law on 26 August 1992 when the Articles of Association were registered. On the same day a state-owned bank in the Ukraine called State Commercial Industrial and Construction Bank (“SCICB”), with a regional department in Nikolaev, ceased to exist. The Bank was not the legal successor to the SCICB, but in commercial terms it took over the business: many of the former customers of SCICB, including the Yard, became customers of Bank, and many of the employees of SCICB, including Mr. Skock, became employees of the Bank. Records about SCICB's customers were transferred to the Bank.
The Bank's head office is in Kiev, and it has a network of Divisions or branches and above them Departments that manage regions and the Divisions in them. One such Department is that for the Nikolaev region, a region where, in the early 1990s, there were some seven branches as well as the regional central office. Nikolaev is an industrial region and the Department's customers included two other shipyard companies as well as the Yard and also a large alumina plant. The Nikolaev Department of the Bank had a foreign currency department that provided foreign currency transaction services for industrial clients. Mr. Skock was the Head of the Nikolaev Regional Department of the Bank from August 1992 when the Bank was formed, having held the corresponding position with SCICB since 1987. He held this position until the end of April 1994, shortly before his death in May 1994.
The Buyer is a Panamanian company. It is in the Laskaridis group (the “Group”), which has extensive shipping interests, and manages a fleet of some 80 merchant vessels, many of them refrigerated cargo vessels and smaller tankers. The Group's President is Mr. Athanassios Laskaridis.
In 1991 the Group bought from a Swiss seller a ship which had been built at the Yard. Mr. Laskaridis was impressed with her and approached the Yard about constructing vessels for the Group. In the summer of 1992, after the Ukraine had declared itself independent of the Union of Soviet Socialist Republics on 24 August 1991 and the leaders of the Russian, Ukrainian and Belarus Republics had announced the dissolution of the Union on 21 December 1991, the Yard sent a delegation, led by its General Director, Mr. I N Ovdienko, to Greece to discuss the possibility of the Yard building ships for the Group. During that visit, on 22 August 1992, the Group agreed to buy six vessels from the Yard, and took and exercised an option for three more. More specifically, the Group bought three deep freezer ships each costing US$7.8 million, one of which (hull no 1135) was available for immediate delivery and two of which (hulls nos 1136 and 1137) were to be constructed; three deep freezer ships (hulls nos 1138, 1139 and 1140) for the carriage of fruit were to be constructed for US$10.03 million each; and, by the exercise of the option, three similar deep freezer ships (hulls nos 1141, 1142 and 1143), each costing US$10.03 million, were also to be built.
In due course the Group placed further contracts with the Yard and in total 19 ships were ordered for a total of over US$200 million. Each ship was the subject of a separate contract, entered into by a different company in the Group that was intended to own and operate the ship. The contracts all stipulated that the Yard was to provide to the purchasing company a refund guarantee.
Only two of the contracts dated 22 August 1992 were available at the trial, and one of those, that for hull no 1140, is incomplete, the provisions relating to the price being missing. The contract that is complete, that for hull no 1143, provided for payment of US$10,030,000, compromising US$130,000 by way of commission for the buyers; US$3.5 million to be paid to suppliers of the imported equipment for the vessel; and US$6.4 million to be paid to the Yard. The sum of US$6.4 million was payable in four instalments: US$1 million within 7 days of the signing of the contract; US$1 million within 7 days after keel-laying of the vessel; US$1 million within 7 days after the vessel was launched; and US$3.4 million within 7 days of the vessel being completed and the 'Acceptance Act' being signed. I infer that the other five contracts similarly provided for four instalments to be paid to the Yard. (Mr. Laskiridis explained in his evidence that this was the “industry norm”.)
As I have said, the Contract which gives rise to this litigation was dated 9 December 1993. It was for the construction and purchase of hull no 1148, a refrigerated cargo vessel. An English version of the Contract was signed by Mr. Ovdienko on behalf of the Yard and by Mr. Laskaridis on behalf of the Buyer. There was also an unsigned Russian version, but neither party has relied upon that before me.
The Contract states that it is governed by English law. There is an arbitration agreement, providing for disputes to be “referred to arbitration by either party, such arbitration to be governed by English law and take place in London”, (with a different procedure for certain technical disputes). The Contract has an Entire Agreement clause at Article XX paragraph 3:
“This Contract contains the entire agreement and understanding between the parties hereto and supersedes all prior negotiations, representations, undertakings and agreements or any subject matter of this Contract, except by mutual agreement in writing of subsequent date signed by any duly authorised representative of each party hereto.”
The Buyer submitted that this provision does not purport to regulate or restrict how the contracting parties can vary the Contract, and that it is directed only to providing that the parties can agree in writing to include in the Contract pre-contractual negotiations, representations, undertakings and agreements. This does not seem to me to be the natural interpretation of the paragraph: the closing words, I think, are to be read as qualifying the provision that the Contract contains the entire agreement
The agreed contract price was US$20.5 million, and payment was to be made in US dollars. The price consisted of:
i) US$8.4 million “payable to the Shipyard and to be paid to Seller's account as follows”, and details were given of an account at Deutsche Bank AG in Germany. The account holder was said to be SCICB, Nikolaev, although the SCICB had ceased to exist over a year before the Contract was made. Presumably the parties simply copied from the previous contracts between the Yard and the Group and did not alter this provision.
ii) US$10 million “payable by the Buyer directly to the various suppliers of the imported equipment as per Enclosure N1 and in accordance with the contracts to be signed between the Seller and Suppliers of this imported equipment”.
iii) US$2.1 million “payable to Buyer as Buyer's and financiers' address Commission”.
Paragraph 2 of Article II provided as follows:
“Payment of the Contract Price shall be made by the Buyer by instalments as follows:
1. U.S. Dollars 1.300.000. – (one million and three hundred thousand US$) to the Shipyard within 8 (eight) months from the date this Contract becomes effective.
2. U.S. Dollars 1.580.000. – (one million and five hundred and eighty thousand US$) within 7 working days after successful launching of the Vessel.
3. U.S. Dollars 5,520,000. – (five million five hundred and twenty thousand US$) to the Shipyard within 7 working days after signing the Acceptance Act and the Vessel is ready in all respects for delivery.
4. U.S. Dollars 10.000.000. – (ten million US$) to the various Suppliers of the imported equipment as per enclosure N.1
5. U.S. Dollars 2.100.000. – (two million and one hundred thousand US$) to the Buyer being Buyer's address Commission.
It is hereby specifically agreed between the Buyer and the Seller that any equipment whatsoever imported into the Republic of Ukraine for the construction of the Vessel and paid for by the Buyer according to the contracts between the Seller and the Suppliers of equipment shall, at all times up to Vessel's delivery to Buyers remain the sole...
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