Spar Shipping AS v Grand China Logistics Holding (Group) Co, Ltd, Court of Appeal - Commercial Court, March 18, 2015, [2015] EWHC 718 (Comm)

Issuing Organization:Commercial Court
Actores:Spar Shipping AS v Grand China Logistics Holding (Group) Co, Ltd
Resolution Date:March 18, 2015
 
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2013 Folio 1084

Neutral Citation Number: [2015] EWHC 718 (Comm)

IN THE HIGH COURT OF JUSTICE

QUEEN'S BENCH DIVISION

COMMERCIAL COURT

Combined Court Centre

The Law Courts

Winchester

Hants SO 23 9EL

Date: 18/03/2015

Before :

THE HON. MR JUSTICE POPPLEWELL

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Between :

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Nevil Phillips and Natalie Moore (instructed by Thomas Cooper LLP) for the Claimant

Michael Coburn QC (instructed by Holman Fenwick Willan LLP) for the Defendant

Hearing dates: 29, 30 January, 2, 4 February 2015

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JudgmentThe Hon. Mr Justice Popplewell :

Introduction

  1. The Claimant ("Spar") is the registered owner of three supramax bulk carriers, the SPAR CAPELLA, SPAR VEGA and SPAR DRACO (collectively ``the Vessels''). By three charterparties dated 5 March 2010 on amended NYPE 1993 forms, the Vessels were let on long term time charter to Grand China Shipping (Hong Kong) Co Ltd (``GCS''). The charterparties provided for guarantees to be issued by the Defendant (``GCL''), which is the parent of GCS. Three letters of guarantee were issued on behalf of GCL dated 25 March 2010 (``the Guarantees'').

  2. The SPAR DRACO was built in 2006 and was of some 53,500 mt dwt. It was chartered for minimum 35 maximum 37 months in charterers' option with hire of US$16,500 per day payable semi monthly in advance. It was delivered into the charter on 31 May 2010. The SPAR CAPELLA and SPAR VEGA were newbuildings at a Chinese yard of some 58,000 mt dwt and were delivered into the charterparties from the yard on 6 and 12 January 2011 respectively. Those charters were for minimum 59 maximum 62 months in charterers' option with hire of US$16,750 per day payable semi monthly in advance.

  3. From April 2011 GCS was in arrears in payment of hire. Spar recouped some of the arrears by exercising its lien on sub freights, but there remained substantial arrears of hire on all three vessels throughout the summer of 2011 and a chronology of missed or delayed payments. Spar called on GCL for payment under the Guarantees on 16 September 2011. On 23 September 2011 Spar withdrew the SPAR CAPELLA and terminated that charterparty. On 30 September 2011 Spar withdrew the SPAR VEGA and SPAR DRACO and terminated those charterparties.

  4. Spar commenced arbitration proceedings against GCS claiming the balance of hire due under the charters and damages for loss of bargain in respect of the unexpired term of the charters. Shortly prior to the hearing of the arbitration GCS went into liquidation in Hong Kong and the arbitration proceedings were stayed.

  5. Spar brings the present claim against GCL under the Guarantees. The amounts claimed comprise the following:

    (1) The balance due under the charters prior to termination, quantified after credit for bunkers remaining on board and other cross claims at US$217,238.95 for the SPAR CAPELLA and US$344,431.14 for the SPAR VEGA (there was a small balance in favour of GCS on the balance of accounts for the SPAR DRACO).

    (2) Damages for loss of bargain in respect of the unexpired term of the charters. In respect of the SPAR DRACO it was common ground that there was at the date of termination an available market for a substitute time charter for the unexpired term of the charter of about 18 months at US$13,000 per day, on the basis of which damages were quantified at US$2,739,029. In respect of the SPAR CAPELLA and SPAR VEGA it was common ground that at the date of termination there was no market for a substitute time charter for the unexpired term of the charters of about four years. Spar has quantified the damages as the difference between what it would have earned under the charters and the actual earnings from employment of the vessels to date and estimated future earnings of US$9,600 per day until expiry of the charter periods in December 2015. The calculations performed by Spar in respect of actual earnings did not in fact cover the entire period up to the hearing date but only up to 31 December 2014 with the period thereafter being treated as future earnings. The amounts claimed were:

    (a) SPAR CAPELLA: US$7,967,879.16 to 31.12.14 and US$2,308,658.23 for future earnings to expiry, making a total of US$10,276,537.39;

    (b) SPAR VEGA: US$8,012,272.22 to 31.12.14 and US$2,349,899.27 for future earnings to expiry, making a total of US$10,362,171.49;

    (3) Spar's costs of the arbitration proceedings against GCS in the sum of £319,868.19.

  6. GCL disputes liability on the grounds that it is not bound by the Guarantees: they were signed by Mr Jia Hongxiang (``Mr Jia'') purportedly as Board Chairman, when he was in fact at that time in the lesser position of Executive Board Chairman and is said to have had no authority to sign them on behalf of GCL. Spar contends that Mr Jia had authority to sign the Guarantees. This is an issue governed by Chinese law, on which I heard evidence from Mr Greg Yang on behalf of Spar and Ms Liu Yan on behalf of GCL. Spar contended in the alternative that Mr Jia had ostensible authority, or that GCL had ratified the Guarantees.

  7. GCL further submitted that it was not bound by the Guarantees because they did not comply with Chinese exchange control laws requiring the approval and registration of guarantees to overseas entities by the State Administration of Foreign Exchange (``SAFE''), which provide that the issue of an unapproved/unregistered guarantee is an offence and such guarantee is unenforceable unless the guarantor is at fault. Although the Guarantees are expressly governed by English law, GCL submitted that such illegality under Chinese law prevented their enforcement. Spar contends that Chinese law is not applicable, and that in any event the Guarantees would be enforceable as a matter of Chinese law because the fault in failing to secure registration and approval was that of GCL.

  8. GCL submitted in the alternative that if it was bound by the Guarantees, it was under no liability in relation to the unexpired periods of the charters: the right of withdrawal under the charters was a contractual option but there had been no breach of the charters giving rise to a right to damages at common law for repudiation or renunciation. Spar contended that it was entitled to damages for loss of bargain for such period because payment of hire was a condition of the charters; alternatively if payment of hire was an innominate term, GCS's conduct was repudiatory and/or evinced an intention not to pay hire timeously which constituted a renunciation of the charters.

  9. In the further alternative GCL challenged the method of calculation of damages for the unexpired periods of the SPAR CAPELLA and SPAR VEGA charterparties. It submitted that damages should not be based on Spar's actual earnings, but on hire which would have been earned by replacing the charters with timecharter employment, albeit that it would have required two consecutive fixtures of 30 months and about 20 months respectively, alternatively a series of shorter charters. This was not an argument that Spar had failed to mitigate its loss by acting unreasonably in not taking such time charter employment for the vessels, but an argument of law that this was the proper measure of damages. Spar disputed that this was the proper approach as a matter of law and disputed that in any event there was a market for a 30 month charter or a 20 month charter at the relevant times. On this issue, and a number of more minor quantum disputes, I heard expert evidence from brokers, Mr McDonald on behalf of Spar and Mr Lewis on behalf of GCL.

  10. GCL also disputed that the arbitration costs were recoverable under the terms of the Guarantees.

  11. Accordingly the following issues arise:

    (1) Is GCL bound by the Guarantees? In particular:

    (a) Did Mr Jia have actual authority?

    (b) Did Mr Jia have ostensible authority?

    (c) Did GCL ratify the Guarantees?

    (d) Is non registration with SAFE relevant, and if so does it render the Guarantees unenforceable?

    (2) Is payment of hire a condition of the charterparties?

    (3) If not, was GCS's conduct in relation to payment of hire a repudiation or renunciation?

    (4) What is the correct principle for assessment of damages for a charterer's repudiation of a time charter where there is no market for a replacement time charter of the duration of the unexpired term of the charter?

    (5) What alternative time charter employment was available for the SPAR CAPELLA and SPAR VEGA?

    (6) What other adjustments fall to be made, if any, to the quantum of Spar's claim?

    (7) Do the arbitration costs fall within the scope of liability under the Guarantees?

  12. Before addressing these issues I must set out the facts in more detail.

    Narrative

  13. I heard from Mr Ellefsen, the CEO of Spar, who was a straightforward witness upon whose evidence I felt able to rely. He explained that Spar is a Norwegian company which has grown from its inception to its current position of owning 23 mostly modern Supramax vessels. It is run with a small staff of five people with the fleet mostly time chartered out and serviced by external technical managers. Mr Ellefsen was himself responsible for fixing the Vessels. The SPAR CAPELLA and SPAR VEGA were two of eight vessels which Spar bought in the spring of 2010; they were bought two at a time, with long term employment being secured for each pair before purchasing the next two.

  14. Prior to these fixtures, Mr Ellefsen had not heard of GCS or GCL. They were suggested by Spar's Norwegian brokers, RS Platou, who also had an office in Shanghai. On 1 March 2011 Mr Jan Egil Roald of RS Platou's Norwegian office passed on to Mr Ellefsen some background information on GCS. This indicated that it was a relatively new company, established in February 2008 and commencing operations in June 2008; that it was wholly owned by GCL; that GCL had been established in April 2007 as part of the HNA Group; and that GCL was a substantial concern with registered capital of over US$100 million and subsidiaries...

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