Stocznia Gdanska SA v Latvian Shipping Company (No 2)
| Jurisdiction | England & Wales |
| Judge | Lord Justice Rix,Lord Justice Tuckey,Lord Justice Aldous |
| Judgment Date | 21 June 2002 |
| Neutral Citation | [2002] EWCA Civ 889 |
| Docket Number | Case No: A3/2001/1120/1120A |
| Court | Court of Appeal (Civil Division) |
| Date | 21 June 2002 |
[2002] EWCA Civ 889
Lord Justice Aldous
Lord Justice Tuckey and
Lord Justice Rix
Case No: A3/2001/1120/1120A
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM QUEEN'S BENCH DIVISION
COMMERCIAL COURT
(Mr Justice Thomas)
Angus Glennie QC and Lawrence Akka (instructed by Messrs Lawrence Graham) for the Appellants
Roderick Cordara QC and Vernon Flynn (instructed by Messrs Ince & Co) for the Respondent
In September 1993 and January 1994 Latreefers Inc ("Latreefers") ordered the construction of six reefer vessels from Stocznia Gdanska SA (the "yard"). Each vessel was covered by a separate contract. The contracts were never performed, save that Latreefers paid the 5% instalment payable on contracting. The yard got as far as laying the keels for the first two vessels, but when the keel laying instalments went unpaid, it exercised its contractual rights of "rescission" to terminate the first two contracts. It then purported to appropriate the same keels to contracts 3 and 4 and to terminate those contracts as well for non-payment of the keel laying instalments. After that, it did the same with contracts 5 and 6. In due course the House of Lords held that the yard was not entitled to appropriate the keels of vessels 1 and 2 to contracts 3, 4, 5 and 6 and therefore there had been no failure by Latreefers to pay the respective keel laying instalments under those four contracts: Stocznia Gdanska SA v. Latvian Shipping Co [1998] 1 WLR 574. The question therefore arose whether those four contracts had been repudiated by Latreefers' merely anticipatory repudiatory breach in evincing an intention not to perform, in which case such a breach might have been accepted by the yard's notices of rescission albeit they were uncontractual in their own terms, or whether they were repudiated by the yard's uncontractual notices, thereby permitting Latreefers to say that it had accepted the yard's repudiations. In his judgment below Thomas J held that it was Latreefers which had repudiated and the yard which had accepted that repudiation: [2001] 1 Lloyd's Rep 537.
It follows that there is an important distinction to be made between contracts 1–2 and contracts 3–6. It is common ground that contracts 1–2 came to an end following Latreefers' breach of contract and that Latreefers is therefore liable both in debt for the unpaid keel laying instalments (as to that there is already an unchallenged judgment) and in damages pursuant to the provisions of the rescission clause. As to contracts 3–6, on the other hand, it is in issue as to which party repudiated, but it is common ground that nothing is or was at any time due in debt for non-payment of the mistaken keel laying instalment notices. There are also issues arising out of the yard's mistaken invocation of the rescission clause. Latreefers says that that amounted to an affirmation of the contracts, and that, whatever the position may have been before such affirmation, there was no further repudiatory conduct afterwards.
As for the first two contracts, however, the issues are limited to those bearing on quantum. The yard says that the breach consisting in non-payment of the keel laying instalments was a repudiatory breach, and gave rise to damages at common law on a repudiation basis. Latreefers on the other hand says that there was no repudiation, only a contractual termination, at any rate in respect of contract 1, and that damages for the breach of non-payment are limited by the express terms of the rescission clause.
So much for the position in contract, which concerns Latreefers alone.
There is also a claim by the yard in tort against Latreefers' parent company, Latvian Shipping Company ("Latco"), for inducing Latreefers' breaches of contract. There was no guarantee by Latco of Latreefers' obligations to the yard. Nevertheless, in his judgment below Thomas J found that Latco was liable to the yard for the indirect inducement by unlawful means of breach of Latreefers' contracts with the yard of, those unlawful means consisting in failing, in breach of Latco's own contract with a service company, Capco, to keep Latreefers in funds to meet its responsibilities, viz to the yard. Thomas J also held, however, that Latco was not liable on the basis of the direct inducement of Latreefers to break its contracts with the yard, since it had not directed Latreefers to do so, nor was it liable in the tort of conspiracy, nor in other ways suggested by the yard.
In sum, Thomas J held that Latreefers was liable for the repudiation of all six contracts, and liable for damages available at common law on a repudiation basis. However, Latreefers is in winding up, and the real prospect of the yard obtaining any real remedy lies in the area of tort against Latco, whom he found to be liable for inducing the repudiations in all six contracts.
All these matters are in dispute on Latreefers' and Latco's appeals. In addition the yard cross-appeals in order to widen the basis of Latco's liability in tort, eg to the case of direct inducement and to other forms of indirect inducement and to conspiracy.
With that brief introduction I will turn to the facts of the case relevant to these appeals.
The shipbuilding contracts
Latco is a company owned by the State of Latvia and controls Latvia's shipping fleet. When in 1989 Latvia became fully independent of the USSR, Latco's fleet was highly profitable and substantially free of mortgage debt. In the same year the yard, which had been the birthplace of "Solidarity", itself moved out from Polish state control into a market economy. During the previous Soviet hegemony over Latvia and Poland the yard had built many vessels for Latco, whose fleet at that time operated as part of the Soviet fleet.
In April 1992 Latco began to negotiate the purchase from the yard of first four, and then six reefer vessels. On 14 May 1992 Latco and the yard reached outline terms of agreement for three vessels at a cost of US$25.8 million each and an option for a further three vessels at $27 million each. The agreement stated that the ultimate buyer was to be a company nominated by Latco's direct subsidiary, Latmar Holdings Corporation, a Liberian company ("Latmar Holdings").
By early September 1992 detailed negotiations had reached a final stage. The Latvian negotiators were advised by their London solicitors. The yard had no legal advice. The yard was told that the purchasing company would be Latreefers, which was then incorporated in Liberia as a direct subsidiary of Latmar Holdings. The yard did not request a guarantee from Latco. It proceeded on the assumption that Latreefers would be funded by Latco or that Latco would arrange for the funding of Latreefers. There was evidence from a director of Latco, accepted by the judge, of his understanding that if the yard had insisted on a guarantee, Latco would have provided it. In effect, the yard was still operating in a mind-set where all such decisions were those of state planning within the Soviet empire.
The contracts were signed on 11 September 1992. There were three identical contracts, with options for three further vessels. Those options were exercised in January 1993. The final prices were $27.6 million each for vessels 1–3 and $29.1 million for vessels 4–6. So there were six contracts for six vessels. The contracts are governed by English law. They required payment to be made in instalments, 5% on signing, 20% on laying of the keel, 25% on launching and 50% on delivery. The initial 5% instalments were all paid. The only clause which it is necessary to refer to is article 5, headed "Terms of payment", which sets out the four instalments of the contract price, states that (for instance) the keel laying instalment is due within 5 banking days after notice of the vessel's keel laying and continues with a default provision in clause 5.05 permitting the Seller to rescind the contract if the Purchaser defaults in the payment due in respect of the keel laying and subsequent instalments for 21 days after the due date. The full text of clause 5.05 is set out in para 58 below.
The incorporation of Latreefers
Latreefers was incorporated a few days earlier on 8 September 1992. Its bearer shares were held by Latmar Holdings. Its directors were employees of a service company, connected with a firm of Isle of Man solicitors, called Capco Trust (Isle of Man) Limited ("Capco"). On 9 September these directors formally resolved to enter into the reefer contracts. The contract between Capco and its clients (there is an issue whether that was Latmar Holdings only or also Latco, although the judge held that it was the latter) stipulated by clause 5.9 that "the Managed Entity will be kept in sufficient funds by the Client to honour its liabilities as and when they become due…" I shall need to revert to that clause and its context when I come to deal with the issues in tort.
The reefer market
The market for reefers had been very strong in 1992, hitting a peak of $0.80 per cu ft per 30 days (time charter rates). By the end of 1982, however, it had dipped to $0.75, and as 1993 wore on the outlook became pessimistic. The judge found that by September 1993 the market was poor and the outlook generally pessimistic. In 1994 rates collapsed to $0.55.
Latco's renegotiations with the yard
By the summer of 1993 Latco was becoming concerned that the reefer contracts were no longer financially viable. In September it appointed Mr Erik Henriksen, an international...
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