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You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> Rank Enterprises Ltd & Ors v Gerard [2000] EWCA Civ 15 (27 January 2000)
URL: http://www.bailii.org/ew/cases/EWCA/Civ/2000/15.html
Cite as: [2000] EWCA Civ 15
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Case No.:QBC 1999/0896/3
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
The Hon. Mr Justice Toulson
Royal Courts of Justice
Strand, London, WC2A 2LL
Thursday, 27 January 2000
LORD JUSTICE KENNEDY
LORD JUSTICE THORPE
and
LORD JUSTICE MANCE
(1) RANK ENTERPRISES LIMITED |
Appellants | |
(2) RANK SHIPPING LIMITED |
||
(3) RANK RESOURCES LIMITED |
||
(4) RANK MARITIME LIMITED |
||
And |
||
JACQUES RAYMOND GERARD |
Respondent |
(Transcript of the Handed Down Judgment of
Smith Bernal Reporting Limited, 180 Fleet Street
London EC4A 2HD
Tel No: 0171 421 4040, Fax No: 0171 831 8838
Official Shorthand Writers to the Court)
- - - - - - - - - - -- - - - - - - - - -
Mr
Jeremy Cooke Q.C. and Mr David Bailey (instructed by Clifford Chance
LLP for the Appellant) |
Judgment
As Approved by the Court
Crown Copyright ©
Thursday, 27 January 2000
LORD JUSTICE MANCE:
1. On 14th July 1999 Mr Justice Toulson delivered judgment and made various declarations relating to the enforceability and construction of a guarantee dated 9th 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:
Vessel |
Seller |
Buyer |
Price (US$) |
Al Karim |
Al Karim Shipping Company Ltd. |
Rank Shipping Ltd. |
$1,000,000 |
Al Mutawakil |
Al Mutawakil Shipping Corporation Ltd. |
Rank Resources Ltd. |
$1,500,000 |
Rita |
European Shipping Company Ltd. |
Rank Maritime Ltd. |
$1,800,000 |
2. The purchases were agreed under three memoranda of agreement ("MOA") dated
9th 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."
3. 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."
4. 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.
5. 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 .... ".
6. 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.
7. 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.
8. 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.
9. 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".
10. 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 case on the appeal before
the Judge and now before this Court, is really concerned only with the
construction of cl.9 of the Norwegian Saleforem To that question we now
turn.
The first observation which we wish to make about the clause is that it
consists of two sentences, each concerned with a different subject-matter. The
first sentence is concerned with a guarantee relating to the vessel
at the time of delivery, whereas the second sentence is concerned with
an indemnity in respect of claims made against the vessel, which are
plainly intended to refer to claims so made after the delivery of the
vessel though "incurred prior to the time of delivery". We agree with the
Judge that the expression "claims which have been incurred prior to the time of
delivery" is not strictly grammatical; we, as he did, think it right, as matter
of construction, to interpolate the words "in respect of liabilities", so that
the opening words of the second sentence, so expanded, should read:
Should any claims in respect of liabilities which have been incurred prior to
the time of delivery be made against the vessel ....
Now since each of these two sentences is concerned with a different
subject-matter, we think it plainly right (and in this we find ourselves to be
in agreement with the arbitrators and the Judge ) that the second sentence is
not intended merely to express the remedy available to the buyers in the event
of breach of the guarantee contained in the first sentence. The two sentences
contain, in our judgment, separate obligations. though, set as they are in the
same clause, the presence of each may have an impact on the meaning to be
attached to the other."
11. Later on p.532 Robert Goff L.J. further explained the relationship of the
two parts of clause 9 in the context of rival submissions by Mr Howard for the
sellers in that case that the first sentence only applied to debts incurred by
the sellers in respect of the vessel sold and by Mr Reynolds for the buyers
that it applied to any debts which might thereafter render the vessel sold
liable to arrest. The Court agreed with neither submission, saying:
"We appreciate the sensible considerations which underlie Mr. Howard's
submission. It is understandable that the buyer of a ship should wish to be
assured that debts incurred by the seller in the maintenance and operation of
the ship have been paid - that the books have, so to speak, been closed; and a
requirement that the ship is to be free of debts can not illegitimately be used
to describe the desired obligation. But the difficulty with this approach is
that the freedom of the ship from debts in reality reflects her freedom from
liability to be arrested in respect of debts; and an obligation which requires
that a ship shall, at a certain point of time, be in this sense free from debts
cannot be complied with, under present day maritime law, unless the debts of
her sister ships (if any) have also been paid off at the specified time.
Hence, we understand, the conclusion of the Judge. Yet that conclusion is, we
think, open to serious objection. Not only does it deprive the second sentence
of the clause of any useful independent function, but it leads to the
extravagant result that a seller who owned a fleet of ships and who sold one
of them under a contract in this form would almost inevitably be in breach of
his obligations under the first sentence of this clause.
We approach the matter as follows. We bear particularly in mind the
wording of the first sentence, concerned as it is with a guarantee that the
vessel shall be free from (inter alia) debts at the time of delivery;
and we also bear in mind the presence of the second sentence, which is
apparently intended to have a function separate and distinct from the first.
For the reasons we have already given, we feel unable to accept the submission
of Mr. Howard or the conclusion of the Judge which Mr. Reynolds urged us to
adopt. We consider that, read in their context in the first sentence of this
particular clause, the words "free from . . . any other debts whatsoever"
should be read as relating to any other debts which, at the time of delivery,
have given rise to actual existing rights affecting the property in, or the use
of, the ship. We do not consider that these words, in their context, should be
read as including debts, the only relevance of which is that they are capable
to rendering the ship liable to be arrested in the future, a matter which is,
we think, legislated for the second sentence of the clause."
12. In The "Barenbels" the vessel was detained in Qatar after her sale
to the buyers in respect of debts incurred to local agents (Qatar National) by
her sister ships whilst she had belonged to the sellers. The arbitrators had
found that the vessel was validly arrested and detained under the local law,
and the case was argued on the basis that a considerable amount of money was
owed by the sellers, in respect of which the buyers' P & I Club (which had
put up a guarantee) remained at risk, although the proceedings in Qatar were
still pending: see per Sheen J. at pp.389-390 and the Court of Appeal at p.530.
No issue therefore arose or was identified as to whether the second sentence of
clause 9 only applies so far as actual liability exists for the claim. This
Court said simply at p.533:
"Plainly, the claim of Qatar National in respect of debts owed to them by the
sellers was a claim in respect of liabilities which had been incurred prior to
the time of delivery",
before turning to the question whether the claim was "made against the
vessel".
13. In the present case the sellers maintain that all or most of the claims
made after delivery were (whether or not made against the vessel) invalid and
indeed spurious. The question which arises is, therefore, as the judge
acknowledged, one which was not in issue in The "Barenbels".
Nonetheless, the sellers maintain that the reasoning in The "Barenbels"
is of assistance in its resolution, particularly in the light of the expansion
approved to make sense of the second sentence of clause 9. Toulson J. in the
present case adopted this expanded reading "as the most natural way of meeting
the grammatical problem which [Sheen J. and the Court of Appeal] identified"
(p.670), and on this basis construed the second sentence as concerned with
present or contingent liabilities.
14. When considering the concept of a claim "against" the vessel, Toulson J.
drew attention to Devlin J's judgment in West Wake Price & Co. v.
Ching [1957] 1 WLR 45, where (at p.55 et seq. I think, rather than p.47 as
suggested by the judge), Devlin J. considered the concept of a claim in some
detail. Devlin J. said at p.55:
"I think that the primary meaning of the word "claim" - whether used in a
popular sense or in a strict legal sense - is such as to attach it to the
object that is claimed; and is not the same as the cause of action by which the
claim may be supported or as the grounds on which it may be based. In the
Oxford Dictionary "claim" is defined as: first, "A demand for something as due;
an assertion of a right to something"; secondly, "Right of claiming; right or
title (to something or to have, be or do something; also on, upon the person,
etc., that the thing is claimed from." All the examples given under these two
heads are examples of claims made to an object or upon a person."
15. The second sentence of clause 9 and the guarantee are directed to claims
incurred and made and to the consequences of (or to loss, expenses or damages
arising out of, or in connection with) such claims. Neither includes express
reference to liabilities. The question arising is whether "claims" in these
provisions refers to demands for some debt or damages as having been incurred
and become due prior to delivery or is limited to situations of actual
entitlement to such a debt or damages. The language of clause 8(a)(viii) reads
more easily in the former sense, but, since this is a tailor-made addition, too
much significance should not be attached to it in the construction of the
standard wording of clauses 8(a)(i) and 9. The language of clause 8 does not to
my mind point clearly either way, although one may ask whether it could really
be open to a seller to furnish a bill of sale with the prescribed warranty, if
he knew of an outstanding demand against the ship but believed (rightly) that
it would ultimately (although perhaps only after considerable cost and delay)
prove possible to defeat the demand as unfounded. The language of clause 9 does
however point towards concern with claims in the sense of demands for payments
or damages as due, rather than with entitlement. It is claims, in the sense of
demands, which may be "made against the vessel". It is against the consequences
of claims that the sentence indemnifies. Miss Blanchard, rightly in my view,
accepted during her submissions that "claims" in clause 9 means "assertion of
rights", and based her argument that the clause is confined to situations where
such rights also exist upon the words which, in her submission, require
introduction to make sense of the clause.
16. This brings me to the interpolation or expanded reading considered
appropriate in The "Barenbels". We should, I think, be careful before
concluding that this Court in that case decided the present issue without
addressing its mind to it. If, in the light of a new issue, the expanded verbal
formula there approved now requires reconsideration, I think that we should be
ready to undertake this. In fact, I do not regard the expanded verbal formula
approved in The "Barenbels" as concluding the present issue, even if
precisely and literally adopted. Reference to "any claims in respect of
liabilities which have been incurred" may embrace demands or assertions that
liabilities have been incurred. "Liabilities" in respect of which (or "for"
which) a claim or demand is made may embrace actual and alleged liabilities. So
read, the expanded wording has the merit of having the same focus as the
original wording - that is, in dealing with demands. Read as the sellers and
the judge read it, the expanded wording would introduce an additional
condition, that there should exist present or contingent liability, which is
nowhere expressed in the second sentence at all..
17. The sentence's reference to "any claims which have been incurred prior to
the time of delivery" is, as a matter of grammar and on a literal reading of
the words "claims .... incurred", inappropriate in relation to claims first
advanced against anyone only after delivery. There may however be one situation
in which it could apply without more - that is the case of a claim advanced
against the seller or vessel prior to delivery and so "incurred" before
delivery, but concealed by the seller from the buyer, and then "made" (or
"readvanced") against the vessel after delivery. That situation was not
considered in The "Barenbels". But it is worth observing that, on the
sellers' construction of the MOAs, as Miss Blanchard accepted, the sellers
could properly furnish a bill of sale under clause 8 without disclosing their
knowledge of any such claim and would have no obligation under clause 9 to
indemnify the buyers in respect of any adverse consequences which it might have
for the buyers' operation of the vessel, provided only the sellers could later
show that they had no present or contingent liability in respect of it.
18. Where, as in The "Barenbels" and here, no claim is advanced against
anyone until after delivery, any expanded wording should reflect the same focus
as the second sentence before any interpolation or expansion. As Mr Cooke
observed, if the parties had intended to confine the second sentence to
circumstances where liability had been incurred prior to delivery, the word
"liabilities" could have been introduced expressly. It would have been easy to
refer to liabilities incurred prior to delivery, to claims later arising from
such liabilities and to their consequences. The draughtsman did not do this.
But the sense in which the word "incurred" could have been (but was not) used
in the context of "liabilities" may throw some light on what the draughtsman
was trying to achieve when he used the same word in the different context of
"claims".
19. The incurring of liabilities refers to their origin in the facts giving
rise to such liabilities. When the draughtsman referred to "claims which have
been incurred prior to the time of delivery" and which were later "made against
the vessel", with adverse consequences for the buyers, the draughtsman of the
Norwegian Saleform may well, it seems to me, have been searching for the
equivalent origin of post-delivery claims in pre-delivery events. Rather than
arrive at additional words to insert into clause 9 to give an expanded and
grammatically sensible wording, it may be more helpful in the context of the
present problem to attempt a paraphrase of the general intention behind the
second sentence. One paraphrase which seems to me appropriate is that the
sentence applies to any claims, exposure to which was incurred prior to
delivery and which were made against the vessel after delivery.
20. Both parties invited us to look at the issue in terms of the risks accepted
by each party. Miss Blanchard accepted that the clause is intended to protect
the buyers in respect of events occurring pre-delivery. But she contended that,
while sellers could reasonably accept the consequences of any actual
liabilities incurred prior to delivery, there was no reason for them to accept
the risk of claims in respect of non-existent pre-delivery liabilities. She
referred to the particular, and she suggested contrived, nature of some of the
third party claims actually presented after delivery. But it is not a
particularly helpful exercise to attempt to derive the proper construction of
this standard form contract from special facts. The underlying rationale of
clause 9 is, Mr Cooke submitted, that, if claims arise after delivery from
pre-delivery events, the sellers are the logical persons to carry
responsibility for any adverse consequences arising from such claims, even
though it may successfully be shown at a later stage that the claimed liability
did not exist on the part of the sellers or anyone. If these rival submissions
are tested by reference to types of claims which the draughtsman may have had
in mind, it is more realistic to suppose that he had at the forefront of his
mind genuine claims (arising for example from the vessel's prior history and
events about which the sellers would commonly be aware) rather than entirely
contrived claims. Even if one contemplates the possibility of spurious claims
allegedly arising from pre-delivery events, sellers will generally be much
better placed than buyers to know and demonstrate that they are spurious.
21. Whether the Norwegian Saleform provides for indemnity in respect of the
consequences of claims simpliciter or only claims in respect of which the
buyers could later show that the sellers were liable is a matter of
construction. Either allocation of risk might have been chosen. But, for
reasons already indicated, the former appears to me to reflect more closely the
focus of clause 9 upon the making and consequences of claims. Various practical
considerations also suggest that it is the allocation which the draughtsman and
parties are most likely to have intended. I accept that the court should be
careful not to impose its own pre-conceptions on the contract. But, as Miss
Blanchard accepted, the clause's general aim is to protect the buyers in
respect of pre-delivery events. This aim appears both better and more sensibly
served if the clause applies to all claims arising from pre-delivery events,
than if it is confined to claims in respect of which the buyers can later show
the sellers to have been liable. From the buyers' viewpoint, the practical
mischief is the materialising post-delivery of a claim against the vessel
arising from pre-delivery events. The claim alone will force the buyers to take
evasive or responsive action, including very often putting up security to
prevent arrest or obtain release. Whether a claim or claims may or may not be
good will probably only materialise over time and after investigation, and even
then the answer may not be clear. Indeed, a claim or claims may be good in
part, and invalid or exaggerated as to the rest.
22. It is common ground that clause 9 enables the buyers to recover from the
sellers adverse consequences, e.g. in terms of costs or expenses, sustained by
the buyers themselves in respect of valid claims. The buyers are also exposed
to risks in terms of unrecovered costs or expenses in respect of invalid
claims. But, on the sellers' case, the buyers can only recover for such adverse
consequences as they can show to have been sustained by reason of the claims
having been valid. Sellers, however willing they may be to co-operate with
buyers with a view to defeating third party claims, may well decline to
admit any liability to meet such claims. There could thus arise
difficult arguments between buyers and sellers as to the extent of the sellers'
liability, following any decision or settlement determining the position
between the buyers and the third party claimants. Where the buyers succeeded in
defeating part of the third party claim, an exercise of apportionment of the
adverse consequences between the valid and invalid parts of the claim could be
required.
23. In the meantime buyers would not be sure to what extent they could safely
arrive at a sensible settlement of third party claims. Whether, after such a
settlement, they could recover any sum from sellers would depend upon whether,
and to what extent, they could prove against sellers that sellers were liable
for the claims settled. Toulson J. thought that there were ways in which a
buyer could protect himself "either by joining the seller as a third party (if
that was an available procedure in the Court where the third party's claim was
proceeding) or possibly by way of an original action in England which could
force the seller to disclose whether there was any true defence to the claim".
These are unconvincing palliatives. Quite apart from the other difficulties
there could be in establishing any jurisdiction over sellers in whatever
foreign country proceedings might have been begun or threatened against the
vessel, disputes under the MOAs were subject to London arbitration. Even if in
an English arbitration a declaration could be sought of entitlement to
indemnity in respect of the third party's claim, it by no means follows that it
would be resolved, or that arbitrators would be prepared to resolve it, in
advance of the resolution by decision or settlement of the third party claim,
and, assuming it was, the time involved might make such a course impractical.
Once a claim is made against a vessel, the vessel's current owner needs to be
able to act with assurance, and to free his vessel for further trading,
immediately.
24. By contrast, if clause 9 is read as covering the adverse consequences of
claims, good or bad, generated by pre-delivery events, the buyers would be
assured of indemnity, provided that they acted in a reasonable and
business-like way in dealing with such claims. The last caveat answers Miss
Blanchard's submission that, unless clause 9 must be limited to valid claims,
sellers would be at buyers' mercy. In any event, credit not mistrust is the
basis of commercial dealings. It is true that clause 9 contains no provision
requiring the buyers to give notice to, or co-operate with, sellers, in respect
of claims made generated by pre-delivery events. But buyers will in reality, as
a matter of both elementary self-protection and prudence, inform sellers on
receipt of any such claim, and afford sellers the opportunity to provide such
information and assistance as they can. If a buyer failed to afford a seller
this opportunity, and the claim was settled or progressed adversely as a
result, the buyer's right to an indemnity could be prejudiced, under the caveat
already identified.
25. For these reasons I consider that the judge took too limited a view of the
scope of the second sentence of clause 9. That sentence, in my judgment,
addresses claims made, the exposure to which stems from pre-delivery events,
whether the liability asserted by such claims may prove to exist or not. The
buyers are entitled under clause 9 to be indemnified against all consequences
of such claims, and under the guarantee to recover (subject to its limitations)
for any loss, expenses or damages sustained arising out of or in connection
with such claims. Miss Blanchard's submissions, based on the supposedly
fanciful nature of at least some of the third party claims and on the buyers'
attribution to such third party claims of (a) lost freight of over $3,000,000,
(b) vessel market value loss of nearly $2,000,000 and (c) lost profit from
business interruption of $4,200,000, are matters for another day, not relevant
on construction.
26. I turn to the issue on the cross-appeal. In Miss Blanchard's submission,
the judge adopted too broad a view of the concept of "claims .... made against
the vessel". He should have limited it either to the situation of "a claim in
rem (or its equivalent in another jurisdiction) in which the vessel has been
arrested or security has been provided to prevent arrest" or at least to the
situation of a claim in rem (or its equivalent) in which an arrest order has
been obtained, even though the vessel may not yet have been arrested
thereunder. However, neither of these conditions appears to me necessarily
implicit in the phrase "claims .... made against the vessel". The word "claims"
refers here, for reasons already explained, to demands or assertions of rights.
The demand or assertion must be against the vessel. But that does not indicate
that the vessel must actually have been arrested, or that an arrest order must
have been obtained. A demand, assertion or claim may be made against the vessel
although neither of those stages has been reached.
27. The "Barenbels" was a case of conservatory arrest, where the vessel
could only have been sold to meet the sellers' indebtedness in relation to
former sister-ships, if the claimants had, as Qatar law entitled them, taken
further proceedings for that purpose. It was the threat "in practical terms" of
such further proceedings which led this Court to conclude that there was a
claim against the vessel:
"Indeed, to us it would be an extraordinary conclusion if, under the second
sentence of this clause, the buyers would have a right to indemnity if they
furnished security under pressure of proceedings brought to obtain an order for
sale of the ship but would not have a right to indemnity if they anticipated
the inevitable and furnished such security under the pressure of a
"conservatory arrest"."
28. Miss Blanchard pointed out, correctly, that the vessel there was under some
form of arrest, and did not suggest that it was necessary that any order for
sale should have been obtained or be obtainable in the proceedings issued. But
the case is no authority that a vessel must be under any sort of arrest; the
significance which the Court of Appeal attached to the conservatory arrest was
that it manifested the threat of proceedings in which the sale of the vessel
could have been obtained. A claim may manifest such a threat (or may manifest a
simple threat to detain the vessel pending payment of a claim, which I am
inclined to think would itself probably suffice to bring clause 9 into
operation) before any arrest order or before issue of any proceedings. I agree
in this respect with what Toulson J. said at p.671(2):
"If, when a vessel is on its way to a particular port, a creditor of the vessel
informs the buyer of his intention to have the vessel arrested when it reaches
port unless the buyer provides security, I do not see why the buyer's right of
indemnity under NSF 9 should not depend on whether he waits for the vessel to
be arrested or (plagiarising [Robert Goff L.J's] words in The Barenbels,
anticipates the inevitable and furnishes security under pressure of the
threat."
29. I see no basis therefore for introducing the additional formal criteria
suggested by Miss Blanchard. I would however underline and agree expressly with
Toulson J's further statement that, for a claim to be made against the vessel,
there must be a demand which carries with it "a real and present threat of
seizure of the vessel". It is said that this is too vague a test, and that Miss
Blanchard's formal criteria ought to be preferred as introducing certainty. But
clause 9 is intended to respond to ordinary situations of commercial life, and
to their ordinary consequences for the buyers. A buyer will have to respond as
much to a claim or demand arising from pre-delivery events and involving a real
and present threat of seizure of his vessel as he will to more procedural
formal steps. If, in responding, he sustains adverse consequences, there is no
reason in logic why he should not be indemnified under clause 9.
30. I would therefore allow the appeal, and set aside the third declaration
made by the judge. Provided that it is borne in mind that any declaration that
we make is to resolve the particular issue before us about the effect of the
language of clause 9 of the MOAs, and is not to be treated as if it were a
formal re-writing of the language of that clause, the declaration sought in the
notice of appeal (to the effect that clause 9 responds to "claims in respect of
liabilities which have or have allegedly been incurred prior to the time of
delivery") appears appropriate. I would dismiss the cross-appeal.
LORD JUSTICE THORPE: I agree.
LORD JUSTICE KENNEDY: I also agree.
(Order does not form part of approved judgment).