Reardon Smith Line Ltd v Yngevar Hansen-Tangen (trading as H. E. Hansen-Tangen)

JurisdictionEngland & Wales
CourtCourt of Appeal (Civil Division)
JudgeTHE MASTER OF THE ROLLS,LORD JUSTICE STEPHENSON,LORD JUSTICE BRIDGE
Judgment Date29 Mar 1976
Judgment citation (vLex)[1976] EWCA Civ J0329-4

[1976] EWCA Civ J0329-4

In The Supreme Court of Judicature

Court of Appeal

Civil Division

On appeal from Order of Mocatta, J.

Before:

The Master of the Rolls

(Lord Denning)

Lord Justice Stephenson and

Lord Justice Bridge

Between:
Reardon Smith Line Limited
Plaintiffs
and
Yngvar Hansen-Tangen trading as H.E. Hansen-Tangen
Defendants
and
The Sanko Steamship Company
Third Parties

Mr. R. MacCRINDLE, Q.C., Mr. B.S, ECKERSLEY and Mr. A.D.W. PARDOE (instructed by Messrs Norton, Rose, Botterell & Roche) appeared on behalf of the Appellants (Plaintiffs).

Mr. J.S. HOBHOUSE, Q.C. and Mr. M. DEAN (instructed by Messrs Sinclair Roche & Temperley appeared on behalf of the Respondents (Defendants).

Mr. ROBERT ALEXANDER, Q.C. and Mr. NICHOLAS PHILLIPS (instructed by Messrs ince & Co.) appeared on behalf of the Third Parties.

THE MASTER OF THE ROLLS
1

Three months ago a big oil tanker was launched in Japan. She was named "Diana Prosperity". The name was not well chosen: Prosperity is not her future. She is now nearly completed and ready to be delivered, but no one wants her. There is no work for oil tankers to do. She will be laid up somewhere or other, eating her head off. Someone or other will lose hire. Someone or other will have to pay large sums for laying her up. The loss runs into £11 million, and probably much more. There are like losses on other tankers newly built. On whom is the loss to fall?

2

The story starts in 1972 when there was a demand for more tankers and bigger tankers. The Sanko Steamship Company Limited of Japan sought to meet this demand. They launched a programme called the Sanko Deal. They planned the building of 50 tankers of 80,000 tons each, to be delivered from 1975 onwards. The deal needed enormous sums of money. Existing shipyards had to be enlarged; new shipyards had to be constructed. Then the vessels themselves were to be built. In order to raise the money, Sanko granted time charters of the vessels long before they were built and at rates which were a good deal below the current market rates of hire. They made firm fixtures of the non-existent vessels for 10 years, from 1975 onwards, at $3.00 a ton as against the current market rate of $3.50 a ton. The fixtures were binding upon Sanko and the charterers. Sanko were bound to get the vessels built and the charterers were bound to take them. Then, armed with these firm fixtures, Sanko were able to borrow money from bankers with which to carry out the programme.

3

In the next year 1973 the Sanko Deal ran into difficulties. It was due to currency troubles between the dollar and the yen. In consequence, the Japanese Governmentrestricted the grant of export licences for the vessels. So Sanko wanted to rid themselves of their obligations to the charterers, or to modify them. They approached the charterers of the non-existent vessels with a view to cancelling the charters or modifying them. As a result, 18 of the charterers agreed to cancel the charters and Sanko paid each of them 3 million to do so, but the other 32 preferred to continue the charters at 3.15 a ton for five years. Amongst these 32 was a Norwegian firm H.E. Hansen-Tangen. These 32 preferred to continue the charters because at this time, in the middle of 1973, the market rate of hire had increased to 4.50 a ton, so it seemed to the charterers advantageous to continue their head charters at 3.15 for five years and to grant sub-charters of these non-existent vessels to other persons at the market rate of 4.50 for five years. One of these sub-charterers was the English firm of Reardon Smith & Company Limited. These sub-charterers no doubt expected that the market rate would rise in the future above 4.50; so it was worth their while to take sub-charters at that figure.

4

These expectations were completely upset. In 1974 the oil producing countries raised the price of oil to great heights. This embarrassed the oil consuming countries greatly. Everyone economised in the use of oil. Everyone sought other sources of energy. Far less oil was transported across the ocean. There was no need for so many tankers. The market for them fell to pieces.

5

In this new situation the question arose in 1974 what was to be done with the charters of the non-existent vessels. The Japanese had made all their preparations for building the vessels. They had constructed new shipyards and had committed themselves to vast outlays. The charterers did notwant to take delivery of the vessels because they would be saddled with them for five years, paying huge sums in charter hire with no use for them. One would have thought that negotiations would take place with a view to cancelling the charters, but none took place, at any rate not in this case.

6

So in 1975 the Japanese went on with the building of the vessels and now call upon the charterers to take delivery. So far as this case is concerned, the Japanese laid the keel on the 28th February, 1975. She was launched on the 28th December, 1975. She is due to be delivered next Thursday, 1st April, 1976, but the charterers seek to avoid taking her. They have found a ground on which they say in law they are entitled to refuse delivery. Their point is this. They say that the vessel which they chartered was described as a vessel "to be built by Osaka Shipbuilding Company Limited and known as Hull No.354 until named", whereas the vessel which is to be tendered has been built by a different company, the Oshima Shipbuilding Company Limited, at their Oshima yard, which is 300 miles from Osaka and is known as Hull No.004 of Oshima. Sven though it is identical in every other respect with the charter, this difference (say the charterers) entitles them to reject the tender. They have taken out a summons to determine it. It is to be decided on the assumption that save for that discrepancy, the vessel is in exact accord with the charter.

7

A fortnight ago the Judge decided in favour of the Japanese and against the charterers. The charterers appeal to this Court. As the matter is so urgent, we heard the case last week and now come to give Judgment.

8

Although that point which I have stated seems short, there are many contracts to consider, and I must give the material provisions.

9

The Shipbuilding Contracts:

10

One Japanese company which plays a large part is the Osaka Shipbuilding Company Limited. This company has been established for 40 years and has a high reputation. It has its shipyard at Osaka, where it has built over 350 vessels. Most of them were between 25,000 and 30,000 tons. The biggest was 45,000 tons. It cannot build any vessels of more than 45,000 tons.

11

In 1972, when the Sanko Deal was launched for 80,000 ton tankers, the Osaka Company were invited to participate, but they could not build so large a vessel in their Osaka yard. So they had to make an entirely new yard. They found a suitable site at Oshima, which is 300 miles away from Osaka. To exploit it, the Osaka Company entered into a joint venture with two companies of the big Sumitomo Group, and obtained the approval of the Japanese Ministry.

12

The result was that on the 7th February, 1973 a new company was formed, called the Oshima Shipbuilding Company Limited. 50 per cent of the shares were held by the Osaka Company and 25 per cent each by the two Sumitomo companies. On the 30th March, 1973 this new Oshima Company applied for permission to construct the new yard at Oshima and were granted it. During 1973 and 1974 they built the new yard at Oshima to take the 80,000 tonners. In addition to building the yard, contracts were made for building four 80,000 tonners at the yard. We are only concerned with one of these vessels. There were three contracts relating to it. First, a head contract, dated 18th December, 1972, by which S.S.K, one of the Sumitomo companies, agreed to build the vessel and sell it to a Liberian company called Sculptor Shipping Company Limited. Second, a sub-contract dated 5th March, 1973 by which S.S.K.employed the Osaka Company as sub-contractors to build the vessel. Thirdly, a sub-sub-contract, also dated 5th March, 1973, by which the Osaka Company employed the Oshima Company to carry out the construction of the vessel at its Oshima yard. This last sub-sub-contract contained an express provision as to the numbering of the vessel. It was as follows: "Oshima shall carry out the construction of the vessel at its Oshima yard under the supervision of the Osaka Company and the owners the Sculptor Company. The hull number shall be No.004 of Oshima. However, No.354 as the construction number of Osaka shall be shown on all documents relating to the vessel that shall at any time be submitted to the Osaka Company and the owners Sculptor by the Oshima Company". The sub-contract contained a similar provision, but saying "the hull number shall be No.354 of the Osaka Company".

13

These shipbuilding contracts could not be implemented save by the licence of the Japanese Ministry. This licence was granted on the 10th August, 1973. The shipbuilder was there described as the Oshima Shipping Company Limited, and the name of the yard for building the hull "Oshima Shipping Company Limited". The construction number of the vessel was put as "Hull No.004, Osaka No.354".

14

As a result of studying those contracts, it seems to me quite clear that so far as everyone in Japan was concerned, this vessel was contracted to be built by the Osaka Shipbuilding Company Limited, that that company (Osaka) lawfully sub-let the contract to the Oshima Shipbuilding Company Limited, and that that company (Oshima) agreed to construct it at its Oshima yard. Oshima were to do the work under the supervision of Osaka, and it appears that many of the personnel of the Osaka Company were seconded or transferred to the OshimaCompany to work on the vessel. It is quite clear to my mind that in Japan the Osaka Shipbuilding Company Limited were regarded as sponsors of the...

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