S AND M CO S.A. v. GLENMORE SHIPPING INCORPORATED AND ANOTHER

C.L. N o. 106/89

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

COMMERCIAL LIST

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BETWEEN

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J U D G M E N T

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1. The Plaintiffs are the owners of the 'OCEAN QUEEN'. They are making a claim against both the Defendants in respect of a bare boat charter. The 1st Defendant is a Liberian company, not having substantial assets. It was the charterer under the bare boat charter. A default judgment has already been entered against it in a large sum and an order was made for damages to be assessed.

2. The Plaintiffs' main claim against the 2nd Defendant is as a guarantor of the bare boat charter. There are also other claims made against it, which mostly relate to commitments which were entered into in relation to the charter party.

3. Mr. Thomas Lau is the majority shareholder of the 1st Defendant and the 2nd Defendant and it is accepted that his was the mastermind directing the activities of both Defendants. Although the writ was only issued last September, there have been numerous interlocutory applications and I think it would be fair to state that the issues between the parties have been hotly contested.

4. Mr. William Waung, for the Plaintiffs, prepared a composite of the Pleadings, including further and better particulars which covers 165 pages in the Pleadings bundle.

5. At a late stage in the preparation of the case, the Defendants, who are represented by Mr. Dennis Mitchell, made a decision to confine their opposition to the questions as to whether the 2nd Defendant had entered into a guarantee guaranteeing the obligations of the 1st Defendant and whether the loans which the Plaintiff was claiming from them were payable.

6. However, the 2nd Defendant was not prepared to make admissions concerning the other claims being made by the Plaintiffs and dealt with the matter by preparing a list of issues which would be contested by the 2nd Defendant. This exercise was not undertaken in accordance with any specific rules in the Supreme Court Rules, and a number of difficulties have arisen out of it.

7. Mr. Waung wisely insisted that the issues which were framed were related to specific paragraphs in the pleadings. At an early stage in the trial, I made a somewhat restrictive Ruling that Mr. Mitchell must be confined to the paragraphs which were referred to and was not at liberty to contest other issues at large. Needless to say, it was not always an entirely simple matter to contain the contest within this comparatively narrow compass. However, at the end of the day, I am satisfied that it has been possible to proceed with the hearing of the case on the basis that it is, in essence, the esistence of the guarantee and whether the loans have been proved to be payable that has been the subject of this trial.

8. The case was originally estimated to last 14 days. Notwithstanding the fact that all the Witness's Statements were reduced to writing to be used as their examination in-chief, the trial has lasted 30 days even in its truncated form.

9. The Plaintiff and Cheerglory Traders Limited are both subsidiary companies of a People's Republic company, China Metals & Minerals Import & Export Corporation. The Plaintiff is a Panamanian company, used for the purpose of owning the ship. Cheerglory was in reality the company which controlled events for the Plaintiffs. It did so through Mr. Niu, who is the Deputy General Manager of the company.

10. Cheerglory's previous trading experience was mostly in commodities, that is, in metals and minerals. This was the company's first significant venture into shipping on their own behalf. Mr. Niu had some experience of shipping matters consequent upon acting as an agent for other PRC companies which were engaged in the shipping business, including the purchase of vessels.

11. Mr. Niu first met Mr. Lau in the middle of 1986. He knew that Mr. Lau, through the 2nd Defendant, was a shipping broker who was anxious to establish business connections with the PRC companies. Indeed, he was at about the time he met him, involved in a joint venture project with another PRC company. Mr. Niu was aware that the 2nd Defendant was only a small company but, in common with other PRC companies, was more concerned with the trading reputation of the company than in its financial status. In any event, he was satisfied that the 2nd Defendant enjoyed a good reputation. It is necessary to consider in some detail the evolution of the events leading up to the present dispute between the parties, so that the true picture can be obtained of the relationship which existed at the time when it is alleged that the guarantee was entered into and the moneys were paid which constitute the loans, the repayment of which is being claimed by the Plaintiffs.

12. In the initial stages, it is common ground between the parties that the 2nd Defendant was acting as a broker in relation to the purchase of the 'OCEAN QUEEN' by the Plaintiffs. Originally, the Plaintiffs were acting as agents for the Shangtung Branch of China Metals & Minerals, who I will refer to as 'Shantung'. According to Mr. Niu, Mr. Lau had for some time been trying to establish business relations with Cheerglory. He had been furnishing them with particulars of various ships which he thought Cheerglory's clients or customers might be interested in.

13. He had recommended the 'OCEAN QUEEN' as being a good purchase on account of the general purposes it could be put to. On introduction by Cheerglory, Shantung had expressed interest in buying the vessel. Mr. Lau had been active in recommending the ship and it was only at a comparatively late stage in negotiations, in December of 1988, that Shantung had decided not to proceed with the purchase.

14. Mr. Lau and Mr. Niu then had a number of discussions and mainly as a result of the optimistic sentiments expressed by Mr. Lau, Mr. Niu had decided that notwithstanding the fact that Cheerglory had had no direct experience of owing ships, it would be in Cheerglory's interests for them to purchase the 'OCEAN QUEEN' for themselves.

15. Mr. Niu gave evidence that Cheerglory's main motive in entering this field was to obtain a quick profit by selling the ship at a higher price to another purchaser when the opportunity presented itself. He did, however, recognise that such an opportunity might not immediately become available and, accordingly, it may be necessary to trade the vessel during the interim period pending the onward sale of the vessel.

16. It is perhaps relevant to observe at this juncture that Mr. Niu and Mr. Lau were on very friendly terms. It is probably the case that Mr. Lau was to a large extent educating Mr. Niu on the subject of the shipping business, both as regards the sale and purchase of ships, as well as trading them.

17. Various possibilities appear to have been considered. These included the 2nd Defendant managing the vessel for Cheerglory and time and bare boat charters. While I believe, on the evidence before me, that these conversations were of a general nature, I have no doubt that the minds of the parties in due course became directed towards the mutual advantages of a bare boat charter, rather than the other alternatives which were considered.

18. One of the main issues which emerged during the litigation was the status of these discussions when a formal decision was made in January 1989 by Cheerglory to purchase the vessel. It was the Plaintiff's case that the communications which took place in January amounted to much more than general discussions. It was Mr. Niu's contention that a firm oral contract had been concluded between the parties for the 2nd Defendant to bare boat charter the ship immediately Cheerglory obtained delivery of the ship at the end of March, and that the hire under the charter party was agreed at Two Thousand Four Hundred and Fifty US dollars per day. There was a further agreement between the parties that, on account of Cheerglory's plan to sell the ship for a profit as soon as possible, the 2nd Defendant had agreed to deliver the ship back to Cheerglory at a Chinese port within two months of receiving notice so to do.

19. The 2nd Defendant denied that any such commitment had been entered into. All that had transpired was that there were general discussions on the subject. It was not until early March that Mr. Niu had made a specific request to the 2nd Defendant to enter into a bare boat charter.

20. Obviously there are some direct conflicts in the evidence of the parties in this connection. I consider one of the most useful ways of resolving this conflict is to have regard to the contemporaneous documentation. On the 3rd March, Mr. Niu wrote what I regard as being a most illuminating letter to his superior, Mr. Li. It may be helpful for me to set out the translation of this letter in full, and it reads in Bundle A2, pages 575 to 577:

"The Head of Board of Directors:

Re: "Ocean Queen"

    The work for renaming the vessel from Luncky Scope to Ocean Queen as well as arranging for the insurance, the recruitment of crew is now in progress. The new owner is S & M S.A. Company Limited and flies a Panamaian flag.

    Had already transfer the 10% deposit to the joint account in Greece.

    The ship owners notify us that the vessel will be delivered on 27th March and agree that a sea trial be carried on a day ahead.

    We should give instruction to the bank on 20th March to transfer US$2m to a separate independent account for S & M Company in Greece and we have to notify the bank of the names of persons authorised to sign (please note that the US$2m includes not only the purchase price of the vessel but all necessary equipment on board and also the costs for taking delivery).

    Myself and the broker will be going to Greece on the 22nd/23rd of March to prepare for the delivery of the vessel.

    The principal aim is to resell the vessel again and make a profit on the difference in price. The intending buyer is More Shine Industrial Limited and we are working on it. If More Shine can not make a decision immediately, our next step is to load the vessel to the Far East and try hard to sell it as soon as possible. If that can't be achieved, in the meantime then we shall send the vessel to East Shanghai Shipyard for survey and repairs. We can also let Kai Hoi be a shareholder so that the costs of repair will be cheaper. The resale price we are aiming at is estimated at US$2,600,000.

    According to the ship's certificates the tailshaft has to be inspected during July to August. Prior to that if there is no intending buyer, then we shall try our best to fix a cargoes so that the vessel can trade continuously so we can make a profit.

    There are actually certain ways to trade the vessel:

A. Time charter: the ship owners shall provide crew, maintenance, water supply and lubricants. The charterer shall provide bunker, port charges and agency fees.

B. Bareboat charter: the ship owners just pay insurance and the charterer has to be responsible for all other cost.

C. The ship broker acting as owner's agent as well as managing the ship, will be responsible for finding cargoes, receive a commission, a management fee and according to him he wants a profit of 30% of the net profit. The ship owners have to be responsible for all costs incurred in relation to the vessel.

My opinion:

    Comparing the various methods, bareboat charter is the most convenient one from the ship owners view point. At a price of the vessel of US$2.20m, the daily hire of US$2,300 per day, and that trading the vessel for 2 quarters, the interest rate at 10% per annum, the interest will be US$2.20m x 180 days x 10% = US$109,000. The charter hire will be US$2,300 x 180 days = US$414,000. The profit (gross profit) will be = US$305,000.

    After 2 quarters of trading the cost of the vessel will be reduced from US$2,200,000 - 305,000 = 1,890,500.

    Assuming the resell price after half a year is US$2,600,000, the gross profit will be US$2,600,000 - 1,895,000 = 705,000.

    The purpose for buying this vessel is firstly to earn the difference in price when on resale, and secondly is to train our management so that we learn more and gain more trading experience in shipping. We shall try to achieve the above purpose.

    Please let me know if my opinion is correct. Please instruct."

22. The contents of this letter almost entirely supports the 2nd Defendant's version of events. There is no reference in the letter to what one would imagine is one of the most important outstanding matters, namely the bare boat charter agreement with the 2nd Defendant. Indeed, the tenor of the letter is contradictory to this. What was clearly envisaged at the beginning of March was the on going sale of the ship to More Shine. This is another PRC company.

23. A great deal of time was spent both on cross-examination and re-examination on this subject. Mr. Niu attempted to explain away the inconvenient parts of the letter by saying that the letter took the form of a "bi an", which was a particular type of communication used in the People's Republic of China. All that was intended was to set out some of the facts, for the purpose of keeping a record. This simply will not do.

24. As I understand the position, the letter or memo was either a minute or record of what had transpired or it was not. I do not believe, on the evidence before me, that a "bi an" can be a selective device to simply accommodate the convenience of the Plaintiffs and explain away the obvious inconsistencies in their case.

25. There are further grave difficulties in accepting the Plaintiffs' version of events. It would seem to me to be inconceivable that Mr. Lau would agree to enter into a bare boat charter which would include a provision that it could be terminated at the behest of the Plaintiffs, at two months' notice, with a requirement that the ship be delivered back to China at the termination of the notice. Such a term would largely stultify the whole operation of the charter. I simply do not believe that Mr. Lau would have gone along with this without some meaningful protection of his interests.

26. All of this has, in my opinion, got an important bearing upon the main issues which have to be determined by me. If, in the early part of March, there was no binding commitment in respect of the bare boat charter, Mr. Niu would have been in a very weak negotiating position when the parties came to consider the final arrangements which would be made when the Plaintiffs took possession of the vessel in Greece at the end of March.

27. It is common ground that, at this time, the 2nd Defendant was acting as a Broker for the Plaintiffs in connection with the purchase of the vessel. In the absence of any binding contract to bare boat charter the vessel, they would not be under any pressure to do more than assist the Plaintiffs as Brokers in connection with the purchase.

28. The position, however, Mr. Niu would find himself in was entirely different. He was already contractually committed to the purchase of the vessel in the very near future. Cheerglory had paid a ten per cent deposit and there were provisions in the Sale and Purchase Memorandum of Agreement for the assessment of damages if the purchaser defaulted in the purchase. In addition to this, it was Mr. Niu's evidence that Cheerglory did not have immediately available resources to enable them to trade the vessel themselves. They were, to an almost unique extent, dependent upon the expertise and skills of the 2nd Defendant.

29. Mr. Niu's difficulties were compounded by the fact that it was not until the 21st March that he received from the 2nd Defendant the draft bare boat charter agreement. Bearing in mind that arrangements had been made for Mr. Niu and Mr. Lau to proceed together to Greece for the completion of the purchase on the 24th March, there was precious little time for Mr. Niu to negotiate any modifications or amendments to the draft.

30. Mr. Niu said that the first thing he noticed, on perusing the draft, was that Glenmore, a company he had never heard of, had been substituted for the 2nd Defendant as the charterer of the vessel. His immediate reaction, on seeing this, was anger. It was his intention to obtain from Mr. Lau an explanation for this. And if Mr. Lau declined to agree to the original plan being adhered to by the 2nd Defendant, being the charterer, he would insist upon obtaining a Guarantee from Seabridge to protect Cheerglory's interests. There were a number of other matters which were not satisfactorily provided for in the draft. One of these was the failure to include a provision for the Plaintiff to have a right to terminate the charter on two months' notice. Another was the obligation to keep the vessel in class. Under the original proposals, this obligation was to be assumed by the 2nd Defendant whereas, under the draft, it had to be undertaken by the Plaintiffs.

31. A meeting was arranged on the 23rd of March. This was the critical meeting where, according to the Plaintiffs' case, the 2nd Defendant entered into Guarantee, to guarantee the obligations of the 1st Defendant.

32. Mr. Niu gave evidence that the first matter raised at the meeting was the question of the Guarantee. He expressed his concern to Mr. Lau and Mr. Lau immediately reassured him and said that there would be no problem, the 2nd Defendant would guarantee the obligations of the 1st Defendant. He further reassured him by saying that the 2nd Defendant would, in due course, provide Cheerglory with a Letter of Guarantee.

33. The meeting then went on to consider the other outstanding matters. It soon became obvious that it would not be possible to resolve all differences in the limited time available. It was then agreed that the parties should enter into a limited and temporary form of agreement, which would include a provision that detailed terms and conditions should be concluded within the next 30 days. The Agreement was settled in the following form.

34. Then I take in Bundle S, at page 134, which reads:

    "Owners:

S AND M COMPANY S.A., Panama

    c/o CHEERGLORY TRADERS LTD.

Charterers:

GLENMORE SHIPPING INCORPORATED, Liberia c/o SEABRIDGE MARITIME CO. LTD.

Date: March 23, 1989

Re: Bareboat Chartered Agreement

    concerning M.V. "OCEAN QUEEN"

    It is mutually agreed between the owners and the charterers that the Charterers to hire the captioned vessel, M.V. "OCEAN QUEEN" from the owners for a charter period of 24 months at US$2,300 per day according to the Baltic and International Maritime Conference Standard Bareboat Charter. Detailed terms and conditions will be agreed by the two parties within 30 days after this date of signing agreement."

35. On the 24th March, Mr. Lau and Mr. Nui proceeded to Athens for the completion of the purchase of the vessel. Mr. Niu was very definite concerning the importance of obtaining the Guarantee from the 2nd Defendant. He said that it was contrary to the policy of PRC companies to do business with parties they did not know. He had never heard of the 1st Defendant, it was simply a shelf company. It was inconceivable that Cheerglory would enter into such a large engagement with such a company. They had paid in excess of Two Million US dollars for the 'OCEAN QUEEN' and it would be the height of imprudence to enter into a bare boat charter with an unknown company with few assets vested in it. If anything went wrong, Cheerglory would be left without redress. He also rejected the idea that he would have been in any way amenable to what amounted to blackmail, by virtue of the suggestion that it was, on Mr. Lau's case, that he would be faced with the situation that Cheerglory was obligated to complete the purchase at the end of March and that there were no formal commitments entered into, either to return the vessel to China or to trade it until a suitable purchaser could be found, at an acceptable price, which would give them the capital gain anticipated.

36. He said that if he had succumbed to any pressures of this nature, he would be subjecting Cheerglory to far greater risks than any claims for losses which may be incurred if the deal had been called off. He accepted that, in such a situation, it was likely that Cheerglory would have to forfeit the ten per cent deposit which had been paid. And there may be other claims against them. He also accepted that, as he personally had been the originator of the idea of Cheerglory going into the shipping business, he would have been occasioned considerable embarrassment at having to account to his superiors for the losses which would arise. However, these losses would be insignificant in comparison to potential losses which could arise if the deal had been concluded and a bare boat charter had been entered into with an unknown shelf company. The whole value of the ship would have been placed on hazard.

37. While initially these arguments appear to have some plausibility, they cannot withstand serious scrutiny. On numerous occasions during his cross-examination, Mr. Niu referred to the 2nd Defendant as being a small company. He accepted, in the cross-examination, that no serious measures had been taken for Cheerglory to satisfy themselves that the 2nd Defendant was seized of assets of anything approaching the value of the 'OCEAN QUEEN'. It can therefore by no means be contended that even if Mr. Niu's version of events was correct, that Cheerglory would be getting full security for the 'OCEAN QUEEN' even if they obtained a Guarantee. In the context of the figures referred to in this litigation, all they would be getting would be the guarantee of a company which did not have substantial assets. In other words, they would not be all that much better off than if they had no Guarantee.

38. This brings me to the next point, which I consider to be of even more importance. Mr. Niu repeated on several occasions that what really mattered was not the financial background of a company, but who were the personalities behind it. Most importantly, were they known to PRC people. I believe this part of Mr. Niu's testimony. If this was so, and Mr. Niu was informed that Mr. Lau was the majority shareholder of the 1st Defendant, Cheerglory would find themselves in a similar position, with the 1st Defendant being the charterer under the bare boat charter, as they would have been if the transaction had been with the 2nd Defendant, in accordance with the original intentions.

39. One of the matters which troubled me considerably when Mr. Niu was giving evidence was whether he did in fact understand the true nature of a guarantee. Certain of the replies to questions put to him led me to believe that he might not have a clear understanding on this. This prompted me to ask him what a guarantee was. The reply, which I have recorded, is as follows - and I quote: "My idea, once you have promised to do something, you must fulfil your promise to do it. You must bear the responsibility."

40. Shortly after this, there was an exchange with counsel and I requested Mr. Niu to withdraw from the court while this matter was considered. During the course of the exchange, I expressed the view that the reply which had been given by Mr. Niu did not seem to me to indicate that Mr. Niu did fully understand what a guarantee was. I went on to make the obvious point, that a guarantee was a promise to answer for obligations of a third party.

41. While this exchange took place, Mr. Niu's assistant, Mr. Wu, remained in court. When later he was cross-examined by Mr. Mitchell, he admitted that he had had a discussion with Mr. Niu and had told him, in general terms, the nature of the matters which had been discussed. He did, however, qualify this by stating that his knowledge of the English language was limited. In this connection, I would observe, that he also gave evidence that he was a graduate of Toronto University and had obtained a degree in the Fine Arts and Sciences, namely, in accountancy. I find it hard to believe that he would have had much difficulty in understanding what had transpired.

42. Later in his evidence, when the subject of the guarantee arose again, Mr. Niu made a point of correctly describing what constituted a guarantee. I believe that when he did so, he had had the advantage of having had the gist of the exchange between counsel and myself passed on to him by Mr. Wu.

43. In my opinion, Mr. Niu did not fully appreciate and understand the true nature of a Guarantee when he first started giving his evidence before me.

44. There were a number of other highly unsatisfactory aspects of Mr. Niu's evidence. He was unable to supply any convincing explanation for the fact that he had used his best endeavours to get Mr. Lau to sign a written memorandum evidencing the loans allegedly made to him, whereas he made no effort whatever to require Mr. Lau to fulfil the promise he was supposed to have made for the 2nd Defendant to provide a Letter of Guarantee of the 1st Defendant's performance of the bare boat charter. There were other unsatisfactory features of his evidence, but I do not propose setting all of these out in detail.

45. As I have said, Mr. Wu also gave evidence. He is Mr. Niu's assistant, he was of limited assistance, as his first-hand knowledge did not extend much beyond being present at the fateful meeting of the 23rd March. He corroborated Mr. Niu's version of events. I regret that I was not very impressed by him as a witness and I simply do not believe his evidence in this connection, which seems to me to fly in the face of all the other evidence available, which is contrary to this.

46. I will now attempt to deal with Mr. Lau's evidence. His examination in-chief was, like the Plaintiffs' witnesses, by way of a statement which he adopted as evidence. He was subjected to a very lengthy cross-examination.

47. He described in detail how the relationship between himself and Cheerglory had developed. He agreed that the greater part of his business activity was with PRC-associated companies. He had been involved with such companies in joint venture operations. In very broad outline, he supplied the expertise on shipping matters and the PRC parthers had supplied the capital. He had first met Mr. Niu in 1986. He accepted that he had attempted to develop a mutually advantageous business connection with Cheerglory.

48. He was aware that Mr. Niu had, on a number of occasions, bought on behalf of China interests vessels for the purpose of demolition. He was also conscious of the fact that he had numerous contacts with other shipping brokers. He had from time to time furnished to Mr. Niu particulars of vessels which he thought he may be interested in. However, these particulars had usually been provided in response to requests made by Mr. Niu. Mr. Lau said that the relationship had proved to be rather frustrating and disappointing to him, on account of Mr. Niu's almost invariable practice of going silent after he had been given particulars of ships.

49. On one occasion, there had been discussions concerning a proposal that a joint venture should be set up to provide a passenger service between PRC ports, Hong Kong and Taiwan, so as to enable Taiwan veterans to make visits to China. During the course of these discussions, Mr. Lau had prepared costings to indicate the sort of financial terms which might be expected if the proposal was proceeded with. One of the avenues which had been considered was for a company to be formed, which would bare boat charter a passenger ship which would be owned by Cheerglory. This idea had been pursued in some detail and Mr. Lau had prepared various costings. He had also understood from Mr. Niu that he had passed on the paper which had been prepared, to senior officials in China for outline approval. Like so many other discussions, nothing had come of all of this.

50. This evidence did, however, throw some light on the relationship which existed between Mr. Lau and Mr. Niu. I have come to the conclusion that Mr. Lau's version of events much more closely approximates with the truth than the evidence given by Mr. Niu, to the effect that it was always Mr. Lau who was seeking to push himself forward to canvass business. I have no doubt that Mr. Lau did regard Cheerglory as a valuable potential client. However, I consider that it was largely in response to overtures from Mr. Niu that discussions between them developed.

51. It will be helpful now to consider in some detail, the matters leading up to the purchase of the 'OCEAN QUEEN' and Seabridge's involvement in the bare boat charter. In November 1988 there were discussions between Mr. Niu and Mr. Lau concerning Cheerglory purchasing a trading ship on behalf of the Shantung Branch of Minmetals. It is clear from the documentation that a considerable amount of time and energy was expended by Mr. Lau in conducting negotiations on behalf of Cheerglory. According to Mr. Lau, the pattern which emerged was for Mr. Niu to give to him general outline instructions. It was left to him to transact the day to day negotiations without seeking specific instructions on each and every telex which was exchanged. Indeed, in evidence Mr. Lau admitted that he had not supplied Mr. Niu with copies of the telexes which had been exchanged. The reason that he gave for this was that considerable difficulty was encountered by him in getting satisfactory and expeditious instructions from Mr. Niu. He also feared that if Mr. Niu was too closely involved in the negotiations this would have the effect of retarding the progress of any proposed bargain. He said that generally PRC clients had little experience of conducting negotiations in this field and had a number of preconceived ideas. He thought that if Mr. Niu became personally involved in negotiations, there was much less likelihood of their reaching a successful fruition.

52. It must also be observed that there is reference in some of the telexes to broker's commission and address commission and it is unlikely that Mr. Lau would have wished these matters to be subjected to Mr. Niu's scrutiny. One of the explanations given by Mr. Lau for not divulging all of these particulars at an early point was the necessity of having, what he described as being "something up his sleeve" in the form of commission. What he feared was that demands might be made at a late stage in negotiations for an entitlement to commission and if there was no leeway to provide for this, any sum payable might have to come out of commission payable to him. There was evidence that it is a practice in the trade for commission to be payable by the sellers of a ship and this is one of the provisions contained in any Sale and Purchase Agreement.

53. In any event, Mr. Lau said that he did not perceive any serious conflict in interest in trying to negotiate a favourable price for the purchase of the ship while at the same time accepting that the lower the price payable, the less commission he would receive. Although a great deal of time was spent on all of this, I did not form the conclusion that Mr. Lau had deliberately been dishonest at that stage.

54. Negotiations for the purchase of the 'OCEAN QUEEN', then known as the 'LUCKY SCOPE', proceeded to a late stage. Mr. Lau had succeeded in obtaining agreement on the price for the ship. This had been concluded by the exchanging of counter offers. Although the figure which had been agreed came within the price range which had been discussed at the outset, Cheerglory failed to finalise the agreement in mid-December.

55. Shortly before Christmas, Mr. Niu had contacted Mr. Lau advising him that Cheerglory were now interested in themselves purchasing the 'LUCKY SCOPE'. Mr. Lau accordingly made enquiries to ascertain whether it was still available. On learning that it was, discussions then ensued upon whether the ship would be a suitable one for Cheerglory to use for the purpose of going into the shipping business.

56. Mr. Lau explained that it was suitable for the liner trade and that, if it was to be traded to its best advantage, it would be necessary for Cheerglory to purchase another, or preferably two other liner vessels. It seemed though that the financial implications of committing themselves to this extent had little appeal to Mr. Niu. Mr. Niu seemed much more interested in purchasing the 'LUCKY SCOPE' for the purpose of a quick capital gain. Mr. Lau said that, although the market in old ships had risen over the previous 18 months, he did not think that it would be possible at that point in time to achieve Mr. Niu's objective. He was insistent that he did not persuade Mr. Niu to go forward with the purchase but, on the other hand, I understood him to say that he didn't do anything to discourage Mr. Niu as he was hopeful of obtaining the commission.

57. The negotiations for the purchase of the 'OCEAN QUEEN' were protracted. The Agreement for the sale and purchase was not finalised until the end of January and the beginning of February. A similar pattern was established in January to the previous one in November and December, namely that Mr. Lau undertook the negotiations with the Greek sellers/brokers and did not furnish Mr. Niu with copies of telexes.

58. Nothwithstanding the fact that the ship had been inspected by ABS, ships' surveyors, in connection with the previous attempted purchase, Mr. Niu requested Mr. Lau to himself inspect the vessel when it was in Colombo. Mr. Lau had done this for him.

59. Mr. Lau was adamant that he had fully appraised Mr. Niu of the condition of the vessel and, in particular, had advised him of the necessity of expending further funds on the ship if it was purchased on an 'as is' basis. It further transpired that the owners were insisting upon the sale on this basis and this was clearly an important factor to be borne in mind when attempting to negotiate a mutually acceptable purchase price. This situation was compounded by the fact that there were few spares on board. Clearly any purchaser of the vessel would face considerable financial expenditure.

60. Mr. Lau freely admitted that there had been discussions between himself and Mr. Niu on the subject of how the vessel would be traded if Cheerglory proceeded with the purchase. During these discussions, Mr. Niu had requested Mr. Lau to prepare some calculations for him to demonstrate the amount of income that would need to be made by a ship to take into account its amortisation. Mr. Lau made such calculations. He did it in the form of what would need to be payable under the bare boat charter for the ship to be written down over three or four years. He referred to purchase prices of 2.5 million and 3.5 million US dollars. His reason for including the latter figure was that he reckoned that it would be necessary for Cheerglory to spend this sort of amount if a viable proposition was to emerge. It is perhaps helpful to refer to these calculations to indicate the sort of ideas which were being considered.

61. And I then take in page 449 in Bundle Al, which reads:

ALL IN USD

VESSEL PRICE                 : 2,500,000     2,500,000 2,500,000  2,500,000

AMORTIZATION PERIOD : 3 years       4 years 3 years  4 years

LOAN AMOUNT                 : 100%      100%        100%   100%

FIXED INTEREST                 : At 10%     At 10% At 8%  At 8%

DAILY BARE BOAT RATE : 2652.10      2084.60 2575.60  2006.54

VESSEL PRICE                 : 3,500,000     3,500,000 3,500,000  3,500,000

AMORTIZQATION                 : 3 years     4 years        3 years   4 years

LOAN AMOUNT                 : 100%     100%        100%   100%

FIXED INTEREST                 : At 10%     At 10% At 8%  At 8%

DAILY BARE BOAT RATE : 3712.94      2918.43 3605.83  2809.16

62. I have no doubt that the possibility of a bare boat charter was in the contemplation of Mr. Niu. Mr. Lau was definite that there had been no agreement whatsoever between the parties at this time that Mr. Lau or one of his companies would enter into a bare boat charter agreement with Cheerglory.

63. What he had in mind at that time was that he would be appointed as a manager of the ship. He had previously entered into agreements with PRC companies to manage ships for them. In particular, he had entered into a joint venture with CITIC, whereby he had managed a ship on the basis that he would receive 30 per cent of the net trading profit of the ship, while CITIC would receive the balance of 70 per cent. He accepted that under any such arrangement, the commercial risk would almost entirely fall upon the ship owners. He had advised Mr. Niu of this arrangement and had proposed that a similar scheme might be worked out for the 'OCEAN QUEEN'. However, Mr. Niu had not been very enthusiastic over this proposal and had made a counter offer of five per cent of the operating profit.

64. Mr. Lau agreed that, while it was true that he and Mr. Niu had been far apart on this, this had not particularly disturbed him as he had been more anxious to establish a profitable on going business relationship with Cheerglory, rather than concerning himself with the immediate solution of the operation of the 'OCEAN QUEEN'. In any event, he had been confident that something would, in due course, be worked out between himself and Mr. Niu and he had been prepared to continue to undertake the duties which would normally be undertaken by the manager of a ship, in anticipation of being so appointed in due course.

65. These duties had included obtaining a crew to man the ship after delivery had been effected at the end of March. For this he had gone to the Philippines for the purpose of interviewing suitable candidates. He had also sent out a series of telexes canvassing cargo for the ship on a similar basis. These efforts had not met with much success as no firm commitments had been concluded in the period from the middle of February to the middle of March.

66. According to Mr. Lau, there were a number of exchanges between himself and Mr. Niu during this period. At no time though did Mr. Niu definitely confirm that he would be appointed manager of the ship. He said that, with the wisdom of hindsight, he now much regretted that he had allowed this situation to drift on without their being clear agreement between the parties as to exactly where they stood.

67. On the 16th or 17th of March, Mr. Lau had approached Mr. Niu in connection with an insurance query. On this occasion Mr. Niu had asked him whether he would be interested in taking the 'OCEAN QUEEN' on a bare boat charter. Initially he was rather taken aback by this proposal because he had not previously had experience of this. He asked for time to consider the matter. He telephoned back the same afternoon and informed Mr. Niu that he would agree to bare boat charter the ship on a daily hire rate of US$2,300 per day. He did though insist that a considerable amount of flexibility would have to be built into the arrangements, as he would be taking upon himself very substantial commitments. He had prepared some rough estimates and had calculated that at US$2,300 per day, he would be operating on a very thin margin. Also it would take some time before revenue was receivable by him for freight. His calculations were predicated upon a premise that Cheerglory would assume all the obligations imposed upon them as owners and would spend the capital required to ensure that the ship was in satisfactory working order.

68. Mr. Niu had been anxious to increase the daily hire rate. He had proposed $2,450 per day. Mr. Lau said that he had not been prepared to go as high as that. When they had agreed the figure, at $2,300, Mr. Niu had requested Mr. Lau to prepare a standard bare boat charter party. He submitted this on the 20th or 21st of March.

69. As Mr. Lau and Mr. Niu were due to go to Athens to take delivery of the ship on 24th March, it was decided that a meeting should be held prior to their departure. The meeting seems to have been arranged largely upon Mr. Niu's initiative. I have to admit that I find this slightly surprising, in view of Mr. Lau's evidence to the effect that he would be taking upon himself onerous commitments by way of the contemplated bare boat charter party. Other than the general conversations on the 16th or 17th March, no details of the scheme had been discussed. On the face of it, this seems to be surprising. Mr. Lau's explanation for this was that he had made it clear to Mr. Niu that, if he took on the bare boat charter, Cheerglory would have to be "flexible" as it would be impossible for him to make any substantial payments in the immediate future. Presumably, this flexibility would extend to other matters.

70. Be that as it may, the meeting on the 23rd March did take place. There was discussion on the draft bare boat charter party document. It soon became obvious that on account of the numerous imponderables, it would be impossible to finalise any agreement at the meeting.

71. Mr. Lau insisted that the basis of any agreement concluded in this connection was that it would be incumbent upon Cneerglory to spend the necessary capital to get the ship into working order and, in particular, to comply with the numerous outstanding class requirements. Mr Niu was already fully aware of these from previous discussion which had taken place on this subject.

72. The difficulties implicit in the whole scheme were compounded by the fact that, on 23rd March, the parties did not know whether it would be possible to organise dry docking at Piraeus immediately after delivery would be undertaken. In any event, Mr. Lau reassured Mr. Niu that he would do everything reasonably possible to delay or protract the necessity for making capital payments in respect of the ship and would, where appropriate, seek extension of time for compliance with class requirements. What was clear, however, to Mr. Lau was that it was contemplated by both parties that Cheerglory would assume responsibility for these commitments. The position, however, was complicated by the fact that Mr. Lau acknowledged that he had a responsibility to make payments in respect of current maintenance of the vessel. This in effect means that there would need to be apportionment when work was done on the ship between what would amount to payment on outstanding requirements and payments for current maintenance. It will be appreciated from this that the scope for disagreements arising between the parties was almost infinite.

73. In addition to this, the vessel was being sold on an "as is" condition and, accordingly, there would be a large unknown element concerning the present state of the vessel and the availability of spares.

74. Perhaps not surprisingly, in view of what I have just said, differences were encountered at the meeting in attempting to reconcile these different interests within the framework of a standard bare boat charter form.

75. As discussions took place, one of the stumbling blocks which emerged was the question of insurance. It is a standard requirement in the form that P & I insurance should be paid for by the charterer. This was the reverse of what had been agreed on the 16th or 17th March. An argument then ensued over whether the original agreement should stand or whether the standard provision should be adopted. Mr. Lau explained that his costings for the payment of $2,300 had been based upon the premise that the owners would defray this cost. After some fairly keen exchanges, Mr. Lau conceded the point and agreed to meet this obligation.

76. It was at approximately this point that Mr. Niu introduced into the discussions his wish to be able to sell the ship at a capital profit should the opportunity present itself. Mr. Lau was definite that the discussions on this subject were of a very general nature. He had said that he would not wish to stand in Mr. Niu's way if, in the unlikely event, Cheerglory obtained an offer which would enable them to make an appreciable capital gain. However, in such an event, provision would have to be made to protect his interests. Particularly if the sale was made within the first six months. In such a situation, he would have been unable to have traded at a profit within such a short period. He used the rather colourful analogy of a race horse stumbling at the starting gate. He was absolutely certain that there had been no agreement that he would make the ship available to Cheerglory at two months' notice. Any such restriction would have imposed such a restriction upon his trading activities that it would have been impractical for him to proceed with the bare boat charter. He gave several examples of the types of situation which could have arisen in such circumstances and these seemed to me to be more than convincing.

77. On the subject of the Guarantee, Mr. Lau agreed that Mr. Niu had made such a request early on during the discussions on the draft charter party. He had refused to provide Mr. Niu with any such Guarantee. He had explained to Mr. Niu that he would be manging Glenmore. He offered to make it manifest to Mr. Niu and his colleagues that Seabridge would be the managers of Glenmore and that this should allay any fears they may have that, after Glenmore had taken delivery of the vessel, it may simply disappear.

78. After quite a lot of cross-examination, Mr. Lau gave evidence that he was much more concerned about Seabridge than he was Glenmore and while he in no way envisaged that the operation would encounter problems he, nonetheless, was unwilling to contemplate committing Seabridge to an unlimited risk by entering into a Guarantee which, according to Mr. Niu's version of the situation, would have been virtually unlimited.

79. I have had to give this part of the Mr. Lau's testimony the most anxious and careful consideration and thought. I have to weigh this evidence against the undisputed fact that Mr. Lau did enter into such an unlimited Guarantee in relation to the fixture for the pig-iron which had such an unhappy history.

80. The reason given by Mr. Lau for this was that the negotiations for the chartering of they pig-iron had been undertaken by Mr. Alan Tweedie, his colleague, while he was absent from the Colony. Perhaps on account of his limited experience in this field, he had failed to give clear instructions to Mr. Tweedie that Glenmore was the party who would be involved in the charter party arrangements. Mr. Tweedie proceeded on the basis that Seabridge would be the party.

81. On account of this, the charterers had themselves proceeded with their plans, which included arrangements with their bankers on this basis. Changing the name from Seabridge to Glenmore would inevitably lead to complications. Indeed, there was a possibility that if Mr. Lau had not agreed to enter into the Guarantee which had been requested, the whole deal might have been called off.

82. The consequences of this would have been most unfortunate. The vessel had already proceeded to Albania to take up the pig-iron. A delay of about a month had already occurred before this charter could take place, partly as a result of the unforeseen and stringent P & I requirements which had been imposed after Glenmore had taken delivery of the vessel.

83. Faced with this position, Mr. Lau felt himself to be under considerable commercial pressure to enter into the Guarantee.

84. All of this is in marked contrast to the situation which prevailed on the 23rd March. On that occasion there were not any significant pressures. He conceded that he had expended a lot of time and energy in his involvement with Cheerglory. However, he had had a number of other business opportunities and he was not in a position where it would have been in his interests to hazard the whole of his business future by entering into the Guarantee sought by Mr. Niu. In addition to this, he considered that the commitment in relation to the pig-iron was much less onerous than the engagements which were being contemplated in relation to the bare boat charter.

85. I have given, as I say, anxious consideration to this part of Mr. Lau's evidence and I have come to the conclusion that the explanation given by Mr. Lau is both plausible and credible. I accept his evidence that it was only in an extreme situation that he would consider entering into an unlimited guarantee.

86. This is perhaps a good opportunity for me to make further observations concerning Mr. Lau's credibility. An enormous amount of time was spent in cross-examination of Mr. Lau concerning his general credibility.

87. Mr. Waung took him in great detail through the whole of the period of the business relationship between the parties. During the early part of his cross-examination, Mr. Lau freely admitted that he had, on a number of occasions, resorted to what he described as being 'white lies' when conducting negotiations in connection with the proposed purchase of vessels. I have given this evidence careful consideration. What is necessary is to consider each of these so-called white lies and then attempt to determine whether it is of the nature of 'trade puff' or is more serious and constitutes a definite misrepresentation. To begin with, I was impressed by the fact that Mr. Lau was prepared so willingly to admit having not strictly told the whole truth on a number of occasions.

88. On examining the majority of these statements, I am definitely inclined to the view that the lies could more readily be categorised as 'trade puff', rather than deliberate and serious misrepresentations. I have in mind particularly the misstatements concerning the amount of offers or counter offers which were made and Mr. Lau's passing the information back to Mr. Niu. I am prepared to accept that the main factor motivating these untruthful statements was an endeavour not to jeopardise transactions by having Mr. Niu drawn too closely into discussions or negotiations.

89. I am certainly not suggesting that it was right for Mr. Lau to withhold information from Mr. Niu, even less to suggest that he was justified in distorting or misrepresenting any factual situations. What I am saying, however, is that I do not believe that Mr. Lau was acting with such mala fides that his evidence should be totally disregarded.

90. It is also necessary to scrutinise in some detail Mr. Lau's conduct concerning the way in which matters developed during this dispute. It is very obvious to me that, even by the time the Guarantee was allegedly entered into, there was a vast gulf between Mr. Lau's understanding of the position and Mr. Niu's. And that it would have been virtually inconceivable that any document reflecting all the necessary terms between the parties could possibly have been concluded.

91. Mr. Niu, on his part, wanted to have everything his way. He did not want to have the responsibility of trading the ship. He was, however, anxious to derive an income on the moneys which had been expended for the purchase of the vessel and, more particularly, to sell it for a capital profit if the opportunity presented itself at short notice.

92. In addition to this, he wanted to minimise the expenditure on the ship. What he had in mind was what has been described as a back-to back transaction. He says that Mr. Lau knew perfectly well that the ship was in good working order and, this being the case, he was well aware of the position at the commencement of the bare boat charter.

93. It is quite impossible to reconcile this with what Mr. Lau says was in his mind. He says that he would only consider assuming the risk of trading the vessel himself if he had some reasonable assurance that he would have sufficient time to make some profit. He was insistent that there was no way that he could achieve this objective if a clause was included in the charter party to the effect that, upon receipt of two months' notice, he would have to deliver up the ship to a port in China.

94. Such a provision would inhibit him from obtaining profitable cargoes for the ship. This was particularly the case having regard to he necessity for planning cargoes some time into the future.

95. On top of this was the difference of view concerning the provision for spares and the expenditure required for meeting class requirements. Whatever may have been the parties intentions, it was obvious to me that both men had very different ideas concerning the obligations which were imposed upon them. It was virtually inevitable that there would be disputes between the parties, having regard to the fact that none of these outstanding matters had really been resolved before they proceeded to Greece to take delivery of the ship.

96. An unsatisfactory position was made much worse by the unhappy sequence of events which then occurred. There were difficulties in Piraeus with the P & I Club. They were demanding much more in the way of remedial measures than Mr. Lau had in mind. This caused some delay. However, none of this was as disastrous as the accident which occurred in Albania.

97. It would appear from the survey reports that an accident occurred during the loading of the pig-iron. Serious damage occurred to the natch covers of the No. 4 hold. All of this is likely to be considered during arbitration proceedings. Superficially, however, it appears probable that the damage may have occurred as a result of negligent trimming and applying undue weight to the hatch covers.

98. This was a comparatively serious incident and reference has been made to the possibility of half a million US dollars having to be spent to make good the damage. In addition to this, it appears likely that the ship would have to be laid up for quite some time for the necessary work to be undertaken.

99. Very unfortunately, Mr. Lau did not see fit to inform Mr. Niu of this accident. He said that with the wisdom of hindsight, he now deeply regrets that he did not fully acquaint Mr. Niu of the position. I must say that I do not consider that any of the explanations given by Mr. Lau for not informing Mr. Niu are satisfactory.

100. one of the matters I have to consider is whether I would be justified in drawing the conclusion that anyone who was prepared to withhold such important information can be believed in respect of other evidence which is given.

101. I do not think that I am forced to the conclusion that anyone behaving in this irresponsible way is to be entirely disbelieved. On the evidence which is available, I am inclined to believe that Mr. Lau certainly thought that, on receiving insurance moneys payable plus demurrage, he would be able to overcome his difficulties and have the ship repaired, had he been able to trade the ship throughout what he regarded as being the full term of the bare boat charter, namely, two years. He had had discussions with a shipyard in Taiwan and one of the proposals for the resolution of the problem was to install pontoons in place of the rather cumbersome hydraulic system which had originally been installed. He also said that much of the time problem could have been overcome if the work was undertaken contemporaneously with the work which had to be done on the tail shaft. In other words, Mr. Lau endeavoured to minimise the problem.

102. I suspect that once a decision was made not to advise Mr. Niu of the incident, it would have been extremely difficult for him to go back to Mr. Niu and explain how it had come about that he had not been advised of the situation earlier.

103. The picture which emerges is that the relationship between the parties quickly started to deteriorate. An attempt was made to agree a second draft document based on the standard form. The main stumbling block appears to have been clause 27. This was the clause drafted by Mr. Lau which provided for him to receive compensation if he were required to deliver back the vessel on two months' notice.

104. Discussions were further soured by Mr. Niu's insistence upon Mr. Lau signing a form of IOU acknowledging the payments he had earlier received from Mr. Niu were debts which attracted interest. As Mr. Lau didn't consider that this reflected the true position, he had said that he would only sign such an IOU if Mr. Niu would sign a similar acknowledgment in respect of expenditure which had been incurred on his behalf. The only reason he had been prepared to accommodate Mr. Niu to this extent was to assist him in accounting to his superiors.

105. There appears to have been a meeting on 29th June, when matters came to a head. Various other ideas were being pursued, including the possibility of Mr. Lau purchasing the vessel on hire-purchase terms.

106. As nothing came of this, Cheerglory gave Glenmore two months' written notice, terminating the charter party. Mr. Lau said that he did not feel obligated to comply with the notice as no provision was made for Glenmore to receive any compensation for the early termination. It will of course be appreciated from what has already been said, that no charter party was ever formally signed by the parties. All that existed was the short memorandum I have already referred to, which was signed on the 23rd March, which in effect was an agreement to agree. Although there had been discussions about a possible clause 27, to include provision for early termination, this had never been formally agreed by the parties.

107. To cut a very long story short, Mr. Lau continued to trade the vessel and was initially completely unco-operative in advising Cheerglory of any of the details of trading activity, even including a refusal to tell them the whereabouts of the ship. It was in this context that the litigation was commenced.

108. There was also very lengthy cross-examination of Mr. Lau concerning the trading of the vessel. There were altogether six voyages between April 1989 and January 1990, when the ship was abandoned in Karachi.

109. In the most general terms, the engagements which Mr. Lau entered into were very marginal. Due to a number of circumstances, a substantial loss was sustained.

110. I have no doubt that Mr. Waung was able to establish conclusively in cross-examination that Mr. Lau's management of both Glenmore and Seabridge was haphazard and, to a large extent, disorganised. There was on numerous occasions blurring of the lines demarcing the activities of Glenmore and Seabridge Maritime. I did, however, accept his testimony that he was much more concerned to preserve Seabridge than he was Glenmore. This seems partly due to the fact that he believes that Seabridge has a good name in shipping circles, whereas Glenmore is an unknown quantity.

111. Also Seabridge's goodwill is inextricably connected with his own name. He is anxious to continue in business as a broker and to do so using Seabridge as a trading vehicle. I have no doubt that this of itself provides a compelling motive for him to be solicitous for Seabridge's welfare and desirous of not entering into any Guarantee which might have the effect of placing Seabridge's continued existence in jeopardy.

112. At the end of the day, what I have to do is to consider all of the evidence and then decide where the balance of probabilities lie.

113. Here, as can be seen from the outlines of the evidence which I have indicated, there were numerous direct conflicts between Mr. Niu's and Mr. Lau's evidence. While I have no doubt whatever that there were monumental misunderstandings between the parties, I cannot escape coming to the conclusion that one or both of these men had deliberately told the Court lies.

114. I have given the most careful thought to all of the evidence which has been placed before me. I have also had ample opportunity of observing Mr. Niu and Mr. Lau in the witness box while each of them was subjected to very lengthy cross-examination.

115. I have come to the conclusion that Mr. Lau was a much better witness than Mr. Niu. What particularly impressed me was the extent to which his testimony was supported by contemporaneous documentation. The same cannot be said for Mr. Niu. In my opinion, a lot of his evidence flies in the face of the documents and, more particularly, with the canons of common sense.

116. I have in mind as an example, Mr. Niu's letter to Mr. Li, his superior, dated 3rd March 1989. I simply cannot believe that this letter would have failed to make reference to a bare boat charter being entered into, if in fact this was the case. Equally, it is most unlikely there would have been a bare boat charter in existence while Mr. Niu was advising Mr. Li on the anticipated sale to More Shine.

117. By the same token, I find Mr. Niu's evidence concerning Mr. Lau's apparent willingness to agree to the termination of the charter party at two months' notice, with delivery back to the Far East, truly incredible. I regret that I have no alternative but to come to the conclusion that he was not a truthful or reliable witness and I do not believe that his testimony can be relied upon.

118. Having said this, I must also state that I have had some reservations concerning Mr. Lau's evidence. I have referred to some of these matters while commenting upon his evidence earlier in this judgment.

119. Mr. Waung submitted that Mr. Lau was a devious man of low commercial morality. That was not the impression he made upon me. However, I do not consider that any satisfactory or acceptable explanation has been forthcoming for his conduct in not advising Cheerglory of the damage which occurred to the 'OCEAN QUEEN' in Albania. In my opinion, this was indefensible.

120. Also I would have grave reservations concerning his actions relating to the address commission which he obtained when the 'OCEAN QUEEN' was purchased. He did not see fit to keep Mr. Niu advised of this and I believe that, had he done so, Mr. Niu would have insisted upon having this made available to his order. These, however, are matters which fall outside the main issue which I have to decide.

121. I have made a number of criticisms of Mr. Lau. However, my overall impression of him as a witness was essentially favourable. He did not strike me as being untruthful on important questions. I formed a conclusion that he used his best endeavours to accurately recollect what transpired. Certainly, where there is a conflict between his evidence and Mr. Niu's, I prefer Mr. Lau's. I say this even where Mr. Niu's evidence has been corroborated by Mr. Wu. I do not think that Mr. Wu can be treated as an independent witness.

122. It is not for me to speculate as to what exactly was said at the meeting on the 23rd March. Having regard to all the background information available and to the evidence of Mr. Lau, Mr. Niu and Mr. Wu, I have come to the conclusion that Mr. Lau did not agree to Seabridge guaranteeing Glenmore commitments in relation to the charter party. This being the case, the main claim made by the Plaintiffs must fail. I hold that no such Guarantee was offered.

123. I have been advised by the parties that they would prefer to defer addressing me on the subject of the loans or advances until after judgment on the guarantee has been handed down.

124. I will now hear the parties on this and on the question of costs.