Dumford Trading Ag v Oao Atlantrybflot

This is an appeal against summary judgment under CPR Part 24 for some £1,890,000 under two contracts of guarantee. The guarantees had been given in the name of ZAO Atalantribflot, but the defendant against whom judgment has been given and who appeals to this court with the leave of Longmore LJ is OAO Atlantrybflot. Both are separate Russian companies. Nothing turns on the difference between “Atalantribflot” and “Atlantrybflot” which are both transliterations from the cyrillic Russian script. However, whereas “ZAO” apparently carries the meaning that “Ltd” does in English law, “OAO” is the equivalent of “plc”. A more literal translation of the Russian words for which the initials stand are “closed joint stock company” and “open joint stock company” respectively. I will refer to the two companies as ZAO and OAO. At the time the guarantees were entered into ZAO was a subsidiary of OAO, but since then and prior to the bringing of these proceedings OAO has been sold to third parties.

The judge, HHJ Chambers QC, sitting as a judge of the Queen’s Bench Division, held that the guarantees were ambiguous because they referred to ZAO’s “registered office” as being at “19 K Marks [sic] Street, 236000, Kaliningrad, Russia”. That, however, was the registered office of OAO, whereas the judge pointed out that ZAO’s registered office was in Moscow and that it had no registered address in Kaliningrad. On the basis of that irregularity and the ambiguity to which it was said to give rise, the judge considered extrinsic documentary evidence which convinced him that the true identity of the guarantor was not ZAO but OAO. He did not think that it was a proper case of misnomer, although that has been the claimant creditor’s primary submission as respondent to this appeal, but he added that the same result could be obtained by applying the misnomer test. He did not therefore have to consider an allegation of estoppel by convention which the claimant had also relied upon. He did not place any store on an argument raised by OAO that in any event the claimant had assigned its cause of action to a third party. In short, he found summarily for the claimant as a matter of the construction of the guarantees in the light of extrinsic evidence.

The claimant, and respondent to this appeal, is Dumford Trading AG (“Dumford”), a company incorporated in Liechtenstein. Dumford lent $2.1 million to Shelley Marketing LLC (“Shelley”), a Delaware company, to purchase a fishing vessel. Shelley’s indebtedness to Dumford was guaranteed by ZAO. Both the initial loan agreement and the initial guarantee were dated 22 November 2001. Subsequently further advances were made to Shelley and a new agreement was made dated 5 November 2002, described as an “Amendment and Restatement Agreement” incorporating amendments to the original loan agreement and guarantee (the “Amendment Agreement”). Dumford claims in these proceedings under both the original and amended guarantees. An amended and restated form of the original loan agreement, containing the agreed amendments, was drawn up and scheduled as Schedule 1 to the Amendment Agreement. The title page of the amended loan agreement stated “DATED 22 November 2001 as amended and restated on 5 November 2002”. It is not clear if it was separately executed, but that hardly seems to matter.

The two guarantees contain English jurisdiction and English law clauses. OAO was served in England on the basis of the service of suit provision contained in them. OAO disputes that it is a party to these guarantees and therefore has also disputed English jurisdiction. Dumford applied for summary judgment. Both parties’ applications, OAO’s to set aside service and Dumford’s for summary judgment, were heard together, and the upshot was judgment on the claim.

It is convenient to take the assignment issue first, for it stands separately from the other issues and raises a preliminary defence relating to “title to sue”. It arises as follows. Dumford wished to arrest fishing vessels over which security had been given to Dumford under the loan agreements. The plan was to arrest the vessels in Mauritania. Dumford appears to have received advice from its Mauritanian lawyer, Maitre Toure, that if Dumford arrested the vessels it would have to provide a substantial counter-guarantee, but that would not be necessary if the arrest was performed by a Mauritanian company. On 2 December 2003 a deed of assignment was therefore executed between Dumford and a Mauritanian company known as Mauribalt SA under which Dumford assigned to Mauribalt all its rights, title and interest in the loan agreements and guarantees. A copy of the assignment is before the court. Nothing is said as to its proper law, but, since the document also purported to effect a complete novation of the relevant contracts from Dumford to Mauribalt, it may be that its proper law was English law. It is signed as having been made in Vaduz. Pursuant to an order of the Mauritanian court made on 8 December 2003 the Mousson was arrested on 11 December in the Mauritanian port of Nouadhibou, inferentially by Mauribalt SA, but this may be in dispute. The Mousson was subsequently sold by public auction on 23 February 2004 for US$625,000. The assignment appears to have come into the possession of OAO, by whom it was disclosed in these proceedings: this may entitle OAO to say that notice of the assignment was served on them. It is not clear whether the assignment was served on the vessel as part of the Mauritanian proceedings or otherwise sent to OAO. Evidence tendered on behalf of Dumford (see Professor Lugovtsov’s third witness statement at paras 78/85) gives an explanation of these events. It includes a statement (at para 85) that the Mousson’s arrest was effected on the basis of the assignment. OAO has therefore taken the point that a legal assignment has been effected as a result of which Dumford has lost its title to sue on the contracts of loan or the guarantees.

The forensic chronology of this issue is of relevance to a claim for summary judgment. On 1 March 2004 OAO’s solicitors, Messrs Baker & McKenzie, enquired whether any assignment had taken place. On 3 March 2004 Dumford’s solicitors, Messrs Nabarro Nathanson, replied to say that the question was irrelevant but that they were instructed that there had been no assignment. On 8 March the assignment was exhibited to an affidavit made on behalf of OAO by Mr Gerald Cooke, a partner of Baker & McKenzie: the affidavit went on to say that OAO was investigating the sale of the Mousson at public auction in Mauretania in February 2004. On 11 March 2004 Mauribalt sent a fax dated 10 March to Dumford saying it was “pleased to confirm” that as a result of clause 16.3 of the loan agreements “the purported assignment was of no effect”.

Clause 16.3 states –

On 15 March 2004 Professor Lugovtsov made his third witness statement in which he stated that the Mousson’s arrest had been effected on the basis of the assignment (and a power of attorney referred to below). He also produced Mauribalt’s fax and said that “I now understand that the purported assignment was ineffective.”

That may have raised the question how in that case the arrest and sale of the Mousson could have been validly effected. At any rate on 24 March 2004 Maitre Toure made a statement. He explained that as well as the assignment he had a power of attorney from Dumford (also in the papers before the court) and that he had used this in effecting the arrest. He also said, in this respect contradicting Professor Lugovstov, that the assignment “has not been used during arrest and sale of MV Mousson”. He concluded:

All that the judge said about this issue was as follows:

It is now clear that the point is being maintained by OAO. There is no suggestion by Dumford that it is not open to OAO. What Mr Phillip Marshall QC submits on behalf of Dumford is that clause 16.3 prohibits assignment other than to a bank or financial institution or other than solely on the terms set out in clause 16.3.1/2, and that any assignment is therefore void and ineffective.

It seems to me that if clause 16.3 does prohibit assignment other than to a bank or financial institution, it can only do so implicitly: for clause 16.1 says that the loan agreement shall be binding on Dumford’s assigns. Moreover the guarantee merely says by its clause 9.1 that it “shall be enforceable by the successors and permitted assigns of the Lender”. But even if the assignment were prohibited by the loan agreement, it is not clear to me that the effect of a breach of that prohibition would be to render the assignment totally ineffective and void at the instance of the assigning party, even though it would clearly be a breach of contract. Thus, the fact that a prohibited assignment might be invalid against a debtor (see Linden Gardens Trust Ltd v Lenesta Sludge Disposals Ltd [1994] 1 AC 85) does not necessarily mean that the assignor retains title to sue, at any rate where the assignment has been acted upon by the assignee. See in general the discussion in CHITTY on Contracts, 29^th ed, 2004, Vol I, at paras 19-043/5. The assignment could I suppose be reversed, if that were necessary. For present purposes, however, where the matter has simply been dealt with as a matter of mere assertion without any reference to underlying authorities, issues or analysis, I am unable to conclude that there is no real issue over Dumford’s title to sue, and for this if for no other reason it seems to me that OAO should be entitled to defend Dumford’s claim.

I revert to the more complex issues relating to the identification of the true party to the guarantees.

The original loan agreement between Dumford and Shelley made reference to the guarantee which “in form and substance satisfactory to” Dumford was to be provided by Shelley as part of the security for the loan (clause 12.1 and 12.1.4). The “Guarantors” were defined (in clause 1.2) as including “ZAO Atalantribflot…a company incorporated under the laws of Russia with its office at Kaliningrad, Russia”. Clause 3 (“Availability”) specified, by reference to Schedule A, the documents which had to have been received by Dumford as conditions precedent to the advance of the two tranches of the loan. Schedule A similarly referred repeatedly to ZAO (not to OAO): for instance to a certified copy of ZAO’s certification of incorporation and memorandum of articles of association. Any notices under the loan agreement were to be sent to Shelley at 19 K Marks Street, Kaliningrad.

The guarantee, which was entered into on the same day, was made between Dumford and ZAO. In introducing ZAO as a party, the guarantee continued: “whose registered office is at 19 K. Marks Str., 236000, Kaliningrad, Russia” (the “Guarantor”)”, which the judge regarded as significant. The notices clause, clause 12, also said that any demand or notice should be sent to ZAO at that address. The guarantee was executed in the following way. The document ended: SIGNED SEALED AND DELIVERED AS A DEED by ZAO ATALANTRIBFLOT acting by its duly authorised attorney”. The signature is that of Mr Gurshchenkov (there are various spellings of his name). He was apparently the chairman of OAO, but not a director or officer of ZAO.

A year later, the Amendment Agreement was expressed to be an agreement made between Dumford as lender, Shelley as borrower and ZAO as guarantor. ZAO’s registered office was again given as 19 K Marks Street, Kaliningrad. Clause 5 was a condition precedent clause, requiring documents to be provided as conditions precedent, but this time not to draw-down but to the agreement as a whole. Among the documents required by that clause was a certificate of ZAO that there had been no changes as regards any of the documents delivered pursuant to Schedule A of the original loan agreement. The execution for ZAO was in identical form as in the case of the original guarantee. One of the clause 5 documents was “evidence of the due authority of any person signing this Agreement on behalf of…each Guarantor”. Documents evidencing Mr Gurshchenkov’s authority to sign which formed part of the “bible” on execution were minutes of OAO’s board of directors and shareholders and a power of attorney signed by a director and the secretary of OAO, each dated 29 October 2002. What, however, marks out the documents in question as being the documents of OAO rather than ZAO on their face is the use of OAO’s seal.

The judge said:

However, the evidence regarding OAO’s and ZAO’s addresses was more complex than the judge indicated. OAO’s registry entry is contained in the papers only in the original Russian. Neverthless the court was informed by Miss Julia Dias, counsel for OAO, that the relevant entry at paragraph 1.5 stated that whereas its postal address was at 19 Karl Marx Street, 236040, Kaliningrad, its juridical (and first stated) address was at 5A Ulitsa D Donskogo, 236000, Kaliningrad. Since there were Russian speakers in court representing Dumford who did not disagree with this translation, I feel entitled to accept what Miss Dias told us even if it is not strictly in evidence in the form of a translation. In any event, I can read Russian sufficiently to see that (a) what Miss Dias told us about para 1.5 containing two addresses is true; (b) what she told us about OAO’s postal address is true; and (c) what she told us about OAO’s juridical address is confirmed by ZAO’s registry entry, a translation of which is in the papers before us. Thus ZAO’s entry contains information regarding its holding company or “founder”, which is given as OAO and whose address is given as 5A Ulitsa D Donskogo, 236000, Kaliningrad. With the help of this translation one can see that this is the address which appears first in OAO’s registry entry. The upshot of all this is that the judge was entitled to say that the address given in the contractual documents was OAO’s registered address, but it would be more precise to say that it was its registered postal address rather than its registered juridical address.

Turning to ZAO’s registry entry, the only address given there is an address in Moscow – 57 Leningradsky Prospect. It cannot therefore be said that 19 Karl Marx Street is its registered address. However, it is possible that in practice it used its parent’s postal address as its business address.

If extrinsic evidence is to be looked to in order to help elucidate the question posed by the judge as to the true party to the guarantees, there are also the facts that the contractual documentation naming ZAO as guarantor was put together by Dumford’s solicitors, Nabarro Nathanson; and that a pre-contract fax dated 16 November 2001 sent by Dumford to Shelley setting out “revised indicative terms” specified “Guarantor” as (inter alios) ZAO (not OAO).

Other extrinsic evidence is that when the amended agreement came to be made, the documents which were provided under clause 5 as conditions precedent to draw-down came forward from OAO, not from ZAO: just as the documents provided under clause 3 of the original loan agreement for the purpose of draw-down had come from OAO and not from ZAO. The judge relied on the latter, not the former: but it seems to me that the latter, coming forward after the original contract had been made, probably cannot enter into the construction of it, even as a matter of extrinsic evidence: whereas the former, since they were conditions precedent to the making of the Amended Agreement, can. The range of these documents are indeed striking, covering minutes of the board and shareholders of OAO authorising the making of the guarantee, and a certificate of its registration, as well as many others.

In these circumstances on behalf of Dumford Mr Marshall’s primary submission both before the judge and (in his skeleton) on this appeal was that the reference in the contracts to ZAO instead of OAO was simply a mistake, a case of misnomer or falsa demonstratio, which could be simply corrected in the reading of the contracts as part of the obvious mutual intentions of the parties. There was no claim to rectification because it was submitted that in a case of such mere misnomer no rectification was necessary. In accordance with this submission, Dumford’s only evidence expressly by way of explanation of the error was contained in Professor Lugovstov’s first witness statement (at para 19) where he stated that it was due to a “typographical error”. He also stated (para 20) that “Once the typographical error was noticed [OAO] and Shelley each provided [Dumford] a letter dated 6 December 2001 and 22 November 2001 respectively confirming that there was no dispute over the Guarantee issued by OAO”.

The judge did not ascribe the error to one of typography. He said, speaking quite generally and not necessarily with this aspect of the evidence in mind, that “aspects of the witness evidence produced by Dumford are unsatisfactory” (at para 32 of his judgment). He did not adopt the misnomer analysis. He did not explain how the error came about. He did not state, but he could well have done, that there is no document in which the typographical error is pointed out by Dumford to the other parties. The judge did, however, cite OAO’s letter of 6 December 2001 to which Professor Lugovtsov had referred above. He cited it, however, not as an acceptance of a typographical error in the contractual documents, but as a further document provided under Schedule A to the original loan agreement.

The actual text of the letter is not remarkable, viz:

The letter as a whole, therefore, in terms accepts that the original guarantee (in fact dated 22 November 2001) was made between Dumford and OAO. It is signed by OAO’s managing director under OAO’s corporate seal. That is a powerful piece of evidence in Dumford’s favour, but even so it is not unique in describing OAO as “guarantor”.

Much of this material would make a powerful case for rectification, but that is not claimed and thus not in issue. One of the mysteries of the case, however, remains how the Amended Agreement still refers to ZAO. If it had been a mere matter of typography which the parties had quickly discovered, the error would have been remedied at latest at the time of the Amended Agreement. It remains to be seen whether there is, or would but for the title to sue issue be, a case for summary judgment under some other doctrine.

Thus I come first to what was below and remained on appeal Dumford’s primary submission, although not the judge’s analysis, that the reference throughout the contractual documents to ZAO was a mere misnomer. The maxim falsa demonstratio non nocet cum de corpore constat has often been applied to correct a misnomer or mistaken designation: see Chitty on Contracts, 29^th ed, 2004, Vol I, at para 12-075: the well-known example cited there is of the incorporation in a charterparty of a clause which referred to “this bill of lading”: Adamastos Shipping Co Ltd v. Anglo-Saxon Petroleum Co Ltd[1959] AC 133. However, of particular relevance are a small number of cases in which the misnomer has been of a party, rather than of an incident of a contract. In particular Miss Dias referred to the following authorities.

In Davies v. Elsby Brothers Ltd [1961] 1 WLR 170the plaintiff had issued a writ against “Elsby Brothers – a firm” claiming damages in negligence for injuries he had received while an employee of the defendants. A time-bar point was involved, for the accident had occurred on 20 March 1956, although that date was not stated in the writ, and the writ was issued just within the necessary three years on 18 March 1959. However, in truth at the time of the accident the firm had assigned its business to a company and become Elsby Brothers Ltd. On 17 March 1960 the writ was amended before service to strike out reference to the firm and to insert instead “Ltd”, thereby naming the company. It was held that the amendment could have been permitted out of time if it were the mere correction of a misnomer, but that as two separate and different entities were involved and there was nothing in the writ itself to indicate that the limited company rather than the firm must have been intended, the amendment amounted to the addition or substitution of a party and could not be made out of time. Although this was a case about a writ, not a contract, nevertheless the test adopted by this court was a test of construction of a document. Thus Devlin LJ said (at 176/7):

In Whittam v. W J Daniel & Co Ltd[1962] 1 QB 271, on very similar facts, the decision went the other way: Davies v. Elsby Brothers was distinguished for the very reason that the firm which had preceded the incorporated company had ceased to exist in 1919, so that the claim on the writ for damages for injuries sustained in 1957 could only have referred to the company. This enabled Miss Dias to submit that the existence of only one as distinct from two possible persons was critical to the result of such cases.

In F Goldsmith (Sicklesmere) Ltd v. Baxter[1970] 1 Ch 85 the plaintiffs sold a piece of land to the defendant. The memorandum of agreement gave the name of the plaintiff company, inaccurately, as Goldsmith Coaches (Sicklesmere) Ltd. There was no such company by that name. The defendant did not wish to complete, but Stamp J made an order for specific performance against him. Looking at the surrounding circumstances, there could be only one company, which could be clearly identified, which was party to the contract, and reference to it by an inaccurate name did not turn the contract into no contract. It was “no more nor less than an inaccurate description” (at 91G).

Finally, in Nittan (UK) Ltd v. Solent Steel Fabrication Ltd trading as Sargrove Automation [1981] 1 Lloyd’s Rep 633 there was again only a single entity. The defendant Solent Steel took over the assets but not the liabilities of Sargrove Electronic Controls Ltd, and began to trade in relation to a particular class of manufactured goods under the business name of Sargrove Automation. The Sargrove company became dormant. An endorsement was then added to Solent Steel’s policy with its insurers to provide additional cover to take account of this new business. The endorsement stated that for these purposes “the Insured shall be deemed to include Sargrove Electronic Controls Limited” but also contained an exclusion to the standard product liability cover available to Solent Steel, to the effect that there was no cover for failure of the goods to perform their intended function. The plaintiff sued Solent Steel for such a failure and Solent Steel sought to pass the liability on to its insurers. The insurers relied on the exclusion in the endorsement. Solent Steel argued that this exclusion only applied to goods supplied by Sargrove Electronic Controls Ltd, whereas the goods in question had been supplied by Solent Steel, albeit trading as Sargrove Automation. This court held that the use of the company name in the insurance policy was a mere misnomer and that there was no need of rectification, a claim for which had failed in the court below. “On the whole of the evidence it is quite clear that the head office of Cornhill made a mistake…the more accurate description would have been “Sargrove Automation”…” (per Lord Denning MR at 637). As Brightman LJ said (at 639): “All concerned knew that this limited company was not the insured, or one of them.”

It seems to me that the doctrine of misnomer is of uncertain width. It is clearly a doctrine of construction, but it is not plain to what extent it permits the reference to extrinsic evidence. Davies v. Elsby Brothers Limited would suggest that where there are two possible entities, the rule is a strict one: unless one can say from the four corners of the document that the parties must have intended to refer to one rather than the other entity, then the doctrine does not apply. If, however, there is only one possible entity, then it is possible to use extrinsic evidence to identify a misdescribed party. It is arguable that Nittan v. Solent Steel falls into this latter category. Moreover, the cases, as does common sense, suggest that a case of mere misnomer is not easily (query if ever?) concluded to be such without the mistake being explicable.

Despite the strength of the surrounding factual material in this case, nevertheless the presence of two existing entities, ZAO and OAO, and the difficulty of accepting, at any rate at this stage of the proceedings, Dumford’s only explanation of the alleged error, namely a simple typographical one, lead me to the conclusion that I am not persuaded that summary judgment could safely be granted on the basis that the case was one of mere misnomer. But I am not to be taken as saying that in the ultimate analysis it is not possible that that would emerge as the correct answer.

The use of extrinsic evidence was not Mr Marshall’s primary submission, but it was the judge’s approach. Mr Marshall’s fall-back submission was to the effect that the evidence that the judge looked at (to which Mr Marshall would add or in place of which he would substitute the documents provided under clause 5 of the Amended Agreement) was matrix, not extrinsic, evidence which a court was entitled in any event to consider: Investors Compensation Scheme Ltd v. West Bromwich Building Society [1998] 1 WLR 896 at 912/913, Bank of Credit and Commerce International SA v. Ali[2001] UKHL/8, [2002] 1 AC 251 at para 8, Kingscroft Insurance Co Ltd v. Nissan Fire & Marine Co Ltd (No 2) [1999] LLIR 603 at 612/614.

The evidence, whether matrix or extrinsic, that the parties were content that a guarantee should be provided by OAO was indeed very strong, and all the more so in that OAO, as the group holding company, owned and was known to own substantial assets, whereas ZAO was a new and poorly capitalised company. But the evidence was not uniform. Dumford’s own “indicative terms” named ZAO, Kaliningrad, as guarantor. When the Amended Agreement came to be made, it was again ZAO that was named the guarantor. When the loan agreements went into default, it was (inter alios) to ZAO, and what is more to ZAO in Moscow, but not to OAO, that Dumford’s solicitors, Messrs Holman Fenwick & Willan wrote, on 7 November 2003, to declare a state of default. Above all, there remained the problem how, as a matter of construction, ZAO could mean OAO. If it was a matter of mere misnomer, that hurdle was leaped. But if it was not, or may not have been, then the use of evidence to turn ZAO into OAO looks, at any rate as a matter of realistic argument, suspiciously like using evidence to alter or substitute the identity of a party, rather than to construe its meaning. And that would seem to be the role of rectification.

The judge considered himself entitled to use what he regarded as extrinsic evidence because of the guarantee’s reference to ZAO’s registered address as K Marks Street, Kaliningrad, when ZAO was in fact a Moscow company. However there is a danger that extrinsic evidence is here itself being used to create an ambiguity where there was none. And, given that K Marks Street was the postal address of the group company and clearly where the group operations were conducted, the official address to which notices under the agreements were to be sent, there is also a danger that, as Miss Dias put it, the tail is being used to wag the dog. There is no ambiguity about ZAO.

Both parties referred to and relied on the recent case of Shogun Finance Ltd v. Hudson[2003] UKHL 62, [2004] 1 AC 919. If anything, however, it appears to emphasise the importance of construction of the written document even in matters of the identity of parties, and also to underline the danger of using extrinsic material in what is fundamentally the role of construction. Thus the approval by the majority of the House of Lords of the earlier case in this court of Hector v. Lyons 58 P & CR 156 (see paras 162/166) seems apposite to the argument in this case. However, to the extent that matters of fact become relevant to the identification of “ZAO” or even “ZAO with a registered address at K Marks Street, Kaliningrad”, it seems to me to be dangerous to be dealing with this by way of summary disposal. The analysis is not made any easier by the requirements of the Statute of Frauds: see Lovesy v. Palmer[1916] 2 Ch 233, referred to in Shogun at para 158.

In truth, the boundaries of the doctrines of misnomer, of the use of matrix or extrinsic evidence to construe, and of rectification, which have been raised by this case, were barely if at all explored: not perhaps surprisingly on a Part 24 application.

Dumford also raised a case of estoppel by convention, relying on Amalgamated Investment & Property Co Ltd (in Liquidation) v. Texas Commerce International Bank Ltd [1982] 1 QB 84. Miss Dias responded to say that that is an attempt to use estoppel as a sword rather than a shield: but I suspect that the answer to that may well be found in what Brandon LJ said in Amalgamated Investment itself at 131/132. Even so, I do not think that this essentially factual issue can be dealt with summarily.

In conclusion, I would allow this appeal and quash paragraph 1 of the judge’s order whereby he gave judgment for Dumford under Part 24, and also paragraphs 4/7 whereby he made consequential costs orders in favour of Dumford. He also dismissed OAO’s jurisdictional challenge under Part 11 (para 2 of his order) and its own Part 24 application (para 3 of his order). There has been no challenge to the latter order in para 3, which must therefore stand. There has, however, been an appeal from para 2, but no argument as to the effect on OAO’s jurisdictional challenge of a reversal of the judge’s grant of summary judgment against it. It may be necessary to hear further argument about the terms of this court’s order in this respect: but one solution would be to remit the matter to the commercial court.

I agree.

I also agree.