INTA Navigation Ltd and Another v Ranch Investements Ltd and Another
| Jurisdiction | England & Wales |
| Judge | Mr. Justice Teare |
| Judgment Date | 05 June 2009 |
| Neutral Citation | [2009] EWHC 1216 (Comm) |
| Court | Queen's Bench Division (Commercial Court) |
| Docket Number | Case No: 2008 FOLIO 736 |
| Date | 05 June 2009 |
[2009] EWHC 1216 (Comm)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Before: Mr. Justice Teare
Case No: 2008 FOLIO 736
Case No:2008 FOLIO 829
David Lewis (instructed by Holman Fenwick Willan LLP) for the Claimants in Folio 736
James Drake (instructed by Lax and Co. LLP) for the Defendants in Folio 736 and Claimants in Folio 829
Timothy Young QC (instructed by Ince and Co.) for the Defendants in Folio 829
Hearing dates: 15 May 2009
Approved Judgment
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.
MR.JUSTICE TEARE
Mr. Justice Teare:
These are two appeals against arbitration awards of Messrs. Hamsher, O'Donovan and Gaisford brought with the permission of Burton J. pursuant to section 69 of the Arbitration Act 1996. Both appeals concern the nature of a right granted to the buyer of a ship under construction to purchase a second ship under construction. In each case the buyer was awarded damages against the seller in the sum of US$2,249,999. Although the two appeals are separate they were heard together. This judgment is therefore my judgment in both appeals.
By a MOA dated 26 November 2004 the Claimants in the first appeal (2008 Folio 736) collectively described as “Geden”, agreed to sell to the Defendants, collectively known as “Wah Kwong”, Hull No.S271, a 159,000 dwt crude oil tanker which was under construction by Hyundai pursuant to a shipbuilding contract dated 29 December 2003. The purchase price under the latter contract was US$48,500,000. The purchase price under the MOA was US$70,500,000. The terms of the MOA were based on the Norwegian Sale Form. They provided for a deposit of 10% of the sale price to be paid within 5 banking days from the date of the sale agreement, 60% of the purchase price to be paid one banking day prior to delivery of the ship and the balance to be paid on the signing of the Protocol of Delivery and Acceptance. The ship was to be delivered and taken over at Hyundai's yard. The expected time of delivery was “as per the shipbuilding contract” and was to be before 31 March 2007. There were other references to the shipbuilding contract in the cancelling date, permissible delays and force majeure clause.
Clause 25 of the MOA was entitled First Refusal for Hull No.S272 and provided as follows:
“If and when it is decided to sell the second vessel (Hull No.272) then sellers to confirm to buyers in writing the best price at which the sellers have decided to sell the vessel stating the name of the third party buyers and providing evidence of the sale recap or other document constituting the sale. Wah Kwong or their nominee as buyers are to have 24 London business hours of sellers' notice in writing within which to increase the aforementioned best price by USD 1 (one United States Dollar) after which the sale will become subject to the lifting of buyers' board approval within a further 24 hours.
If Wah Kwong do not exercise the option to purchase the vessel and sellers dispose of the vessel – by finalising a recap or other document constituting a sale – within maximum of 30 days sellers' notice to Wah Kwong for a price which is less than that offered to Wah Kwong then the price differential to be paid to Wah Kwong. If Wah Kwong however exercise their option to purchase the vessel and then resell the vessel within one month of exercising their option then any price increase to be paid to Geden Lines.
Notwithstanding the foregoing if sellers do not decide to sell the vessel within the 30 days as in paragraph 2 above but decide to dispose of the vessel thereafter they will notify Wah Kwong of their decision to sell as in paragraph 1 above and Wah Kwong's option to improve sellers' best price as above will be revived in accordance with the procedure outlined in paragraph 1 and 2 above.”
Over one year later, on 15 December 2005, Wah Kwong entered into a MOA to sell Hull S271 to the Respondents in the second appeal (2008 Folio 829), Centrofin. The terms were based upon the MOA between Geden and Wah Kwong save that the price was US$80,500,000. Clause 25 was in essence the same but was modified to reflect the fact that the right of first refusal arose once Geden as “the Sellers'Sellers” had decided to sell and provided that Centrofin was to exercise its option to buy within a shorter time than provided in the earlier MOA, presumably to give Wah Kwong time to exercise its option. It provided as follows:
“If and when it is decided by Sellers' Sellers to sell the second vessel (Hull No.272) then sellers to confirm to buyers in writing the best price at which the Sellers' Sellers have decided to sell the vessel stating the name of the third party buyers and providing evidence of the sale recap or other document constituting the sale. Centrofin Management or their nominee as buyers are to have 16 London business hours of sellers' notice in writing within which to increase the aforementioned best price by USD 1 (one United States Dollar) after which the sale by Sellers to Centrofin Management will become subject to the lifting of buyers' board approval within a further 16 hours.
If Centrofin Management do not exercise the option to purchase the vessel and Sellers' Sellers dispose of the vessel – by finalising a recap or other document constituting a sale – within maximum of 30 days sellers' notice to Centrofin Management for a price which is less than that offered to Centrofin Management then the price differential is to be paid to Centrofin Management upon receipt by Sellers of such price differential from Sellers'Sellers. If Centrofin Management however exercise their option to purchase the vessel and then resell the vessel within one month of exercising their option then any price increase to be paid to Sellers.
Notwithstanding the foregoing if Sellers' Sellers do not decide to sell the vessel within the 30 days as in paragraph 2 above but decide to dispose of the vessel thereafter they will notify Sellers and Sellers will notify Centrofin Management of their decision to sell as in paragraph 1 above and Centrofin Management's option to improve Sellers' Sellers' best price as above will be revived in accordance with the procedure outlined in paragraph 1 and 2 above.”
The first question of law in respect of which permission has been given to appeal relates to the proper construction of clause 25 in each MOA. In essence that question is whether the sale which results from the process described in clause 25 (in both MOAs) is on the terms on which Geden (as sellers in the 2004 MOA and as sellers' sellers in the 2005 MOA) have decided to sell Hull No.S272 to the third party, save as to price, or on the terms of the respective MOA, save as to price. Before considering this question it is necessary to recount what happened.
On 21 December 2005 Geden sent an email to Wah Kwong advising it that Geden had agreed a contract of sale for Hull No.S272 which was due to be delivered in May 2007 on novation terms to Marmaras Navigation for US$80,500,000. The contract was conditional on the Yard, Hyundai, agreeing to the novation. “Novation terms” were described in the tribunal's Reasons (at paragraph 44) as being terms pursuant to which
“the buyer steps into the shoes of the seller, the buyer has immediately to reimburse the seller all the instalments already paid to the yard and also pay the amount of any profit made by the seller on the sale – in other words, the buyer must pay the full contract price less the amount of the further instalments payable to the yard as they fall due. In addition the buyer has to bear the costs of supervising the balance of the new building contract.”
Such terms were contrasted with a sale on the terms of the Norwegian Sale Form
“which provide for the payment of a deposit but for the balance to be paid only when the vessel is delivered.”
The Reasons recorded that it was common ground between the parties' experts that the difference between selling Hull No.S272 on Norwegian Sale Form terms and on novation terms was a price differential of approximately US$2.5-US$3 million.
Thus by agreeing to sell Hull No.S272 on novation terms to Marmaras Geden had secured a sale price some $2.5-$3 million less than it would have secured had it sold to Marmaras on Norwegian Sale Form terms. However, by selling on novation terms Geden would realise its profit on the sale when signing the novation agreement rather than on the delivery of the ship.
The email from Geden to Wah Kwong was passed by Wah Kwong to Centrofin.
On 28 December 2005 Centrofin replied to Wah Kwong as follows:
With reference to the various messages earlier received
today from sellers, the Buyers maintain that at no stage to
date have they been given any notification whatsoever by the
Sellers in accordance with clause 25 of the above mentioned
MOA.
Notwithstanding this fact, and without prejudice to any of
their rights, the Buyers have now understood from the
correspondence forwarded today from Sellers through
brokers, that the Sellers' Sellers have entered into
negotiations with clients of Marmaras Navigation for the
sale of hull S272. Buyers wish to confirm to the Sellers that,
upon receipt of notification in accordance with the MOA
dated 18/12/2005 clause 25, they will confirm their
agreement to pay USD 80,500,001 (eighty million, five
hundred thousand and one...
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