Rank Enterprises Ltd and Others v Gerard (Al Karim, Al Mutawakil, Rita)

Thursday, 27 January 2000

On 14 ^th July 1999 Mr Justice Toulson delivered judgment and made various declarations relating to the enforceability and construction of a guarantee dated 9 ^th April 1997 given by the defendant. The present appeal and cross-appeal concern only two main points of construction. The guarantee was given in respect of the purchase by the second, third and fourth appellants of three vessels from their previous owners as follows:

The purchases were agreed under three memoranda of agreement ("MOA") dated 9 ^th April 1997 on the Norwegian Saleform with alterations. Each MOA provided inter alia:

"8. Documentation

(a) In exchange for payment of the Purchase Money the Sellers shall furnish the Buyers with:

(i) an original bill of sale (in duplicate) in a form accepted in the state of the Vessel's flag warranting that the Vessel is free from all mortgages and other encumbrances, maritime liens or any other debts or claims whatsoever, duly notarially attested and legalised by the Consul of the state of the Vessel's flag or other competent authority acceptable to the Buyers;

………

(viii) original letter from Elite Shipping Corporation Limited ("Elite") confirming that the management of each of the Vessels by Elite has been terminated and warranting that Elite has no claim whatsoever against the Sellers arising out of such termination or otherwise;

(ix) original personal Guarantee of Jacques Raymond Gerard in a form acceptable to Buyers;

………

9. Encumbrances

The Sellers warrant that the vessel, at the time of delivery, is free from all encumbrances, mortgages and maritime liens or any other debts whatsoever. Should any claims which have been incurred prior to the time of delivery be made against the vessel, the Sellers hereby undertake to indemnify the Buyers against all consequences of such claims."

The guarantee provided pursuant to clause 8(a)(ix) provided:

"In consideration of (1) your agreeing to purchase the m.v. "Al Mutawakil", m.v. "Al Karim" and the m.v. "Rita" (the "Vessels") for the amount of US$4,300,000 (US Dollars Four Million three hundred thousand only) and (2) other good and valuable consideration (the receipt and adequacy of which I hereby acknowledge), I, Jacques Raymond Gerard (Passport No: 362096) of Belgium hereby unconditionally and irrevocably guarantee that should any claims which have been incurred prior to the time of delivery (limited to the period of ownership of the Vessels by European Shipping Company Limited, Al Karim Shipping Company Limited and Al Mutawakil Shipping Company Limited, save where such owners or operators knew of earlier claims or ought reasonably to have known about them) be made against and in respect of any of the Vessels, I shall forthwith guarantee to pay you on demand for any loss, expenses or damages you may sustain arising out of or in connection with such claims.

I further agree that my liability to you under the guarantee (the "Guarantee") contained in this letter shall be that of a guarantor and shall not be discharged or other wise affected by reason of any of the following events or circumstances (regardless of whether any such events or circumstances occur with or without my knowledge or consent): (1) any time, forbearance or other indulgence given or agreed by you to any other party; (2) any invalidity, irregularity or unenforecability of any other the obligations of any of the parties to the contracts for the sale of the m.v. "Al Mutawakil" or m.v. "Al Karim" or m.v. "Rita", or (3) any other act or circumstances which might otherwise operate to discharge or affect any of my obligations under the Guarantee or any of the rights, power or remedies conferred on you by law.

This Guarantee shall remain in full force and effect until 7 April 1998.

This Guarantee is limited in respect of any claim as follows:

(i) US$1,800,000 in respect of m.v. "Rita"

(ii) US$1,500,000 in respect of m.v. "Al Mutawakil"

(iii)) US$1,000,000 in respect of m.v. "Al Karim"

Finally, I conditionally and irrevocably: (1) agree that this Guarantee shall be governed by and construed in accordance with English law; (2) agree for your benefit that the English courts shall have jurisdiction to hear and determine any suit, action or proceeding, and to settle any disputes, which may arise out of or in connection with this letter or the Guarantee; (3) submit myself to the jurisdiction of the English courts; (4) appoint [insert name and address of solicitor located in England] to be my agent for the service of process in England; (5) agree that my submission to the jurisdiction of the English courts shall not limit your right to take proceedings against me in any other court of competent jurisdiction; and (6) waive any objection which I may now or later have to any proceedings relating to the Guarantee being brought by you in any of the courts referred to above."

Both the appeal and cross-appeal turn on the proper construction of the second sentence of clause 9 of the MOAs and of the defendant's guarantee. The issue on the appeal is whether the second sentence and the guarantee respond only to claims in respect of which the sellers were actually liable. The issue on the cross-appeal is what is meant in the second sentence and in the guarantee by claims "against" any of the vessels.

On the appeal, the judge by his judgment and third declaration held that the second sentence of clause 9 was to be read as if the following italicised words were interposed

"Should any claims in respect of liabilities which have been incurred prior to the time of delivery be made against the vessel …. ".

On that basis he went on to hold that the indemnity against the consequences of claims afforded to buyers by the second sentence was limited to claims against the vessel resulting from actual or contingent liabilities incurred by the sellers prior to delivery. It did not cover the consequences of claims against the vessel asserting that the sellers had incurred liabilities pre-delivery which sellers had not incurred. The guarantee was also correspondingly limited in scope.

On the cross-appeal, the judge held by his judgment and fourth declaration that the second sentence and the guarantee applied where there had been "a demand coupled with a real and present threat to arrest the vessel", without any necessity for proceedings to have been issued or an order of arrest obtained.

I take first the appeal. Our task is to construe the documents in a manner which effects the mutual intention of these commercial parties, against the background of the transaction as a whole, looking for the meaning which the language used in clause 9 and in the guarantee would convey to a reasonable person, having all the background knowledge which would reasonably have been available to the parties to the relevant documents, but excluding previous negotiations and evidence of subjective intent: see Investors Compensation Scheme Ltd. v. West Bromwich Building Society [1998] 1 WLR 896. We heard therefore on both sides arguments based on what was said to be the natural meaning of the relevant words supported by submissions based on what was said to represent their commercial sense and purpose.

Mr Cooke Q.C. for the buyers accepted that the guarantee fell to be construed with the MOAs, under the terms of which it was required and given. The first step is therefore to consider the scope of the claims to which the second sentence of clause 9 of the MOAs applies. The concepts used in the first and second sentences of clause 9 echo words used in clause 8(a)(i). The concept of "claim" is also used in clause 8(viii) although this is a tailor-made provision, not part of the standard Norwegian Saleform. Clause 8(a)(i) requires the production on delivery of a bill of sale "warranting that the Vessel is free from all mortgages and other encumbrances, maritime liens or any other debts or claims whatsoever ….". By the first sentence of clause 9 the sellers "warrant that the vessel, at the time of delivery, is free from all encumbrances, mortgages and maritime liens or any other debts whatsoever". Claims are dealt with in the second sentence, whereby the sellers undertake to indemnify the buyers against all consequences of such claims "[s]hould any claims which have been incurred prior to the time of delivery be made against the vessel".

The relationship of the first and second sentences of clause 9 was considered in Athens Cape Nav. S.A. v. Dampfschiffahrtsges. "Hansa" A.G. (The "Barenbels") [1984] 2 Ll.R. 388 (Sheen J.) and [1985] 1 Ll.R. 528, where the judgment of this court was delivered by Robert Goff L.J. as he was. The court said this, at pages 532:

"In our judgment, therefore, the question in the...