BETTER MARINE INTERNATIONAL LTD v. ZHONG SHAN CO LTD

CACV 242/2016

[2020] HKCA 145

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 242 OF 2016

(ON APPEAL FROM HCA NO 958 OF 2014)

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BETWEEN

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JUDGMENT

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Hon Macrae VP:

1.  I agree with the judgment of Yuen JA.

Hon Cheung JA:

2.  I agree with the judgment of Yuen JA.

Hon Yuen JA:

3.  This is an appeal from a judgment of DHCJ Seagroatt (“the judge”) given on 30 November 2016 (“the Judgment”) in which he ordered the defendant Zhong Shan Co Ltd (“ZS”) to pay the plaintiff Better Marine International Ltd (“BMI”) the sum of 683,850 Euros (or, at BMI’s option, the Hong Kong dollar equivalent of this sum at the rate of exchange on 10 March 2010), together with costs.

Background

4.  It is necessary to go into some factual detail due to the primary argument in the appeal, which is that the defendant company had not authorised another company within the same group to agree commission with the plaintiff’s related company. 

5.  The following matters are derived from contemporaneous documents or from the evidence of witnesses¹ called on behalf of the plaintiff which was accepted by the judge.   

6.  The plaintiff BMI is a Hong Kong company controlled by Mr Ren Yue (“Ren”). Mr Ren also controlled a PRC company based in Beijing called Beijing Better Marine Consultant & Brokerage Company (“BBM”).

7.1.  BBM was in the ship-broking business.  In December 2007, one of its customers, a Dutch ship-owning company called Concordia Shipyards BV (“Concordia”) approached BBM with a view to acquiring a number of inland hulls and a sea going pontoon², with a total tonnage of approximately 14,000 tons, to be constructed in the PRC (“the Shipbuilding Project”).

7.2.  BBM then contacted a PRC shipbuilding company called Nanjing East Star Shipbuilding Co Ltd (“NES”) regarding the Shipbuilding Project.  BBM carried out negotiations between Concordia and NES.

The NES-BBM commission agreement

8.1.  On 9 January 2008, Mr Ren of BBM had a meeting with Mr Yang Yue (“Yang Yue”), a director of NES.  At this meeting, BBM finalized NES’ terms which BBM would be quoting to Concordia.  They also discussed the commission which NES would pay BBM for its brokering services. 

8.2.  It was orally agreed (between Mr Yang Yue for NES and Mr Ren for BBM) that, for BBM’s services in brokering the Shipbuilding Project, NES would pay BBM commission at a rate of 50 Euros/ton of the vessels to be built (“the commission rate”), the 1^st instalment of 20% to be paid at the start of the project, and the balance to be paid on delivery, to be calculated by multiplying the commission rate by the actual tonnage of the vessels when completed and delivered³.

9.  Having secured the commission agreement, BBM proceeded to present a quotation to Concordia for the Shipbuilding Project, and continued to liaise between Concordia and NES in respect of various technical requirements.

10.  Meanwhile Concordia made a change to its requirements, increasing the number of hulls to 17, with a total tonnage of approximately 15,000 tons.  On 18 January 2008, BBM informed NES of this change for application to the commission rate⁴.

11.  At trial, Mr Yang Yue confirmed NES’ commission agreement with BBM set out above.

Proposed participation of JITE

12.1.  One of Concordia’s requirements for the Shipbuilding Project (the details of which had not been finalized at this stage) was that before Concordia would pay the 1^st instalment, the seller would first have to provide a refund guarantee issued by a bank. 

12.2.  NES found that it had difficulty getting a bank to do so.  It was also concerned with its own capacity for the shipbuilding work. 

12.3.  Consequently, NES approached a PRC company Jiangsu Overseas Corporation International Technical Engineering Co Ltd (“JITE”⁵) with a view to JITE’s participation in the Shipbuilding Project, as JITE had recently acquired a shipyard called Jiaolong Shipyard. 

- Jiangsu Overseas group corporate chart

13.1.  It may be helpful here to refer to the agreed diagram showing the corporate structure of the companies within the Jiangsu Overseas group of companies which feature in this case (“the corporate chart”)⁶.

13.2.  Essentially, the Jiangsu Government owned a PRC company called Jiangsu Overseas Group Corporation (“JOC”⁷). JOC was a substantial shareholder of JITE.  JOC was also the 100% parent company of ZS, a Hong Kong company which JOC described on its website as its “window company”. 

13.3.  At the relevant time, Mr Yang Dawei was chairman and director of all three companies (JOC, JITE and ZS).  Madam Lin Min (“Lin”), who featured in the subsequent events in this case, was the Legal Representative⁸ and General Manager of JITE.

14.1.  Coming back to the narrative of events, Mr Yang Yue of NES contacted Philippes Luo Xiang Ming (“Luo”), the manager of JITE’s ship engineering department with a view to JITE’s participation in the Shipbuilding Project.  Mr Luo said he reported to Madam Lin and obtained her prior consent for all the business he conducted for JITE.

14.2.  After Mr Yang Yue’s approach and having obtained Madam Lin’s authorization, Mr Luo went to Beijing to see Mr Ren, expressing JITE’s wish to participate in the Shipbuilding Project and confirming its ability to provide a refund guarantee, whether by itself or by its parent company JOC.  Importantly, at this meeting, Mr Ren told Mr Luo about the NES - BBM commission agreement.  Mr Ren also asked if the commission payment could be made to a Hong Kong company.

The JITE - BBM commission agreement

15.  In February 2008, with Madam Lin’s authorization, Mr Luo telephoned Mr Ren, indicating JITE’s wish to participate in the Shipbuilding Project and agreeing to pay the commission⁹.  

Events after the JITE - BBM commission agreement

16.1.  Consequently, on 18 February 2008:

(1) BMI was incorporated in Hong Kong¹⁰; and

(2) BBM contacted Concordia by email saying that it (BBM) had found another company which could provide the refund guarantee and which would join the project as the “collective seller”. 

16.2.  Subsequently on 23 February 2008, BBM contacted Concordia by email proposing that Jiaolong Shipyard join in the project to build a number of hulls, and that its parent company JITE join in the project as “collective seller” and provide the refund guarantee.  BBM advised Concordia that “we have full confidence that [JITE] and Jiaolong S/Y joining project can make sure we have enough capacity/ability to complete this project”.  Concordia accepted the proposal.

17.  It is clear from the above that it was through BBM’s brokerage services that initially NES, and subsequently JITE, was able to participate in the Shipbuilding Project¹¹.

The Shipbuilding Contract - JOC as party

18.  On 7 March 2008, a written shipbuilding contract entitled “Contract JOC/Concordia 2008" (“the Shipbuilding Contract”) was signed by Concordia as “Buyer”, NES as “Shipyard”, and JOC (instead of JITE) as “Seller”.  Apparently the replacement of JITE by its parent company JOC was due to a last-minute proposal by Madam Lin, which was said to facilitate the provision of the refund guarantee.  The proposal was accepted by the other parties.  It is noted that Madam Lin signed the contract on behalf of JOC even though she was not a director.  (BBM was not a party, nor was it given a signed copy)¹². 

Change of parties from JOC to JITE 

19.1.  However, less than two weeks later, Madam Lin instructed Mr Luo to ask the parties if they would agree to replace JOC with JITE (which had originally been intended to be the seller).  Accordingly, on 20 March 2008, JITE sent an email setting out this proposal to Concordia, which email was forwarded by JITE to BBM.   

19.2.  Concordia agreed, although it had concerns regarding the change from the parent company to the subsidiary company. 

20.1.  As for BBM, besides the email, Mr Luo also telephoned Mr Ren asking that JITE replace JOC in paying commission to BBM.  At this stage, BBM had not produced a written form of the commission agreement yet.

20.2.  In this regard, it may be noted that the oral commission agreement had been made between JITE (not JOC)¹³ and BBM.  When JOC signed the Shipbuilding Contract instead of JITE, there had been no express agreement (written or oral) that JOC would be liable to BBM for the commission.

20.3.  This is pertinent because the fact that JITE contacted BBM to replace JOC in the commission arrangement shows the understanding that the liability to pay commission was “pegged” to the Shipbuilding Contract; in other words, whoever was the seller in the Shipbuilding Contract would be liable to pay BBM the commission.  Miss Catrina Lam, counsel for BMI¹⁴, called this the “package deal”.

Commission Agreement Version 1

21.  As noted above, Concordia agreed to JITE’s proposal to replace JOC, albeit with some concerns.

22.1.  The day following the JITE email, on 21 March BBM emailed JITE and NES saying:

“Pursuant to our agreement, I have prepared the commission agreement, see attached. Please review, if there is anything inappropriate, please let me know! ...

For ease of operation, we have registered a branch company in Hong Kong: [BMI], this commission agreement is with our Hong Kong company”. (Emphasis added).

22.2.  The document attached was entitled “Commission Agreement”, to which the parties were JITE as “Seller”, NES as “Shipyard” and BMI (“Comm Agrmt V-1”).  It recited that the Seller, the Shipyard and Concordia had entered into “Contract JOC/Concordia 2008” (“the said contract”), and stated that the following terms (among others) had been mutually agreed: 

(1) the Seller and the Shipyard should pay to BMI the commission of Euro 750,000, in accordance with the following payment conditions:

(A) the Seller shall remit Euro 150,000 representing 20% of the whole commission within 5 banking days after it received the 1^st instalment of the payment from Concordia under the said contract;

(B) the Seller shall remit Euro 600,000 representing 80% of the whole commission within 5 banking days after it received the 2^nd instalment of the payment from Concordia under the said contract;

(2) this agreement was subject to the effectiveness of the said contract between Concordia and the Seller, and the Shipyard;

(3) BMI shall send the Seller a commercial invoice for the amount of the commission due and payable, at least 7 days before the due date;

…

(7) in the event of cancellation, rescission and/or termination of the said contract for any reason whatsoever, this agreement shall automatically cease to be effective simultaneously with the cancellation, rescission and/or termination of the said contract, without imposing on the Seller any obligation to pay the remaining commission, if any;

…

(9) any dispute arising from or relating to this agreement shall be settled in Hong Kong in accordance with the laws of Hong Kong.

23.  The following points may be noted.

(a) The fact that the Comm Agrmt V-1 was “pegged” or ancillary to the Shipbuilding Contract is clear.  First, it was to be back-dated to 7 March 2008, the date the Shipbuilding Contract was signed. Secondly, JITE was liable to pay commission to BMI because (pursuant to JITE’s email to Concordia and BBM the previous day) it replaced JOC as the seller under the Shipbuilding Contract.  Thirdly, under Clauses 2 and 7, the Comm Agrmt V-1 stood or fell with the Shipbuilding Contract. 

(b) The Comm Agrmt V-1 did not state that the commission rate of Euro 50/ton would be applied to the total tonnage at delivery.  Instead, the commission was stated to be at a lump sum of Euro 750,000, payable in 2 instalments.  However, in Mr Ren’s oral evidence at trial, he explained that his secretary had omitted to include the commission rate in the draft, and he failed to spot the omission¹⁵.  More importantly, Mr Luo’s evidence was that JITE’s negotiations with BBM were on the basis that the commission rate would be applied to the total tonnage on delivery, and he understood the reference to Euro 750,000 in the Comm Agrmt V-1 to mean the commission rate as applied to the then estimated tonnage, to be adjusted on delivery¹⁶. 

(c) The Comm Agrmt V-1 provided for only 2 instalments, rather than 3 instalments as per the Shipbuilding Contract.  Mr Luo was aware of this, but did not think there would be any problems¹⁷.

24.  Mr Luo forwarded BBM’s email attaching the Comm Agrmt V-1 to Madam Lin, who confirmed it with him over the telephone.  Mr Luo then confirmed the same with Mr Ren over the telephone the same day¹⁸.  Mr Ren then signed the Comm Agrmt V-1 and sent it by courier to JITE for its signature.

25.  Pausing here, the position at this stage was that the only signed version of the Shipbuilding Contract still named JOC as the seller, although Concordia had agreed to the replacement of JOC by JITE.

Change of parties from JITE to ZS

26.  However, before the replacement of JOC by JITE was put into writing, there was a further change of parties.  This was to take advantage of lower interest rates in Hong Kong for the purpose of procuring a bank to provide a refund guarantee, which the seller under the Shipbuilding Contract was required to do.    

27.1.  On 9 May 2008¹⁹, JITE sent an email to Concordia copied to BBM asking Concordia to “re-sign” the Shipbuilding Contract with ZS, instead of JITE.  The email said (among other things):

“While try to issue the [refund guarantee] from China Minsheng Banking Corp Ltd, we also contacted our subsidiary company in Hong Kong named Zhong Shan Co Ltd which is the biggest and strongest member of our group, as the financing cost there is much lower than it in China mainland. Now, HSBC HK has already basically agreed to issue the [refund guarantee] at the request of Zhong Shan Co Ltd. ...

If you could agree to issue the refund guarantee from HK, we hope make an amendment about the Shipbuilding Contract as follows:

1, The Shipbuilding Contract will be re-signed by Zhong Shan Co Ltd instead of [JITE] with all other terms and conditions remain the same.

2, [JITE] sign an agreement with Zhong Shan Co Ltd indicating all related matters. ...” (Emphasis added).

27.2.  Concordia was agreeable to the proposal but imposed conditions, including that JITE remained jointly and severally liable for the performance of the Shipbuilding Contract. 

27.3.  On 15 May 2008, JITE sent an email to Concordia copied to BBM, saying (among other things):

“Meantime, we are sending you the format of addendum for new buyer [this is obviously a clerical error and should read “seller”] for your confirmation as attached. In consequence, the new Buyer [this should read “Seller”] Zhong Shan Co Ltd (Hong Kong) which is the main company of Jiangsu Overseas group Corporation will be in charge of the relevant financing and settlement under the Contract. ...

In order to ensure the smooth performance of the Contract, we [JITE] will sign another contract with Zhong Shan Co Ltd Hong Kong ...”. (Emphasis added)

27.4.  The next day, apparently on JITE’s request, BBM sent it a draft of the Shipbuilding Contract but with the caveat that it (BBM) was not sure if it was the final version or not.  BBM also offered to assist further if required. 

Addendum I

28.1.  To cut a long story short, pursuant to Concordia’s condition that the original seller should remain liable, an Addendum I to the Shipbuilding Contract back-dated to 15 March 2008 was signed.  It is not clear exactly when Addendum I was signed, but a signed version was provided to BBM on 12 June 2008.

28.2.  There are two versions of this addendum, both signed.  In one version, the “original seller” is JOC and in the other version, the “original seller” is JITE.  In both, the “new seller” is ZS.  In both, Madam Lin signed for the “original seller”, i.e. for both JOC and JITE.

Commission Agreement Version -2

29.1.  This change of seller to ZS led to a second version of the Commission Agreement, the first version (Comm Agrmt V-1) which BBM had sent to JITE for signature not having been returned by JITE.

29.2.  On 12 June 2008, Mr Luo called Mr Ren and told him that the Commission Agreement would be jointly signed by JITE and ZS, and on the same day JITE sent an email to BBM attaching the signed Addendum I (with ZS as the new seller). 

29.3.  With Mr Luo’s agreement, BBM then revised the Comm Agrmt V-1.  Mr Ren said at trial he simply told his secretary to add ZS, and thus he still did not realise that the commission rate had been omitted²⁰.  Thus there was created a new version with JITE as “original Seller”, ZS as “new Seller”, collectively “the Seller”, and BMI as parties (“Comm Agrmt V-2").  Other terms were unchanged²¹.

29.4.  The same day, BBM emailed the Comm Agrmt V-2 to JITE, with a covering note which said:

“Attached pls find the revised commission agreement for your information. Pls revert your comments if any.

By the way, pls advise us who will be the accountee of commission invoice, JOC²² or Zhongshan??? ...” (Emphasis added)

29.5.  Mr Luo forwarded this email to Madam Lin and telephoned her asking her which company should pay the commission.  Importantly, Madam Lin’s reply was that as a result of Addendum I, ZS should pay the commission²³.  Mr Luo relayed this reply to Mr Ren and told him that Madam Lin had no objections to the Comm Agrmt V-2.

BMI 1^st invoice to ZS and payment

30.1.  Accordingly, on the same day BMI prepared an invoice (“BMI’s 1^st invoice”) which contained the following:

“Accountee: Zhong Shan Co Ltd (Hong Kong)

Description: 1^st instalment of Commission for Contract No.JOC/Concordia 2008” (Emphasis added).

30.2.  This was first sent by email to JITE and then by courier on 19 June 2008 to Madam Lin at her office in the Jiaolong Shipyard.  Mr Luo then told Mr Ren that BMI should send the invoice to ZS.  This is pertinent because if ZS was only JITE’s paying agent, JITE could simply have forwarded the invoice directly to ZS with instructions to pay it on its behalf.   

30.3.  Accordingly, on 1 July 2008, BMI sent the invoice to ZS in Hong Kong.  It was accompanied by a covering letter for the attention of its General Manager Mr Cai Fei Yun (“Cai”). The letter was captioned “Re Contract No. JOC/Concordia 2008 For building of 17 hulls + 1 pontoon”, and said:

“We are happy to establish business relation with your esteemed company.

With regard to captioned project, according to our commission agreement, you are kindly asked to effect payment for 1^st instalment commission to our account nominated in commercial invoice enclosed ...” (Emphasis added).

30.4.  It is noted that on ZS’s copy of the invoice, there was endorsed:

“Mr Cai, please paid (sic) the commission in accordance with the said sum (as set out below)”.

This endorsement was signed by Madam Lin and dated 1 July 2008.

30.5.  The invoice was paid by ZS to BMI on 8 July 2008.  There were no communications from ZS (or indeed, anyone else) to BMI commenting on the contents of the invoice or the covering letter.

Commission Agreement Version -3

31.  As with Comm Agrmt V-1 earlier, Comm Agrmt V-2 was not signed and returned to BMI despite chasers from BBM staff. 

32.1.  By August 2008, Mr Luo had left JITE, and Mr Ren directly contacted Madam Lin with the request.  Madam Lin proposed that the payment arrangement under the Commission Agreement should be aligned with that of the Shipbuilding Contract. As noted above, the Commission Agreement (both versions 1 and 2) provided for 2 instalments of 20% and 80%, whereas the Shipbuilding Contract provided for 3 instalments of 20%, 75% and 5%.  Mr Ren agreed to Madam Lin’s proposal and consequently prepared a 3^rd version of the Commission Agreement (“Comm Agrmt V-3”).  Other terms remained unchanged.

32.2.  At this time, BBM had stationed staff at Nanjing to help liaise between the shipyards and Concordia²⁴. The Comm Agrmt V-3 was brought by BBM staff to Nanjing but it was not signed or returned either.  However as with the two earlier versions, no one contacted BBM or BMI with comments on its contents.

Addenda to the Shipbuilding Contract

33.1.  In fact, after Addendum I (whereby ZS replaced JOC as seller in the Shipbuilding Contract), there were a number of variations to that Contract (eg on technical specifications of the vessels) which were set out in Addendum II, III, IV and V.  Some or all of these were back-dated, but this is not material to this appeal. 

33.2.  However it may be noted that whilst Addendum II and III were signed by both JITE as original seller and ZS as new seller, Addendum IV and V were signed by ZS only, and Addendum V was signed by Madam Lin on behalf of ZS²⁵.

34.  Eventually, the Shipbuilding Project was completed and Concordia made payment to ZS in late 2009 to early 2010.

BMI’s demands for payment

35.  Thereafter BMI made a number of demands for payment.  In an email of 6 January 2010 to Madam Lin, Mr Ren said (among other things):

“At the early stage of the project, your company and mine had reached consensus on the commission issues, your company also made a clear promise.  In the spirit of the agreement, after your company signed the external contract with the shipowner (March, 2008), our company submitted the Commission Agreement to your company.  Later on, after your company arranged for the addition of a Hong Kong related company (Zhong Shan Co Ltd (Hong Kong)) as “SELLER” in the external contract in light of your company’s need for letters of guarantee and financing, our company made relevant changes to the commission agreement, gave full consideration to the amendment suggestions made by your company regarding the payment method of commission in the revised agreement (from the original 20% + 80% to 20% + 75% + 5%) and have Ms Zhao Dandan from our company deliver a signed copy to your company’s Jiaolong Shipyard for your company’s signature in September 2008, despite our many reminder and urging up to now, our company has yet to receive any signed documents, neither have we received any reply from your company.  I wonder if the document has been misplaced, or there are any other reasons? Please advise” (Emphasis added). 

There was no response.

36.1.  On 3 March 2010, BMI sent an email to JOC, JITE and ZS demanding payment of Euro 683,850, being the commission rate of Euro 50/ton applied to the total tonnage of the vessels delivered (16,677 tons).

36.2.  The same day, ZS sent an email to JITE saying (among other things) “attached are documents concerning the commission payable as required by Better Marine, please follow up”.

36.3.  The next day, JITE replied to ZS saying “you should ignore the payment of Better Marine’s commission, for they will directly contact us”.

37.1.  Neither ZS nor JITE responded to BBM or BMI despite the emails of 6 January 2010 and 3 March 2010.  On 29 March 2010, BBM wrote to JOC, JITE and ZS again, and after referring to the calculation and invoice, said: “As we have not received any comment and reply from you so far, we could only think that you have no objection to the contents ...”. 

37.2.  Again there was no response from anyone. 

38.1.  Eventually, a letter threatening proceedings was sent by BBM/BMI to JOC, JITE and ZS on 25 August 2010.

38.2.  On 27 August 2010, JITE replied saying that it had “failed to reach any consensus [with BBM] as we had comparatively great disagreement with regard to the fee amount and the service content. ... there is no agreement between us on the project service content and the fee amount, we agree to first pay you the middleman fee of EUR150,000 involved in the project service with reference to relevant service fees in the industry and appoint Zhong Shan Co Ltd (Hong Kong) to make such payment on our behalf”.

Legal proceedings

39.  In due course, BMI started proceedings in Hong Kong against ZS.

40.  The defence alleged, in brief, that JOC, JITE and ZS were not connected companies and operated independently of one another, no one had ever made an agreement to pay commission to BBM/BMI, the payment of Euro 150,000 made by ZS was made on behalf of JITE in accordance with trade practice only, and ZS had no contractual obligation to BBM/BMI.          

The Judgment below

41.  When the matter came before the judge, the corporate chart showing the connection between JOC, JITE and ZS was agreed²⁶. 

42.  On the other issues, Mr Ren gave evidence for BMI, as did Mr Luo (who, at the relevant time, was the manager of JITE’s shipbuilding department) and Mr Yang Yue (NES).  Mr Cai of ZS gave evidence, as did Madam Lin.  The trial took 5 days. 

43.  Importantly, the judge was impressed by Mr Ren²⁷ and Mr Luo²⁸, the main witnesses for BMI.  As for the defence witnesses, the judge described Mr Cai as being “uncomfortable giving evidence ... and particularly when attempting to convey the semblance of [ZS] as wholly independent of any of the Jiangsu Group, and merely acting as an agent for payments received and made on behalf of it”²⁹.  The judge described Madam Lin as “difficult” and “evasive”, and “more concerned with trying to defend her actions than concentrating on material matters”³⁰.

44.  Shortly after trial, the judge handed down judgment ordering ZS to pay BMI the commission rate applied to the total tonnage delivered, with costs.     

Appeal

45.  ZS appealed, its primary contention being that there was no evidence that ZS had authorised JITE to adopt the Commission Agreement on its behalf, there was evidence that ZS was only JITE’s “paying agent”, and that ZS had not accepted the Commission Agreement by conduct in paying BMI’s 1^st invoice.       

Discussion

46.  It has first to be said that the judge made some errors in the Judgment in relation to companies’ names: he transposed “Jiangsu Overseas” (JOC³¹) with “Jiangsu International” (JITE³²) in a number of places³³.  These errors are, with respect to the experienced judge, careless and unfortunate in a case in which the judge described the manoeuvrings of the companies as “corporate musical chairs”³⁴, but this court has thoroughly perused all the materials placed before it and is satisfied that the errors appear to be clerical and did not confuse the judge in his analysis of the issues.

- Factual Matrix

47.  ZS’s submissions on appeal ignore the important factual matrix against which the issue of liability to pay commission should be considered, ie the Shipbuilding Contract.  That liability to pay commission was pegged to liability as seller under the Shipbuilding Contract is clear from the following evidence.

(a) It was the Shipbuilding Project brokered by BBM which gave rise to BMI’s claim to commission (whether contractual, or as ZS argued³⁵, by way of trade practice).

(b) When JITE proposed that it replace JOC in the Shipbuilding Contract, at the same time JITE contacted BBM to propose that it also replace JOC in the commission agreement³⁶.  Accordingly on 20 March 2008, BBM drafted the Comm Agrmt V-1 with JITE as the party liable to pay.  This did not meet with any query or comment from JOC, which would otherwise have been liable to pay as the signatory to the Shipbuilding Contract, as yet unamended.  This clearly shows the understanding (amongst JOC, JITE and BBM) that the liability to pay commission was that of the seller (for the time being) of the Shipbuilding Contract.

(c) Consistently with the above, when ZS became the new seller under the Shipbuilding Contract, Comm Agrmt V-2 made ZS liable for commission, identifying it as the “new seller” under the Shipbuilding Contract.  Although the Comm Agrm V-2 was sent to be executed first by JITE (as “original Seller”) and had not yet been sent to be executed by ZS (as “new Seller”), BMI’s 1^st invoice referred to ZS solely as the accountee, and the covering letter referred to its pleasure at having established a business relationship with ZS, “our commission agreement” and asked ZS to effect payment.  This did not meet with any query or comment, let alone objection, from ZS, and logically so, for it followed the understanding of JOC and JITE, the other companies in the group which were its predecessors as seller.         

(d) Finally the Commission Agreement itself contained specific clauses³⁷ stating that it stood or fell with the Shipbuilding Contract.

- JITE and ZS’s Cooperation Agreement

48.1.  It was submitted on behalf of ZS that there was evidence that it was only to be the “paying agent” of JITE.  It referred to a Cooperation Agreement signed on 13 June 2008³⁸ (backdated to 10 March 2008) under which JITE appointed ZS to finance the shipbuilding contract for which ZS would receive a service fee.

48.2.  However, this Cooperation Agreement was never disclosed to Concordia or BBM/BMI³⁹.  The fact that there was an agreement, without more, between JITE and ZS does not assist ZS’s case. The existence of an agreement between these two companies was only to be expected, for ZS was based in Hong Kong and did not have shipyards here; the vessels were to be built in JITE’s Jiaolong shipyards in Nanjing.  So for ZS to sell the vessels to Concordia, ZS would obviously have to procure the vessels from JITE, e.g. by sub-contracting the building work to JITE.  One cannot infer from the fact that there was an agreement that ZS was only JITE’s “paying agent” and that JITE was still the principal.

48.3.  Absent disclosure of the contents of the Cooperation Agreement, whatever internal arrangements may have been made between JITE and ZS vis-a-vis each other as to their respective areas of responsibility in the Shipbuilding Project would not have affected ZS’s liability as principal to Concordia or BBM/BMI⁴⁰. 

48.4.  In fact Article 4.1 of the Cooperation Agreement provides:

“[JITE] shall negotiate with the ship owner [Concordia] for all the rights and obligations of [JITE] under the shipbuilding contract to be transferred to [ZS] by way of signing a supplemental agreement; [ZS] as the new vendor under the shipbuilding contract shall be under the obligation to hand over the ships to the overseas clients”. (Emphasis added).

This confirms that ZS was clearly the principal in the Shipbuilding Contract (to which the commission agreement was ancillary). 

- ZS’s delegation of Shipbuilding Project matters to JITE

49.1.  Although ZS was the principal, it is clear that in the Shipbuilding Project, the main player from start to finish was JITE.  It was JITE which had initially been approached to participate in the Shipbuilding Contract, and it was only on Madam Lin’s last-minute proposal that JOC became the signatory.  Subsequently JITE suggested changing the party back to JITE, and JOC duly dropped out. Subsequently again it was on JITE’s proposal that the seller was changed to ZS, and ZS duly joined as new seller⁴¹.  Thus the judge said: “I am equally sure that in view of the way that these companies operated within the group that each was accustomed to being controlled in such a way as to service the requirements of others in the group”⁴².  

49.2.  Based in Hong Kong and with no experience or expertise in shipbuilding or shipbroking matters, it was obviously necessary for ZS, now the principal in the Shipbuilding Project, to delegate to JITE decisions to be made relating to the project⁴³, whether ZS liked it or not⁴⁴. And as JITE had itself agreed to the commission agreement with BBM, it was entirely logical for JITE to adopt it on behalf of ZS, revising it to make ZS (the new seller under Addendum I) liable to pay the commission.  This was what Madam Lin told Mr Luo, which Mr Luo relayed to Mr Ren⁴⁵. 

- ZS’s payment of BMI’s 1^st invoice

50.1.  When BMI presented its 1^st invoice to ZS as the sole accountee, and referred to “establishing business relations” and their “commission agreement” in the covering letter, ZS did not make any query with BMI as to what was meant.      

50.2.  It duly paid the invoice.  ZS submitted that this was after Madam Lin had endorsed on it a note asking Mr Cai to pay it⁴⁶ and that this showed that ZS was JITE’s “paying agent”. 

50.3.  However, it is in line with the factual circumstances discussed above (in particular JITE’s familiarity with the Shipbuilding Project and ZS’ lack of it) that ZS wished JITE to vet the invoice before making payment on it.  After Madam Lin endorsed “please paid (sic) the commission in accordance with the said sum (as set out below)”, ZS duly made payment, notably without at any time stating that it was effecting payment only on behalf of JITE. 

51.  The above evidence show clearly that the judge was entitled to find that ZS was liable to pay the balance of the commission to BMI.

Quantum

52.  As for the quantum, all the versions of the Commission Agreement referred to a lump sum, rather than the application of the commission rate to the total tonnage on delivery.  As noted above, Mr Luo and Mr Ren had orally agreed on adopting the formula previously agreed with Mr Yang Yue (of NES), and the stated lump sum of Euro 750,000 was based on the provisionally estimated tonnage of 150,000 tons.  Mr Ren had failed to spot the omission of the formula in the Commission Agreements.  Mr Luo had noticed it, but did not think it mattered, given the oral agreement.  The judge accepted both persons as witnesses of truth.  Further, there was nothing in the written Commission Agreements to indicate that they superceded the oral agreement⁴⁷.

53.1.  Moreover a piece of contemporaneous documentary evidence corroborates the evidence of Mr Ren, Mr Yang Yue and Mr Luo that the commission rate was Euro 50/ton.  It will be recalled that NES was first approached for the Shipbuilding Project, and it was Mr Yang Yue who had agreed the commission rate with Mr Ren.  As events subsequently transpired, NES dropped out of being a seller of vessels vis-a-vis Concordia, but still participated in the Shipbuilding Project albeit in a different capacity. 

53.2.  NES had entered into negotiations with JITE whereby NES would build and sell some of the vessels to JITE (at that stage, ZS had not come into the picture).  In the course of these negotiations, there was a “cost calculation” exercise.  On 5 May 2008, NES sent to JITE a document entitled “Cost Calculation for the Project of Dutch barge and its Mothership”.  There was an item called “Commission” which was stated to be Euro 50/ton, ie the cost to NES of the commission for BBM.  This cost was deducted by JITE in the Ship Purchase Agreement dated 11 July 2008 between JITE and NES⁴⁸ to arrive at the net price of the vessels.

54.  Taking the oral and contemporaneous documentary evidence into account, the judge was entitled to order ZS to pay the balance of 683,850 Euros, rather than the sum of Euro 600,000 set out in the written Commission Agreements.   

Order

55.  Accordingly, for the reasons set out above, the appeal should be dismissed with an order nisi that the defendant should pay the plaintiff’s costs with certificate for two counsel.  The time taken to render this Judgment is regretted.