Locabail International Finance Ltd v Agroexport
| Jurisdiction | England & Wales |
| Judge | LORD JUSTICE MUSTILL,LORD JUSTICE BALCOMBE |
| Judgment Date | 18 December 1985 |
| Judgment citation (vLex) | [1985] EWCA Civ J1218-1 |
| Court | Court of Appeal (Civil Division) |
| Docket Number | 85/0798 |
| Date | 18 December 1985 |
[1985] EWCA Civ J1218-1
Lord Justice Mustill
and
Lord Justice Balcombe
85/0798
1985 L 3864
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
(MR. JUSTICE EVANS)
Royal Courts of Justice
MR. JULIAN FLAUX (instructed by Messrs. Richards Butler, Solicitors, London EC2A 4DQ) appeared on behalf of the First Defendant (Appellant)
MR. MARTIN WHITE (instructed by Messrs. Sinclair Roche & Temperley Solicitors, London EC2M 4JP) appeared on behalf of the Plaintiffs (Respondents)
This is an appeal by the first defendant in an action recently instituted against them from a decision given yesterday by Mr. Justice Evans; the effect of the decision was the grant of a mandatory injunction requiring the first defendant to pay a certain sum of money to a third party in circumstances which I shall presently describe.
The situation out of which the present action arises is a curious one; for present purposes I think it can be described quite briefly. The dispute revolves around a vessel named "Sea Hawk", which was owned by a concern named Vallombrosa Shipping Corporation. The plaintiffs in this action, Locabail International Finance Limited, are the first mortgagees of that vessel, having made advances to the shipowners which, we are told, substantially exceed the market value of the vessel.
About a year ago, a company named Nasseb Enterprises sold to the first defendants, Agroexport, which is a Romanian state trading organisation, a total of 22,000 tons of soya meal on terms C & F Constanza. In part fulfilment of this obligation the vendors chartered the Sea Hawk and set out to load on board her a cargo of 13,000 metric tons of soya meal. I say "set out" to load on board the vessel this quantity of cargo because the process of loading appears to have encountered substantial difficulties due, to a great extent, to the financial frailty of the shipowning company. So slow was the process of loading that by the end of July 1985, some months after the vessel had commenced to load, a complete cargo had still not been brought on board, and we are told that the vessel had been arrested on at least one occasion in respect of claims by various creditors of the shipowning company.
This was, of course, a source of great embarrassment to the first defendants, who needed their cargo and could not recover it without extricating the vessel from her difficulties at Bombay. Accordingly, they arranged with the shipowning company to provide sufficient finance, via their agents, to enable the vessel to clear Bombay and complete her voyage.
On 28th June 1985 the first defendants, acting through their agents the second defendants, entered into a written agreement with the shipowners stipulating that the defendants would disburse sufficient funds up to a maximum of US $500,000 on behalf of the shipowners to enable the vessel to continue her voyage to Constanza. The agreement provided that $100,000 would be repaid within 90 days and that the remainder would fall due within five months. The agreement also stipulated for the payment of interest and was expressed to be subject to Romanian law and to the exclusive jurisdiction of the Chamber of Commerce of the Socialist Republic of Romania.
The money was paid by, or on behalf of, Agroexport directly to the various creditors in Bombay, and the ship duly completed loading and sailed for Constanza.
It is now known that the first defendants had obtained the necessary foreign exchange for the performance of the loan agreement from another Romanian concern having the name CPICP-TIMIS. For the purpose of raising the foreign exchange Agroexport and TIMIS made an agreement whereby TIMIS would grant Agroexport a loan of $500,000 carrying interest at the same rate as the advance made by Agroexport to the shipowners, and repayable as to $250,000 on 15th November 1985 and $250,000 on 15th December 1985.
The agreement expressly provided as follows, by paragraphs 4 and 5:
"4. As a security for the loan received and in view of the final receivers of this loan Agroexport is putting up 'in trust' all their rights and securities such as received from the users of the loan and/or their guarantors and/or any other physical or juridical persons be they or not beneficiaries of these funds one way or another, declaritive and not limitative, the subrogation agreement and all others.
"It is hereby understood by both parties that without any additional formality TIMIS has discretionary right to make use of all the rights Agroexport obtained upon paying out these funds.
"5. It is also understood by the parties that the rights obtained by TIMIS by virtue of this loan agreement as mentioned here in no way restrict TIMIS rights against Agroexport".
The passages I have read are from an English translation of the agreement, which was written in the Romanian language and was expressly subject to Romanian law and to the jurisdiction of the Romanian courts.
Just as the problems encountered by the Sea Hawk were of concern to Agroexport, so also were they of concern to the plaintiffs, who had plainly envisaged the possibility that when the vessel arrived at Constanza she might be arrested by Agroexport in order to furnish security for the recoupment of Agroexport's advance to the shipowners. Accordingly, on 17th July 1985 the plaintiffs and the defendants entered into an agreement to the following effect. Agroexport undertook not to arrest, attach or detain the vessel in Constanza; for their part the plaintiffs undertook not to arrest or otherwise exercise security rights over the vessel until after completion of the discharge in Constanza of Agroexport's cargo. The different termini of the two undertakings reflected the fact that the anxiety of Agroexport was that the vessel might be arrested or disposed of by the plaintiffs before they could get their cargo discharged, whereas the anxiety of the plaintiffs was that the vessel might be arrested at the suit of Agroexport before she had cleared Romanian waters, it being evidently contemplated that once the vessel was under arrest in Romania the plaintiffs' rights would be of little value to them. We are told that when the plaintiffs entered into this agreement with Agroexport, they did not know that Agroexport had already entered into the agreement with TIMIS which I have just described, the effect of which, both by its express terms and by Romanian law, was to subrogate TIMIS to the rights of Agroexport against the shipowners and their vessel.
There is another feature of Romanian law deposed to in the defendants' affidavits, and not contradicted on behalf of the plaintiffs, which is as follows. That is that the rights of TIMIS by way of subrogation were not subject to the undertaking given by Agroexport to the plaintiff bank. It may well be the case that TIMIS' derivative right would be subject to any equities arising between the shipowners as debtors and Agroexport as creditors and assignors; but, so the evidence goes, the separate undertaking given by Agroexport to the plaintiffs as third parties is not a clog on the right of TIMIS to avail themselves of whatever security was possessed by Agroexport in relation to the $500,000 loan. It is from this consideration that all the subsequent trouble has arisen.
For a time matters went quite well. The vessel did go to Constanza and did discharge the cargo. Unfortunately, Agroexport have now found that their hopes of repayment by the shipowners have not borne fruit. If the issues now before us had been raised soley between Agroexport and the plaintiff bank, this would have been no problem; the agreement of 12th July would have provided a solution. But because Agroexport had not been paid by the shipowners, they found themselves unable to meet their own foreign exchange obligations to TIMIS in Romania, and so it came about that when the two instalments of there payment obligation fell due, TIMIS made demands against Agroexport which were not...
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