Westwood Shipping Lines Inc. and another v Universal Schiffahrtsgesellschaft MBH

JurisdictionEngland & Wales
CourtQueen's Bench Division (Commercial Court)
JudgeMR JUSTICE CHRISTOPHER CLARKE,Mr Justice Christopher Clarke
Judgment Date25 May 2012
Neutral Citation[2012] EWHC 1394 (Comm)
Docket NumberCase No: 2012 FOLIO 321

[2012] EWHC 1394 (Comm)





Royal Courts of Justice

Strand, London, WC2A 2LL


Mr Justice Christopher Clarke

Case No: 2012 FOLIO 321

(1) Westwood Shipping Lines Inc
(2) Weyerhaeuser NR Company
Universal Schifffahrtsgesellschaft MBH (Formerly GMB Schiffahrts GMBH, also Trading as GMB Global Maritime Breakbulk Schiffahrts GMBH)

And In An Arbitration

(1) Westwood Shipping Lines Inc
(2) Weyerhaeuser NR Company
GMB Schiffahrts GMBH
(also trading as GMB Global Maritime Breakbulk Schiffahrts GMBH)

Anthony Trace QC and Alexander Winter (instructed by Thomas Cooper) for the Claimants

Glen Davis QC (instructed by Reed Smith) for the Defendant

Hearing dates: 11 th May 2012

Approved Judgment

I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.


Only two issues now fall for decision: (a) whether the Receivership Application should be struck out or stayed; and (b) costs, of which the principal dispute is as to the latter. In order to decide that question it is necessary to consider a complicated sequence of events; and, according to the defendants, a debatable question as to the meaning of the relevant EC Regulation.

The Charters


The vessel "Atalanta" was at the material time owned by a company—now named FHH Fonds Nr. 33 MS "Kimberley" GmbH & Co. KG ("Kimberley"). Its managers were NSC Schifffahrtsgesellschaft mbH & Co KG ("NSC").


By a charter dated 26 July 2005 Kimberley let the vessel to the defendants—GMB Schiffahrts GMBH ("GMB") for 84 months. GMB is half owned by NSC.


On 28 July 2005 GMB sub-chartered the vessel for five years +/- 30 days to the first claimant – Westwood Shipping Lines Inc ("Westwood").


On 11 June 2008 Westwood let the vessel back by way of sub-sub-charter to GMB for the balance of the charter period under the sub-charter from GMB. GMB is now Universal Schifffahrtsgesellschaft MBH.


In January 2009 Kimberley withdrew the vessel from the charter service in order to carry out repairs. Thereafter GMB cancelled the sub-sub-charter after the vessel was, as they claimed, off-hire or reasonably estimated to be off-hire for 60 days, relying on a clause in the sub-sub-charter which permitted cancellation in that event. There then followed an LMAA arbitration in which Westwood claimed that the cancellation was unlawful. Westwood's case was that GMB had failed to meet its maintenance obligations under the 2005 sub charter in respect of the No 1 crane and the No 2 pump, and that, if and to the extent that any right to cancel the 2008 sub-sub charter arose on the basis of actual or estimated off-hire, any such right only came into existence as a result of GMB's breach of the 2005 sub-charter.


GMB did not bring arbitration proceedings up the charter chain against Kimberley relying on the identical maintenance obligations which are to be found in the head charter.


By an exchange of emails on 20 and 22 April 2009, representatives of GMB and NSC (acting on behalf of Kimberley) agreed that GMB should have a general extension of time in relation to any claims by GMB which might arise under the head charter against Kimberley in respect of the termination by GMB of the sub-sub charter.


Despite this, on 5 November 2009, GMB and NSC apparently entered into a written agreement ("the November 2009 agreement)", governed by English law, which was also agreed to and signed by Kimberley as far as it was concerned. I say "apparently" because the claimants do not accept that the agreement which has been produced to them was executed in November 2009. I shall assume that the November 2009 Agreement was made on or about 5 November 2009. Whether that is so is a matter which falls to be determined at some other time. The November 2009 agreement records that it was agreed, "in view of the good commercial relationships" between the parties, that NSC would "support" GMB in its defence of Westwood's claim in the arbitration and that there would be no claims or proceedings as between GMB and either NSC or Kimberley relating to the cancellation of the sub-sub-charter and any proceedings initiated by Westwood or any other third parties in this matter. The agreement recorded the parties' agreement "that it was the sole decision of GMB to cancel the sub-charter and that NSC was under no liability with regard to this decision".


Reed Smith acted for GMB in the arbitration. Mr Mark O'Neil, a partner, knew of the existence of an agreement to the effect of the November 2009 agreement, the idea of which he had previously discussed with representatives of NSC and GMB. He did not draft the November 2009 agreement and, at this stage, he was not given a copy. The purpose of the agreement, so far as he was concerned, was to ensure that Kimberley/NSC assisted in the defence of the arbitration by GMB. It also enabled Reed Smith to continue acting for both GMB and NSC.


Westwood was not told of the existence of the November 2009 Agreement during the course of the arbitration.


On 21 January 2010 Ms Kjaerstad of Reed Smith emailed Thomas Cooper, who acted for Westwood in the arbitration. She said that GMB had not commenced proceedings against Kimberley and had no intention of doing so because they saw little merit in the claim and it would be wasteful to do so. She said that GMB's position as against Kimberley had "of course" been reserved. The fact that GMB's position had been reserved was repeated in emails of 9 April 2010 and 26 April 2010.


If the November 2009 Agreement had by then been made, these statements, which gave the impression that a claim against Kimberley was still available, were not true; in fact GMB's position against Kimberley had been given up. Ms Kjaerstad did not know that. All three emails were copied to Mr O'Neil, who had been told that an agreement had been made of the nature of the November 2009 agreement. No correction to what Ms Kjaerstad had said was made until much later.


On 14 December 2011, following a hearing between 19 and 27 September 2011, LMAA arbitrators made a final arbitration award in favour of Westwood for over $ 11 million against GMB ("the Award"), on the footing that GMB's cancellation was invalid. The arbitrators held that the vessel had been delayed by the need to carry out repairs which took longer than they should have done because GMB had failed properly to maintain the vessel's hull and equipment, and that GMB could not rely on the excessive delay as meaning that the vessel was off hire because it resulted from their own breach of the charter by them to Westwood.


Westwood submits that GMB's failure to claim up the line against Kimberley, and its abandonment of any such claim, was a very surprising omission since, had it made a claim, it would have secured an effective indemnity against the liability established by the Award. Such a claim was GMB's most significant asset and would have been unanswerable. The maintenance defects which prevented GMB relying on the right to cancel if the vessel was off-hire were breaches of the selfsame obligations as those owed by Kimberley to GMB under the head charter.


In their letter of 16 April 2012 to Thomas Cooper, Reed Smith expressed a different view:

"2. The underlying claim in respect of which your clients have succeeded in arbitration arises from the termination by GMB of its sub-sub-charter. Notwithstanding the fact that your clients have succeeded in the arbitration, the view originally taken in 2009 was that your clients' claim was without merit. Moreover, it was considered that if, contrary to expectations, your clients were to succeed in their claim against GMB and establish that there had been wrongful termination of the sub-sub-charter sounding in damages, GMB would not be able to pursue a reflective claim for loss in respect of those damages against Owners. It would not be a foreseeable consequence of breach or delay by Owners of their contractual maintenance obligations that GMB would wrongfully breach its sub-sub-charter with your clients. The view expressed by Mr Williams in paragraph 19 of Williams 2 that there would be a "a claim … on its face worth over US$11 million" appears to proceed on a false legal premise and is not a view which was shared in 2009 by experienced shipping lawyers in this firm."


I do not propose to express any view on the rival propositions other than to observe that any liability of Kimberley may depend on whether it was foreseeable that GMB would rely on Kimberley to have fulfilled its obligations in deciding whether it could rely on the cancellation clause, or on whether all that would need to be shown to establish Kimberley's liability is that it was foreseeable (a) that the cancellation clause would be invoked if the vessel was or was estimated to be off hire and (b) that if the off hire arose from a failure of maintenance for which Kimberley was responsible the cancellation would be invalid.

The demand for payment


On 29 December 2011 Thomas Cooper wrote to Reed Smith demanding payment of the Award.


On 16 January 2012 Reed Smith wrote to Thomas Cooper stating that GMB had changed its name to "Universal Schifffahrtsgesellschaft mbH" and saying, inter alia, that GMB/Universal, as I shall now call them, would "of course" honour the Award as soon as it was in a financial position to do so. Current trading difficulties rendered this impossible and GMB/Universal asked for Westwood's forbearance until such time as conditions improved, failing which GMB/Universal would have no alternative but to declare bankruptcy.


On 18 January 2012, unbeknownst...

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