Stocznia Gdanska S.a. v Latvian Shipping Company and Others

JurisdictionEngland & Wales
CourtQueen's Bench Division (Commercial Court)
JudgeThomas J.
Judgment Date08 May 2001
Neutral Citation[2001] EWHC 500 (Comm)
Docket NumberCase No: 1994 Folio 18

[2001] EWHC J0201-2

IN THE HIGH COURT OF JUSTICE

QUEEN'S BENCH DIVISION

COMMERCIAL COURT

Before

The Hon. Mr Justice Thomas

Case No: 1994 Folio 18

Case No: 1995 Folio 1213

Stocznia Gdanska S.a.
Claimants
and
(1) Latvian Shipping Company
(2) Latreefers Inc
(3) Erik Henriksen
(4) Cfm Finance Limited
(5) Latmar Services Limited
Defendants

(Roderick Cordara QC and Vernon Flynn instructed by Messrs Ince for the Claimants)

(Angus Glennie QC and Karen Maxwell instructed by Messrs Lawrence Graham for the First, Second and Fifth Defendants)

(Gerald Levy and Charles Kimmins instructed by Messrs Kingsley Napley for the Third Defendant

Mr Justice Thomas

Mr Justice Thomas

Introduction

1

This litigation arises out of events not unfamiliar in shipbuilding. After lengthy negotiations between the first defendants, a shipowning company owned by the State of Latvia (Latco), and the claimants, a shipyard in Poland (the Yard), Latco arranged for reefer vessels to be built for a specially incorporated Liberian subsidiary, the second defendants (Latreefers) with directors provided by an independent Isle of Man service company. Contracts for three vessels were signed in September 1992 with an option for a further three. The price was payable by instalments due at certain stages of construction; these were to be used to finance the building. No guarantee of the performance of Latreefers' obligations was sought by the Yard. The option was then exercised in January 1993 and contracts for 3 further vessels signed. The market declined and an attempt was made by Latco and Latreefers, as is not unusual, to renegotiate the contracts; Latco employed the services of the third defendant, a broker (Mr Henriksen). The negotiations did not succeed. The instalment due on keel laying of the first vessel was not paid in December 1993. These proceedings were commenced in January 1994 by the Yard against Latreefers for breach of the contracts and, as they anticipated that Latreefers might not honour any judgment obtained, against Latco, Mr Henriksen and others for inducing the breach of contracts and similar tortious conduct. In March 1994, the Yard cancelled the first contract; ultimately none of the six contracts was performed. The litigation continued. It has been very protracted involving so far a number of decisions (including one in the House of Lords) and parallel proceedings in the Companies Court. Despite the fact that the ultimate shareholder of Latreefers is the State of Latvia, a substantial money judgment already obtained in these proceedings against Latreefers has not been honoured.

2

It is convenient first to describe the factual background before turning to the many issues that arise in the claims under the contracts and in tort.

Factual background

Latco

3

Latco is a company owned by the State of Latvia. Prior to the break up of the Soviet Union, the ships owned by Latco were effectively operated as part of the Soviet Fleet and most significant commercial decisions were taken in Moscow. When Latvia became fully independent in 1989, Latco had to operate independently of the Soviet Fleet. At that time, it had approximately a fleet of 90 vessels comprising various types, including tankers, reefers and dry cargo vessels; the approximate value of the fleet in 1993 was US$ 500 million; only about 10 of the vessels were mortgaged. The fleet was highly profitable. In August 1991, Mr Peteris Avotins became the President; a statement of his evidence was served by way of a hearsay notice and he did not give evidence in person. There was little evidence about his commercial experience, but he was a deck officer by profession who had fought for the rights of the employees and had been dismissed in 1989 for this. He had then worked for a private shipping company before being re-employed and promoted to the management of Latco. He ceased to be President in January 1997.

4

In order to modernise its fleet and replace its vessels, Latco undertook a restructuring programme; one of the objectives of this programme was to use its current assets to finance the buying of ships and placing orders for new buildings. It therefore established a Liberian company Latmar Holdings Corporation (Latmar Holdings) and in early 1992 the fifth defendants (Latmar Services), a company based in London. Ninety nine per cent of Latmar Services' capital was owned by Latmar Holdings; the bearer shares in Latmar Holdings were held by Watson Farley & Williams for Latco as the beneficial owners. Two of the directors of Latmar Services gave evidence before me—Mr Sergei Degtiarev (who has changed his surname to his wife's name of Foster), and Mr Serguei Kisselev. Mr Foster was an economist who had worked for Sovfract, the Soviet state chartering organisation and began working for Latco in 1991 and thereafter for Latmar Services; his area of expertise was ship finance. He was called by the Yard. Mr Kisselev was an old and close friend of Mr Avotins from the time they had served on a ship together when Mr Avotins was the second officer and he was the radio officer; in September 1991, whilst a radio officer, he was asked by Mr Avotins to work at head office and was sent to London in early 1992 as an employee of Latco. He became the managing director of Latmar Services later in 1992 and was still a director at the time of the trial, though he had had no executive functions since 1998. In the period 1992 –1994 he took his instructions from Mr Avotins.

5

The purpose of establishing Latmar Holdings as a Liberian company was to enable it to own the shares in the ship owning companies. According to the evidence of Mr Foster, a mortgage on a Latvian flag vessel was not acceptable to western bankers because there was no legislation in Latvia protecting creditors; a Liberian flag vessel was well understood and could provide the necessary security. Another purpose, according to Mr Kisselev was to enable Latco to earn funds without state interference by way of taxation or conversion of the funds into Latvian currency.

The Yard

6

Prior to 1989 the Yard had been owned by the state of Poland; the sales of all its new buildings were arranged through Centromar a foreign trade company controlled by the Polish Ministry of Foreign Trade. Between about 1970 and 1990, the Yard built 33 refrigerated vessels for the Soviet State trading company Sudoimport, most of which were for delivery to Latco. The Yard therefore had a long standing relationship with Latco, though it involved principally the technical rather than the commercial side of shipbuilding, as all financial matters were dealt with centrally by others in the state planned communist economies. It was during this period that Mr Nawrocki, an engineer at the Yard who became in 1990 the design officer and technical manager of the Yard, and other colleagues got to know their technical counterparts at Latco including Mr Agofonov.

7

As a result of what is known as the "transformation" (in which the Yard played its part as the birth place of "Solidarity"), Poland moved in 1989 from a state controlled economy to a market economy.

8

During this period, the Yard encountered difficulties with a Polish purchaser of reefer vessels and it decided to try and market two of the vessels. One of those who was approached by the Yard was, a shipbroker specialising in new buildings, Mr Christian Larsson. He was a director of Larsson Shipping (UK) Limited, a subsidiary of Larsson Shipping Limited of Bermuda; he gave oral evidence at the trial. He, in turn, approached Seawave Agencies Limited (Seawave) in London, a company which had acted prior to the break up of the Soviet Union for the state owned shipping companies. Mr Foster had been a principal employee of this company and remained so during much of 1992 until he was formally employed by Latmar Services. After the break up of the Soviet Union, Seawave continued to act for many of the newly formed independent ship owning companies, including Latco. As a result the two reefer vessels were purchased by the Latco group through Scanreefers, another subsidiary of Latmar Holdings. The two vessels, named Chiquita Amata and Chiquita Abava, were delivered in 1991 and July 1992 with financing from the Hamburgische Landesbank.

The initial negotiations for the building of six reefer vessels

9

In April 1992, Mr Larsson was approached by Seawave; they told him they had been appointed as agents for Latmar Holdings and were interested in ordering four reefer vessels of 480,000 cu ft each for delivery starting in early 1994; he had been told earlier that Latco was keen to renew its reefer fleet. On 8 April 1992 details of the proposal were put to the Yard by Mr Larsson. The Yard responded on 10 April with outline terms. The cost quoted was US$25.8 million for the first two vessels and US$26.9 million for the next two. The payment terms were to be 5 per cent on contract signing, 20 per cent on keel laying, 25 per cent on launching and 50 per cent on delivery.

10

On 14 May 1992 the Yard and Latco reached outline terms of agreement set out in an exchange of telexes; three vessels were to be purchased for US$ 25.8 million each with an option for a further three at US$ 27 million each; these were, it appears, very keen prices. The payment terms were as initially proposed by the Yard. The telexes made clear that the buyers were to be a company nominated by Latmar Holdings; Mr Engel, an engineer and the commercial manager of the Yard, accepted that it was normal practice for a subsidiary company to be specially formed to own the vessels.

11

During the summer of 1992, negotiations proceeded on the detailed technical specification; during the course of those negotiations there were adjustments to the price to take into account changes requested by Latco representatives. Arrangements were then made for the...

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1 books & journal articles
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