IN THE HIGH COURT OF JUSTICE 2000 Folio 1341
QUEENS BENCH DIVISION
COMMERCIAL COURT
The Royal Courts of Justice
Strand, LONDON
Date:1 August 2001
Before:
BETWEEN:
Claimants
Defendants
Part 20 Defendants
Part 20 Defendants and Claimants
Mr. J COOKE QC, Mr. John SNIDER and Mr. James COLLINS (instructed by Sach Solicitors) appeared on behalf of the Claimants.
Mr. M HOWARD QC, Mr. Vernon FLYNN and Ms. Susannah JONES (instructed by
SJ Berwin) appeared on behalf of the Defendants.
Mr. S HOFMEYR QC and Mr. Gavin GEARY (instructed by Hill, Taylor &
Dickinson) appeared on behalf of Yerania Part 20 Claimants.
JUDGMENT
1. INTRODUCTION
This case concerns fourteen supertrawlers built in Spain. The First and Second Claimants/Part 20 Defendants (“Bergen” and “Bolero”) are the registered owners of the supertrawlers. Bergen and Bolero are wholly owned subsidiaries of the Third Claimant/Part 20 Defendant (“Rybcomflot”). Rybcomflot is the successor, under an agreement dated 22 August 1990 (the “Substitution Agreement”), of a Soviet entity called VO Sovrybflot. Bergen and Bolero entered into head charters by demise with VO Sovrybflot on 13 July 1989. Under the terms of the Substitution Agreement Rybcomflot was substituted for VO Sovrybflot in those head charters.
The first Defendant (“DMP”) is the bareboat charterer of three of the supertrawlers (the “Kapitan vessels”), under Sub-Charters by way of demise dated 15 June 1995 (the “1995 Sub-Charters”). The Second Defendant (“DMPT”), a subsidiary company of DMP, is the bareboat charterer of the remaining eleven supertrawlers (the “11 vessels”), under charters by demise dated 10 July 1999 with Bergen and Bolero (the “1999 Charters”). These charterparties were amended by amendment agreements dated 20 July 2000. DMPT dispute the validity of the amendments.
The Fourth Part 20 Defendant (“PTI”) was appointed by DMPT to act as managers of the 11 vessels pursuant to the terms of agreements dated 21 July 1999 and 23 September 1999. The Fifth Part 20 Defendant (“Crystal”), originally known as Verisa Trading Company was, by agreements dated 23 September 1999, appointed to act as DMPT’s agent for the sale of the catch of the 11 vessels.
The Sixth Part 20 Defendant (“Yerania”) is a creditor of Bergen under the terms of a Facility Agreement, to which Bolero and Rybcomflot were also parties, dated 28 July 2000 (the “Facility Agreement”). Yerania holds, by way of security, first preferred Vanuatu ship mortgages dated 18 August 2000 over the 11 vessels.
The Claimants’ claim is for hire relating to the fourteen supertrawlers under their respective charterparties. In addition they seek (1) to recover sums due under a Debt Agreement (and related protocols) entered into between Bergen and Bolero and DMPT relating to supplies and equipment on board the 11 vessels; (2) a declaration that the 1995 Sub-Charters and the 1999 Charters (as amended) have been validly terminated; and (3) an order that the Kapitan vessels and the 11 vessels be delivered up to Bergen and Bolero.
DMP and DMPT deny that any hire under the charterparties is outstanding and dispute liability on a number of grounds. The various defences are identified in the List of Principal Issues (Chapter 2).
Yerania Counterclaims against the Defendants declarations that the amendments to the 1999 Charters are binding on the Defendants and that the mortgages take priority over the rights (if any) of the Defendants in respect of the 11 vessels. Yerania’s Part 20 Claim against the Claimants is agreed.
There were a number of other agreements (listed in the Chronology Appendix 2) which feature in this case. These include inter alia agreements made at the following times:-
(i) May 1999, the Danish Rescue Agreements between Laskaridis companies and DMP in respect of 7 Reefers (Main Agreement and Contract of Affreightment both 28 May 1999, Supplemental Agreements 15 June 1999);
(ii) September 1999, the agreements referred to above and a number of related agreements;
(iii) July 2000, Agency Agreement between DMPT and Laskaridis Shipping Co Ltd (as agent) 22 July 2000; Rescheduling Agreement between the Ministry of Finance, Vnesheconombank and Bergen 28 July 2000; the Facility Agreement.
The 11 vessels are currently held in Pusan under injunctions obtained by Bergen and Bolero from the Pusan District Court. The 3 vessels were ordered to Rajin by DMP in about November 2000.
2. LIST OF PRINCIPAL ISSUES
I set out below an agreed list of principal issues.
The 1995 Sub-Charters
(i) Was DMP obliged to pay hire:
a. In accordance with the schedules to the 1995 Sub-Charters? Or
b. In accordance with Bergen’s loan repayment obligations?
c. In accordance with Bergen’s loan repayment obligations to the extent that the relevant lender demanded and/or sought to enforce payment?
(ii) If the answer to 1(i)(b) and/or (c) above is yes, were the relevant loan repayment obligations:
a. The obligations of Bergen to the Spanish Banks under the relevant loan agreements? Or
b. The appropriate portion of the obligations of Bergen under the
Refinancing Agreement and/or Facility Agreement? Or
c. Those set out at paragraph 20 of the Amended Defence, namely the appropriate proportion of the actual cost to Bergen of satisfying its obligations under the Rescheduling Agreement, further or alternatively, under the Facility Agreement? Or
d. The obligations of Bergen to the Spanish Banks under the relevant loan agreements including the full extent and benefit of any deferral resulting from the Paris Club agreement and consolidations?
(i) Was there a common assumption that no hire was due from DMP as Bergen was not required to make loan repayments and/or that hire was not payable in accordance with the Schedules to the 1995 Sub-Charters?
(ii) Was any agreement, estoppel, conduct or representation conditional and/or premised upon the creation by DMP of a reserve from which scheduled hire payments would be paid when required by the Claimants’?
(iii) Did DMP rely on and/or was DMP induced by any conduct and/or
representations by the Claimants and/or any common assumption to invest in the Three Vessels and/or not make hire payments in accordance with the Schedules?
(iv) Is it equitable or inequitable for the Claimants now to seek to enforce payment of hire?
(i) Were the Claimants obliged to use hire payments received to meet the
Bergen’s loan repayment obligations and for no other purpose?
(ii) Were hire payments received by the Claimants held on trust for such purpose?
(i) What, if any, amounts of hire were outstanding on 4th October 2000, 29th November 2000, 1st December 2000, 11th May 2001, 29th June 2001 and/or 2nd July 2001?
(ii) Was a valid demand for hire necessary before hire fell due and/or before there could be a valid termination for non-payment of hire:
a. On a true construction of the 1995 Sub-Charters? Or
b. By reason of an estoppel? Or
c. At all?
(iii) If the answer to 5 (ii) above is yes, what were the requirements which a valid demand would have to meet? In particular, did a valid demand have to:
a. Give notice that the Claimants sought to make time of the essence?
b. Allow DMP a reasonable time in which to pay sums due? And if so, what was a reasonable time?
c. Quantify properly and precisely the sums actually due?
(i) Is DMP entitled to relief from forfeiture?
(ii) Are the Claimants entitled to an order for delivery up of the Three Vessels?
The 1999 Charters to DMPT
(i) In accordance with an oral agreement entered into by Mr Gregori Didenko and Mr Oleg Pukhov on 12th July 1999? If such an agreement was made, is it void for uncertainty? Or
(ii) In accordance with the terms of the 1999 Charters?
(i) Was DMPT obliged to pay hire:
(a) In accordance with the schedules to the 1999 Charters? Or
(b) In accordance with Bergen’s loan repayment obligations?
(c) In accordance with Bergen’s loan repayment obligations to the extent that the relevant lender demanded and/or sought to enforce payment?
(ii) If the answer to 8 (i)(b) and/or (c) above is yes, were the relevant loan repayment obligations:
(a) The obligations of Bergen to the Spanish Banks under the relevant loan agreements? Or
(b) The appropriate portion of the obligations of Bergen under the
Refinancing Agreement and/or the Facility Agreement? Or
(c) Those set out at paragraph 42 of the Amended Defence, namely the appropriate proportion of the actual cost to Bergen of satisfying its obligations under the Rescheduling Agreement, further or alternatively, under the Facility Agreement? Or
(d) The obligations of Bergen to the Spanish Banks under the relevant loan agreements including the full extent and benefit of any deferral resulting from the Paris Club agreement and consolidations?
(i) Were the Claimants obliged to use hire payments received to meet the
Bergen’s loan repayment obligations and for no other purpose?
(ii) Were hire payments received by the Claimants held on trust for such purpose?
(i) Liable to be set aside by DMPT on the ground that they were procured by economic duress or at all?
(ii) Unenforceable for lack of consideration and/or insufficient consideration?
(i) Have the 20th July 2000 Amendment Agreements been affirmed by DMPT and/or are they estopped from avoiding them?
(ii) Is rescission of the 20th July 2000 Amendment Agreements available to DMPT?
(i) What, if any, amounts of hire and/or amounts owing for supplies and inventories were due to the Claimants and/or what, if any, agency fees were due to Albatross and/or Laskaridis Shipping on 22nd December 2000, 5th January 2001, 3rd April 2001, 29th June 2001 and/or 2nd July 2001?
(ii) Was a valid demand for hire necessary before hire fell due and/or before there could be a valid termination for non-payment of hire:
a. On the true construction of the 1999 Charters? Or
b. By reason of an estoppel? Or
c. At all?
(iii) If the answer to (ii) above is yes, what were the requirements which a valid demand would have to meet? In particular, did a valid demand have to:
a. Give notice that the Claimants sought to make time of the essence?
b. Allow DMPT a reasonable time in which to pay sums due? And if so, what was a reasonable time?
c. Quantify properly and precisely the sums actually due?
(i) Is DMPT entitled to relief from forfeiture?
(ii) Are the Claimants entitled to an order for delivery up of the Eleven Vessels?
The Supplies and Inventories Claim
(i) Did Bergen or Bolero acquire title to the Supplies and Inventories by reason of the exercise, by letter dated 4th August 1999, of security rights under the Charterparties between the Claimants and Super? Or
(ii) Did FEMS acquire title to the Supplies and Inventories by reason of an assignment agreement made between Super and FEMS on 4th November 1999? In particular;
a. Was the assignment agreement valid and binding on Super?
b. Did the assignment agreement affect the Claimants’ title to the Supplies and Inventories, if any?
(i) Did the Protocol and/or the Debt Agreement have the effect of creating a valid debt between Bergen, Bolero and DMPT?
(ii) Were the Protocol and/or the Debt Agreement entered into by reason of a belief by DMPT that Super and/or the Claimants were entitled to make a claim against DMPT in respect of the Supplies and Inventories?
(iii) If so, was this belief mistaken?
(iv) If the answer to (ii) and (iii) above is yes, is the Protocol and/or the Debt Agreement binding on DMPT, unenforceable and/or liable to be set aside?
Set Off
Alleged overpayment of hire under the 1995 Charters and/or the 1999
Charters. In particular:
a. Have the Defendants paid hire in excess of the sums due under the 1995 Sub-Charters and/or 1999 Charters?
b. If so, in what sums?
The Yerania Mortgages
3. HISTORY, POLITICS AND RUSSIAN INSTITUTIONS
(1) HISTORY AND POLITICS
I have taken the following account from Whitaker’s Almanack.
In March 1985 Gorbachev became Soviet leader. He introduced the policies of perestroika (complete restructuring) and glasnost (openness) in order to revamp the economy, which had stagnated since the 1970s, to root out corruption and inefficiency, and to end the Cold War and its attendant arms race. The retreat from total control by the Communist Party unleashed ethnic and nationalist tensions.
On 19 August 1991 a coup was attempted by hardline elements of the Communist Party, the armed forces and the state security service (KGB) in an attempt to reimpose Communist control on the USSR. The coup was defeated by reformist and democratic political groups under the leadership of Russian President Yeltsin. Mikhail Gorbachev returned to Moscow although it became clear that effective political power was in the hands of the republican leaders, especially Russian President Yeltsin, and the Soviet Union began to break up as the constituent republics declared their independence. Gorbachev resigned as Soviet President on 25 December 1991 and on 25 December 1991 the USSR formally ceased to exist.
Russia was recognised as an independent state by the EC and USA in January 1992; it took over the Soviet Union’s seat at the UN in December 1991.
A new Russian Federal Treaty was signed on 13 March 1992 between the central government and the autonomous republics. Tatarstan refused to sign the Treaty and in April 1992 declared its ‘independence’. In February 1994 Tatarstan signed its own agreement with the federal government on the basis of being a ‘state united with Russia’. Similarly, after declaring its ‘independence’ in March 1992, Bashkortostan signed a treaty with the Federation in August 1994 giving it considerable legislative and economic autonomy.
A brief period of economic growth was followed by instability in the financial markets in early 1998. President Yeltsin dismissed the cabinet in March 1998, and appointed Sergei Kiriyenkio, a little-known banker, to replace Viktor Chernomyrdin as Prime Minster. This did little to restore confidence in the economy and following a major collapse on the Russian stock exchange, Yeltsin once more dismissed the cabinet in August 1998. He nominated Chernomyrdin as Prime Minster but the Duma twice rejected the appointment. To avert a constitutional crisis, Yeltsin then nominated Foreign Minster Yevgeni Primakov, seen as a compromise candidate whose appointment as Prime Minster would appease all factions in the Duma. Although Primakov was successful in stabilising the economy and improving relations with the Duma, President Yeltsin ordered his dismissal on 12 May 1999 and appointed Sergei Stepashin as prime minister, but dismissed him also on 9 August 1999 and replaced him with Vladimir Putin, whose appointment was confirmed by the Duma on 16 August. Yeltsin resigned as President on 31 December 1999 and was replaced in an acting capacity by the Prime Minster, Vladimir Putin, until elections could be held. In the presidential election held on 26 March 2000, Vladimir Putin won and was formally inaugurated on 7 May 2000.
(2) RUSSIAN INSTITUTIONS
The following account was agreed between the parties (save where indicated).
The Russian Federation State Fisheries Committee is a State body of the executive of the Russian Federation whose functions are defined as, “The regulation and co-ordination in different branches of industry in the sphere of rational use, examination, preservation and reproduction of aquatic biological resources and sphere of its abode.”
One of the functions of the Fisheries Committee relates to the allocation of fishing licences and fishing quota.
Licences are the permission to fish within the limits of allocated fishing quota.
Fishing quota are the allocated levels of permissible fish catch. They are
estimated by the Government of the Russian Federation annually (on the basis of scientific data and the provisions of international treaties) and fixed annually by Orders of the Russian Federation Government in metric tons.
Russian legislation recognises four categories of quota for the fishing of aquatic bio-resources. Under Russian Federation Government Decree no. 1010 of 27 December 2000, entitled, “On quotas for fishing of aquatic bio-resources of the inland waters, territorial sea, continental shelf and exclusive economic zone of the Russian Federation” these categories are classified as follows:
Fishing quota for fishing by foreign States, granted in accordance with international treaties to which the Russian Federation Government is a party in the field of fisheries / decisions of the quadripartite commission on aquatic bio-resources of the Caspian Sea;
Fishing quota for fishing involving the use of aquatic bio-resources for scientific purposes, controlling (that is estimating and monitoring) the population of sea species and fish-farming purposes in the framework of scientific programmes and plans for the exploration of resources;
Industrial fishing quota sold by auction;
Industrial fishing quota provided to subjects of the Russian Federation based in regions adjoining the coastline of the Russian Federation and distributed to applicants supplying fish resources to fish processing enterprises based within the Russian Federation or effecting sale of their fish products within the territory of the Russian Federation.
The quota obtained by DMP / DMPT for the fourteen vessels bareboat chartered from Bergen and Bolero would have been within the last two groups.
According to the Russian Federation Government Decree no. 1010 of 27 December 2000 quota is allocated annually by the Government of the Russian Federation in accordance with proposals made by the State Committee of Fisheries. The State Committee of Fisheries is also empowered by the Decree to set limitations on the issuing of fishing licenses.
There exists a practice enshrined in a recent order of the Russian Federation Government regarding the allocation of quota for the year 2001 (the Order of the Government of the Russian Federation of 1st February 2001 no. 146-R) whereby the Russian Federation State Fisheries Committee may, of its own volition, change the distribution of up to 20 % of the allocated quota.
The Committee also exercises some powers previously held by the Russian Ministry of Agriculture and Food after the Fishery Department of the Ministry was reorganized into a separate body. These powers include, inter alia, supervision of technical state and safety of navigation of fishing ships and other ships which provide services for fishing enterprises; working out regulations regarding safety of navigation and supervision by port administrations over such ships; overseeing protection of human life in sea in the course of fishing.
Specifically, pursuant to Decree of the Russian Government No. 147 of February 10, 1999 “The Functions of the State Fishery Committee of the Russian Federation” (as of February 23, 2001):
“2. […] the State Fishery Committee of the Russian Federation, until approval of the Regulations on the Committee shall perform the functions of the Ministry of Agriculture and Food of the Russian Federation in the field of fishery vested with it by Decree of the Government of the Russian Federation No. 1090 of September 11, 1998 “On Approval of the Regulations of the Ministry of Agriculture and Food of the Russian Federation”.
Pursuant to Clause 6 of the said Regulations the Ministry (currently the Committee):
“6. […]
59) performs in the established manner state supervision over technical state and safety … as well as over navigation of ships used for fishing and processing of fish and other sea products, transport ships, auxiliary ships and specialized ships which provide service for fishery complex (independent of form of ownership and their holder), registered with sea fishing ports, elaborates in accordance with Russian law and international standards regulations on safety of navigation and supervision performed by port administrations over such ships, ensures protection of human life in sea in the course of fishing of bio-resources;”
The Defendants say that, under Russian law, the Committee does not normally allocate fishing quotas but submits proposals on allocation to the Russian Government which annually approves them. Although the Committee was authorized by the Russian Government Order mentioned above to change distribution of up to 20% of the allocated quota, the Order is only applicable to quotas allocated in 2001. The Claimants disagree with this, and consider that, under Russian law, what happens is that the Russian Government allocates the quotas between the regions of the Russian Federation, and these are then allocated by the Russian Fisheries Committee between companies registered in each region.
Pursuant to Decree of the Russian Government No. 1010 of December 27, 2000:
“1. […] quotas for fishing aquatic bio-resources of the inland waters, territorial sea, continental shelf and exclusive economic zone of the Russian Federation (the “quotas”) …shall be annually approved by the Government of the Russian Federation.
2. Annually before November 1 the State Fishery Committee of the Russian Federation shall estimate in the established manner and submit to the Government of the Russian Federation proposals on quotas for fishing in the next year… “.
The Defendants say that, under Russian law quota and licenses for fishing may be revoked. The Claimants say that, under Russian law, only the licenses for fishing may be revoked, and not quota.
The Ministry of Finance is a State body of the Russian Federation executive whose function is to ensure the implementation of conduct a uniform financial, budgetary, tax and currency policy in the Russian Federation and to co-ordinate the activities within these fields of other Federal executive bodies. The Ministry of Finance represents the Russian Federation in relation to financial matters.
Pursuant to Decree of the Russian Government No. 273 of March 6, 1998 “On Approval of the Regulations on the Ministry of Finance of the Russian Federation” (the “Decree No. 273”):
“1. The Ministry of Finance of the Russian Federation is a federal body of the executive power to ensure carrying out a uniform financial, budgetary, tax and currency policy in the Russian Federation and to coordinate the activities within these fields of other federal executive bodies.”
Another main function of the Ministry is management of the state internal and external debt of the Russian Federation. Pursuant to Clause 6 of Decree No. 273:
“6. In accordance with tasks entrusted with it the Ministry of Finance of the Russian Federation performs the following main functions:
[…]
29) […]; management in the established manner of the state internal and external debt of the Russian Federation, taking necessary measures to improve their structure and reduce expenses for their service;”
Vnesheconombank is a specialised State-owned bank which acts as agent of the Russian Federation in relation to the handling of its foreign debt and centralized external economic operations.
.
According to the Russian President’s Decree No. 2261 of December 22, 1993 “On Activities of the Bank of External Economic Activity of the USSR” (Decree No. 2261”):
“1. […] the Bank of External Economic Activity of the USSR Vnesheconombank (the “Vnesheconombank”) is a specialized state-owned bank of the Russian Federation which ensures service of the foreign debt of the Russian Federation and centralised external economic operations of the Russian Federation.”
Pursuant to Decree of the Presidium of the Supreme Soviet of the Russian Federation No. 2172-1 of January 13, 1992 “On the Bank of External Economic Activity of the USSR”:
“2. […] the Bank of External Economic Activity of the USSR acts on the territory of the Russian Federation in accordance with law of the Russian Federation”.
Pursuant to Decree of the Supreme Soviet of the Russian Federation No. 3875-1 of November 12, 1992 “On the Bank of External Economic Activity of the USSR (the Vnesheconombank of the USSR)”:
“1. […] provisions of the Law of the RSFSR[1] “On banks and banking activity in the RSFSR”, regarding registration of by-laws and licensing of activity of banks, as well as liability of banks under their obligations are not applied to the Bank of External Economic Activity of the USSR”
Pursuant to Decree 2261:
“2. The Vnesheconombank shall be headed by the Chairman appointed for three years on proposal of the Council of Ministers – the Government of the Russian Federation.
The Vnesheconombank shall be governed on collegiate basis by the Board of Directors members of which (except the Chairman of the Vnesheconombank) are appointed by the Council of Ministers – the Government of the Russian Federation on proposal of the Chairman of the Vnesheconombank.
Before bringing its By-laws into conformity with law of the Russian Federation, the Vnesheconombank shall act on the basis of its By-laws approved by Decree of the Council of Ministers of the USSR No. 745 of June 14, 1988.”
Pursuant to the Regulations on the Ministry of Fisheries of the USSR approved by the Council of Ministers of the USSR No. 296 of April 30, 1968 (amended on December 12, 1988) the Ministry of Fisheries was responsible for the management of fishing, the fish processing industry, fish breeding and protection of fish reserves.
The main functions of the Ministry were as follows:
• to ensure development of fisheries, first of all, fishing industry;
• to restore and develop fish reserves;
• to protect fish reserves and regulate fishing;
• to ensure development of fishing, processing and transport fleet, ship repair works and marine fishing ports;
• to arrange construction of ships, to place orders for construction and repair of ships, including on foreign shipyards, acceptance and delivery of ships and to distribute them between fishing enterprises;
• to ensure the most effective use and allocation of fishing, processing and transport fleet in fishing areas, maintenance, timely repair and accident-free operation of the fleet;
• to approve by-charters of on-board service and safety rules of navigation;
• to approve rules of fishing, to issue permits for fishing, to set and distribute quotas for fishing;
• to elaborate and approve in coordination with the Ministry of Trade plans of delivery of fish products;
• to issue explanations and directives mandatory for all enterprises and organizations regarding fishing, fish breeding and protection of fish reserves.
The Ministry of Proprietary Relations of the Russian Federation[2] is the federal executive body responsible for management and disposal of the state property. Specifically, pursuant to the Russian Government’s Decree No. 536 of July 18, 2000 entitled “The functions of the Ministry of Proprietary Relations of the Russian Federation”:
“1. […] the Ministry of Proprietary Relations of the Russian Federation is the federal executive body overseeing:
• conduct of uniform state policy in the field of proprietary and land relations;
• privatization, management and disposal of state property and land resources within its competence;
• regulation of activity in real estate market and appraisal activity;
• co-ordination of activity of other federal and regional executive bodies in the field of proprietary and land relations in cases established by law.
[…]”.
The competence of the Ministry in the field of privatization and management of state property is defined in the Law No. 123-FZ of July 21, 1997 “On Privatization of State Property and fundamentals of privatization of municipal property in the Russian Federation” (amended August 5, 2000). Under Article 7 of this law the Ministry is authorized to keep records of the state property, to prepare drafts and to supervise implementation of privatization programs and to act as a holder of shares owned by the state in joint-stock companies.
“Article 7. The Federal State Property Management Body
[…].
2. To implement a uniform state policy in the sphere of the privatization of the state property, the federal state property management body shall:
- coordinate the activity of the respective federal bodies in the sphere of the management and of the disposal of the federal property;
- work out and issue, within the scope of its authority, the legal normative acts, regulating the process of the privatization of the state property, envisaged by the present Federal Law, by the Privatization Programme and by the other federal laws, exert control over the fulfillment of the said legal normative acts, introduce into them amendments and addenda, and also give explanations on the application of the Russian Federation legislation on the privatization;
- submit to the Government of the Russian Federation, jointly with the respective federal bodies, a draft Privatization Programme;
- organize and control the implementation of the Privatization Programme;
- effect, via its territorial branches, the management and control over conducting the privatization of the federal property;
- in conformity with its authority, adopt a decision on the privatization of the federal property and pass over the privatization objects to a specialized institution, to which the Government of the Russian Federation has granted the powers for arranging and holding the sale of the federal property (hereinafter referred to as the specialised institution), for selling it in conformity with the procedure, established by the present Federal Law;
- effect, in accordance with the order, established by the present Federal Law and by the other federal laws, the transformation of the state-run unitary enterprises into open joint-stock companies;
- on behalf of the Russian Federation, come out as a founder of open joint-stock companies, set up in the course of privatisation;
- on behalf of the Russian Federation, exercise the rights of the shareholder (of the partner) of the economic companies, whose shares (participation shares in the authorised capital) are in the federal ownership;
- set up commissions for the privatisation of the federal property;
- organise in the order laid down by the Government of the Russian Federation, the accounting of the federal property and the keeping of its register.
[...].”
4. PARIS CLUB
Overview of the Paris Club
Between 1992 and 2000, various agreements were concluded between the Governments of various States, including the Russian Federation and Spain, within the framework of the Paris Club, a forum set up to handle debts owed between the Governments of various participating nations in which the possible rescheduling and/or forgiveness of debt could be discussed and agreed.
The agreements with which we are concerned in these proceedings (“The Paris Club Agreements”) are inter-State agreements concluded in respect of sovereign debts of the former USSR to the Government of Spain or to Spanish state-owned entities, including the Spanish state-owned export insurance agency, Compania Española de Seguros de Credito a la Exportacion S.A. (“CESCE”). CESCE was also the representative of the Spanish Government within the forum of the Paris Club. Vnesheconombank, acting as agent of the Russian Federation Ministry of Finance in respect of the external debt of the former USSR, represented the Russian Federation Government.
The Paris Club Agreements consisted of a series of bilateral agreements between the Governments of the Russian Federation and Spain concluded between 1992 and 2000. The five agreements concluded between 1993 and 2000 were termed “consolidations”.
Each “consolidation” dealt with the rescheduling of various debts for which the Russian Federation Government was liable during the particular period covered by the consolidation.
The consolidations ultimately agreed were as follows:
(a) Consolidation I – in respect of payments due up to the end of 1993;
(b) Consolidation II - in respect of payments due up to the end of 1994;
(c) Consolidation III - in respect of payments due up to the end of 1995;
(d) Consolidation IV - in respect of payments due up to the end of the first quarter of 1999, payments due in that quarter being included only as to 40%;
(e) Consolidation V - payments due up to the end of 2000, including 60% of payments due in the first quarter of 1999.
The position in respect of the negotiation of these consolidations was that:
(a) Each consolidation was negotiated separately;
(b) There was no guarantee that subsequent consolidations would be agreed at all;
(c) Even if subsequent consolidations were agreed, it did not follow that sums due under a particular debt rescheduled under an earlier consolidation would necessarily be rescheduled under a later consolidation.
During the periods covered by these consolidations, Vnesheconombank, as agent of the Russian Federation Ministry of Finance, was obliged under the Paris Club Agreements to make bi-annual interest payments on deferred capital amounts at a rate of 3%, and on deferred interest payments at LIBOR + 0.5%.
The Paris Club and the Loan Agreements
Amounts owed in relation to fifteen loan agreements dated 22 December 1989, made between Bergen and a consortium of Spanish banks led by Banco Hispano Americano (the “Spanish Banks”) and relating to the construction of fifteen 105-metre MRKT “supertrawler” vessels (the “Loan Agreements”) were guaranteed:
(a) by Minrybkhoz, the USSR Ministry of Fisheries, pursuant to a guarantee dated 14 December 1989; and
(b) subsequently, by the Russian Federation Ministry of Agriculture, pursuant to a guarantee dated 22 April 1992 (together, the “Guarantees”);
The Defendants say that the Ministry of Finance became Guarantor, pursuant to a Decree of the Government of the Russian Federation dated September 27, 1994, No. 1107. The Claimants say that the Ministry of Finance did not become Guarantor pursuant to the Decree of the Government of the Russian Federation dated September 27, 1994, No. 1107 because (among other things) section 4 of this Decree expressly excludes from its scope debts settled under present or future agreements concluded within the framework of the Paris Club.
In a Declaration dated 2 April 1993, the Russian Federation Government officially acknowledged responsibility for (among other things) amounts due under the Guarantees. The amounts due under the Guarantees in respect of the Loan Agreements were treated as debts to the Spanish Government because and to the extent that CESCE, a Spanish State-owned entity, had paid out under fifteen insurance policies it had issued in relation to the fifteen Loan Agreements in relation to amounts due but unpaid under those agreements.
In so far as the Paris Club Agreements related to monies owed under the Loan Agreements, the Paris Club agreements were inter-State agreements involving the liabilities of the Russian Federation Government as guarantor.
The Claimants say that as such, alternatively in any event, the Paris Club Agreements:
(a) did not affect the liabilities of Bergen as primary obligor under the Loan Agreements vis-à-vis the Spanish Banks; and, in particular,
(b) did not release Bergen from its obligations to pay to the Spanish Banks any amounts outstanding under the Loan Agreements.
The Defendants say that these assertions cannot be agreed or denied in circumstances where the Defendants have not had access to the consolidations.
At the time of signature of the 1995 Sub-Charters of the Kapitan vessels, no agreement had been reached in respect of amounts due to the Spanish Banks and guaranteed by the Russian Government for the year 1995. Such agreement was eventually reached in consolidation III.
During the period between the end of the first quarter of 1999 and the conclusion of the agreement in relation to consolidation V on 31 December 1999:
(a) the amounts owing by the Russian Government under the Guarantees were not subject to any rescheduling within the ambit of the Paris Club; and
(b) representatives of the Russian Government sought to persuade CESCE, as insurers of the Spanish Banks, to seek to recover directly from Bergen.
Details of interest payments made on behalf of the Russian Federation Ministry of Finance to the Spanish Government pursuant to the Paris Club Agreements, and when these interest payments were made, are treated by the Russian Federation Ministry of Finance as confidential, and as such cannot be obtained by the Claimants.
However, at various times prior to signature of the Rescheduling Agreement of 28 July 2000 between the Russian Federation Ministry of Finance, Vnesheconombank and Rybcomflot, Vnesheconombank, as part of the process of agreeing the amounts to be paid by Bergen under that agreement, provided global figures in Spanish Pesetas as to the amount of interest paid by it pursuant to the Paris Club Agreements in connection with the amounts due under the Guarantees in respect of the Loan Agreements. By way of example, the figures provided as at 1 March 2000 were:
(a) interest paid in respect of deferred capital repayments - Psts 5,149,639,585; and
interest paid in respect of deferred interest payments - Psts 1,269,285,288;
(b) Interest figures were also provided on other occasions, for example on 21 July 1999.
5. WITNESSES
The following witnesses were called by the Claimants.
Oleg Pukhov
Mr. Pukhov has been General Director of the third Claimants, Rybcomflot, since 24 November 1998.
Mr. Pukhov dealt (among other matters) with:- the role of Rybcomflot; the financing of the construction of the 15 vessels; the Paris Club Agreement; the Claimants’ claims in respect of the 3 vessels; the Claimants’ claims in respect of the 11 vessels including in particular the preparation and signature of the July 1999 Charters and the July 2000 amendments to those charters; agency payments; the inventories and supplies claim; and the conduct and motivation of the Defendants.
I was impressed by the evidence of Mr. Pukhov. In particular I consider that his account was generally accurate in respect of the events after 24 November 1998.
Tatyana Skvoznijakova
Miss Skvoznijakova started working at Rybcomflot in 1991 and remained there until the end of 1999. She was responsible for some of the financial matters relating to the 15 supertrawlers. At all times she was instructed and supervised by the General Director of Rybcomflot (Mr. Orlov until 1997; Mr. Merzlov until November 1998; and Mr. Pukhov from November 1998).
Miss Skvoznijakova dealt (among other matters) with:- the Paris Club, the 1995 Sub-Charters and the 1999 Charters, amended July 2000.
Miss Skvoznijakova prepared the Schedules to the 1999 Charters. Miss Skvoznijakova provided convincing support for the Claimants’ case that the Schedules were agreed and were attached to the 1999 Charters, when Mr. Grigori Didenko signed the Charters.
Two further statements from Miss Skvoznijakova were admitted under the Civil Evidence Act.
Vladimir Ignatovich Shinkarenko
From 1976 Mr. Shinkarenko worked at the Ship Building Department of the Ministry of Fisheries of the USSR. From 1988 his position was Leading Expert, and later Chief of Section, of the Ship Building Department of the Ministry of Fisheries. At the end of 1991 the Ministry of Fisheries ceased to exist. In its place the Committee of Fisheries within the Ministry of Agriculture of RSFSR (later, the Russian Federation) was established. From 1992 Mr. Shinkarenko worked as Deputy Chief of the Department of the Committee of Fisheries within the Ministry of Agriculture of the Russian Federation, continuing his area of responsibility for the economics and financing of the fishing fleet. In November 1994 he was promoted to Chief of the Department. In April 1999 he joined Rybcomflot to work as a Technical Director. On 15 November 1999 he was appointed Director of Super.
Mr. Shinkarenko dealt (among other matters) with:- the Paris Club Agreements, the conclusion of the 1999 Charters, what he termed the purported Assignment Agreement between Super and FEMS, and Inventories and Supplies.
Mr. Shinkarenko provided significant support for the Claimants’ case that the Schedules were agreed and were attached to the 1999 Charters when Mr. Grigori Didenko signed the Charters.
Anatoly Yunaev
Mr. Yunaev was engaged by DMP as a Commercial and Financial Consultant as from April 1999. He was a personal adviser to Mr. Yuri Didenko. Mr. Yunaev introduced Mr. Didenko to Mr. Laskaridis. Mr. Yunaev has a 50% shareholding in both PTI and Crystal.
Mr. Yunaev dealt (among other matters) with:- the management of the 11 vessels, the July 1999 Charters, the July 2000 Re-Financing and the charterparty amendments, and the 3 Kapitan vessels.
Mr. Yunaev provided illuminating insight into the tactics and thinking of the Defendants’ camp from time to time.
Mr. Yunaev said that the Schedules were with the 1999 Charters following Mr. Grigori Didenko’s return from the meeting in Moscow at which the 1999 Charters were signed. He said that Mr. Grigori Didenko considered himself to be “stuck with” the Schedules. Mr. Yunaev said that Mr. Pukhov would never agree to forgo the hire payments, “because probably he had ...the problems of his company Bergen”. He added that Mr. Pukhov agreed to give some time to DMPT to pay, but he made it clear at all times that he was not waiving his right to insist on payment as per the Schedules. Mr. Yuri Didenko continually promised Mr. Pukhov that payment of hire would be made, at least in respect of the 3 ships, but continually failed to honour his promises. According to Mr. Yunaev, it had been Mr. Yuri Didenko’s idea from the very beginning to find a way to cut out Bergen and Rybcomflot altogether and enter into a direct relationship with the Ministry of Finance, just as FEMS had sought to do when they were the managers of the 11 ships.
As to the 3 Kapitan vessels, Mr. Yunaev said that Mr. Yuri Didenko knew that there was a moratorium on the payments from 1995. Mr Didenko told Mr. Yunaev that he (Mr. Didenko) should have maintained a (cash) reserve account in order to be able to meet his hire obligations once the Paris Club moratorium came to an end in early 1999.
Mr. Yunaev explained the commercial background in relation to the 11 vessels. He said that the ships were well known and very productive. Mr. Yuri Didenko had been involved with fishing all his life. The 11 vessels would strengthen his position. Further Mr. Didenko knew from his experience with the 3 Kapitan vessels that this was a very profitable business. The 11 vessels arrived with quotas.
I accept Mr Yunaev’s account as above.
Andrei Vladimirovich Ageev
Between about May 1995 and early 1996 Mr. Ageev was Executive Director of Rybcomflot. From early until mid 1996 he was General Director of Holding Rybcomflot and its Vice President.
Mr. Ageev referred to and explained the terms of the Protocol of 8 June 1995 which preceded the 1995 Sub-Charters. He said “It was necessary to make sure that DMP would provide some acceptable security...that is why the reserve fund scheme was proposed only for DMP. Normally if a company receives ships under bareboat charter, irrespective of moratorium, the company should pay the ship owner. Some of the companies in Russia did exactly...that, for example VBTRF. ...The owner of the payments was Bergen, not the fishing companies. DMP did not like the arrangement. They wanted to be the owners of the money themselves, that is why the reserve fund idea was proposed. ...The Fisheries Committee...allowed the co-efficient (of depreciation) to be multiplied by 2. Thus the depreciation expenses could be...10% per ship. The depreciation would be approximately $2.5 million per year. ...We suggested (that) the accelerated depreciation (should be accumulated) into (a) separate account of DMP. ...The accelerated depreciation would have amounted to $2.5 million (per annum)...The amount for every half annual period would have become $1.25 million. For the 3 ships it (was) $3.75 million.”
Mr. Ageev said that the Claimants allowed DMP one of two options: either to pay hire or to set up a reserve fund. Mr. Ageev added that it was subsequently agreed (orally) in 1996 that the reserve fund would remain with DMP.
I accept Mr Ageev’s account as above.
Statements were admitted under the Civil Evidence Act as follows:- Mr. Orlov (one statement); Mr. Pevik (four statements); Mr. Falileev (two statements); Tatyana Krasikova (one statement); Mr. Haneberg (one statement); and Mr. Luttrell (two statements).
Mr. Noel Campbell of Holman Fenwick & Willan provided two witness statements. In the event Mr. Campbell did not give evidence because it was common ground that the form of the Schedules attached to the fax of 19 July 1999 to Holman Fenwick & Willan was the same as the form of the Schedules which the Claimants contend constituted part of the 1999 Charters.
The following witness was called by Yerania.
Athanassios Constantine Laskaridis
Mr. A. Laskaridis is a Greek national and the President of Lavinia Corporation. Although managed from Greece, Lavinia Corporation is registered in Liberia and has a number of overseas subsidiaries and/or affiliates worldwide. Lavinia amongst other activities, operates a fleet of refrigerated cargo vessels (both owned and chartered in) numbering about 100 vessels in all. The principal trade is the carriage of perishable produce, mainly frozen fish, and the supply of marine fuels and supplies to fishing fleets of various nationalities in the Atlantic and North Pacific oceans. Yerania Investments Ltd of Cyprus, the mortgagee of the 11 supertrawlers, is a company in the Lavinia Group. Lavinia has an indirect 60% shareholding in Pacific Trawlers Inc of Seattle. Lavinia also has an indirect 30% shareholding in Crystal Seafoods Ltd of Cyprus and management control of both PTI and Crystal. Lavinia also has an indirect 60% shareholding in Sunmar Shipping Inc of Seattle.
Mr. Laskaridis dealt (among other matters) with:- the background to the DMP/Lavinia relationship, DMP’s and DMPT’s failure to perform, DMPT’s failure to pay hire, and the Yerania Mortgages.
Mr. Laskaridis produced a document entitled Corporate Structure for Sunmar Inc, Crystal Seafoods Ltd and Pacific Trawlers Inc (Mr. Yuri Didenko did not accept the accuracy of this document, so far as he was concerned).
Mr. Laskaridis was an impressive witness.
In the course of his evidence Mr. Laskaridis provided a graphic account as follows:-
“The overall conduct of DMPT with respect to the 1999 Charters and their obligations of hire payments is for me, as a shipowner of some years in this business, strange, to put it mildly, and I am trying to restrain myself. Yuri Didenko had probed with me sometime in the summer of 1999 the possibility of him arguing that because those Schedules to the 1999 Charters were never signed and not stamped they would not be valid... I told him in the presence of his son... that... it did not matter whether the schedules were signed or stamped; what really mattered was whether they were agreed at the time they agreed the charterparties. Didenko is an obstinate person, so he went on and on with this idea and I stopped discussing it with him. Later -- this was sometime early in the year 2000 -- he probed with me a completely different idea, which was there were no schedules... attached to these charterparties, and the schedules were only produced or communicated to him or his son many months after the signing of the charterparties. At that time I had enough of his inventive considerations of what constituted charterparty agreements or not. ... I told him that if he seriously believed that an arbitration tribunal... , or a High Court judge..., would accept and believe a mythological story of charterparties pertaining to 11 ships worth maybe a quarter of a billion dollars without any amounts of money or hire actually having been agreed at the time that they were chartered, he would really be very silly and naive to think this would stick with anyone. I also told him that in 1999 Russia was at the heyday of its free economy, laissez-faire situation and, therefore, that what he was suggesting was perhaps okay 10 or 15 years ago but not then. ...what I did do with respect to the hire payment obligations of Didenko was to intervene vigorously and many times towards Mr Pukhov so that he would exercise forbearance, patience and wait for time charter hire until the venture that we were managing was in a better financial position. This he did repeatedly, I must say, despite his declared intent to terminate the charters if he could not find enough money. It was on the basis of that forbearance of his, as a result of my repeated applications to him, that the 10 million loan... in May 2000 was, in fact, something I viewed as a moral obligation of mine. ... I also... told Didenko... on more than ten occasions that unless he fulfilled the obligations... under order 170 of the Fisheries Committee and the charterparties he had signed, the main part of which was the transfer of the three ships from DMP to DMPT and the second part of which was the pledging of the shares of DMPT in favour of Rybcomflot, ...he would probably lose these ships in the long run... he chose different ways, other than fulfilling his obligations, which, much to my regret, he has also chosen on many other occasions which involve our companies. …Any contractual obligation that entails the disbursement of money by Didenko is a document not worth its signature.”
Mr. Laskaridis said that Mr. Didenko had written to the Fisheries Committee on 14 June (the day that the trial started) stating that the Laskaridis brothers had misappropriated $148 million. “Didenko is using this propaganda statement for his own political aims and we will respond once this trial is over by suing him anywhere we can for defamation.”
Mr. Laskaridis said that it was untrue to suggest that the venture had cash in hand to pay hire.
Mr. Laskaridis said that the letter from Bergen, Bolero and Rybcomflot to Crystal of 17 May 2000 did not have any effect on the availability of money to pay hire. “The freezing order...made no difference. ...(the proposition) that funds...were available in April...to pay bareboat hire rather than the $40 - odd million of Lavinia’s advances is something that I absolutely reject... ...Have you ever seen a manager in shipping operating like that? ...The insinuation that the revenues of the fish in April or May should be used to pay bareboat hire rather than the secured lender who financed the venture not being obligated to do so, is plainly ridiculous. ...A ship manager...is supposed to receive his outlays in cash by his principal, and not to finance him and keep him in business...” Mr. Laskaridis pointed out that DMPT was obligated under the management contracts to advance sufficient cash funds to PTI to run the ships. This, he said, never happened.
Mr. Laskaridis said that although he had had long experience of trading with Russian and Soviet entities, the experience of dealing with Mr. Didenko was unique.
Mr. Laskaridis said that having saved Mr. Didenko’s skin in Denmark (in May 1999), when the time came for Mr. Didenko to reciprocate and perform his obligations, he failed to deliver the Kapitan vessels for management.
Mr. Laskaridis said that at one point Mr. Didenko invited him to join Mr. Didenko “in kicking Mr. Pukhov and Bergen and Rybcomflot out of the loop.”
Mr. Laskaridis said that DMPT lied to the Russian authorities in indicating that no sale of product had taken place until the FEMS and DNHS litigation was settled. DMPT asked Crystal to forge its sale records so that sales would appear not to have started until sometime in April or May 2000, when sales had started in September 1999.
Mr. Laskaridis said that Rajin was “used (in respect of the 3 Kapitan vessels) as a base to escape civilised jurisdictions”. It could not be used as a base for fishing vessels of the complexity and importance of the supertrawlers. It was not a normal repair port.
Mr. Laskaridis said he did not agree with the proposition that fish stocks could be treated as a cash asset. He said “We spoke with no less than 7 banks for the purpose of trying to raise money against the fish stocks.” Mr. Laskaridis explained that whereas pollock roe could be sold within a relatively short period of time, the rest of the production mainly consisted of finished fillets. “The rate at which you can sell a finished product...is...much slower... We were selling as fast as we could because we had spent several months...unable to sell because of the DNHS litigation, the FEMS litigation and other troubles, past vendors raising claims against the ships; so by May, June, July (2000) we were doing all we could to sell, but we were selling into a falling market, fish block prices actually declined between 1999 and 2000... We had no ability or possibility to sell more and faster than what we were doing.”
Mr. Laskaridis explained that a fishing vessel without a fishing ground to fish in and a quota is only worth scrap.
Mr. Laskaridis said that if the State Fisheries Committee had not ordered the suspension of fishing activities by the 14 vessels on 31 January 2000 and if DMPT had provided the quotas they were obliged to provide, the venture would have been in surplus to the tune of about $80 million.
The following witnesses were called by the Defendants.
Yuri Grigorivich Didenko
Mr. Yuri Didenko has been President of DMP since its privatisation in 1994. DMPT is a subsidiary of DMP. Mr. Didenko described himself as “not a Western man”.
Mr. Didenko was in the witness box far longer than I would have wished. The delays involved in interpretation were inevitable. I make appropriate allowance for lack of familiarity with English court procedure and for cultural differences. Mr. Didenko, however, when asked a simple question would make a long statement or speech, not directed to the question but by way of explanation or assertion of his case. At one point (when I expressed concern about the time being taken) Mr. Howard submitted that it was very important that Mr. Didenko should have the opportunity to develop what he wanted to say.
Mr. Didenko dealt (among other matters) with:- his personal and professional background, DMP, the Soviet Shipbuilding Programme and the Construction of the supertrawler fleet, the 1995 Sub-Charters of the 3 Kapitan vessels, hire payments and his knowledge of the moratorium, the 1999 Charters of the 11 vessels, Bergen’s letter of 17 May 2000, the July 2000 meeting in Lowndes Square, the Negotiation of the Rescheduling Agreement, and the Supplies and Inventories claim.
Mr. Yuri Didenko was not present when the 1999 Charters were signed.
Mr. Yuri Didenko was a profoundly unsatisfactory witness. His evidence was not directed to the truth but to serving his (and DMP’s/DMPT’s) own ends. His account was inconsistent and evasive.
(1) On many occasions and in many respects Mr. Didenko’s evidence was inconsistent with the contemporary documents and internally inconsistent (as between his witness statements and his oral evidence).
(2) On many occasions Mr. Didenko asserted that DMP/DMPT did not receive letters and other documents which they plainly did receive. On several occasions Mr. Didenko suggested that particular documents were not authentic, when the documents in question were plainly genuine.
(3) In paragraph 31 of his third witness statement Mr. Didenko said that he did not remember discovering the moratorium until 1997. Having carefully considered all the evidence, I have no doubt that Mr. Didenko knew about the Paris Club arrangements prior to 15.6.95.
(4) At certain points in his oral evidence Mr. Didenko said that he did not make payments because he did not know and was not told the identity of the account into which payments should be made (when he plainly did know this or could have asked if in truth he was in any doubt).
(5) In his third witness statement at paragraph 37 Mr. Didenko said that “All that DMP paid in the early years of the (1995 Sub-Charters), and all that it was obliged to pay, were (the) extra costs covered by the guarantees. They totalled just over US$13.3 million.” In his second witness statement he said “ We knew that in 1999 we would have to start making (hire) payments.” When giving evidence Mr. Didenko said that in 1995 about US$5.2 million was paid in respect of charter hire. When confronted with paragraph 37 of his third witness statement Mr. Didenko at one point said that (contrary to paragraph 93 of the statement), he had signed the statement without it being read to him in Russian by his assistant Irina Vorobyova. Mr. Didenko then said that there was a Russian translation of the third witness statement (and produced it). I find that no hire was paid in respect of the three Kapitan vessels prior to 1999. Mr. Didenko said in his witness statements that no hire was paid prior to 1999, but gave a contrary account in the witness box.
(6) Mr. Didenko signed the Protocol of 8.6.95 without amendment (and yet maintained that it contained a clause in violation of Russian law).
(7) A letter dated 22 May 1999 from Mr. Didenko to Mr. Laskaridis and others concluded with the following paragraph:-
“The issue in regards 11 supertrawlers has been resolved and there is the order signed by First deputy of Prime Minister Mr. Aksenenkov about transfer these vessels to DMP and with providing additional quota at 300,000mt.”
Mr. Didenko accepted that the contents of this paragraph was false. His evidence in relation to the letter was extraordinary. At one point he said that he must have provided a blank letterhead and a second page with a stamp and his signature to some other person, who typed in the whole of the letter. At another point he suggested “perhaps it is our text before the word ‘Quota’ ” and what followed (including the last paragraph) must have been added. “The text before the false text is normal text, I can sign it now”. At another point he said that the letter contained different typefaces. It is clear that the letter was sent from DMP’s fax on 22 May 1999. I specifically reject Mr. Didenko’s various explanations.
(8) Mr. Yuri Didenko gave conflicting accounts as to when he first saw the Schedules to the 1999 Charters. He gave an account in the witness box of seeing a stitched copy of the 1999 Charters on about 12 July 1999, which (had it been true) would surely have been included in his witness statements.
(9) In paragraph 51 of his third statement Mr. Yuri Didenko said “The Charters of the 11 vessels were entered into on the same basis as the 1995 Charters had been; DMPT would buy the 11 vessels by paying the sums due to the Government.” Yet at certain points in his oral evidence Mr. Didenko accepted that DMPT was obliged to pay hire in accordance with the Schedules to the Charters.
(10) At one meeting Mr. Didenko threatened Mr. Pukhov, reminding him of what happened in 1937. This was an extremely unpleasant threat to any Russian.
(11) I refer to the materials presented to the Moscow Arbitration Committee, and in particular the 1999 Charters with the Schedules attached. This was consistent with the Claimants’ case and inconsistent with the account in Mr. Yuri Didenko’s witness statements.
(12) A purported resolution of 17 July 2000 (purporting to record the temporary withdrawal of Mr Grigori Didenko’s authority to act on behalf of DMPT) was inconsistent with subsequent documents. I have doubts about the authenticity of this document. In a declaration in proceedings in Seattle Mr. Didenko stated “From July 5 1999 until March 3 2001 Grigori Didenko was the General Director of DMPT”.
(13) In evidence in chief Mr Didenko said that DMP asked DVMI to accumulate a reserve fund equivalent to depreciation at the accelerated rate of 7%. He stated that $26m was accumulated. After expenditure on capital items $18m was left - with a further $6m added in 2000. Contrary to Mr. Didenko’s evidence, it is clear that no cash reserve fund was set up with or by DVMI. Further DVMI did not hold sufficient funds from time to time for this purpose. I refer in this connection to the evidence of Mr. Luttrell.
(14) It was quite clear that Mr Didenko never had any intention of complying with clause 20.1 of the 1999 Charters/21.1 of the 1999 Charters as amended (transfer of shares of DMPT as security). Nor did he comply with the agreement to transfer the 3 Kapitan vessels to DMPT.
(15) Mr Didenko acted in contempt of the order of the Singapore Court in respect of the Pishchevaya Industriya.
(16) Mr. Didenko claimed that he did not know that Lavinia had made significant loans to PTI and Crystal (for example, US$20 million in November 1999 and US$15 million in March 2000). This evidence was hardly credible.
(17) Mr Laskaridis produced a chart which illustrated Mr Yuri Didenko’s shareholdings in Crystal and PTI (via Vista Services Ltd and Opton Holdings Corporation Ltd). Mr Yunaev gave evidence to similar effect. Mr Yuri Didenko disputed that he had any shareholdings in these companies. I suspect this was because such shareholdings were contrary to or in breach of Russian law.
(18) I formed the impression that Mr Yuri Didenko was prepared to disregard contractual obligations when he considered that these were in conflict with DMP’s and DMPT’s interests. At points in his evidence it seemed to me that he saw the trial as an opportunity to try and re-negotiate the obligations under the charters and other agreements.
Save (a) where there was an admission in relation to the Claimants’ case or (b) where his evidence was corroborated by documents or other reliable independent evidence, I reject Mr Yuri Didenko’s evidence as generally unreliable. I prefer the evidence of the Claimants’ witnesses and Mr Laskaridis to the evidence of Mr Yuri Didenko.
Alexander Ivanovich Bodakin
Prior to July 2000 Mr. Bodakin was first Deputy Director of the fleet. Mr. Bodakin claimed that he was appointed Acting General Director of DMPT on 17 July 2000 in place of Mr. Grigori Didenko. I have already said that I have doubts about the authenticity of the relevant document dated 17 July 2000. Mr. Bodakin did not have specialist knowledge of the market in pollock fillet blocks.
Mr. Bodakin provided one short witness statement.
Mr. Bodakin was a profoundly unsatisfactory witness. I detected the influence of Mr. Yuri Didenko. I reject Mr. Bodakin’s evidence in relation to the Schedules to the 1999 Charters.
On 31 August 2000 Mr. Bodakin wrote to PTI and Crystal “The received payments in 1999 (which he said amounted to US$12.6 million) must not be mentioned at all” to the tax authorities.
In his witness statement Mr. Bodakin said “Even as late as September 2000 I did not believe that the hire payments [in respect of the 11 vessels] had been fixed.” This was plainly untrue.
In a DMPT letter to the Seamen dated 4 January 2001 Mr Bodakin asserted that the 11 vessels belonged to the Russian Government.
On 24 October 2000 Mr. Bodakin instructed the captain of each of the 11 vessels not to ship the vessel’s production to Crystal.
Mr. Bodakin’s letter of 22 March 2001 to the captains of the 11 vessels was in flagrant breach of the orders of David Steel J of 16 and 21 March 2001.
Mr. Bodakin did not recognise DMP’s/DMPT’s obligations under relevant agreements. For example he said “DMPT in 1999 was not supposed to transfer any money, as all the money was supposed to be received after realisation of production...”. Thus he failed or refused to recognise the obligations assumed under clauses 4.1(g) and 7 of the Ships Management Agreement of 21 July 1999. At a later stage in his evidence Mr. Bodakin said “We concluded charter agreements... and were supposed to pay... the charter hire payments when we received the money for sale of the fishing production”. Thus he failed or refused to recognise the obligations assumed under the charters.
At one point in his evidence Mr. Bodakin said “Even according to their schedules we accrued all the hire payments until the last payment”. He later explained “We just calculated how much. We reflected that in our accounting documents. But as we did not have any money, we did not pay any money”.
Irina Vorobyova
Miss Vorobyova became Mr. Yuri Didenko’s personal translator in October 1997. She was intensely loyal to Mr. Yuri Didenko. Her evidence did not assist me in relation to the principal issues in the case.
Statements were admitted under the Civil Evidence Act as follows:-
Mr. Grigori Didenko (two statements) and Miss Vyrodova (one statement). I record that I appreciate (and have made allowance for) the difficulties that the Defendants face as a result of the untimely death of Mr Grigori Didenko. I have paid careful regard to his two statements. Had he been alive to give oral evidence, I consider that there would have been material differences between his account and that of his father. Mr Grigori Didenko’s evidence has, of course, not been tested in cross-examination. I set out in this judgment my findings as to the events with which he deals in his statements.
Accountancy Evidence
Deloitte & Touche audited the balance sheet of the Pacific Trawlers Venture as of 31 October 2000 and the related statement of income, changes in equity and cash flows, for the period from 21 July 1999 (date of inception of Venture) to 31 October 2000. The Pacific Trawlers Venture was described as the Venture formed between DMPT, PTI, Crystal Seafoods Ltd and Crystal Seafoods GmbH pursuant to the Consulting Agreement and Agency Agreement dated 23 September 1999. Its activities concerned the exploitation of the 11 supertrawlers, including the production and sales of seafood. Deloitte & Touche conducted a further audit of the Venture to 31 December 2000. According to the second audit the net loss for the period 21 July 1999 to 31 December 2000 was $(9,602,308). Deloitte & Touche valued the inventory consisting of fish products at cost.
Mr. David Stern, a partner in Messrs. Levy Gee, was called to give expert evidence on accountancy issues by the Claimants. Mr. Gavin Stoddart, Managing Director Moore Stephens Russia and partner Moore Stephens London was called to give expert evidence on accountancy issues by the Defendants. I refer to their respective reports.
The two accountancy experts helpfully prepared a statement of points of agreement and disagreement, to which I refer. They agreed that the holding and selling of product inventory is a commercial desision for the management, and beyond the role and remit of accountancy experts. They further agreed that on the basis of the analysis shown in Appendix 13 to Mr. Stern’s first report, with the exception of the substantial receipts in May 2000, the Venture had a net cash requirement at the end of most other months, such that as at 31 December 2000 the total deficit (as adjusted for bank reconciliation items) amounted to approximately $(9,800,000) of which $ 7,200,000 had been provided by Lavinia, with the balance of $2,600,000 provided by bank funding. There were however differences of opinion between Mr. Stern and Mr. Stoddart as to whether there might have been surplus funds available to discharge outstanding charter liabilities.
Mr. Stern did not consider that (taking into account the net cash outflow and cumulative deficit of the Venture, together with certain comments concerning the ability to convert the product inventory into cash) there were surplus funds available within the Venture to discharge the outstanding charter hire liabilities. I refer to graphs prepared by Mr. Stern which show total receipts and payments from inception to December 2000 and quarterly and cumulative charter hire liabilities against cash at bank.
In his first report Mr. Stoddart did not express any overall assurance concerning the Venture or its financial position. In his supplementary report Mr. Stoddart said “It is not possible to establish a totally accurate estimate of the... underlying profitability of the Venture... . The ability of the Venture to discharge charter hire liabilities cannot be determined with any certainity... . We cannot comment meaningfully on the use to which these funds could or should have been put, as this was ultimately a matter for management of the Venture and its major provider of finance, Lavinia.” In my view these reservations were entirely appropriate.
The question whether there were surplus funds available within the Venture to discharge the outstanding charter hire liabilities involves consideration of issues which were (understandably) beyond the role the expert witnesses. First, as Mr. Stoddart pointed out in paragraph 4.2 of his supplementary report, during the initial period of the Venture, PTI/Crystal relied almost exclusively on Lavinia as a source of funding. This funding amounted to US$36,649,071 at 30 April 2000. The level of this funding over the following four months was critical to the Venture’s ability to meet charter hire obligations. As at 31 July 2000 the funding from Lavinia had reduced to US$10,137,457. To the extent that Mr. Stoddart’s approach was dependent on the assumption that Lavinia might have increased its funding during the relevant period, I reject it. I find as fact that Lavinia was determined to reduce its exposure. I accept Mr. Laskaridis’ evidence in this connection. Second, as at 31 July 2000 the fish product inventory showed a very substantial holding of pollock products. I accept Mr. Laskaridis’ evidence as to the nature, state and extent of the market. The holding and selling of product inventory was a commercial decision for the management. There is no material before me which would justify any criticism of the decisions taken. On the contrary, the overwhelming probability in commercial terms is that Crystal would have sold additional pollock products, had it been able to obtain a reasonable price. The quantities in question (when balanced against total market figures) were such that any attempt at the material time to sell the balance of the inventory of pollock products, would have resulted in unrealistic prices being obtained.
In all the circumstances I consider that Mr. Stern was probably correct when he wrote in his first report “There were no surplus funds available within the Venture to discharge the charter liabilities.”
Mr. Stern did not consider that it was appropriate to classify the product inventory as a liquid asset that was capable of being readily converted into cash, at the value at which it appeared in the Consolidated Balance Sheet. Mr. Stoddart was of the opinion that the term “liquid assets” relates to a period of three months, which is based on the definition of “cash equivalents” - International Accounting Standard IAS 7 entitled ‘Cash Flow Statements’. It is unnecessary to resolve this conflict between the experts. It should, however, be recorded that the accounts of DMP (audited by Pricewaterhouse) show inventories valued at the lower of cost or net realisable value.
6. THE BACKGROUND TO THE 1995 SUB-CHARTERS
I refer to the history prior to June 1995 set out above and in the Chronology. Rybcomflot, which had initially been entirely owned by the Russian State but later came into majority private ownership, was formed in early 1990 to oversee the construction and delivery of (among many vessels) the fifteen supertrawlers. On 16 August 1994, JV Rybcomflot became a private limited company or “TOO”. On 24 November 1998, Rybcomflot changed form to 000 Rybcomflot, a new form of limited company.
DMP was privatised in 1994.
Prior to the 1995 Sub-Charters DMP, by Mr. Yuri Didenko was, I find, aware of the applicability of the Paris Club to the RF guarantee of the Bergen shipbuilding loans and the RF requirement for security in respect of its guarantee liability to the Banks and CESCE.
7. THE PROTOCOL OF 8 JUNE 1995
The Protocol of 8 June 1995 was an agreement between Rybcomflot and DMP, signed by Mr Yuri Didenko, Ms Shilo (the DMP Chief Accountant) and by Mr Agheev of Rybcomflot. Clause 6 sets out the obligation of DMP to transfer to Bergen a reserve fund in an amount equivalent to accrued depreciation, which Bergen would hold on DMP’s behalf in an account with a correspondent bank of Eurofinance. No money was to be withdrawn save by agreement between Rybcomflot and DMP. Clause 7 showed the relationship of this reserve to hire. The reserve was to be enough to cover hire due, since the clause provided for any surplus over and above hire to be paid to DMP.
8. COMPLIANCE WITH THE PROTOCOL AND SUBSEQUENT PROMISES AS TO A RESERVE FUND
The Protocol and subsequent promises by DMP as to setting up a reserve fund were not complied with. No cash reserve fund (in any form) was set up. I return to this subject below. Insufficient payments of hire were made when Bergen required payment to be made in 1999 and 2000.
9. CONSTRUCTION OF THE 1995 SUB-CHARTERS
Clause 3 of the 1995 Sub-Charters provided:
“(A) The Owner entered into a loan agreement (the “Loan Agreement”) with Moscow Narodny Bank Limited, Banco de Creditor Industrial S.A., Banco Espanol de Credito S.A., Caja de Ahorros y Monte Piedad de Madrid S.A. and Caja de Ahorros Asturias S.A. (the “Banks”) and Banco Hispano Americano S.A. (“BHA”) itself as agent for the Banks, for eighty per cent. (80%) of the Contract price being a loan of Two thousand Three hundred and sixty-eight million Spanish Pesetas (2,368,000 Sp Ptas) to be repaid over a period of eight and a half (8½) years beginning from the Delivery Date. Repayment is to be made in seventeen (17) equal semi-annual instalments of principal plus interest of principal plus interest commencing six (6) months from the Delivery Date. Interest is calculated at the rate of eight per cent. (8%) per annum.
(B) The Sub-Charterer shall pay hire in such amounts and at such times as will be sufficient to meet all amounts of principal, interest and other monies due to the Banks and BHA under and in accordance with the terms of the Loan Agreement. Such amounts and payment dates are attached in the form of a Schedule hereto and form a part of this Sub-Charter and are final and binding on the Sub-Charterer. Payment of hire shall be made to the Owner one week before the date on which payment is due to BHA for itself and for the Banks.
(C) All payments of hire shall be made free and clear of all taxes, assessments, charges, duties and imposts of whatever nature, all of which shall be for the Sub-Charterer’s account.
(D) In no circumstances shall the Sub-Charterer have the right to refuse or abate the hire on the basis of any set-off or counterclaim against the Owner and/or the Charterer nor shall the Sub-Charterer have the right to withhold payment of hire during the Charter Period for any reason whatsoever and it is expressly agreed that during the Charter Period no supervening or unforeseen events shall discharge the Sub-Charterer from the duty to pay hire or to perform and discharge its duties and liabilities hereunder or frustrate or determine this Sub-Charter.
(E) The Owner hereby covenants with the Sub-Charterer that the owner will utilise hire in making payment due from the Owner under the Loan Agreement. Accordingly, the Sub-Charterer hereby agrees and undertakes with the Owner to keep the Owner fully and properly indemnified from and against all actions, proceedings, claims and demands which may be brought or made against the Owner under the Loan Agreement and all costs and expenses in connection therewith resulting from non-payment or delay in payment on the due date of such hire and therefore of payment due from the Owner under the Loan Agreement.
(F) All payments made by the Owner and/or by the Charterer covering any expenses in respect of predelivery financing of the Vessel under the terms of the Loan Agreements with Moscow Narodny Bank (short term loan covering 20% of the Contract Price) and with the Banks and BHA shall be for account of the Sub-Charterer and shall be refunded to the Owner and/or to the Charterer on demand.
(G) The Sub-Charterer undertakes the obligation to pay in full to the Owner for onward payment to the Shipyard an amount equal to all expenses of the Shipyard incurred in extra works which have been carried out and extra equipment which has been ordered in respect of the Vessel.
(H) The Sub-Charterer undertakes the obligation to pay the Charterer the amount of US£ 100,000 covering all expenses of the Charterer connected with the arrangements for the financing and survey of the construction of the Vessel.
(I) In the event that the Sub-Charterer fails to fulfil its obligations under the provisions of this Clause 3, the Charterer and the Owner shall have the right to terminate this Sub-Charter and repossess the Vessel from the Sub-Charterer without any compensation or refund of any amounts paid by the Sub-Charterer under the provisions of this Clause 3.”
The Defendants' case has gone through many permutations. In his closing submissions for the Defendants Mr M.N. Howard QC for the Defendants submitted as follows. The Defendants were not obliged to pay hire in accordance with the Schedules. They were only obliged to pay hire in accordance with Bergen's loan repayment obligations to (primary case) the Spanish Banks, (secondary case) the Russian Government, and then only to the extent that the Spanish Banks/Russian Government demanded and/or sought to enforce payment. DMP had to meet the effective loan obligations ie the loan obligations to the Spanish banks (primary case) or to the Russian Government (secondary case). Thus the Defendants' primary case is that the Defendants have to meet the loan obligations to the Spanish Banks when and in so far as they are enforced. They say there will be no obligation to pay any hire until Bergen is required by the Spanish Banks to make repayments of the loans, when the Paris Club arrangements come to an end. The Defendants' secondary case is that the Defendants have to pay Bergen the sums paid by Bergen to the Russian Government (by way of repayment of the loan obligations to the Spanish Banks), provided the Russian Government legally required Bergen to pay these sums. Mr Howard said that on the Defendants' secondary case ( by reference to Schedule 4 to the Claimants' closing submissions), three fourteenths or three fifteenths of US$ 79.5 million would have been payable by the Defendants in August 2000. This assumes that it would be appropriate to take the cost of purchasing debt instruments (PRINs and IANs) as opposed to the amount of the payments made. By about 11 July 2000 DMP had only paid US$6,657,147.17 by way of hire in respect of the 3 Kapitan vessels.
I apply the principles of construction set out in the speech of Lord Hoffmann in ICS v West Bromwich Building Society [1998] 1 WLR 896, 912H to 913G.
I reject the Defendants' construction. On a true construction of the 1995 Sub-Charters, DMP was obliged to pay hire in accordance with the Schedules thereto.
The Sub-Charters were concluded inter alia against the background of (a) the Protocol of 8 June and (b) the Paris Club as known to Bergen, Rybcomflot and DMP.
The intention was expressed in paragraph (C) of the Recital that the Sub-Charterer should perform all the obligations of the Head Charterer under the Head Charter. Thus the terms of the Sub-Charter were to be substantially the same as the terms of the Head Charter but “specifically on the terms and conditions hereinafter appearing”.
Clause 3(B) provided for payment of hire “in such amounts and at such times as will be sufficient to meet all amounts ...due to the Banks”. The hire is distinct from the payments to the Banks but must be sufficient to pay “principal, interest and other monies due to the Banks". I draw particular attention to the use of the word "sufficient". “Such amounts... as will be sufficient” are then defined by reference to the Schedules attached to the Sub-Charters (“ Such amounts and payment dates are attached in the form of a Schedule hereto and form a part of this Sub-Charter and are final and binding on the Sub-Charterer”). Thus the amounts and dates of payment which will be sufficient to meet all amounts due to the Banks from Bergen are agreed to be those in the relevant Schedule. Those amounts and dates are "final" (ie conclusive/unalterable) and "binding" as the sums due at the times specified.
The Sub-Charter does not say that DMP has only to pay what the Banks later demand, or enforce by way of payment. Nor can the provision be read as meaning that DMP only has to pay that which Bergen subsequently has to pay to the RF, as guarantor. The last sentence of clause 3(B) identifies the point in time when DMP has to pay the hire and to whom. Hire is to be paid to Bergen one week before the date on which payment is due from Bergen to the Banks in accordance with the Schedule, in circumstances where the payment dates set out in the Schedule are “final and binding”. Any other construction would be wholly uncertain in effect. Given the express right to terminate in 3 (I), the Sub-Charterer needs to know precisely how much to pay, and when.
Clause 3(D) provides that “no supervening or unforeseen events shall discharge the Sub-Charterer from the duty to pay hire or to perform and discharge its duties and liabilities hereunder or frustrate or determine this Sub-Charter.”
Clause 3(E) did not give rise to a Quistclose type trust (see Quistclose Investments v Rolls Razor [1970] AC 567 (HL) as explained in subsequent authorities). The purpose of the first sentence of the sub-clause was to stand as the basis for the indemnity given to Bergen by DMP.
Clause 3(I) gives both Rybcomflot and Bergen the right of termination without notice in case of non-fulfilment of clause 3 obligations. Termination (and repossession of the vessel) by Bergen/Rybcomflot is specifically permitted, without the need for any compensation or refund of any monies paid by way of hire by DMP.
10. MISREPRESENTATIONS AND FIDUCIARY DUTIES
The Defendants' pleaded defences alleging misrepresentations and breaches of fiduciary duties in respect of the 1995 Sub-Charters and the 1999 Charters were (rightly in my view) not pressed by Mr Howard in his closing submissions. For the avoidance of doubt, I record that in my judgment there is no substance in these defences.
11. PAYMENTS MADE BY DMP AND BY BERGEN
DMP paid $6,657, 147.10 by way of hire in the period 12.12.99 - late 2000 and nothing has been paid since then. The alleged additional payment of $5.2m as hire was part of the 1995-1997 payments under the Guarantees of 6 and 26 June 1995 for prefinancing expenses and extra work and equipment provided by the Shipyards. The labelling of some payments by DMP as “Hire” or “Lease payments” does not alter the fact that they were paid under the Guarantees and treated as such by the parties.
According to Schedule 1(a) to the Claimants' closing submissions outstanding hire due under the Schedules to the 1995 Sub-Charters was as follows:
As at 15 1 99 US$ 43,156,151;
As at 17 1 00 US$ 48,807,213;
As at 15 11 00 US$ 48,196,082.
As to payments by Bergen to the RF, according to a Schedule prepared by the Claimants a total of $221,205,103 has been paid if the sum paid by Super to Bergen prior to transfer of the charters of the 11 vessels to DMPT (US$18m) is included and the PRINS and IANS are treated as payment of debt at face value.
If the cost of payment to the RF, as opposed to the payment itself, is taken, and the Super payment is excluded, the Claimants say the cost to Bergen was $16m, plus $3.1m plus $105,103 plus the Yerania Facility Agreement Capital Loan of some $65m- ie some $84.2m.
12. ANALYSIS OF EVENTS 1995-1999
The Defendants say that the Claimants are estopped by convention and/or conduct and/or by representations from claiming hire under the 1995 Sub-Charters. In particular they say: (i) there was a common assumption that no hire was due from DMP, as Bergen was not required to make loan repayments and/or that hire was not payable in accordance with the Schedules to the 1995 Charters; (ii) any agreement, estoppel, conduct or representation was not conditional or premised upon the creation by DMP of a reserve from which scheduled hire payments would be paid when required by the Claimants; (iii) DMP relied on and/or was induced by conduct and/or representations by the Claimants and/or a common assumption to invest in the 3 vessels and/or not to make hire payments in accordance with the Schedules; (iv) it is inequitable for the Claimants now to seek to enforce payment of hire; and (v) the Claimants have waived any right to terminate the charters for non-payment of hire.
The Claimants dispute these allegations. Alternatively they say any agreement, estoppel, conduct or representation was conditional upon and/or premised upon the creation by DMP of a reserve (whether in the name of DMP, Bergen and/or Rybcomflot or in joint names, and whether equivalent to depreciation, accelerated depreciation or hire) from which to pay the scheduled hire payments as and when the Claimants required such payments of hire in the future.
No demand for payment of hire is necessary before exercising a right of withdrawal (unless the charter specifically requires it eg as a result of an anti-technicality clause) - see Scrutton on Charterparties Art 175 at p 357 and the Court of Appeal decision in Re Tyrer and Hessler (1902) 7 Com Cas 166 .
An estoppel by convention may arise where parties to a transaction act on an assumed state of facts or law, the assumption either being shared by them both or made by one and acquiesced in by the other. The effect of an estoppel by convention is to preclude a party from denying the assumed facts or law if it would be unjust to allow him to go back on the assumption. It is not enough that each of the two parties acts on an assumption not communicated to the other. But a concluded agreement is not a requirement for an estoppel by convention. (Republic of India v India Steamship Co (The Indian Endurance) (No2) [1998] AC 878 at 913E to 914D per Lord Steyn).
As to waiver or forbearance, in cases of postponement of performance, if the period of postponement is not specified in the waiver, the party forbearing is entitled, upon reasonable notice, to impose a new time limit, which may then become of the essence of the contract. In other cases of forbearance, the party forbearing may be entitled on reasonable notice, to require the other party to comply with the original mode of performance, unless in the meantime circumstances have so changed as to render it impossible or inequitable so to do (Chitty on Contracts 28th edn volume 1, para 23-041).
I refer to the Chronology which sets out an outline of some of the principal events after 15 June 1995. It is a striking feature of this case that DMP paid no hire in respect of the 3 Kapitan vessels until 21 December 1999. There are a number of documents where Bergen/Rybcomflot referred to the Paris Club and postponement or deferment of payments. An early example is Rybcomflot’s letter to DMP of 17 October 1995:-
“In conformity with the report of Vnesheconombank, which is an official agent of the Russian Federation with the Paris Club, the aggregate debt of the former Soviet Union incorporating credits granted for the construction of [the 3 Kapitan vessels] are subject to the deferment of repayment in the framework of the General Protocol of the Paris Club of April 2, 1993. ... The agreements concluded until now postpone the payments of 1992-1993 until January 1, 1999, payments of 1994 - until January 1, 2000. At present, the agreements on 1995 payments is being prepared, they would be apparently postponed until January 1, 2001. The sums of 1992-1993, 1994 and 1995 payments subject to deferment per each credit (i.e. per each vessel) are given below...
It is worth to note that Vnesheconombank is unable to predict further deferment of payments of 1996, 1997 and consequent years, because that would depend on a number of factors, for one, political and economic stability of the Russian Federation.
In this connection, when drafting any long-term financial prognosis for the subsequent years, the expenditure provisions should foresee the payments according to the original schedule, or establishment a certain reserve allowance for the same amount for further redemption of deferred payments.
Apart from the scheduled payments for the years 1999, 2000 and 2001, you have to determine the sources of redemption of the existing outstanding debts of 1992-1993, 1994 and 1995 respectively. Furthermore, as the terms of the Paris Protocol provide for an interest for the deferment, you have to provide for the payment of the interest. At present, these sums due to the Spanish side are paid by the Ministry of Finance of the Russian Federation. The said sums will be further presented for payment to the vessels’ users. The interest rate for the deferment is fixed annually and approximately amounts to 2-3% per annum of the sum of the deferred payment, i.e. about 100,000 USD per annum for the annual payment per each of the vessels.”
My analysis of the relevant events in 1995-1999 is as follows:
(1) It is important to distinguish between the following relationships:-
(a) The Loan Agreements between Bergen and the Spanish Banks.
(b) The Guarantees between the Guarantor (ultimately the Russian Federation Government) and the Spanish Banks.
(c) The relationship between the Russian Federation Government as Guarantor and Bergen.
(d) The 1995 Sub-Charters between Bergen, Rybcomflot and DMP.
(2) The amounts due under the Guarantees in respect of the Loan Agreements between Bergen and the Spanish Banks were treated as debts to the Spanish Government for the purposes of the Paris Club because and to the extent that CESCE, a Spanish state-owned entity, had paid out under 15 insurance policies it had issued in relation to the 15 Loan Agreements in relation to amounts due but unpaid under those Agreements. In so far as the Paris Club Agreements related to moneys owed under the Loan Agreements, the Paris Club Agreements were inter-state agreements involving the liabilities of the Russian Federation Government as Guarantor. I conclude that the Paris Club Agreements did not affect the liabilities of Bergen as primary obligor under the Loan Agreements with the Spanish Banks and did not release Bergen from its obligations to pay the Spanish Banks any amounts outstanding under the Loan Agreements.
At the time of signature of the 1995 Sub-Charters no agreement had been reached in respect of amounts due to the Spanish Banks and guaranteed by the Russian Government for the year 1995. Such agreement was eventually reached in consolidation III.
(3) Prior to the 1995 Sub-Charters DMP was aware of the applicability of the Paris Club to the RF Guarantee of the Bergen Shipbuilding Loans and the RF requirement for security in respect of its Guarantee liability to the Banks and CESCE.
(4) I refer to the terms of the Protocol of 8 June 1995 including in particular clauses 6 and 7 thereof (see above).
(5) Although the parties to the 1995 Sub-Charters were aware of the applicability of the Paris Club to the RF Guarantee of the Bergen Shipbuilding Loans, the 1995 Sub-Charters expressly provided that DMP was obliged to pay hire in accordance with the Schedules to the 1995 Sub-Charters.
(6) To the extent that DMP was granted any indulgence in relation to time of payment of hire from June 1995, I find that this was on the agreed (conditional) basis that DMP would create and maintain a sufficient reserve from which to pay the scheduled hire payments, as and when the Claimants required such payments of hire in the future. DMP knew and accepted that such a reserve had to be created and maintained. I refer to the Chronology and the evidence of the Claimants' witnesses in this connection (which I specifically accept). In addition I refer to the following documents:
(a) Paragraphs 6 and 7 of the Protocol of 8 June 1995;
(b) Rybcomflot's letter to DMP of 17 October 1995 ("…it is necessary to include into the expenses either payments in accordance with the original Schedules or to create a specific reserve fund to the same amount for subsequent repayments of the deferred payments");
(c) Rybcomflot's letter to DMP of 16 May 1996 ("…In any case, the accounting policy for reflecting vessels' operations in the balance sheets of your company should include building up a reserve for the further payments that are currently subject to the deferral (see letter from the Fisheries Committee…dated 24.11.95"));
(d) Rybcomflot's and Bergen's letters to DMP of 4 February 1997 ("…We hereby suggest the creation of a reserve of funds by way of transfer as depreciation in the amount of US$3,500,000 for all three vessels per year to the special sub-account. Your refusal…to accept our proposal may result in the exclusion of our loans from the amount of debt for the former USSR and in presentation for payment of all amounts which have been already deferred…");
(e) Rybcomflot's letter to the Committee of Fisheries of 26 January 1999;
(f) DMP's letter to Mr Shcherbak of 7 June 1999 ("…We believe that the management of all vessels should be concentrated in DMPT…This would make it possible to create the financial reserves necessary for repaying the loans which the vessels had been purchased with");
(g) Mr Yuri Didenko's note to the Committee of Fisheries of 31 December 1999.
(7) Bergen/Rybcomflot never agreed to release DMP from its obligation to pay any sum set out in the Schedules by way of hire. Bergen/Rybcomflot consistently made it clear to DMP that it would have to pay hire when required.
(8) To the extent that DMP was granted any indulgence in relation to time of payment of hire from June 1995, I find that this was on the agreed (conditional) basis that any indulgence would cease (and sums not paid under the Schedules would become immediately payable) if Bergen/Rybcomflot so notified DMP. In particular it was contemplated that this would happen if Bergen/Rybcomflot were called upon to make any payments to the Russian Federation Government as Guarantor (see Relationship (1)(c) above) whether by way of capital, interest or otherwise. Having provided in express terms that DMP was obliged to pay hire in accordance with the Schedules to the 1995 Sub-Charters, it would have been commercially absurd for Bergen/Rybcomflot to have granted indulgence to DMP in relation to time of payment of hire from June 1995 onwards, and yet to have found themselves having to make payments to the Russian Federation Government. DMP attended meetings with and made representations to the Russian Federation Government from time to time (and at one point DMP tried to bypass Bergen/Rybcomflot and deal direct with the Russian Federation Government) because DMP recognised and accepted the basis set out above.
(9) By 1999 it was clear that circumstances had changed and that the Claimants were not prepared to allow further indulgence as before, in relation to time of payment of hire. In particular (but without limitation) I refer to the following facts and matters.
Mr Pukhov was never prepared to forgo hire as per the Schedules; nor were his predecessors. At para 14 of his second witness statement Mr Didenko stated that he knew that in 1999 he would have to start making payments.
Following Rybcomflot's letter to DMP of 1 March 1999 and Order 170 of 29 June 1999 a complication arose. The three ships should have been transferred to DMPT, following signature of 3 new charters to DMPT in July 1999. I refer to the Schedules to those charters and the payments called for from 1 October 1999. (It is common ground that in the event the 1999 Charters did not become effective in relation to the three vessels, but this was due to breaches/failures on the part of the Defendants). In October Mr Yuri Didenko promised to pay $28m and then said he would pay $2m pa per ship. The letter of 10 November 1999 was, according to Mr Pukhov, a demand for an amount of hire due under both the 1995 and 1999 charters, since he was anxious not to waive any rights to have the 3 ships transferred to the 1999 Charters pursuant to Order 170. Mr Laskaridis' note of 25 November 1999 records the position as at that date. Mr Pukhov describes in his statement how the matter progressed thereafter, including his suggestion to Mr Didenko that the new schedules should apply (10.3.00) and Mr Didenko’s response of 14 March ("…please confirm that (the Kapitan vessels) operate under old bareboat charter contracts… Let me reinforce our strong commitment to regularly paying bareboat charter fees"). In July 2000 Amendment Agreements to the 1999 Charters to DMPT of the three Kapitan vessels were signed. Some hire was paid from December 1999 onwards, but the ships were not transferred to the DMPT Charters, the payments of hire were inadequate on any basis and there was no indication that proper payment or transfer was ever going to happen. Formal letters of demand were sent on 4 October 2000 on the basis of the 1995 Sub-Charters and, in the alternative, the 1999 Charters, making time of the essence and demanding payment in accordance with their terms. DMP was told in clear terms "unless the outstanding balance is remitted to Bergen by 3 November 2000, Bergen and Rybcomflot intend to exercise their right to terminate…". The response of Mr Yuri Didenko on 14 October should be noted. It suggested that the sums due were those under the 1999 Schedules, which were less than those due under the 1995 Schedules as accumulated. Rybcomflot’s reply of 23 October stated "there…never was any agreement between us to alter the payment Schedules (under the 1995 Sub-Charters) for these vessels".
(10) The Defendants should have accumulated a sufficient reserve from which to pay hire when required. They failed to do so. When giving evidence Mr. Yuri Didenko said that between 1995 and 1999 a reserve fund was kept in Seattle on the account of DVMI. This was untrue. In his second witness statement Mr. Luttrell of DVMI said:-
“I understand that Mr. Y G Didenko of DMP asserts that DVMI maintained a reserve account containing substantial amounts of cash on behalf of DMP. This is not correct. ...DVMI reflected in the DMP financial statements prepared on behalf of DMP depreciation to the capital assets, including the 3 supertrawlers, at the rates set by DMP themselves. Depreciation was a “non-cash” item and did not correspond nor have any connection to the cash DVMI had in its possession. Cash balances, to the extent not committed to ongoing running expenses of the venture or necessary reserves against actual expenses of the fleet, were generally remitted to or for the benefit of DMP when it was due to them, so that DVMI kept no “free” or “unaccounted for” cash fund. If Mr. Didenko is suggesting that DVMI had substantial cash reserves available to meet DMP’s hire obligations to Bergen at any time from 1995 until our management contract ended in late 2000, I believe he is in error. ...accounting spread sheets prepared for the period of December 1997 through December 2000 which represent the book balances of the DVMI bank accounts at the end of each month, ...clearly show that there were no cash reserves of the kind described by Mr. Didenko. In fact, Mr. Didenko would habitually demand that DVMI remit to DMP any monies he believed were due to him at the earliest opportunity. Remittances by DVMI to or for the benefit of DMP were generally made by DVMI on instructions from Mr. Y G Didenko. Many of these payments were, at the request of DMP, labelled “Depreciation”, even though they did not relate to capital expenditure. ... Until 1999, we remitted no sums by way of hire for the 3 ships. I can confirm that over the period from 1996 until 2000 DVMI remitted a total of about US$51,000,000 in cash to or at DMP’s direction.”
(11) The Defendants’ default in relation to the transfer of the ships to DMPT meant that they could not take the benefit of the 1999 Schedules. The notices of 4 October 2000 were reasonable in all the circumstances. (Further notices were served by the Claimants without prejudice to the earlier termination. Bergen and Rybcomflot rely on the later notices in the alternative if and to the extent necessary, in support of their case that the Sub-Charters of the Kapitan vessels have been validly terminated).
(12) The notices requiring the Defendants to pay hire in accordance with the Schedules to the 1995 Sub-Charters (including arrears) were not inequitable in (among others) the following circumstances:
(i) DMP knew of the Paris Club at the time of entering into the Sub-Charters;
(ii) DMP knew of the need to (and promised to) create a cash reserve fund to pay hire as and when it was required by the Claimants, and yet failed to create such a fund;
(iii) the agreed basis referred to in (8) above; and
(iv) the history of events set out above including without limitation the change of circumstances in 1999.
13. FORMATION OF THE JULY 1999 CHARTERS
The chronology of events, in relation to the creation of the 1999 Charters, was as follows:
The Schedules were created on 12 July 1999.
The 1999 Charters, signed by Mr Dibble on behalf of Bergen and Bolero, were sent to Rybcomflot’s offices in Moscow on 13 July 1999. At this stage they had blank schedules attached. The covering letter pointed out that the financial Schedules needed to be attached.
Mr Grigori Didenko visited Rybcomflot’s offices in Moscow where he had discussions with Mr Pukhov, Ms Tatyana Skvoznijakova and Mr Shinkarenko and signed the 1999 Charters (incorporating the Schedules).
On 19 July 1999, Rybcomflot sent copies of the Schedules to Mr. Noel Campbell of Holman, Fenwick & Willan under cover of a letter headed “Re: Schedules, attached to the Charters in Respect of the 14 Super Trawlers”.
The Defendants' case is that notwithstanding that Mr Grigori Didenko signed the 1999 Charters, each of which provided that hire was to be paid “... in amounts and at the dates in accordance with the Schedule attached hereto”, no Schedules were in fact attached to the 1999 Charters, nor were they agreed. Rather, the Defendants say, there was an oral agreement that DMPT “would not be required to make payments of hire until it could afford to pay them”; that “no demands for payment of hire would be made until [DMPT’s] business was sufficiently well established”; that “when [DMPT’s] business was sufficiently well established, the parties would negotiate the terms upon which hire was to be paid”; and that “if the Russian government demanded payment, [DMPT] would pay hire in a like amount provided that the government’s demand was lawful, reasonable and in an amount which [DMPT] was able to meet”.
I reject the Defendants’ case as above. It is inconsistent with the Claimants’ compelling evidence and inconsistent with the contemporary documents. It is also inconsistent with DMP's case as presented to the Moscow Arbitration Court in February 2000. In addition the alleged oral agreement is not only inherently unlikely, but would lead to commercially absurd results. I refer to Mr Laskaridis' graphic account of the Defendants' approach set out above. Further, the Defendants' case in this connection has undergone numerous changes, both prior to and during the course of these proceedings.
14. CONSTRUCTION OF THE JULY 1999 CHARTERS
The 1999 Charters provided inter alia as follows:
“6.1 The Charterers shall pay charter hire payments consisting of:
(i) payments of principal and interest due to the Banks and BHA in amounts and at the dates in accordance with the Schedule attached hereto. Payments must be paid to the account of the Owners or to an account nominated by the Owners as notified by the Owners to the Charterers;
(ii) other money due to the Banks and BHA under the terms of the Loan Agreement (including interest accrued on the deferred amounts);
6.2 All payments due from the Charterers shall be made free and clear of all taxes, assessments, charges, duties and imports of whatsoever nature, all of which shall be for the Charterers’ account.
6.3 In no circumstances shall the Charterers have the right to refuse or abate the charter hire payments on the basis of any set-off or counterclaim against the Owners, nor will the Charterers have the right to withhold charter hire payments during the Charter Period for any reason whatsoever and it is expressly agreed that during the Charter Period no supervening or unforeseen events shall discharge the Charterers from the duty to pay charter hire amounts or to perform and discharge its duties and liabilities hereunder or frustrate or determine this Charter.
6.4 The Owners hereby covenant with the Charterers that the Owners will utilise charter hire payment in making moneys available for payment of amounts due under the Loan Agreement. Accordingly, the Charterers hereby agree and undertake with the Owners to keep the Owners fully and properly indemnified from and against any actions proceedings, claims and demands which may be brought or made against the Owners under the Loan Agreement and all costs and expenses in connection therewith resulting from non-payment or delayed payment on the due date of such charter hire payments and therefore of payment due from the Owners in connection with the Loan Agreement.
6.5 In the event that the Charterers fail to fulfil their obligations under the provisions of Clause 5, 6, 7 or 8, the Owners shall have the right to terminate this Charter and repossess the Vessel from the Charterers without any compensation or refund of any amounts paid by the Charterers under the provisions of Clause 6 or Clause 7 of this Agreement.
...
20.1 It is a condition of the transfer of the Vessel on bareboat charter under this Charter that 100% of the shares of the Charterers under this Charter (Dalmoreproduct Trawlers) be transferred to Rybcomflot by ... Dalmoreproduct for the period during which the Charterers are carrying out their obligations under this Charter. Such shares shall be sold back to Dalmoreproduct at the same nominal value by Rybcomflot when all the obligations set out in Clauses 5, 6, 7 or 8 of this Charter have been fulfilled.”
On a true construction of the 1999 Charters, DMPT was obliged to pay hire in
accordance with the Schedules to the Charters. The 1999 Charters were validly
amended in July 2000.
15. SUPPLIES AND INVENTORIES
When the 11 Vessels were delivered to DMPT in July 1999, there was a substantial quantity of supplies and inventories belonging to the previous charterers, Super, on board.
Clause 8 of the Super Charters had provided inter alia as follows:
“The Charterers hereby irrevocably and unconditionally guarantee and secure full and in proper time payments of:-
all amounts due under Clause 6 of this Charter [the hire clause]
... (collectively, the “Secured Obligations”)
...
In order to warrant the Secured Obligations the Charterers hereby mortgage and assign:-
all of their right, title and interest in to and all seafood and seafood products caught by the Vessel or by any other vessels managed or operated by the Charterers, and all products and proceeds (including amounts receivable) thereof (including without limitation insurance proceeds), whether now owned or hereafter acquired, whether now existing or hereafter arising, wherever located; ...
...
all estates or interest in any property now or at any time during the continuance of the Charter Period belonging to the Charterers and the proceeds of sale thereof...
(collectively, the “Collateral Security”)
...
In the event of a default by the Charterers if the Charterers fail to make any payment when due with respect to the Secured Obligations, the Owners shall have the right to enforce the Collateral Security by all or any mode stipulated by law”.
As at July 1999, Super owed Bergen and Bolero substantial amounts of hire. Accordingly, by a letter dated 4 August 1999, Bergen and Bolero exercised their security rights over the supplies and inventories and thereby acquired title thereto. This letter was copied to DMPT.
On 17 November 1999, Bergen, Bolero and DMPT concluded a Protocol of Delivery and Acceptance in respect of Supplies and Inventories on the 11 Vessels. The Protocol provided inter alia as follows:
“The Charterers [DMPT] hereby declares that it has on July 16, 1999 taken delivery of the all equipment and supply, in the confirmed amount of US$19,150,000.00 delivered with the boats and that it has accepted the same. The Owners [Bergen and Bolero] hereby declare that its boats’ equipment and inventories in the amount of US$19,150,000.00 has been delivered to the Charterers with the boats on July 16, 1999.”
On 28 January 2000, the same parties concluded a Debt Agreement, which referred to the Protocol of Delivery and Acceptance dated 17 November 1999, defined the US$19,150,000 as the “Debt” and provided as follows:
“The Charterers and the Owners confirm that they agreed on 17 November 1999 that the Charterers will repay the Debt in full on or before 15 June 2000 (the “Repayment Date”). ...The Debt may be repaid either directly to the Owners or as instructed by the Owners or by payment to the suppliers or vendors of the Inventories and Supply, in which case the Owners must receive original invoices and receipts for any such payments before agreeing to any reduction in the Debt by the amount or amounts so paid.”
On 29 January 2000, the same parties, together with Super, concluded a Protocol of Delivery and Acknowledgment of Debt . This stated:
“It is agreed that when the [eleven vessels] were redelivered to 000 Dalmoreproduct Trawlers on 16th July 1999 following the termination of the charters of the Vessels to ZAO Super, USD19,150,000 was owing to Bergen and Bolero (together the “Owners”). Between 16 July 1999 and 3 August 1999 USD 2,400,000 of cargo was delivered to ZAO Super on the instruction of the Owners so that USD 16,750,000 remained owing to the Owners by 000 Dalmoreproduct Trawlers after 3 August 1999.”
On the basis of these agreements, the Claimants claim US$16,750,000, since reduced to US$16,500,000.
The Defendants say there are three main defences to this claim, mistake, breach of warranty of title and discharge or compromise.
The Defendants assert that any claim in respect of the Supplies and Inventories was compromised by the parties pursuant to the FEMS Settlement Agreement in March 2000. It is denied that the Claimants had any or any valid title to the supplies and equipment. It is alleged that the Debt Agreement and the Protocol of Delivery and Acceptance are not binding because they were entered into by reason of a mistake, namely that Super or Bergen or Bolero were entitled to make a claim, whereas any rights Super may have had to the Supplies and Inventories had been assigned to FEMS.
These defences are not available, inter alia, for the following reasons.
I reject the assertion that FEMS acquired title to the Supplies and Inventories by reason of a purported assignment between Super and FEMS on 4 November 1999. I accept the evidence of the Claimants' witnesses to the effect that Mr. Berezov, the employee who signed the purported assignment, did not have authority to do so. He was connected with Mr. Nikitenko, who was the controlling mind of FEMS. There was no mistake as to Bergen and Bolero’s title to the supplies and equipment or as to Super’s rights. I accept Mr Pukhov's evidence that Mr Grigori Didenko entered into the Debt Agreement of 28 January 2000 in the knowledge of the purported assignment.
The claim in respect of the Supplies and Inventories was not compromised pursuant to the FEMS Settlement Agreement. The FEMS Settlement Agreement did not involve the compromise of any claim Bergen and Bolero had against DMPT in respect of Supplies and Inventories. It was a compromise agreement between two groups, namely the “FEMS Group” and the “Laskaridis Group” of the claims made between members of one group against members of the other group. There was no settlement of any claims between members belonging to the same group. Bergen, Bolero and DMPT were all part of the “Laskaridis Group” for the purposes of the Settlement Agreement.
DMPT obtained the benefit of the Inventories and Supplies and agreed to pay the Claimants for them. DMPT have had quiet possession of them since July 1999.
It should be noted that Mr Grigori Didenko in the course of an interview shortly before he died (after discussion of the amount of the debt in respect of Supplies and Inventories) said: “ ...we will pay it. Because it’s just repayment for what was not paid before, and because Bergen is owner of boat, so he has right of demand those money. We did not regret payment. Now we just asking for delay”.
There is one issue that I cannot resolve on the material before me. The Claimants refer to "…an amount of US$1.7M which…was paid by Super to its then agents FEMS, but not paid by FEMS to the vendors and which may have been duplicated in whole or in part by payments totaling US$1,694,850 made
by PTI, in its capacity as managers for DMPT." I propose to give judgment under this head for US$ 16.5M less US$1,694,850. If the Claimants wish to pursue a claim to the balance I will direct an issue to be tried in this connection.
16. FAILURE TO TRANSFER THE 3 VESSELS TO DMPT
Order 170 of 29 June 1999 stated that the 14 supertrawlers were to be transferred to DMPT. (Following an earlier undated agreement), an agreement dated 25 November 1999 between DMP, DMPT, DVMI, PTI, Crystal and Rybcomflot provided that DMP would transfer the three Kapitan vessels to DMPT on the terms of the charters signed between DMPT and Bergen in July 1999. The transfer was to be completed no later than 1st January 2000. DMP failed to perform its obligations in relation to the transfer of the 3 vessels to DMPT. Mr. Yuri Didenko wrote in a letter to Mr. Luttrell of DVMI on 8 September 2000: “This is to confirm that we have no intention to transfer the three vessels.... to DMPT or to PTI. We do not believe that we have any obligation to do so.”
I refrain from expressing any view about the claims against DMP arising out of the Main Agreement and the Contract of Affreightment of 28 May 1999 (as subsequently amended). These claims are the subject of two arbitrations.
17. FAILURE TO TRANSFER THE SHARES IN DMPT TO RYBCOMFLOT
DMP failed to transfer its shares in DMPT to Rybcomflot, despite a clear contractual obligation to do so. I refer to clause 7 of the “Scenario” signed on 28 May 1999. The transfer of the shares became a term of the 1999 Charters to DMPT under clause 20.1 thereof (clause 21.1 of the 1999 Charters as amended in July 2000). On 22 July 2000 (2 days after the signature of the July 2000 amendments) Mr. Didenko forwarded a sale and purchase agreement in respect of the DMPT shares to Mr. Pukhov. The Claimants’ lawyers then pointed out to him inter alia that according to DMPT’s articles such a share transfer was prohibited and that an amendment to the articles was required. Mr. Didenko replied on 3 August 2000 raising anti-trust issues with regard to the proposed agreement, but offering to change the articles. However, in a letter to the Claimants dated 31 August 2000 Mr. Didenko wrote: “..We came to the following conclusions, that ... Dalmoreproduct has no obligations to transfer its share in ... Dalmoreproduct Trawlers to Rybcomflot..”
The failure to transfer the shares was a deliberate breach of contract, designed to keep control of the vessels.
18. HIRE - JULY 1999 TO MAY 2000
Pursuant to the Schedules to the 1999 Charters the first payments fell due on 1 October 1999. On 28 September 1999, Mr. Grigori Didenko wrote to the Claimants asking for a “one year delay under the established graph of charter payments” for the 11 vessels. (This request was, of course, only consistent with the Schedules having been agreed and was wholly inconsistent with the alleged oral agreement). The Claimants responded by granting a deferral of part of the hire due until 1st December 1999 and the majority until such time as was to be advised.
On 13 October 1999, at a meeting with the RF attended by Mr Didenko and his son, Mr Didenko promised to pay $28m. After that meeting he said he would pay US$2 million per vessel per year.
On 25 November 1999, at the meeting in Lucknam Park, Mr Pukhov pointed out that US$32 million was due pursuant to the 1999 Charters (in respect of all 14 Vessels). This figure was the sum due according to the Schedules. Mr Grigori Didenko promised to pay US$6 million of this in December 1999 and US$12 million in January 2000.
On 29 December 1999 in a letter to the Fisheries Committee, Mr Grigori Didenko wrote: "…we have made hire payments for the IV quarter in accordance with the schedules agreed with the owners". This was untrue.
The second instalment fell due on 1 January 2000. On this occasion, DMPT did not ask for a deferral, nor was any deferral granted. DMPT failed, however, to pay the hire that was due. Accordingly on 2 February 2000, the Claimants wrote to DMPT referring to the obligation to pay hire in accordance with the Schedules and threatening to terminate the charters if DMPT did not comply with its obligations to pay hire. On 20 March DMPT paid US$2,650,000.
The third instalment was due on 1 April. Again, DMPT neither asked for a deferral, nor paid hire. On 28 April 2000, the Claimants wrote to DMPT complaining that “neither DMP nor DMPT comply with contractual liabilities to Bergen and their debt is growing constantly” and stating “we realise that you will not be able to repay at once the whole debt for the hire to Bergen however we insist that USD 11.5 million should be paid in May and USD 5 million in the first part of June”.
During the same period, the Claimants were having great difficulty extracting hire from DMP. On 13 October 1999, at a meeting with the RF attended by Mr Didenko and his son, Mr Didenko promised to pay $28m. After that meeting he said he would pay US$2 million per vessel per year.
Notwithstanding Mr Didenko's various promises from time to time, very little was actually paid, as is apparent from Schedule 1 to the Claimants' Closing Submissions.
The letter of 10 November 1999 was, according to Mr Pukhov, a demand for an amount of hire due under both the 1995 and 1999 charters, since he was anxious not to waive any rights to have the 3 ships transferred to the 1999 Charters pursuant to Order 170. Notwithstanding this demand, no hire was paid by DMP by 10 December. US$642,858 was paid on 21 December and a similar sum was paid on 24 December.
By a letter dated 10 March and then 16 March the Claimants asked for more modest sums of US$5 million, and then US$2.5 million, but DMP failed to comply with either of these demands.
As a result of non-payment of hire, the Claimants were coming under increasing pressure from MinFin. The Didenkos were well aware of this.
19. THE 17 MAY FREEZING ORDER
As at 17 May 2000: the total hire due in respect of the 11 Vessels pursuant to the 1999 Charter Schedules was 7,197,832,633 pesetas (equivalent to about US$40,000,000 at the then current exchange rate).
DMPT had paid hire of only US$2,800,000. The Claimants point out that the US$10 million advanced by Komaria to Bergen (on behalf of Lavinia) pursuant to the Loan Agreement cannot be regarded as a hire payment at this stage. It only became a hire payment when debited to the PTI/Crystal’s running account with Lavinia on 22 June 2000.
Accordingly, DMPT owed a very substantial amount of hire. (Mr Yuri Didenko in a letter dated 29 November 2000 said that by 17 May 2000 “the debt to Bergen for the hire per 11 vessels achieved 36,250,000 USD”).
The Agreement dated 23 September 1999 between DMPT, Verisa (subsequently Crystal), Bergen and Bolero provided by clause 1 that: “In the event that DMPT fails to fulfill its obligations under the Charters, Bergen, Bolero and Rybcomflot may give notice to Commissioner [VERISA] of such failure. In the event such notice is received by Commissioner, then except as necessary for the continued, uninterrupted operation of the Vessels and until such failure is cured or otherwise resolved, Commissioner will not disburse to DMPT any amounts collected by Commissioner from sales of the products of the Vessels”. This gave the Claimants the right to freeze the disbursement of sale proceeds to DMPT in the event that hire was overdue. This right had arisen by 17 May 2000. The instruction given to PTI and Crystal on 17 May 2000 was lawful.
I accept Mr Laskaridis' evidence that the letter of 17 May did not have any effect on the availability of money to pay hire. Mr Yuri Didenko chose to ignore the financial consequences of the complex series of obligations assumed inter alia to the Laskaridis interests and to PTI and Crystal (in addition to the obligations to the Claimants). Further in this connection I refer to my analysis of the accountancy evidence set out above.
The freezing order was lawful. Further it did not have any effect on the availability of money to pay hire. DMPT do not have any defence or counterclaim by reference to the freezing order, or the subsequent withholding of funds by Crystal.
20. JULY 2000 AMENDMENTS
Mr. Pukhov turned to Mr. Laskaridis for help because he could not raise finance from anywhere else, with charterers who were not paying anything approaching sufficient hire. Mr. Laskaridis required, as a condition of funding, that the DMPT Charters be amended inter alia to provide that the supertrawlers could be mortgaged as security for the loan to be advanced by the Laskaridis interests.
On 22 June the Claimants made a demand for US$ 41,431,155 outstanding under the DMPT charterparties and US$ 16,750,000 plus interest owing for Supplies and Inventories.
A meeting was held at the offices of Fleet Services (a Laskaridis company) in London starting on about 18 or 19 July 2000 between Mr. Pukhov, the Didenkos and Mr. Yunaev. Mr. Yunaev attended as a consultant to Mr. Yuri Didenko. On the first day Mr. Pukhov was not there and there were discussions between the Didenkos and Mr. Laskaridis. On the 2nd and 3rd days, Mr. Pukhov attended and Mr. Laskaridis did not attend for long.
At the time of the meeting at Fleet Services the Didenkos knew that Laskaridis interests were prepared to advance a loan to enable Bergen to re-finance its debt to MinFin. Participation in such lending had been offered to Mr. Didenko and Mr. Yunaev.
Mr. Pukhov told the Didenkos that the failure by DMP and DMPT to pay hire had put him and Bergen into an extremely difficult position. Mr. Pukhov informed Mr Yuri Didenko that the reason for the freezing order was DMPT's failure to pay hire. The failure to transfer the 3 ships to DMPT was raised. The issue of the transfer of shares was also discussed. Mr. Pukhov told Mr Didenko that unless he fulfilled his obligations, his only option would be to terminate the charters. Mr. Yuri Didenko reacted to Mr. Pukhov’s demands by making an extremely menacing remark about the 1937 purges.
On the following day Mr. Pukhov met Mr. Grigori Didenko and Mr. Yunaev at Fleet Services. (Mr. Yuri Didenko had left London). There was an amicable discussion in which Mr. Pukhov explained to Mr. Grigori Didenko and Mr. Yunaev the possibility of a loan from Yerania and the need to amend the terms of the DMPT charters. Mr. Pukhov told Mr. Grigori Didenko that provided the 3 vessels were transferred to DMPT and the security documents necessary under the financing arrangements were executed, he would arrange for US$ 2 million to be unfrozen by Crystal. Mr. Pukhov then called Mr. Dibble to come to the meeting with the proposed amendments to the DMPT charters, which Mr. Pukhov gave to Mr Grigori Didenko so that he could study them. Mr Grigori Didenko agreed to the amendments, but said that he wished to discuss them with his father that night before handing Mr. Pukhov the signed amendments. It was arranged that they would meet the following morning at Fleet Services.
That night, Mr. Grigori Didenko discussed the amendments with his father on the telephone. He returned the following day and gave Mr. Pukhov the signed amendments. He told Mr. Pukhov that he had discussed the amendments with his father and had convinced him that they should be agreed.
Mr. Pukhov’s account was confirmed by Mr. Yunaev. Mr. Yunaev told Mr. Grigori Didenko that they should talk to his father and that if they considered there to be anything dangerous for DMPT in the documents they should not sign them. He advised Mr. Yuri Didenko during the telephone conversation with him after the 2nd day of the meeting at Fleet Services that the amendments were no more than any Western lender would require.
Clause 6.1 of the 1999 Charters as amended in July 2000 provided:-
“The Charterers shall pay charter hire payments consisting of payments in amounts and at the dates in accordance with the Schedule attached hereto. Payments must be paid to the account of the Owners or to an account nominated by the Owners as notified by the Owners to the Charterers or, if the Owners have mortgaged the Vessel and assigned their rights under the Time Charter, to the account provided for by such mortgagee and notified to the Charterers.”
The Defendants challenge the July 2000 amendments to the 1999 Charters to DMPT on the following grounds: (i) economic duress; and (ii) lack of consideration. An allegation of undue influence was abandoned at the summary judgment application. Mr Howard (rightly) did not press an allegation of misrepresentation.
As to economic duress, duress is a coercion of the will so as to vitiate consent. In a contractual situation commercial pressure is not enough. There must be present some factor which could in law be regarded as coercion of will so as to vitiate consent. In determining whether there was a coercion of will such that there was no true consent, it is material to inquire whether the person alleged to have been coerced (a) did or did not protest; (b) whether he had an alternative course open to him, such as an adequate legal remedy; (c) whether he was independently advised; and (d) whether after entering the contract, he took steps to avoid it? (See Pao On v Lau Yiu Long [1980]AC 614 perLord Scarman at 635B, PC. See further Chitty on Contracts 28th edn. volume 1, 7-010 et seq and the cases there cited and Carillon Construction Ltd v Felix (UK) Ltd (2001) BLR 1, Dyson J).
It is important to remember that the allegation of economic duress is made in respect of amendments to existing charters, against the background of a complex series of agreements to which, among others, the Laskaridis interests and PTI and Crystal were parties. In my judgment the ingredients of economic duress are not made out in the present case.
In the transcript of the interview with Mr Grigori Didenko which took place on 31 January 2001 he said: “And Pukhov explained why he wanted to do it, because he wanted to get some money and try to compensate the outstanding debts of Rybcomflot and Bergen for Russian Confederation .... He have no other choice like do that. It was reasonable. It’s why I signed....”.
DMPT also challenges the amendments to the 1999 Charters on the ground of lack of consideration.
The amendments were entered into in consideration (among other matters) for (a) the indulgence shown by Bergen and Bolero to DMPT in respect of its continuing default, which was acknowledged by DMPT: see the recitals 1-3 of the Amendment Agreement and (b) the promise by Bergen and/or Bolero to release US$ 2 million to DMPT from Crystal.
21. THE FACILITY AGREEMENT AND THE RESCHEDULING AGREEMENT
Once the Amendments were agreed, the Facility Agreement under which finance for payments to MinFin to be provided by Yerania was agreed. On 28 July 2000, Bergen entered into the Rescheduling Agreement with MinFin and Vnesheconombank for the repayment of the sums owing to the Russian Government pursuant to the guarantees it had provided for the loans for the construction of the vessels. Bergen’s obligations were guaranteed by Rybcomflot in a separate agreement of the same date.
Under the Facility Agreement, Yerania agreed to provide securities to Vnesheconombank for MinFin so that, taking into account securities provided by Bergen, the indebtedness of Bergen to MinFin in the sum of US$313,788,675.12 would be reduced by US$ 200 million. The amount incurred by Yerania in providing the securities plus an arrangement fee was to be repaid to Yerania in 12 equal quarterly instalments starting 3 months from the date of the drawdown of the loan (cl. 6.1) plus interest at 5% above 3 monthly LIBOR.
In the event Yerania lent Bergen US$ 147 million in Russian State bonds. Of this, US$ 126 million worth was in PRINS and US$ 21 million worth was in IANS. The market value of the bonds on Friday 28 July 2000 was US$ 47,772,500. Bergen’s total indebtedness including the arrangement fee under the Facility Agreement was US$ 63.5 million. This, together with further bonds to a face value of US$ 53 million which Bergen acquired itself at a cost of approximately US$ 16 million, were used to pay off US$ 200 million owing by Bergen to MinFin under the Re-Financing Agreement.
Under the Rescheduling Agreement it was recorded that the amount of Bergen’s obligations to the Government of the Russian Federation was confirmed in the sum of 55,943,782,226 Spanish pesetas, which was converted into US$ for the purpose of the agreement in the amount of US$ 313,788,675.12.
It was agreed (cl. 5.2) that US$ 200 million would be paid by the provision before 28 July 2000 to MinFin of PRINS to a value of 179 million and IANS to a value of US$ 21 million at their nominal value and the remaining amount of US$ 113 million (cl. 5.3) would be paid in equal half yearly instalments starting from 15 December 2000 in accordance with a schedule attached to the agreement. In addition Bergen undertook to open a special blocked account and to keep in that account a minimum non reducible balance equal to 50% of the amount of the next payment due from time to time under the schedule (cl. 5.7).
22. HIRE - AUGUST 2000 TO JANUARY 2001, DEMANDS AND NOTICES OF TERMINATION
On 4 October 2000, Bergen and Rybcomflot sent letters to DMP in respect of each of the 3 vessels stating that hire had not been paid in accordance with the Schedules to the 1995 Sub-Charters and giving details of the outstanding balance. The letter then stated as follows:
“... If you wish to seek further details of how the Outstanding Balance has been calculated, we should be happy to provide them to you. If you wish to challenge this figure, and believe that there is a different amount outstanding under the Sub-Charter, we would urge you to notify us as soon as possible with details of your calculation of the balance”.
The letter then continued by demanding payment of the outstanding balance by 3 November 2000; giving notice of an intention to terminate in the event that it was not paid by that date; and giving details of the account to which payment was to be sent. (Similar letters were sent to DMPT in respect of the 3 vessels in order to protect Bergen’s and Rybcomflot’s position in case the 1999 Charters were operative in relation to the 3 vessels - which, it is now common ground, they were not).
In his reply to this letter of 14 October 2000 Mr. Yuri Didenko raised two issues in relation to the amount of hire claimed.
In the second paragraph he asked why the calculations were based on the Schedules to the 1995 Sub-Charters as opposed to the Schedules to the 1999 Charters? The reason for this is obvious. The vessels had not been transferred to the DMPT and so the 1999 Charters were not operative.
In the third paragaph he referred to the Paris Club and the deferment of repayments until 1999. Relying on this, he asserted that the total hire due in respect of the 3 vessels was US$15 million, less sums paid (wrongly said to be US$12 million). The Claimants say that an analysis of the figures shows that the calculation was based on the hire due according to the Schedules to the 1999 Charters of the 3 vessels. For each of the 3 vessels, the figure in a calculation prepared by the Defendants was equal to the hire due pursuant to the relevant 1999 Schedule converted into US$ at the then current exchange rate of 188.57. Accordingly, in the third paragraph, Mr. Yuri Didenko again asserted (albeit for different reasons) that hire was due in accordance with the 1999 Schedules rather than the 1995 Schedules.
There is no suggestion, anywhere in this letter, that hire might somehow be linked to the Claimants' repayment obligations to MinFin and/or Yerania, notwithstanding that Mr. Yuri Didenko was well aware of the Facility Agreement and Rescheduling Agreement, and that the 1999 Schedules did not reflect the sums due pursuant to those agreements.
Rybcomflot responded to this letter on 23 October 2000 setting out the reasons why the points made by Mr Yuri Didenko were wrong; disputing the assertion that DMP had paid hire of US$12 million; and, in those circumstances, maintaining the calculations contained in the demands of 4 October and requesting payment by 3 November 2000.
At this time Mr. Bodakin instructed the captains of each of the 11 vessels to cease shipping the vessels’ production to Crystal.
On 30 October 2000, US$6,298,274.74 fell due under the Facility Agreement. However, as a result of the continuing failure of the Defendants to pay hire, the Claimants were unable to pay this sum. Accordingly, on 10 November 2000, Yerania sent the Claimants notice of default. On 1 December, the entire loan was called in.
On 28 November, Mr. Yuri Didenko wrote to Lavinia confirming that the 1999 Charters provided for payment of a total of over US$61 million for the eleven vessels for the period October 1999 to October 2000 - thus acknowledging that hire was due in accordance with the Schedules. On the following day, the Claimants wrote to DMPT informing them that only US$13,650,000 had been received from DMPT through Crystal/PTI.
It was at about this time that DMP ordered the 3 Vessels to Rajin in North Korea, where arrest or any other form of enforcement is impossible.
On 1 December 2000 the Claimants terminated the 1995 Sub-Charters and demanded that the 3 vessels be delivered to them at Pusan.
A demand for all outstanding hire in respect of the 11 vessels was made in the Particulars of Claim served in the second week of December. On 22 December 2000, Bergen and Bolero wrote to DMPT stating that hire had not been paid in accordance with the Schedules to the 1999 Charters and giving details of the outstanding balance. The letter offered DMPT an opportunity to query or challenge the figures; demanded payment by 5 January 2001; and gave notice of an intention to terminate the 1999 Charters in the event that the outstanding balance was not paid by that date.
On the same day, Bergen and Bolero also sent a demand for the US$16,750,000 due in respect of Supplies and Inventories, again giving notice of an intention to terminate the 1999 Charters in the event that such sum was not paid by 5 January 2001.
No further hire payments were made. Accordingly, the 1999 Charters were terminated on 5 January 2001.
At the end of his evidence, when asked by the court "How much do you say you owed in December 2000 in respect of the 11 vessels, if anything?" Mr Didenko replied "I do not remember, but I think it was 41 million".
The Claimants were, in my judgment, entitled to terminate the 1995 Sub-Charters and the 1999 Charters (as amended in July 2000) as above. Without prejudice to the notices of termination of 1.12.00 (the three Kapitan vessels) and 5.1.01 (the eleven vessels), the Claimants rely in the alternative on a number of further notices of termination.
23. FAILURE TO PAY AGENCY FEES
An agency agreement was entered into between DMPT and Albatross Agencies dated 1 September 1999 under which DMPT was required to pay Albatross an annual fee of US$ 80,000 per vessel (cl. 4) in consideration of agency services to be provided by Albatross. Pursuant to the July 2000 amendments, Albatross were replaced as agents by Laskaridis Shipping Co. Ltd. Despite numerous demands, the Albatross agency fees are largely unpaid and the fees owing to Laskaridis Shipping Co. Ltd have not been paid. Such non-payment is also a ground for termination of the 1999 Charters to DMPT, on which the Claimants rely - see cl. 7 of the 1999 Charters and the amendment thereof.
24. RELIEF FROM FORFEITURE
The Claimants say that there is no jurisdiction to grant relief from forfeiture and that (even if there is) it would not be appropriate to grant relief in all the circumstances of this case. The Defendants refer to a passage in ‘Bareboat Charters’ by Mark Davis at p61 in support of their contention that there is jurisdiction to grant relief from forfeiture. They contend that relief should be granted in respect of the 14 vessels.
The principal grounds on which the Defendants rely in seeking relief from forfeiture are as follows:-
uncertainty surrounding (a) the precise amount of hire which is properly due, (b) the precise amount of hire which has been paid, and (c) whether the hire has been or will be transferred to the proper ultimate beneficiary of the hire; the assertion that the First Defendant and the Second Defendant are willing to pay whatever outstanding hire is held to be due and payable; the fact that the Sub-Charters and/or 1999 Charters involve rights of purchase; and the fact that the Defendants have invested substantial sums in the vessels by way of maintenance, upgrades and improvements to the vessels.
There is doubt as to whether there is jurisdiction to grant relief from forfeiture in the case of a bareboat charter. The closest analogy is that of a time charter. The House of Lords held in Scandinavian Trading Tanker Co. v. Flota Petrolera Ecuatoriana (“The Scaptrade”) [1983] 2 AC 694 that no jurisdiction for the granting of relief from forfeiture in the case of a time charter existed and there were practical reasons of legal policy why such a jurisdiction should not be created. Lord Diplock, with whom the other Law Lords agreed, made it clear that his judgment was concerned only with time charters that were not by demise (p. 704G-H):
“...the reasoning in my speech has been directed exclusively to time charters that are not by demise. Identical considerations would not be applicable to bareboat charters and it would in my view be unwise for your Lordships to express any views about them.”
In the Court of Appeal in The “Scaptrade” [1983] 1 QB 529 Robert Goff LJ said at p. 540E-541E:
“...It is of the utmost importance in commercial transactions that, if any particular event occurs which may affect the parties’ respective rights under a commercial contract, they should know where they stand. The court should so far as possible desist from placing obstacles in the way of either party ascertaining his legal position, if necessary with the aid of advice from a qualified lawyer, because it may be commercially desirable for action to be taken without delay, action which may be irrevocable and which may have far reaching consequences. It is for this reason, of course, that the English courts have time and again asserted the need for certainty in commercial transactions - for the simple reason that parties to such transactions are entitled to know where they stand, and to act accordingly. In particular, when a ship owner becomes entitled under the terms of his contract, to withdraw a ship from the service of a time charterer, he may well wish to act swiftly and irrevocably. True, his problem may, in a particular case, prove to be capable of solution by entering into a without prejudice agreement with the original time charterer, under which the rate of hire will be made to depend upon a decision, by arbitrators or by a court, whether he was in law entitled to determine the charter. But this is not always possible. He may wish to refix his ship elsewhere as soon as possible, to take advantage of a favourable market. It is no answer to this difficulty that the ship may have cargo aboard at the time, so that her services cannot immediately be made available to another charterer......For one thing, the ship may not have cargo on board, and for another she can be refixed immediately under a charter to commence at the end of her laden voyage. Nor is it an answer that the parties can immediately apply to arbitrators, or to a court, for a decision, and that both maritime arbitrators and the Commercial Court in this country are prepared to act very quickly at very short notice. For, quite apart from the fact that some delay is inherent in any legal process, if the question to be decided is whether the tribunal is to grant equitable relief, investigation of the relevant circumstances, and the collection of evidence for that purpose, cannot ordinarily be carried out in a very short period of time.
.... The policy which favours certainty in commercial transactions is so antipathetic to the form of equitable intervention invoked by the charterers in the present case that we do not think it would be right to extend the jurisdiction to relieve charterers from the consequences of withdrawal. We consider that the mere existence of such a jurisdiction would constitute an undesirable fetter upon the exercise by parties of their contractual rights under a commercial transaction of this kind. It is not enough to say it will only be exercised in rare cases. For the mere possibility that it may be exercised can produce uncertainty, disputes and litigation, and so prevent parties from knowing where they stand, particularly as the jurisdiction, if available, would be discretionary and there may be doubt whether it could be successfully invoked in any particular case.
For these reasons we hold that we have no equitable jurisidiction to grant equitable relief of the kind asked for by the charterers...”
The law on relief from forfeiture has recently been considered in On Demand Information Plc v. Michael Gerson [2001] 1 WLR 155 (a judgment in respect of which leave to appeal has been granted by the House of Lords). At 164F et seq Robert Walker LJ reviewed the authorities. I refer to that review. The authorities reviewed do not include any cases concerning demise charters. Robert Walker LJ described Shilo Spinners Ltd v. Harding [1973] AC 691 as of outstanding importance for Lord Wilberforce’s survey of the development of the law and his statement of the principles to be derived from it. In Shilo Spinners Lord Wilberforce said at p 723H (in relation to “the right of courts of equity in appropriate and limited cases to relieve against forfeiture for breach of covenant or condition where the primary object of the bargin is to secure a stated result which can effectively be attained when the matter comes before the court, and where the forfeiture provision is added by way of security for the production of that result”):
“The word ‘appropriate’ involves consideration of the conduct of the applicant for relief, in particular whether his default was wilful, of the gravity of the breaches, and of the disparity between the value of the property of which forfeiture is claimed as compared with the damage caused by the breach”
The fact that the right to forfeiture arises under a commercial agreement is relevant to the question whether relief from forfeiture should be granted: see BICC Plc v. Burndy Corp. [1985] Ch. 232 at p. 252 per Dillon LJ with whom Kerr LJ and Ackner LJ agreed.
In Goker v. NWS Bank [1999] GCCR 1507 at p. 510. a claim to relief from forfeiture of a Mercedes taken on hire purchase was refused.
Lloyd LJ said at p. 1510-11:
“In the case of land the underlying security remains intact and is not impaired; in the case of a chattel the underlying security is likely to be much more vulnerable. Thus, in the case of a car, it may be sold: it may be taken abroad; it may be damaged as a result of a road accident, or it may be stolen. Furthermore it requires continuing expenditure on insurance and on maintenance and above all it will continue to depreciate. None of those factors applies to land, or if they do apply only to a limited extent.....
.....
At this point I would quote an extensive passage from the judge’s judgment as follows:
‘....Indeed, even if as at today the plaintiff’s past failures to make the payments due under the agreement could be compensated sufficiently as a condition of obtaining relief by the payment now of principal, interest and costs, that fails to take into account the full extent of any future risk - a risk which has been demonstrated by the plaintiff’s unreliablility and poor financial circumstances...... when a hirer has shown himself to be a defaulter, to oblige the owner of goods to forego his contractual rights and to return the goods to the hirer, would be to oblige the owner to accept a risk far greater than contemplated when the contract was made.........Indeed, having regard to the plaintiff’s past shortcomings, to the grave doubts that must exist as to his ability in the future to meet his obligations to the defendants and to the fact that even to the date of the hearing before me he had failed or had been unable to comply with the order of Mr Justice Ian Kennedy of 10 May (an unmistakable warning as to what would be likely to happen if the outstanding sum was not paid into court), I am of the opinion that it would be seriously and unfairly prejudicial to the defendants to restrain them from exercising their rights of, and consequent on, repossession of the car.’
I agree with every word of that passage....”
Nicholls LJ said at p. 1512:
“So far as land is concerned, in a normal case a lessor will suffer no significant financial loss if the arrears of rent are paid together with interest and costs. For the future, should there be further default, the land will still be there and can be repossessed. Normally it will be fair and just to prevent the lessor from exercising his right of re-entry.
But is this so with a chattel such as a car? The security is much less dependable than in the case of land. It can be spirited away and be unavailable when needed. It will need maintenance. It will often depreciate speedily. In such a case, if the history to date shows that there is a very high degree of likelihood of serious future default, and that recourse to the security is very likely to be needed in the future, a court may take the view that it would not be fair and equitable to compel the finance company, or the owner of the car, to continue with the hire purchase agreement. It may take this view in the particular circumstances, even if, should the car be repossessed and sold, the finance company will make a windfall profit”
In this case it is unnecessary to consider further whether there is jurisdiction to grant relief against forfeiture, because numerous factors point emphatically against any grant of relief from forfeiture (even if there was jurisdiction). The relevant factors include the following.
(1) The charterparties are commercial transactions which were negotiated between parties at arms length. The exercise of a right of termination was expressly provided for.
(2) So far as the 3 Kapitan vessels are concerned, DMP has had the use of the vessels for 6 years during which time it has paid hire of about US$ 6.6 million. This figure is to be contrasted with the (further) payments called for (but for termination) under the Schedules to the DMP charters of
US$ 52,595,992 to 28.7.01.
(3) So far as the 11 vessels are concerned, DMPT has had the use of these vessels without cost, save for the sum of US$ 14.2 million which was paid by way of hire via loans from Lavinia interests and PTI/Crystal. It should be noted in this connection that the Venture had a deficit at 31st December 2000 of US$7.2 million financed by Lavinia. As at 1.7.01 (further) payments of US$ 64,579,361 were called for (but for termination) under the Schedules to the DMPT charterparties.
(4) The Defendants have removed the three Kapitan vessels to Rajin to avoid the jurisdiction of this and other courts.
(5) The Defendants acted in contravention of the orders of David Steel J.
(6) The Defendants failed to transfer the 3 Kapitan vessels to DMPT.
(7) The Defendants failed to transfer the shares in DMPT to Rybcomflot.
(8) I refer my comments as to Mr. Yuri Didenko's evidence set out above. I also refer to the way in which this litigation has been conducted by the Defendants, as reflected in the orders of the Court prior to the start of the trial.
(9) The Defendants acted in contempt of an order of the Singapore Courts in relation to the Pischevaya Industria.
(10) DMP and DMPT have not demonstrated any ability to comply with hire obligations. There is no independent evidence that they are in a position to pay any sums, let alone the enormous sums at stake.
25. YERANIA’S COUNTERCLAIMS AGAINST THE DEFENDANTS
Yerania counterclaims against the Defendants declarations that the amendments to the 1999 Charters are binding on the Defendants and that the mortgages take priority over the rights (if any) of the Defendants in respect of the 11 vessels.
It follows from the above that Yerania are entitled to this relief. I have held that the amendments to the 1999 Charters in July 2000 are binding on the Defendants. In view of my finding that the Claimants were entitled to terminate the charters, any rights that the Defendants had in respect of the 11 vessels are at an end. It follows that it is unnecessary to consider Yerania’s submissions in relation to the Contracts (Rights of Third Parties) Act 1999.
26. CONCLUSION
For the reasons set out above (and to the extent set out above) the Claimants and Yerania are entitled to the relief they claim. The Defendants’ counterclaim is dismissed.