NGO CHEW HONG EDIBLE OIL PTE LTD v. THE OWNERS OF THE SHIPS OR VESSELS JALABALA AND OTHERS

IN THE COURT OF APPEAL

1987 No. 10
(Civil)

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Dates of Hearing: 24th & 25th March 1987

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J U D G M E N T

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Kempster, J.A.:

1. This is an appeal by plaintiff shippers from the Order of Mayo J. dated 16th January 1987 setting aside a Warrant for the arrest of M.V. Jalagopal which had been issued at their instance.

2. The Jalagopal, like the M.V. Jalamohan and other vessels, was owned by Scindia Steam Navigation Co Ltd, the defendants, and at material times operated by Express Ship Management Services Ltd under a time-charter dated 30th April 1986. The plaintiffs claim to be holders of freight prepaid bills of lading dated 13th May 1986 for the carriage by the defendants, in the Jalamohan, from Singapore where the bills were issued to Lagos, of drums of vegetable cooking oil. A dispute arose between charterers and owners and the ship was withdrawn from the service of the former. Despite the freight prepaid indorsement on the bills of lading the owners purported to exercise a common law lien on the cargo for freight and, it seems, for expenses incurred in protecting and preserving the goods. They denied any knowledge of or liability under the bills of lading.

3. On 15th July 1986, by an exchange of telexes, the parties to this litigation concluded an agreement allowing for the release and unloading of the cargo of cooking oil in Lagos; for the arbitration of all disputes between them in London and for the provision by the plaintiffs of a US$200,000 bank guarantee to secure any award upholding the defendants' claim to lien as defined. This agreement, which I regard as in no sense ambiguous, was duly implemented save, contend the defendants, that by commencing an Admiralty action in rem against them to recover unloading and port charges incurred in Lagos and by procuring the issue of a warrant for the arrest of the Jalagopal pursuant to the Admiralty Jurisdiction (Hong Kong) Order 1985 (SI No. 1197 of 1985) the plaintiffs failed to honour clause (4) which reads:

"The shippers/consignees agree not to make any claim against owners arising out of the vessel's exercise of the lien and undertake not to arrest the vessel ‘Jalamohan’ or any other vessel in the same ownership to secure any claim against owners arising out of the vessel's exercise of the alleged lien. Shippers/ consignees do not wavie any of their rights in relation to physical loss/shortage/damage to the cargo.

The plaintiffs’ obligations could be paraphrased by saying

We will not make any claim against the defendants or arrest any of their vessels to secure a claim arising from the situation which they created by purporting to exercise a lien on the cargo."

4. This is just what the indorsement on the writ specifically purports to do:

5. The Plaintiffs' claim against the Defendants is for -

“1. Damages for breach of a written and/or oral contract and/or duty in and about the wrongful exercise of an alleged common law lien and/or an alleged contractual lien by the Defendants under a contract of carriage of the Plaintiffs' goods on board the Defendants' vessel JALAMOHAN from Singapore to Lagos as evidenced by Bills of Lading issued on or about the 3rd day of May 1986.

2. The sum of US$152,934.57 together with interest and costs representing money expended by the Plaintiffs in respect of discharging costs and/or port dues and/or other expenditure at Lagos in and about July 1986 incurred by the Plaintiffs by reason of the Defendants’ breach of contract and/or duty in the wrongful exercise of an alleged lien as aforesaid.”

6. The first submission made by Mr. Smith on behalf of the plaintiffs was that the telex agreement of 15th July 1986 was void for want of consideration moving from the defendants. While it is common ground that a promise to discharge an existing obligation is no consideration the compromise, even temporary, of disputed claims, like forbearance, is. The fact of the agreement itself coupled with submission to arbitration in London, currently on foot, is totally inconsistent with the contention that the claim of one of the parties is so illusory as to render it impossible to contend that any dispute exists. There is nothing to suggest that the defendants are lacking in honest belief in their ultimate prospects of success or that their claim is frivolous or vexatious. There is nothing in this point.

7. The second and substantial submission made on behalf of the plaintiffs involved an ingenious but unsustainable attempt so to apply the blue pencil rule found in the restraint of trade cases as to permit the court to ignore substantial parts of the indorsement on the writ in the absence of amendment. This attempt was coupled with the proposition that the plaintiffs' claim to recover unloading costs and port charges incurred in Lagos was not covered by clause (4) of the telex agreement having regard to the terms of clause (8) which reads.

Shippers/consignees agree to be responsible for and to pay for the vessel's port/discharging costs in Lagos subject to the proviso that they are entitled to claim this back from owners if owners are held to be bound by the said Bill of Lading contracts and are not entitled to exercise a lien, subject always to any other defence which owners may have.

8. Certainly the plaintiffs were under no obligation to incur these costs by reason of the contract evidenced by the: bills of lacing. Sze Hai Tong Bank v Rambler Cycle Co1 per Lord Denning (giving the opinion of the Judicial Committee of the Privy Council);. Hague-Visby Rules Articles II and III Rule 2. However, having done so pursuant to clause (8) and given security therefor into the bargain their claim to recover such expenditure from the defendants manifestly derived from the situation created by the defendants' purported exercise of a lien on the cargo and therefore comes within the parameters of clause (4). It is to be observed that, by preamble (F), the parties had agreed that the alleged lien extends to – the port/discharging costs; presumably as expenses incurred protecting and preserving the goods. The effect of that preamble is not limited to clause (1) and the security to be and in fact provided by the plaintiffs. The provision that such a claim should, as a condition precedent, be subject to the outcome of the arbitration or of the instant action, may properly be regarded as a matter of defence.

9. On analysis therefore it is clear beyond a peradventure that the plaintiffs issued their writ and obtained a warrant of arrest in breach of an express term of a binding agreement currently on foot between them and the defendants. This consideration goes way beyond assessing the merits of .a claim as explained in The Harima2 and invites the intervention of the court pursuant to its inherent jurisdiction as an abuse of the process.

10. Albeit the trial judge was unable to stay the action in favour of arbitration as the defendants had taken the step of seeking security for

costs and also unable to abridge time and thus to hear a late application to strike-out the writ under BSC O.18 r.19 he did grant the substantial relief sought by Notice of Motion dated 20th December 1986 and set aside the warrant of arrest in the exercise of his discretion. Such exercise cannot, in my opinion, be faulted and I would dismiss this appeal.

Clifford Smith (Holman Fenwick & Willan) for plaintiffs/appellants

Raymond Faulkner (Susan Liang & Co) for defendants/respondents

Power, J.

11. This is an appeal from an Order of Mayo, J. setting aside the warrant of arrest of the ship “JALAGOPAL”. The appellants/plaintiffs had issued a generally endorsed writ on the 16th December 1986 and a warrant of arrest on the same day.

12. The following claim was endorsed on the writ:

“The Plaintiffs claim against the Defendants is for:-

(1) Damages for breach of a written and/or oral contract and/ or duty in and about the wrongful exercise of an alleged common law lien and/or an alleged contractual lien by the Defendants under a contract of carriage of the Plaintiffs' goods on board the Defendants’ vessel “JALAMOHAN” from Singapore to Lagos as evidenced by Bills of Lading issued on or about the 3rd day of May 1986.

(2) The sum of US$152,934.57 together with interest and costs representing money expended by the Plaintiffs in respect of discharging costs and/or port dues and/or other expenditure at Lagos in and about July 1986 incurred by the Plaintiffs by reason of the Defendants' breach of contract and/or duty in the wrongful exercise of an alleged lien as aforesaid.”

13. The plaintiffs had shipped a cargo of edible oil from Singapore to Lagos on the vessel “JALAMOHAN”, a sister ship of the vessel arrested which at the time of shipment had been under time charter to Express Ship Management Services Ltd. The respondents/defendants, who were the owners of the vessel, withdrew the charter in the course of the voyage and, alleging that they were not a party to the charterparty, sought to exercise a lien over the cargo. In consequence of this action, on the 15^th July 1986, the plaintiffs and the defendants entered into the following agreement:-

“SCINDIA STEAM NAVIGATION COMPANY LIMITED
(OWNERS OF M.V. 'JALAMOHAN')

- AND -

NGO CHEW HONG EDIBLE OIL PI'E LTD.
(SHIPPERS)

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AGREEMENT
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(A) Whereas Ngo Chew Hong Edible Oil pte Ltd. (‘The Shippers’) allege that they are holders of Bills of Lading said to be validly issued on behalf of the master of the 'JALAMOHAN' ('The vessel') under an authorisation provided by Clause 40 of a Charterparty with Express Ship Management Services Ltd. dated 30th April 1986 ('The Charter'), and that such Bills of Lading are marked ‘Freight Prepaid’ and evidence a contract of carriage between themselves and Scindia as owners of the vessel for the carriage of a cargo of pure vegetable cooking oil from Singapore to Lagos, and;

(B) Whereas the vessel has been withdrawn under the Charter from Charterers, Express Ship Management Services Ltd., and owners, in the absence of a Charterparty contract, have refused to take the vessel into the port of Lagos and have sought to exercise a lien, and;

(c) Whereas owners deny any knowledge of the alleged issuance of such Bills of Lading on their behalf and maintain that they are not bound by any such Bills of Lading even if issued and are claiming a common law lien for the said carriage which are presently on board, and;

(D) Whereas the shippers and owners have agreed to submit to English arbitration and for that purpose to the exclusive jurisdiction of the English High Court for the purpose of the agreement herein, and;

(E) Whereas the shippers deny that owners are entitled to lien the cargo, and;

(F) Whereas the shippers accept that, if (which is denied) owners are entitled to exercise a common law lien on the cargo for freight up to the time of entering into this agreement, the alleged lien extends to the completion of the voyage to Lagos including time incurred and bunkers consumed up to completion of discharge in Lagos and the port/ discharging costs.

14. In consideration of and conditional upon owners sailing the vessel into the port of Lagos within 48 hours of owners receiving in their representative's hands the bank guarantee as agreed herein (shippers arranging for the bringing in and the berthing of the vessel) and there allowing delivery of the cargo against presentation of the said Bills of Lading to Shippers' agents and owners' agents jointly, it is hereby agreed as follows:

(1) The shippers will provide a bank guarantee to be confirmed by a first class London Bank in the sum of US$200,000.00 securing owners' claim (that they are entitled to lien the cargo as defined in recital (F) above) in London Arbitration. The next of the bank guarantee is attached herewith.

(2) Upon provision of such bank guarantee the vessel 'Jalamohan' will sail into Lagos port and there allow delivery of her cargo against the said Bills of Lading to the shippers or their nominees.

(3) This agreement would not in any way prejudice owners' contention that owners do not have valid Bill of Lading contracts for cargo on board.

(4) The shippers/consignees agree not to make any claim against owners arising out of the vessel's exercise of the lien and undertake not to arrest the vessel ‘Jalamohan' or any other vessel in the same ownership to secure any claim against owners arising out of the vessel's exercise of the alleged lien. Shippers/consignees do not waive any of their rights in relation to physical loss/shortage/damage to the cargo.

(5) This agreement will be governed by English law with Arbitration in London. Shippers agree to co-operate in every way to have the question of owners' claim determined as soon as possible and will not ask for security for costs in any London proceedings.

(6) The shippers will appoint their own agents at Lagos in order to enter, clear and discharge the vessel and will pay, in the first instance, the vessel's port dues.

(7) The shippers herein are the main shippers and there are several other small shippers and the shippers herein agree that owners, in not seeking similar agreement from other shippers, would not be an admission of any sort by owners with regard to the Bills of Lading referred to above.

(8) Shippers/consignees agree to be responsible for and to pay for the vessel's port/discharging costs in Lagos subject to the proviso that they are entitled to claim this back from owners if owners are held to be bound by the said Bill of Lading contracts and are not entitled to exercise a lien, subject always to any other defence which owners may have.

(9) Owners will not be responsible for port and discharging expenses which will be borne by shippers/consignees in the first instance.

(10) It is hereby mutually agreed that all of owners' claims under this agreement, the dispute over the question whether owners are bound by the above-mentioned alleged Bill of Lading contracts, and whether owners are entitled to exercise a common law lien for freight over the above-mentioned cargo shall be referred to three persons in London, one to be appointed by each of the parties hereto, and the third by the two so chosen; their decision or that of any two of them shall be final and, for the purpose of enforcing any award, this arbitration agreement may be made a rule of the court. The arbitrators shall be commercial men. The Arbitration Act of 1979 to apply.

(11) This agreement would not in any way affect owners' right to make any claim at against charterers.

(12) This agreement would not prejudice owners' right to exercise a lien ashore in Lagos for cargo not shipped by shippers herein.

Owner

Shippers

15. It is the contention of the defendants that the plaintiffs were in breach of this agreement, .in particular, clause (4), when it arrested the vessel. The arbitration contemplated in the agreement having commenced in London, the defendants were also, before Mayo, J. seeking a stay of proceedings. He, however, refused to grant this stay as he considered that the defendants had, by taking out a summons for security for costs, taken a step in the proceedings.

16.The primary contention of Mr. Clifford Smith, for the plaintiffs, before us was that there was no consideration for the agreement of the 15th July 1986. Mr. Clifford Smith did not, however, in the event, press that argument. He next argued that, when the agreement was properly construed, the undertaking not to arrest the “JALAMOHAN” or her sister ships contained in Clause (4) did not apply to a claim by the plaintiffs to recover port and discharging costs in Lagos.

17. Given the view I take of the plaintiffs' arguments in this regard, it is not necessary to go on to consider his further contention that the claim, as worded in the endorsement on the writ, was not a claim of the kind which the plaintiffs were prohibited from bringing by the first words of clause (4), i.e. a “claim against owners arising out of the vessel's exercise of the lien”. It was the argument of Mr. Faulkner that the claim as worded was a claim arising out of the vessel's exercise of the lien. Mr. Clifford Smith submitted that this was not so and that the pleading as framed was sufficient to cover an action under the bill of lading, as well as an action for a breach of duty in the wrongful exercise of a lien. Mayo, J. said that he was not prepared to accept that this was a “simple claim” on a bill of lading. He was satisfied that the claim, as formulated, was based on “the wrongful exercise of an alleged common law lien and/or an alleged contractual lien by the defendants …………”. Given the attitude I take to the interpretation of the agreement, it is not necessary, as it was not necessary for Mayo, J., to make any finding in this regard. I do, however, feel it proper to indicate that I am by no means persuaded that the judge was wrong in the approach which he took to this matter.

18. I turn now to the construction of the agreement. Mr. Clifford Smith argues that the words “alleged lien” in the undertaking “not to arrest the vessel “JALAMOHAN” or any sister ships to secure any claim against the owners arising out of the vessel’s exercise of the alleged lien" must be given a strict and narrow construction. He acknowledges that the parties in paragraph (F) specifically defined the extent and nature of the said lien and that this definition makes it clear that protection afforded by the lien was to cover the claim for carriage and was to extend to claims arising up to the completion of the voyage and of discharge in Lagos and included the port/discharging costs. The extent of the lien having been thus specifically defined the shippers, in Clause (1), agreed to provide a bank guarantee securing the owner's claim for amounts which they proved themselves to be entitled to under the lien. It is, at first sight, not easy to understand why, having thus secured the owner's claim under the lien and having ensured that this claim covered discharging costs, the parties went on in Clause (8) to agree that the shippers would be responsible to pay those costs subject to their right to reclaim them. The explanation for this may well lie in the material contained in the affidavit of Mr. David Davies which suggests that this was a “further concession” demanded by the owners. However that may be, Mr. Clifford Smith argues, while acknowledging that the extent of the lien was specifically defined and that it covered all claims arising up to and including discharging costs in Lagos, that the present claim, although it is a claim for discharging costs, is not a claim arising out of the vessel's exercise of the lien as the lien had, in accordance with Clause (2) of the agreement, been lifted before the vessel entered the port. He submits that the only claims that might have arisen out of the exercise of the alleged lien would be those that arose because of the delay that occurred between the time of the exercise of the alleged lien and the time when it was lifted in accordance with the agreement. Such claims would include actions for loss of profits, if the market fell during the time of the delay, or for any deterioration of the goods which occurred during that time. Indeed Mr. Clifford Smith points out that prior to entering into the agreement the plaintiff had threatened to take action for loss of profits and submits that Clause (4) was inserted to prevent arrest only in the case of such an action or of other actions of the type set out above.

19. He submits not only that claims relating to discharge of cargo could not be said to be due to the exercise of the alleged lien and thus be covered by Clause (4) but also that such claims were specifically dealt with by Clause (8) and that, the claim being a valid admiralty claim on its face, no attack lay against the warrant of arrest upon the basis that it was being brought to enforce a claim that was not sustainable. He supported this argument by referring to the unreported Hong Kong case “The Harima”(1) in 1986, The St. Elefterio(2) and The Moscanthy(3). This argument will, of course, only be material if Mr. Clifford Smith is right in his contention that the claim is not one which arises out of the vessel's exercise of the alleged lien.

20. I turn now to the crucial question in this matter. Should the words “alleged lien” be given the narrow meaning contended for by Mr. Clifford Smith? Paragraph (B) of the agreement states that the vessel has been withdrawn under the charter and the owners “have refused to take the vessel into the Port of Lagos and have sought to exercise a lien”. Paragraph (E) states that the “shippers deny that the owners are entitled to lien the cargo”. In paragraph (F), the parties agree that “the alleged lien” extends to the completion of discharge and shall include the discharging costs. These preliminary paragraphs clearly set out that the defendants are exercising a lien, that the plaintiffs are contesting their right to do so and that, if the lien proves to be valid, it shall extend up to the time of discharge of the cargo. The dispute clearly was whether or not the defendants were entitled to disrupt the carriage of the cargo by exercising a lien.

21. In the body of the agreement, the plaintiffs agree, in order, no doubt, to ensure that the goods are delivered without further delay, that it will provide a bank guarantee to cover the amount of the lien should the defendants eventually prove that it is lawful and that, upon this being done, the vessel will sail into Lagos port and discharge its cargo.

22. Does Clause (4) when it speaks of the “alleged lien” mean a limited class of claim such as I have set out above or does it mean any claim arising out of the situation created by the exercise by the defendants of the alleged lien. The matter does not allow of any real degree of elaboration. From paragraph (A) to (F), the gist of which is set out above, it seems to me clear that the parties, when they were referring to claims arising out of the exercise of the alleged lien, were referring to claims arising from the situation created by the exercise thereof. I am entirely unpersuaded that they were referring to claims, if any, arising because of the short period of delay that occurred between the exercise of the alleged lien and its lifting. That being so, I am satisfied that the claim here pursued is a claim arising out of the vessel’s exercise of the alleged lien, and that the arrest is an arrest to secure that claim. The judge was, therefore, right in ordering, in the exercise of his discretion, that the warrant of arrest should be set aside and this appeal must fail.