GOLDEN METRO CHINA LTD v. THE OWNERS OF THE SHIP OR VESSEL SKY LUCKY

HCAJ 191/2006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ADMIRALTY ACTION NO. 191 OF 2006

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Admiralty Action in rem against the ship or vessel:  “SKY LUCKY”

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AND

HCAJ 194/2006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ADMIRALTY ACTION NO. 194 OF 2006

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BETWEEN

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(Consolidated pursuant to the Order of the Honourable Mr Justice Waung dated 9^th November 2006)

Dates of Hearing:  24, 26, 27 & 30 June 2008

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J U D G M E N T

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I.   INTRODUCTION

1.  I have to decide whether Tian Ren was obliged to pay US$1.5 million unconditionally to Golden Metro in connection with the purchase of a Vessel.  Golden Metro says that payment was unconditional.  Tian Ren contends that Golden Metro agreed that payment was subject to compliance with 3 conditions. 

2.  No document records the 3 conditions.  On the contrary, the documents suggest that no conditions (apart from delivery of the Vessel) were attached to the payment of US$1.5 million.  Nevertheless, Tian Ren maintains that the 3 conditions were either orally agreed between Mr. Tao Yi Zhong of SYMS (said to have been acting as Golden Metro’s agent) and Mr. Xu Hui of Tian Ren in mid-July 2006 or at a meeting in Shanghai on 15 August 2006 among Mr. Yu Heng Jun of Golden Metro, Mr. Xu and Mr. Tao.

3.  Precisely what the 3 conditions actually involved was never clearly articulated in the course of the trial.  In essence, the conditions were that, before or at the time when the Vessel was to be delivered, Golden Metro would do the following:-

(1)     Ensure that spare parts (said to be worth between US$800,000 and $1 million) belonging the Vessel which were stored on shore would be loaded onto the Vessel and delivered along with her;

(2)     Ensure that the Vessel’s main engine and 3 auxiliary engines would be repaired to a serviceable standard; and,

(3)     Invest US$800,000 in the Vessel.

II.  BACKGROUND

4.  Loyalton Shipping Ltd. is a subsidiary of OOCL.  Tian Ren is a company within the Centrans Group.  As was done during the trial, I shall generally refer to the former as OOCL and the latter as Centrans.  Mr. Xu is Tian Ren’s sole director and chairman of the Centrans Group.

5.  Golden Metro was a shelf company which Mr. Yu and his assistant Capt. Cheung acquired for the purpose of purchasing the Vessel (previously known as “OOCL EXPORTER” and now as “LUCKY STAR”) from OOCL.  The Vessel is about 20,000 MT.  In 2006 she was some 30 years old.

6.  Mr. Yu is Golden Metro’s director.  He runs a number of joint-venture companies which provide ship repair services at several Mainland ports. In the course of his business, Mr. Yu had had many dealings with OOCL.

7.  SYMS (Shandong Province Yantai International Marine Shipping Co.) is a Mainland state-owned enterprise which operates container vessels.  Mr. Tao is SYMS’ General Manager.

8.  In about March 2006, at Mr. Yu’s request, Capt. Cheung approached Mr. W. P. Yuen of HSBC Shipping Services (a broker) about the purchase of the Vessel from OOCL.

9.  A preliminary inspection of the Vessel by Mr. Yu took place in Xiamen on 16 May 2006.

10.  At around then, Mr. Yu set about looking for a buyer for the Vessel.  He negotiated with Mr. Tao (with whom he had previously done business) with the initial idea of purchasing the Vessel through a joint venture between himself and SYMS.

11.  In the meantime, Mr. Yuen informed Capt. Cheung that OOCL was willing to sell the Vessel, but not to any of OOCL’s major competitors.  Mr. Yu not being regarded as such a competitor, OOCL indicated that it was prepared to sell the Vessel to Mr. Yu at a price of around US$6.5 million.  Mr. Yu says (and I accept) that such price approximated the Vessel’s scrap value.

12.  Since SYMS (like OOCL) was in the container business, Capt. Cheung warned that OOCL might not want to sell the Vessel to an SYMS-associated company at all, let alone at scrap value.  Capt. Cheung therefore did not think Mr. Yu’s initial idea of buying the Vessel through a joint venture with SYMS was commercially feasible.

13.  Mr. Yu therefore proposed to Mr. Tao that Mr. Yu first buy the Vessel from OOCL and then re-sell the Vessel either to SYMS or a joint venture between SYMS and Mr. Yu.  Negotiations ensued between Mr. Yu and Mr. Tao on the price at which SYMS (or a joint venture with SYMS) would acquire the vessel.

14.  On 25 June 2006, Mr. Yu and Mr. Tao reached an understanding that, if OOCL sold the Vessel to Mr. Yu at US$6.5 million, SYMS (or a joint venture with SYMS) would in turn buy the vessel from Mr. Yu at US$8 million.  It was also agreed that Mr. Yu would invest US$800,000 of the resultant US$1.5 million price differential in the Vessel.  Consequently, Mr. Yu would only receive US$700,000 in cash.

15.  On 5 July 2006 OOCL agreed to sell the Vessel to Mr. Yu at US$6.5 million with delivery in August 2006.

16.  On 8 July 2006 Mr. Shao Zhou Ting of SYMS’s Engineering Department and Mr. Zhou Liang Wei inspected the Vessel at Xiamen.  On the basis of the inspection, Mr. Shao wrote an inspection report to the effect that the Vessel was in satisfactory condition. 

17.  Mr. Zhou was in fact Centrans’ representative.  He attended the inspection because around that time SYMS had decided that it lacked the financing to purchase the Vessel.  SYMS was therefore proposing to Mr. Yu that Centrans replace SYMS as sub-buyer and SYMS bareboat charter the Vessel from Centrans.  Mr. Zhou did not prepare any inspection report of his own.

18.  SYMS was familiar with Centrans.  Indeed Centrans had been negotiating with SYMS about a possible re-structuring of SYMS.  But Mr. Yu was not likewise familiar with Centrans.  Mr. Yu accordingly told Mr. Tao that he did not want to enter into a joint venture with Centrans.  Mr. Yu was only prepared to sub-sell the Vessel to Centrans in lieu of SYMS.

19.  Since Mr. Yu did not know Centrans, communications between him and Capt. Cheung on the one hand and Centrans on the other were routinely conducted through SYMS.

20.  On 10 July 2006 OOCL accepted Mr. Yu’s offer to purchase the Vessel through Golden Metro for US$6.5 million.  Mr. Yuen’s confirmation e-mail to that effect was copied to Mr. Shao.

21.  On 12 July 2006 SYMS informed Capt. Cheung that Centrans would purchase the Vessel through Tian Ren.

22.  On about 19 July 2006 Loyalton and Golden Metro signed a SALEFORM 1993 format Memorandum of Agreement (the Head MOA) whereby the former agreed to sell and the latter to buy the Vessel for US$6.5 million.

23.  On about 19 July 2006 Golden Metro and Tian Ren signed a SALEFORM 1993 format Memorandum of Agreement (the Sub-MOA) whereby the former agreed to sell and the latter to buy the Vessel for US$8 million.

24.  The Head and Sub-MOAs were to operate back-to-back.  They both provided for delivery of the Vessel between 15 and 31 August 2006.  The effect of the Head and Sub-MOAs would then have been to secure for Golden Metro a profit of US$1.5 million (that is, the difference between the prices stipulated in the 2 MOAs).

25.  On about 20 July 2006 Loyalton, Golden Metro and Tian Ren entered into a Nomination Agreement (through an exchange of faxes) whereby Golden Metro nominated Tian Ren to act as buyer under the Head MOA in place of Golden Metro.  Under the Nomination Agreement, Tian Ren agreed to pay to Loyalton the $6.5 million consideration for the Vessel stipulated in the Head MOA. The Nomination Agreement further provided that, save for the assignment of Golden Metro’s rights and obligations under the Head MOA to Tian Ren, all other terms and conditions of the Head MOA remained in force.

26.  On 2 or 3 August 2006 Mr. Shao told Capt. Cheung of concerns raised by Messrs. Richards Butler (Centrans’ Hong Kong solicitors) about the Head and Sub-MOAS and the Nomination Agreement.  Richards Butler took the view that the co-existence of the 3 contracts could expose Centrans to the risk of paying both the US$6.5 million under the Nomination Agreement and the US$8 million under the Sub-MOA.

27.  To address those concerns, Capt. Cheung drafted an Addendum to the Nomination Agreement providing for cancellation of the Sub-MOA upon receipt by Golden Metro of the price difference of US$1.5 million.  The draft was reviewed by Golden Metro’s then solicitors, Messrs. Simon C. W. Yung & Co. 

28.  On 4 August 2006 Capt. Cheung sent the draft Addendum to Mr. Shao for forwarding to Centrans.

29.  Despite several chasers, Centrans did not reply until 10 August 2006.  That reply (routed through Mr. Shao) consisted of revisions to Capt. Cheung’s draft suggested by Mr. Lu Shao Hui of Centrans.  Among the revisions was a proposal that the US$1.5 million be paid to Golden Metro no later than 15 August 2006 or (alternatively) be remitted into a joint account in the names of Golden Metro and Tian Ren within the 3 banking days after the account came into operation.  There was no mention of the 3 conditions.

30.  Capt. Cheung was not averse to the amendments.  He informed Mr. Shao on 10 August 2006 that Golden Metro agreed to the same.

31.  On 11 August 2006 Mr. Lu told Capt. Cheung (via fax forwarded through Mr. Shao) that Centrans wished further to revise the Addendum (now referred to as a Side Letter).  The further revision related to deferring the payment of the US$1.5 million to 25 August 2006.  It was also proposed that the payment only be remitted into SYMS’ bank account.

32.  Capt. Cheung replied that the US$1.5 million had to be paid by 21 August 2006 into an account opened by the parties’ Hong Kong lawyers.

33.  On 14 August 2006 Mr. Lu insisted that the US$1.5 million be paid into SYMS’s bank account and held there in escrow pending delivery of the Vessel.

34.  On the same day, Capt. Cheung repeated that payment had to be made into an account maintained by Hong Kong lawyers or into Golden Metro’s account by 20 August 2006.  In addition, Capt. Cheung wanted the sum to be released before delivery of the Vessel.

35.  Later that afternoon, Capt. Cheung advised that, to protect Centrans from financial exposure, Golden Metro was prepared to accept payment of the US$1.5 million into SYMS’ account by 20 August 2006.  But this would be subject to the condition that SYMS guaranteed to release the money to Golden Metro before delivery of the Vessel.

36.  No agreement having been reached on the mechanics for payment of the US$1.5 million, Mr. Tao arranged a meeting between Mr. Yu and Mr. Xu at Centrans’ Shanghai office on 15 August 2006.  At that meeting, Mr. Tao, Mr. Xu and Mr. Yu were present.  

37.  Mr. Tao did not give evidence at trial.

38.  According to Mr. Xu, at the meeting he asked Mr. Yu to justify the price differential of US$1.5 million.  Mr. Yu (Mr. Xu claims) did so by reference to the 3 conditions.  Mr. Xu says that at the meeting Mr. Yu acknowledged that the US$1.5 million would only be payable if the 3 conditions were satisfied. 

39.  Mr. Yu flatly denies Mr. Xu’s version of events.  According to Mr. Yu, there was no mention of any 3 conditions during the 15 August meeting.  Instead, Mr. Yu says the meeting was short.  He says that he accepted Mr. Xu’s proposal that the US$1.5 million be transferred to SYMS’ account by 25 August 2006. He did so upon Mr. Tao’s assurance that SYMS would transfer the money to the account of Golden Metro or its nominee upon Centrans taking delivery of the Vessel.

40.  Based on what Mr. Yu told him had transpired in Shanghai, Capt. Cheung drafted a new Addendum (now re-named as a Guarantee Agreement) which he sent to Mr. Shao for forwarding to Centrans.

41.  Mr. Shao came back with some amendments which Capt. Cheung incorporated into the Guarantee Agreement (now further re-named as a Payment Agreement). 

42.  On about 18 August 2006 Mr. Lu boarded the Vessel as Centrans’ representative to observe its operations.  This was to ensure a smooth handover between OOCL and Centrans, since OOCL continued to run the Vessel until immediately before delivery.  Mr. Lu remained on board the Vessel until its delivery on 30 August 2006.  He reported to Mr. Li Rong Jin of Centrans about the state of the Vessel. 

43.  On 21 August 2006 Capt. Cheung sent a revised draft Payment Agreement to Mr. Shao.

44.  Mr. Shao responded on the same day with comments from Centrans.  Capt. Cheung in reply pointed out that the matters commented upon were already covered in the Head MOA.

45.  By this time Capt. Cheung was becoming increasingly concerned that no Addendum to the Nomination Agreement had yet been signed.  He telephoned Mr. Shao to ask why not.

46.  On 24 August 2006 Ms. Liu Bin Xing of Centrans’ Commercial Department spoke to Capt. Cheung over the telephone and sent an e-mail to him regarding further amendments to the Payment Agreement.  The amendments had been suggested by Richards Butler. Among other proposed revisions, the US$1.5 million was to be described as a “service charge”.  Capt. Cheung was agreeable to the proposed changes. 

47.  On the basis of Mr. Lu’s observations on board the Vessel, Mr. Li prepared a memo for Mr. Xu dated 24 August 2006.  Mr. Li concluded in his memo that the problems associated with the Vessel were “more serious than expected”.  He thought that this would cause “increasing difficulty in management following the acceptance of the Vessel”.  This was because “repair costs [were] bound to increase in order to ensure the Vessel’s complete navigability”.  In Mr. Li’s view, there was a “substantial difference in the actual price of the vessel and the real value [was] far lower than expected”.

48.  On 25 August 2006 Mr. Yuen and Capt. Cheung met Mr. Xu in Richards Butler’s Hong Kong office.  Capt. Cheung’s objective was to obtain Mr. Xu’s signature on the Payment Agreement.  But Mr. Xu did not sign the Payment Agreement.

49.  According to Mr. Xu, he did not do so because the Payment Agreement did not mention the 3 conditions. 

50.  According to Capt. Cheung, Mr. Xu did not sign because Mr. Xu claimed that there was no need to do so.  Capt. Cheung says that Mr. Xu told him that the US$1.5 million had already been sent to SYMS for release to Golden Metro upon delivery of the Vessel. 

51.  According to Mr. Xu, he asked Capt. Cheung why the 3 conditions had not been included in the Payment Agreement.

52.  Capt Cheung, however, was adamant at trial that nothing was said about the 3 conditions.  Nonetheless, Capt. Cheung accepts that during the meeting he provided Mr. Xu (at the latter’s request) with a spare parts list of the Vessel.

53.  Later that afternoon, Capt. Cheung received confirmation from SYMS that US$1.5 million had been received.

54.  On 28 August 2006 Mr. Yu and Capt. Cheung met Mr. Xu at Richards Butlers’ Hong Kong offices. 

55.  According to Mr. Xu, he again refused to sign the Payment Agreement because it did not mention the 3 conditions.

56.  According to Mr. Yu and Capt. Cheung, Mr. Xu did not mention the 3 conditions.  Instead, Mr. Xu reiterated that there was no need to sign as the US$1.5 million had been remitted to SYMS.

57.  Mr. Peter Lee of Richards Butler was present during some of the 28 August meeting.  He says that there was a long and heated argument between Mr. Yu and Mr. Xu.  Mr. Lee mentions having left in the middle of the argument to attend to matters relating to the delivery of the Vessel.  Mr. Lee says that, when he returned about an hour later, Mr. Xu and Mr. Yu were still arguing.

58.  Mr. Yu left the meeting without signing an original copy of the Nomination Agreement as requested by OOCL.

59.  On 29 August 2006 a pre-closing meeting took place at OOCL’s offices.  Although not required to attend, Mr. Yu and Capt. Cheung went to the meeting to discuss arrangements with Mr. Xu for the payment of the price differential.  At the time Mr. Yu signed the original of the Nomination Agreement at OOCL’s request.

60.  On 30 August 2006 a closing meeting took place at OOCL’s offices.  The Vessel was delivered to Tian Ren at Shekou.

61.  On 31 August 2006, not having received the US$1.5 million, Golden Metro arrested the Vessel.  The Vessel was released on 4 September 2006 upon payment by Centrans of bail in the amount of US$1.7 million.

III.  DISCUSSION

62.  In this section, I will cover the following topics:-

(1)    The allegation that the 3 Conditions were agreed between Mr. Tao (acting on behalf of Golden Metro) and Mr. Xu in early or mid-July 2006.

(2)    The effect of the Nomination Agreement on the parties’ obligations Head MOA and Sub-MOA.

(3)    The allegation that the 3 Conditions were agreed between Mr. Xu and Mr. Yu at their meeting in Shanghai on 15 August 2006.

(4)   The credibility of the witnesses at trial (Mr. Yu and Capt. Cheung for Golden Metro; Mr. Xu, Mr. Peter Lee, Mr. Lu, Ms. Liu and Mr. Li for Tian Ren).

A.   Alleged agreement between Mr. Tao (acting for Golden Metro) and Mr. Xu

63.  Mr. Jat Sew Tong SC (appearing for Tian Ren) submits that “the 3 Conditions had been agreed right from the start” even before the MOAs were signed.

64.  For this proposition, Mr. Jat relies on evidence from Mr. Xu to the effect that in or about middle and late June 2006 Mr. Tao told Mr. Xu that SYMS was buying the Vessel from OOCL at US$6.5 million with a further US$1.5 million being payable to Mr. Yu as an intermediary party.  According to Mr. Xu, Mr. Tao told him that the US$1.5 million was a reasonable amount because its payment was subject to compliance with the 3 conditions.  Subsequently, Mr. Xu says that he told Mr. Tao that Centrans was “in a position to consider buying this vessel on the same conditions”.

65.  Mr. Jat suggests that, in referring to the 3 conditions, Mr. Tao was acting as Mr. Yu’s agent.  Since Mr. Yu communicated with Centrans through SYMS, it can be inferred (Mr. Jat reasons) that Mr. Yu held SYMS out as having authority to deal with Centrans on behalf of Mr. Yu and Golden Metro in all matters relating to the Vessel’s sale.

66.  I am unable to accept Mr. Jat’s contentions.

67.  First, there is no evidence that SYMS had actual authority to make representations on behalf of Mr. Yu or Golden Metro regarding the sale of the Vessel.

68.  Second, it is true that, early on, Mr. Yu explored with Mr. Tao the possibility of entering into a joint venture for purchasing and operating the Vessel.  Conditions of whatever nature may or may not have been discussed between Mr. Yu and Mr. Tao regarding such venture. 

69.  But it cannot be deduced from this that Mr. Yu was prepared to sell the Vessel to Centrans on the same terms; or to enter into a joint venture with Centrans on any terms; or to deliver spare parts, cause repairs to the Vessel to be effected, and otherwise to invest money in the Vessel in consideration of US$1.5 million. 

70.  Whatever was explored between Mr. Yu and Mr. Tao would solely have been for the purposes of a venture between them.  Mr. Tao could not presume that Mr. Yu was willing to enter into any agreement on similar terms with anyone else.  Nor could any discussion with Mr. Tao amount to authorising Mr. Tao to offer similar terms on behalf of Mr. Yu to anyone else.

71.  In fact, the evidence is contrary to what Mr. Jat posits. Mr. Yu stressed (and I accept) that he was not prepared to enter into a joint venture with Centrans.  He did not know Centrans.  He had not done business previously with Centrans.  He was only willing to sell the Vessel to Centrans for US$8 million and then to be done with the deal.

72.  Third, as matters transpired, SYMS did not enter into a joint venture with Mr. Yu.  It was not in a financial position to acquire the Vessel.  Mr. Tao then attempted to persuade Mr. Xu to buy the Vessel in place of SYMS.

73.  In those circumstances, whatever Mr. Tao may have said to Mr. Xu in order to persuade him to buy in place of SYMS, cannot be regarded as having been authorised by Mr. Yu.  Mr. Tao (as Mr Charles Sussex SC (acting for Golden Metro points out) would have been acting on behalf of SYMS, trying to extricate SYMS from its understanding reached with Mr. Yu.

74.  The mere fact that subsequently Mr. Yu was amenable to contract with Mr. Xu’s company, does not mean that whatever terms were previously discussed between Mr. Tao and Mr. Yu in respect of SYMS can be assumed without more to apply to the deal with Centrans.

75.  Fourth, I do not think that the fact that Mr. Yu communicated with Centrans through SYMS amounted to a representation by Mr. Yu that Mr. Tao was authorised to act as his agent.  The evidence is that communications were simply routed through SYMS because it knew both parties whereas neither Mr. Yu nor Mr Xu knew each other.

76.  Fifth, I doubt that Mr. Xu himself regarded Mr. Tao as having early on agreed anything on behalf of Mr. Yu with Centrans.

77.  Mr. Xu does not state explicitly that in late June or early to mid-July he considered Mr. Tao to have agreed on behalf of Mr. Yu that payment of US$1.5 million would be subject to the 3 conditions.

78.  Instead, Mr. Xu only refers to Mr. Tao mentioning the 3 conditions in late June 2006 in the context of Mr. Yu acting as an intermediary in search of someone (such as SYMS) interested in buying the Vessel from SYMS.  Mr. Tao (according to Mr. Xu) referred to the 3 conditions as Mr. Yu’s fee as intermediary for securing repairs, spare parts and further investment in the Vessel.

79.  Mr. Xu then says:-

“In consideration of SYMS’ need for this vessel and my trust and support for SYMS and Mr. Tao, I made it clear to Mr. Tao that Centrans was in a position to consider buying this vessel on the same conditions.”

80.  Mr. Xu does not seem to have regarded any agreement on the 3 conditions as having crystallised until the meeting on 15 August.  That was the first time that Mr. Xu and Mr. Yu met each other.  Thus, the relevant part of Mr. Xu’s Witness Statement reads:-

“When Mr. Yu saw me, he instantaneously asked whether Centrans could pay the service fee of US$1.5 million.  I told him that if Golden Metro could satisfy the Three Conditions prior to delivery of the vessel as undertaken to us through Mr. Tao, namely the satisfactory repair of the vessel (four engines and one boiler), the availability of a large quantity of spare parts on board the vessel (approximately US$0.8-1 million) and the subscription of 10% shares by the intermediate party, Tian Ren would pay the service fee of US$1.5 million to Golden Metro.  Mr. Yu said that the Three Conditions undertaken by Golden Metro would be satisfied prior to the delivery of the vessel. Both of us agreed that Centrans would deposit US$1.5 million, as guarantee money, to SYMS, which shall act as an intermediary guarantor before 25^th August.  Once the Three Conditions were satisfied at the time of delivery of the vessel, SYMS would pay this guarantee money to Golden Metro.  This arrangement was totally agreed by Mr. Tao.  I still believed the arrangement made by Mr. Tao at the time.”

81.  In his Supplementary Statement, Mr. Xu appears to confirm that (as far as he was concerned) the operative date for any agreement on the 3 conditions as the quid pro quo for the US$1.5 million was 15 August.  Mr. Xu states:-

“It is impossible that Mr. Yu Hengjun had not heard of the three conditions prior to that the Defendant amended its Defence.  Just as mentioned in my first statement, Mr. Yu already indicated that Golden Metro guaranteed to satisfy the three conditions prior to the vessel’s delivery when I met Mr. Yu for the first time on 15^th August 2006.”

82.  Sixth, I have so far assumed that Mr. Xu’s recollection of his conversations with Mr. Tao in relation to the 3 condition is reliable.  As will be seen in Section III.D below, I do not regard Mr. Xu’s evidence on the 3 conditions as reliable.  I do not think that it would be safe to conclude that there was an early agreement with Mr. Tao on the 3 conditions on the basis of Mr. Xu’s evidence.

B.   Effect of the Nomination Agreement on the Head and Sub-MOAs

83.  There being no agreement with Mr. Tao, the starting point for an analysis of the legal relation between Golden Metro and Tian Ren must be the MOAs and the Nomination Agreement.

84.  The Nomination Agreement was a novation of the Head MOA.  Under the Head MOA Golden Metro agreed to purchase the Vessel from Loyalton for US$6.5 million.  By the Nomination Agreement, Tian Ren undertook Golden Metro’s obligation to pay such amount to Loyalton and Loyalton agreed to look to Tian Ren (not Golden Metro) as buyer.

85.  Moreover, by entering into the Nomination Agreement, Golden Metro and Tian Ren implicitly agreed that, rather than Golden Metro physically delivering the Vessel to Tian Ren, Tian Ren would simply take delivery of the Vessel directly from Loyalton.  Tian Ren would then pay US$6.5 million of the US$8 million consideration agreed under the Sub-MOA to Loyalton direct. 

86.  This would leave a balance of US$1.5 million due under the Sub-MOA.  That would remain payable by Tian Ren to Golden Metro.  There is nothing in the Nomination Agreement which suggests that Tian Ren’s obligation to pay the balance of US$1.5 million had been cancelled or extinguished.

87.  The obligation to pay the balance of US$1.5 million could not have been extinguished by the Nomination Agreement which in essence only went towards novating the Head MOA. The Nomination Agreement could not (whether on its terms or in the circumstances in which it was entered into) have led to Tian Ren only having to pay US$6.5 million in place of its previously agreed obligation to pay US$8 million.

88.  Note that, under the Sub-MOA, the obligation to pay US$8 million (including the balance of US$1.5 million) was not contingent upon satisfaction of any conditions apart from delivery of the Vessel.

89.  This means that any imposition of the 3 conditions as a trigger for the payment of the balance of US$1.5 million would have to operate as a variation of the original obligation under the Sub-MOA.  Such variation would have to be supported by consideration moving from Tian Ren in return for Golden Metro’s undertaking to abide by the 3 conditions.

90.  The legal question then is whether anything which occurred on 15 August 2006 amounted to an effective agreement (supported by consideration) to vary Tian Ren’s outstanding obligation to pay Golden Metro US$1.5 million upon delivery of the Vessel.

91.  Mr. Xu repeatedly stressed in the witness box that he had been advised by Richards Butler (and so believed) that the execution of the Nomination Agreement by Tian Ren extinguished its obligations under the Sub-MOA.  But I cannot see how such advice from Richards Butler can have been right in law. 

92.  The Court heard evidence from Mr. Peter Lee of Richards Butler that, confronted by the Head and Sub-MOAs and the Nomination Agreement, he regarded the MOAs as superfluous.  Either the sale was to be effected under the MOAs back-to-back or delivery was to be made under the Nomination Agreement.  Mr. Peter Lee did not see how the sale of the Vessel could be effected under the MOAs and the Nomination Agreement.

93.  But (as Mr. Sussex pointed out to Mr. Lee in cross-examination) Mr. Lee’s analysis failed to consider that the Nomination Agreement only affected (expressly) the parties obligations under the Head MOA and (impliedly) Golden Metro’s obligation to deliver the Vessel to Tian Ren under the Sub-MOA.  Mr. Lee’s analysis ignored the survival of the obligation under the Sub-MOA to pay the balance of US$1.5 million.

C.   Alleged agreement between Mr. Yu and Mr. Xu on 15 August 2006

94.  I am unable to find that Mr. Yu ever agreed, whether on 15 August or at any later time, that payment of the US$1.5 million was subject to the 3 conditions.  I set out below my reasons for coming to this conclusion.

95.  First, in oral evidence, Mr. Xu said that the reason why there is no mention of the 3 conditions in the documents is that Mr. Yu wished to keep their existence confidential.  According to Mr. Xu, Mr. Yu requested this confidentiality because Mr. Yu intended to give some of his US$1.5 million profit to certain “high-ranking officials” within OOCL. 

96.  The implication appeared to be (although in cross-examination Mr. Xu denied that such ever crossed his mind) that Mr. Yu needed the cooperation of these nameless officials to accomplish the 3 conditions and would have to secure such cooperation through bribery.

97.  This reason for the silence of documents is difficult to countenance.

98.  For one thing, Mr. Xu apparently agreed that for the sake of confidentiality nothing would be mentioned of the 3 conditions in any document.  But, if that were so, why did Mr. Xu insist on the 3 conditions suddenly being recorded in any Addendum to the Nomination Agreement.  Mr. Xu, by his account, refused to sign the Payment Agreement drafted by Capt. Cheung because the 3 conditions were not mentioned there.

99.  Further, even if the 3 conditions were to be kept confidential, that would only have been as far as outsiders were concerned. 

100.  On Mr. Xu’s version of events, on the part of SYMS Mr. Tao and Mr. Shao and on the part of Centrans Mr. Xu, Mr. Li, Mr. Lu and even Ms. Liu were aware of the 3 conditions.  One would expect there to be discussion of the 3 conditions in internal memos or e-mails passing among these persons.  But there is no such mention.

101.  In particular, if (as Mr. Xu claims he insisted) the 3 conditions were supposed to appear in the Payment Agreement, then one might have expected that, in the course of passing amendments back-and-forth among Golden Metro, SYMS and Centrans, there would be some attempt by Centrans to propose appropriate wording reflective of the 3 conditions in the Payment Agreement.  There was no such attempt.

102.  One would have expected Mr. Xu to explain the 3 conditions in detail to Mr. Peter Lee.  There would be no plausible reason to keep the 3 conditions secret from one’s own lawyer.  But there was no such detailed explanation.

103.  At most Mr. Peter Lee was apparently left to infer whatever he could (if anything) about the existence of the 3 conditions from stray words (such as “spare parts list,” “investment into capital” and “repairs”) which he heard in the course of meetings among himself, Mr. Xu, Mr. Yu and Capt. Cheung.  In cross-examination, it seemed that Mr. Peter Lee (despite being Mr. Xu’s lawyer) had no real idea precisely what the 3 conditions were.

104.  Mr. Xu’s explanation for the silence of documents therefore does not ring true to me

105.  Second, if there truly had been 3 conditions, one would expect Mr. Xu as an experienced businessman to have had a precise idea just what those conditions were.  But he did not on cross-examination seem to have had any clear idea.  On the contrary, what he suggested the 3 conditions involved did not seem to make sense.

106.  Consider, for example, the condition relating to the repair of engines.  Mr. Sussex asked Mr. Xu just when he expected that the engines would be repaired (on the assumption that they were in the parlous state described by Mr. Li in his memo).  The Vessel remained in OOCL’s service until just before delivery.  There would have been no opportunity to repair the engines in any significant manner prior to delivery.

107.  Mr. Xu could not answer the question.  He replied that how Mr. Yu repaired the engines was up to Mr. Yu.  It was not Mr. Xu’s concern.  It was enough for Mr. Xu that Mr. Yu guaranteed that the engines would be in a proper state.

108.  I do not think that is an answer to Mr. Sussex’ query.  If the repair condition was to mean anything, then just when in practical terms did Mr. Xu envisage the repairs being effected?  It is hard to believe that, as experienced businessmen, Mr. Xu would have imposed and Mr. Yu agreed to a condition which could not be accomplished.

109.  Consider the condition relating to spare parts.

110.  Under the Head MOA, OOCL was only obliged to deliver the Vessel “with everything belonging to her on board”.  A provision requiring OOCL to deliver the Vessel with “everything belonging to her ... on shore” was deleted.

111.  It is therefore far from clear how Mr. Yu was supposed to transport on-shore spare parts on board the Vessel. To execute this condition would have required OOCL’s permission.  The condition could not have been kept secret or confidential from OOCL.

112.  But, asked whether he realised that Mr. Yu would have to bribe “high-ranking” OOCL officials to load spare parts on board the Vessel beyond those which OOCL was supposed to deliver under the Head MOA, Mr. Xu said such never occurred to him.

113.  Precisely how, then, did Mr. Xu expect this condition of spare parts to be met?  In what lawful way were the relevant pare parts (whatever they may have been) supposed to be placed on board prior to delivery as the condition apparently required?

114.  Consider the condition relating to investment.

115.  In his witness statement, Mr. Xu claimed that such investment was to be by way of taking an equity position in Tian Ren.  But, in the witness box, he denied that Mr. Yu was supposed to buy shares in Tian Ren.  He insisted instead that Mr. Yu was supposed to pay US$800,000 for use by the Vessel.

116.  Mr. Sussex suggested that there was something odd about Mr. Yu having to pay US$800,000 as a condition of receiving US$1.5 million.  Would it not have been simpler (Mr. Sussex asked Mr. Xu) for Centrans to pay Mr. Yu US$700,000 of the US$1.5 million and to retain US$800,000 as Mr. Yu’s investment?  But Mr. Xu insisted that the payment of US$800,000 by way of investment was a pre-requisite to the release of the US$1.5 million lodged with SYMS.

117.  I agree with Mr. Sussex here.  I find it difficult to believe that Mr. Yu was supposed to come up with US$800,000 before he could receive his US$1.5 million.  It does not make sense from the viewpoint of efficiency and I doubt Mr. Yu would have agreed to such a condition.

118.  Third, Mr. Jat relied heavily on the evidence of Mr. Peter Lee and Ms. Liu as corroborating Mr. Xu’s evidence.  Although neither Mr. Lee nor Ms. Liu was present at the 15 August meeting when the 3 conditions were supposed to have been agreed, both claimed to have heard Mr. Xu refer to the 3 conditions before delivery of the Vessel.

119.  But I was not convinced by the evidence of either person as to the existence of the 3 conditions.

120.  As I have already noted, Mr. Peter Lee seems not to have had any clear picture of the 3 conditions.  He may have heard references by Mr. Xu in the course of conversation with Mr. Yu and Capt. Cheung to spare parts, investment and repair.  But his recollection of Mr. Xu’s use of those expression does not establish that the 3 conditions were actually discussed. 

121.  Mr. Peter Lee remembers Mr. Yu saying words along the following lines:  “This cannot be written down; it is not good to do so” (“这 个不能写、这个不好”).  But such recollection is consistent with Mr. Yu telling Mr. Xu that the 3 conditions (if indeed mentioned by Mr. Xu) could not be written down because they had never been agreed and it was wrong to insist on putting down on paper what had never been agreed.

122.  On the other hand, Ms. Liu did not strike me as a reliable witness.  She had little recollection of dates and what took place when or where.  But she was surprisingly confident that Mr. Xu referred to the 3 conditions in her presence, even if she had no real idea what the 3 conditions were.

123.  I am therefore unable to place much weight on the evidence of Mr. lee or Ms. Liu.

124.  Fourth, Mr. Jat asks rhetorically why Centrans would agree to buy the Vessel at US$8 million, when it knew that OOCL was only selling for US$6.5 million.  There must  (Mr. Jat submits) have been some value-added benefit for Centrans in the form of the 3 conditions being promised by Mr. Yu.  Otherwise, Centrans could simply have undercut Golden Metro by buying the Vessel directly from OOCL.  Or, alternatively, Centrans could have gone into the market and bought a similar container vessel at a lower price.

125.  I am not persuaded by this argument.

126.  Mr. Jat relies on a valuation obtained from Maersk Broker giving the market value of the Vessel at US$6.5 to 6.6 million in July 2006 as indicative that Centrans would not have paid more than that amount for the Vessel in the absence of the 3 conditions.

127.  However, that valuation was only exhibited to Mr. Xu’s Supplemental Witness Statement.  No broker was called to give oral evidence.  It was not possible to test the assumptions behind the valuation in cross-examination.

128.  In contrast, Mr. Yu expressly referred to (and was available for cross-examination on) his valuation of US$6.5 million based on the scrap value of the Vessel.  Further, there was Mr. Yu’ evidence that Mr. Tao of SYMS was prepared to pay up to US$8 million for the Vessel.

129.  In all the circumstances, I should prefer Mr. Yu’s evidence on the value of the Vessel. 

130.  OOCL was prepared because of its close connection with Mr. Yu to sell the vessel to him at close to scrap value (US$6.5 million).  This does not mean that OOCL would have been prepared to sell the Vessel to anyone else at the same price.  In light of SYMS’ interest and its willingness to pay US$8 million, I should assume that SYMS knew what it was doing and that US$8 million was close to the actual market price of the Vessel.

131.  In my view, it was perfectly plausible that Centrans would be willing to pay US$8 million for the Vessel, despite knowing that Mr. Yu was obtaining her from OOCL at only US$6.5 million.  Thereafter, Mr. Yu merely did what is commonly done in Hong Kong. Having acquired the Vessel extremely cheaply, he sought to make a quick profit by re-selling the Vessel at a price closer to its market value.

D.   General comments on the credibility of witnesses

132.  Insofar as Capt. Cheung and Mr. Yu are concerned, their evidence conforms with the available document.  Thus, I accept their recollection of events to be generally reliable.

133.  There are differences in points of detail between their evidence and that of Mr. Peter Lee.  For instance, Mr. Peter Lee remembers a protracted argument between Mr. Yu and Mr. Xu on 28 August 2006.  Mr. Yu says that there was no such meeting and the meeting was a short one.

134.  After the passage of some 2 years, one might expect divergences in the way people recall events.  I am not sure that I can deduce much from differences which could conceivably result from the dimming of memories. 

135.  Although Mr. Peter Lee said that he was confident of his recollections, I think that Mr. Sussex is right to suggest that his memory cannot be so certain after the passage of so much time.  In particular, Mr. Peter Lee did not prepare a comprehensive record of what happened at the meetings in Richard Butler’s offices.  He said that he took a few notes in a notebook.  But these have not been produced to the Court.  I therefore do not know how useful such notes may or may not have been in reconstructing what actually happened.

136.  I did not feel that I could safely rely on Mr. Xu’s evidence.  His witness statements and oral evidence diverged significantly at many points.  He gave at least 2 different versions of what happened at the meeting with Mr. Yu on 15 August.  In the witness box, he was argumentative and prone to lose his temper.  He may possibly have believed that what he was saying was true.  But, for the reasons which I have mentioned above, much of his evidence did not strike me as plausible.

137.  I have already referred to the evidence of Ms. Liu and why I did not find that to be useful.

138.  In my view, I am unable to place much weight on the evidence of Mr. Lu and Mr. Li either.  They were not present when the 3 conditions were allegedly agreed on 15 August 2006.  They may or may not have heard Mr. Xu referring to the 3 conditions.  But at the end of the day they did not seem to have any clear picture of what precisely the 3 conditions involved (if anything).

139.  Inevitably, where there is an assertion of an oral agreement which is unsupported by contemporaneous documents, the Court must place significant weight on what the documents actually say.  In this case, I have taken my cue from the documents.  I have not been persuaded by the oral evidence from Centrans that the documents should be taken otherwise than at their face value.  In my view, the documents provide a reasonably complete picture of what the parties actually discussed.

IV.   CONCLUSION

140.  Golden Metro succeeds on its claim.  There will be judgment for Golden Metro in the sum of US$1.5 million together with interest at 1% over US$ prime from 30 August 2006 (when the money should have been paid) until date of judgment.  Thereafter interest will run on the judgment debt at the judgment rate until payment.

141.  There will be an Order Nisi that Tian Ren pay Golden Metro’s costs, such to be taxed if not agreed. 

142.  Mr. Sussex suggests that costs should be on an indemnity basis.  But I do not think that the diametrically opposing positions taken by the parties go beyond what one might expect in the normal cut and thrust of litigation. 

143.  Although on the whole I have not found Tian Ren’s evidence to be reliable, this is not the same thing as finding Tian Ren’s witnesses to have deliberately given false evidence.  I do not rule out the possibility that Tian Ren’s witnesses may genuinely (but wrongly) have believed their evidence to be true.  I accordingly do not think that costs on an indemnity basis are warranted.  Costs should be on the standard party-and-party basis.