Canmer International Inc v UK Mutual Steamship Assurance Association (Bermuda) Ltd

In this action the Claimant, Canmer International Inc (“Canmer” or “the Claimant”), charterer of the vessel M/V “RAYS” (“the Vessel”) claims payment under a Letter of Undertaking dated 16 May 2003 (“the LOU”) issued by the Defendant, United Kingdom Mutual Steamship Assurance Association (Bermuda) Limited (“the UK Club”), on behalf of the Vessel’s owner, Seatex Shipping Company Ltd (“Seatex”). The Claimant was the time charterer of the Vessel under a time charter on the amended New York Produce Exchange form dated 18August 2000 (“the Time Charter”) between it and Seatex. The UK Club was and is Seatex’s P&I Club.

The Claimant had sub-chartered the Vessel under a voyage charterparty on an amended Baltimore Berth Grain Form C dated 30 August 2000 (“the Voyage Charter”) to ConAgra Grain of Canada (“ConAgra Canada”).

In September 2000, the Vessel loaded a cargo of wheat for carriage from Canada to Italian ports. Seatex issued six bills of lading (“the Bills of Lading”) at Duluth, Superior, Canada on 14 September 2000 in respect of cargo carried pursuant to the performance of the Voyage Charter. The Bills of Lading named Seatex as the carrier and ConAgra SRL of Naples (“ConAgra Naples”) as the notify party.

During discharge, some of the cargo was found to be damaged. Claims were presented and separate arbitration references were commenced as follows:

In or about March/April 2001, all three disputes were referred to arbitration. Conagra Naples and Conagra Canada were represented by Holman Fenwick Willan, solicitors (“HFW”), the person responsible at HFW being Mr Chris Swart. The Claimant was represented by Jackson Parton, solicitors, the persons responsible being Mr James Roberts and, whilst he was away, Mr Brian Roberts. Seatex was represented by Rayfield Mills, solicitors, the persons responsible being Mr Richard Rayfield. Because the three references raised common issues of fact and law, the Tribunals directed that they be heard concurrently pursuant to paragraph 15(b) of the LMAA terms (1997). Each party was afforded the opportunity to cross-examine the witnesses of the other parties and the reasons given for all three awards were common to all three references (“the Reasons”). The arbitrators in the Bills of Lading Reference were Messrs David Farrington, Richard Faint, and Alan Oakley; the arbitrators in the Voyage Charter Reference were Messrs Farrington, Faint and Timothy Rayment and the arbitrators in the Time Charter Reference were Messrs Farrington, Oakley and Rayment.

By an award dated 9 April 2003 issued in the Bills of Lading Reference between ConAgra Naples and Seatex (“the Bills of Lading Award”), the tribunal held that ConAgra Naples’ claim against Seatex for damages arising from loss of and damage to the cargo carried on board the Vessel succeeded in the sum of US$284,194.74. It awarded and adjudged that Seatex “must immediately pay to [ConAgra Naples] the sum of US$284,194.74” plus interest.

By an award dated 9 April 2003 and issued in the Voyage Charter Reference between ConAgra Canada and Canmer (“the Voyage Charter Award”), the tribunal held that ConAgra Canada succeeded in its claim against Canmer for damages in the sum of US$284,194.74 arising from loss of and damage to the cargo carried on board the Vessel but that Canmer was entitled to demurrage from ConAgra Canada in the sum of US$54,595.67.

By an award dated 9 April 2003 issued in the Time Charter Reference between Canmer and Seatex (“the Time Charter Award”), the tribunal held and declared that Seatex “must indemnify [Canmer] under the Interclub Agreement and clause 73 of the Time Charter”. Further, it awarded and adjudged that Seatex “must immediately pay to [Canmer] the sum of US$284,194.74” plus interest.

Mr Faint dissented from the Reasons given by the other members of the respective tribunals for reasons that are not relevant to this judgment.

Each of the Awards attached the Reasons and each of the Awards expressly stated that those Reasons formed part of the Awards. The Reasons included inter alia as follows:

“At the hearing the Owners … maintained as an issue [ConAgra Canada’s] title to sue. … The decision in the Sanix Ace [1987] 1 Lloyd’s Rep 465 is authority for the proposition that [ConAgra Canada] had title to sue for damage occurring during their ownership even though the risk may have passed. We agree with the submission made by Counsel for [ConAgra Canada] that insofar as the goods were not at [ConAgra Canada’s] risk they are entitled to an award but would hold any net sums actually recovered for the party at whose risks the goods were (in these references, [ConAgra Naples])”. (Paragraphs 26 to 28).

“Although both [ConAgra Canada] and [ConAgra Naples] are entitled to their separate Awards, it is clear that both cannot receive and retain the full amounts awarded to them. The maximum total amount, exclusive of interest, to be paid by [Seatex] and/or Canmer is $284,194.74. It is, of course, for the parties to resolve between themselves the mechanics of how funds in payment of the Awards are to be treated, including the means of accounting between [ConAgra Canada] and [ConAgra Naples]. At this stage, therefore, we make no decision and leave it to the parties to use their good sense. However, if the parties are not able to agree payments and necessary accounting details, then we reserve to ourselves the power to make Awards in that regard.” (Paragraph 113).

Seatex did not, and has not, paid the sum awarded to the Claimant under the Time Charter Award, nor indeed any sum, to the Claimant.

On 9 May 2003, ConAgra Canada demanded payment from Canmer under the Voyage Charter Award. On the same date ConAgra Naples demanded payment from Seatex under the Bills of Lading Award. In both cases HFW stated that it would be communicating shortly in respect of the costs to which its clients were entitled. In mid-May 2003 Canmer arrested the Vessel in Lome, Togo in order to obtain security for the sums due to it from Seatex both in respect of the Time Charter Award itself and Canmer’s ongoing exposure to Conagra Canada for the costs incurred by HFW in the arbitrations.

Following the arrest, Rayfield Mills (solicitors for Seatex and the UK Club) and Jackson Parton (solicitors for Canmer) entered into negotiations for the release of the Vessel. It is common ground that those negotiations culminated in the UK Club’s provision to Canmer of the LOU and a side letter also dated 16 May 2003, (“the Side Letter”) in order to obtain the release of the Vessel from arrest. The UK Club also undertook to pay, and did pay, the Claimants’ costs of the Time Charter arbitration in the agreed sum of US$ 75,000. The Vessel was duly released from arrest.

The LOU provided inter alia as follows:

“RAYS at Manfredonia on 20^th October 2000

Time charter dated 18^th August 2000/ 6 bills of lading dated Duluth/Superior 14^th September 2000 in particular in respect of costs incurred in 3 arbitration awards dated 9^th April 2003

In consideration of your releasing and/or refraining from arresting or otherwise detaining the M/V RAYS or any other vessel or property in the same or associated ownership, management, possession or control for the purpose of obtaining security in respect of your claim under the above charter including legal costs incurred in connection with the matters which became the subject of 3 arbitration awards dated 9^th April 2003 which may now or hereafter become due to you in respect thereof, we hereby undertake to pay you on demand such sum as may be due to you from owners of the M/V RAYS, Seatex Shipping Company Ltd, Nicosia, Cyprus, in respect of your said claim and legal costs against owners by agreement between the parties or upon first and any subsequent written demand pursuant to the final arbitration award of Messrs Farrington, Rayment and Faint dated 9^th April 2003 and/or upon first and any subsequent written demand following any further final award of a competent arbitration tribunal or following an appeal therefrom by a final judgement of the High Court in London against the owners provided always that our liability hereunder inclusive of interest and costs shall not exceed the sum of US$525,000 (US Dollars Five Hundred and Twenty Five Thousand)”.

The undertaking was expressly stated to be governed by English law and any dispute was subjected to the exclusive jurisdiction of the English High Court.

The Side Letter provided inter alia as follows:

“RAYS at Manfredonia on 20^th October 2000

Time charter dated 18^th August 2000

We confirm that we agree to settle and pay your clients’ costs in the head charter arbitration in the sum of US$75,000 which amount we are forthwith instructing our accounts department to pay as soon as possible.

We also confirm that we are remitting to HFW the sum of US$315,000 in respect of the principal and interest under their award but in the event that this remittance is not actually made (for reasons unforeseen and which we cannot conceive would occur) we will increase the security to your clients by the same amount.”

As envisaged by paragraph 1 of the side letter, the UK Club remitted to Canmer the sum of US$75,000. As envisaged by paragraph 2 of the side letter, on 20 May 2003 the UK Club also remitted to HFW, as solicitors for Conagra Naples, and for the benefit of ConAgra Naples, the sum of US$315,000. The letter informing HFW of the payment stated as follows:

“In response to your demand dated 9^th May 2003 and in part satisfaction of the [UK Club’s] obligations under its letter of undertaking provided by the UK Club dated 6th November 2000, we have remitted to your nominated bank account the sum of US$ 315,000.”

That sum comprised the sum of US$284,194.74, due under the Bills of Lading Award together with interest thereon. The letter of undertaking referred to had been issued by the UK Club on 6 November 2000 in favour of Conagra Naples (“the November 2000 LOU”). However, HFW, on behalf of Conagra Naples, refused, and consistently continues to refuse, to accept that sum as payment under the November 2000 LOU. In its letter of reply to the UK Club’s agents dated 22 May 2003 HFW stated as follows:

“MV “RAYS” – Arbitration Award 9^th April 2003

We confirm that we have found in our client account the sum of US$315,000 directly remitted by yourselves.

Our Clients are only prepared to accept this remittance as a payment on behalf of Owners in satisfaction of the demand letter dated 9 May 2003 and not as a payment pursuant to the Association’s letter of undertaking dated 6 November 2000, under which as you know our clients have not as yet made any demand. We reserve all our Clients’ rights in this respect.

We made our Clients’ position in relation to payment clear to Owners’ Solicitors on Friday 16 May 2003. We enclose a copy of our letter to Messrs Rayfield Mills of 16 May. On the understanding that the Association would not seek to resile from this our Clients refrained from executing against the vessel in Togo.

We do not accept the money on any other basis. On the assumption that this is acceptable to you and to the Owners we will retain the money, but if this is not acceptable to you and to the Owners we will hold it to your order pending all outstanding matters being resolved and without prejudice to the Association’s letter of Undertaking dated 6 November 2003 which remains as yet uncalled. Should this not be acceptable to you and Owners it will be open to you to seek recovery of it.”

As that letter makes clear, Conagra Naples would not accept the sum on the terms tendered; it maintains the position that HFW will hold those funds to the UK Club’s order unless the UK Club agrees to the withdrawal of its terms. The UK Club has not agreed to withdraw those terms. Canmer contends that the alleged payment was never effective, and that HFW presently hold that sum to the UK Club’s order.

On 7 May 2004, Jackson Parton, on behalf of Canmer, called upon the UK Club, pursuant to the terms of the LOU, to pay to Canmer the sum of US$284,194.74, together with interest, as awarded in the Time Charter Award. In the same letter, Jackson Parton acknowledged that Seatex “had already settled the cargo claim by honouring the Award published in the Bills of Lading reference”. Nevertheless, it gave two reasons for seeking to compel Seatex to pay that sum for a second time, namely: first, in order that Canmer might recover from Seatex the costs for which it is liable under the Voyage Charter Award; and second, in order that Canmer might recover the demurrage due to it from ConAgra Canada under the Voyage Charter Award.

The UK Club has refused to pay the sum demanded or any sum to the Claimants. It contends that Canmer is not entitled to the sum claimed or any sum under the LOU.

The UK Club has pleaded a number of defences to Canmer’s claim for payment under the LOU. These can be summarised as follows:

It was common ground that the well-known principles of construction governing contracts in general, such as those enunciated by Lord Hoffmann in Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896 at 912-913 and in Bank of Credit and Commerce International S.A. v Ali and Others [2002] 1 AC 251 equally apply to letters of undertaking. It was thus common ground that the LOU must be construed in the context in which it was issued so as to reflect what may fairly be inferred to have been the parties’ real intention and understanding, as expressed by them in writing, and so as to give effect to that intention rather than not to do so. Those principles require the Court to construe the words used by the parties in such a way as to deduce the meaning the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties at the time the LOU was concluded. Thus the Court must have regard to the commercial purpose of the relevant contract and the circumstances in which it was made. The fact that a document may appear to have a clear meaning on its face will not excuse the Court from looking at the factual background. On the contrary, the Court of Appeal has recently confirmed that the Court is obliged to construe a contract in light of the factual background within which it was concluded: see Static Control Components (Europe) Ltd v Egan [2004] 2 Lloyd’s Rep. 429 at 435, per Arden LJ:

“Thus, in principle, all contracts must be construed in light of their factual background, that background being ascertained on an objective basis. Accordingly, the fact that a document appears to have a clear meaning on the face of it does not prevent, or indeed excuse, the Court from looking at the background”.

As Miss Gotts submitted, in construing the LOU, the Court is not bound to make the unreal assumption that the parties expressed themselves with accuracy or precision; in the case of a commercial contract made under pressure of time by business people, it is perfectly likely that they may have failed to do so. The Court must instead look to the common aim or intention of the parties in reducing their agreement to writing. In addition, the Court must not construe the LOU so as to produce an absurdity or so as to impose upon the UK Club a responsibility which it could not reasonably be supposed it meant to assume. As stated in The Antaios [1985] AC 191 at 200 at 201 per Lord Diplock:

“If detailed semantic and syntactical analysis of words in a commercial contract is going to lead to a conclusion that flouts business commonsense, it must be made to yield to business commonsense”.

Miss Gotts further submitted that, in the light of these authorities, the Court, having considered the factual background against which the LOU was agreed, would be entitled to conclude that the parties had made an “obvious mistake”, that they had “failed to express themselves accurately” or that “something [has] gone wrong with the wording” of the contract; see Static Control and ICS v West Bromwich supra.

Her principal submissions on the construction issue can be summarised as follows:

Whilst I accept Miss Gotts’ submissions as to the law (which were not in contention so far as Mr Chirag Karia, counsel on behalf of Canmer, was concerned), I cannot accept her submissions as to the construction of the LOU. In my judgment the LOU, construed in its commercial context, clearly covers payment of the Time Charter Award itself. Its heading specifically refers to the “Time charter dated 18^th August 2000”, which is the Time Charter between the Claimants and Seatex. The body of the LOU states that the consideration for the LOU is the Claimants’ release of the arrest, or refraining from any further arrest, of the Vessel “for the purpose of obtaining security in respect of your claim under the above charter [which is clearly a reference to the Time Charter] including legal costs incurred in connection with the matters which became the subject of 3 arbitration awards dated 9^th April 2003”. There is an express undertaking by the UK Club to pay to the Claimants “on demand such sum as may be due to you from owners of the M/V RAYS, Seatex Shipping Co. Ltd., Nicosia, Cyprus, in respect of your said claim and legal costs against owners”; and a further undertaking to pay “upon first and any subsequent written demand pursuant to the final arbitration award of Messrs Farrington, Rayment and Faint dated 9^th April 2003”. It is common ground that this is an express reference to the Time Charter Award, Mr Roberts having, by oversight, omitted to correct the names of the arbitrators when he replaced the reference to the Voyage Charter in the first draft with the Time Charter in the amended draft. The only liability arising under the Time Charter Award is for the cargo claim (i.e. principal and interest). There is no liability under the Time Charter Award for costs.

Accordingly, I agree with Mr Karia’s submission that the clear and express intent of the LOU is that it will respond to both: (i) the Time Charter Award; and (ii) the legal costs “incurred in connection with the matters which became the subject of 3 arbitration awards”. Moreover, there is nothing in the factual matrix that requires the Court to give the words in the LOU any meaning other than their natural and ordinary meaning. I cannot accept Miss Gotts’ submission, based upon inadmissible evidence given by Mr Mills as to his alleged subjective intentions, that the words “in particular” in the heading should be construed as “exclusively”. There is nothing to suggest that the LOU was negotiated by business people under pressure of time. It is clear that, on the contrary, it was negotiated between two highly qualified and experienced shipping solicitors, both partners in their respective firms. There was no particular pressure of time, and certainly nothing out of the ordinary for a busy and highly successful solicitor such as Mr Mills. The arrest took place during early May 2003. Discussions between Rayfield Mills and Jackson Parton began on Monday, 12 May and continued at a fairly leisurely pace during that week. Final documentation was agreed on Friday 16 May. The first draft of the LOU was sent to Mr Mills at 10:48am on that day. The virtually final version was sent to him at 11:25am. Over one and a half hours later, at 1:00pm, Mr Mills told Jackson Parton that he was happy with the wording of the LOU. That was ample time to review a one page document. Indeed, Mr Mills had at least a further five hours to consider that document, as it was not until around about 6pm that evening that the LOU was finally sent by fax to Jackson Parton by the UK Club.

As Lord Mustill (with whose speech Lords Goff, Griffiths and Browne-Wilkinson all expressly agreed) explained in Charter Reinsurance v. Fagan [1997] AC 313, at 388 B-D:

“There comes a point at which the court should remind itself that the task is to discover what the parties meant from what they have said, and that to force upon the words a meaning which they cannot fairly bear is to substitute for the bargain actually made one which the court believes could better have been made. This is an illegitimate role for a court. Particularly in the field of commerce, where the parties need to know what they must do and what they can insist on not doing, it is essential for them to be confident that they can rely on the court to enforce their contract according to its terms. Certainly, if in the present case the result of finding a condition precedent would be anomalous there would be good reason for the court to look twice, and more than twice, at the words used to see whether they might bear some other meaning. In the end, however, the parties must be held to their bargain.”

I respectfully agree. The Court must construe the words of the LOU that the parties have in fact agreed. Unless there has been some obvious mistake, or the surrounding facts justify rectification, or some collateral contract is proved, the Court cannot read in terms that are not there (i.e. a term excluding the cargo claim) and that contradict the express terms that are there (i.e. the express coverage for the Time Charter Award/cargo claim). There is no such obvious mistake here. Moreover having heard the evidence of both Mr Mills and Mr Roberts as to the negotiation of the terms of the LOU, I am satisfied that there are no facts emerging from the commercial context of the LOU that could justify such an interpretation. It was certainly conceivable, under the multi-partite relationships arising as a result of the three Awards, that the Conagra parties might prefer to recover payment from Canmer as opposed to from Seatex, as indeed transpired to be the case.

Accordingly it is to the defences of estoppel, oral collateral contract and rectification that I now turn.

It is convenient to deal with these three defences together, because the alleged factual basis relied upon by Miss Gotts to support them was very similar. Her contentions were based upon her analysis of the correspondence and the evidence relating to the oral discussions between Mr Mills of Rayfield Mills (representing Seatex and the UK Club) and Mr Roberts of Jackson Parton (representing Canmer) in the negotiations leading up to the conclusion of the LOU on 16 May 2004. The result, the UK Club submits, is that Canmer is now estopped or otherwise prevented from claiming in respect of the principal sum.

The UK Club relies principally on estoppel by convention, but it also alleges estoppel by representation and/or acquiescence. There was no dispute that estoppel by convention arises where both parties to a transaction “act on an assumed state of facts or law, the assumption being either shared by both or acquiesced in by the other”; see The Indian Endurance (No 2) [1998] AC 878 at 913; also Amalgamated Property Co v Texas Bank [1982] QB 84 at 122; The Vistafjord [1988] 2 Lloyd’s Rep. 343 at 349-353.

She also submitted that Jackson Parton, on behalf of Canmer, impliedly (if not expressly) agreed that it would make no demand under the LOU for the principal and interest and would not pursue any claim against the Club for the same. She accepted that if the LOU were construed in isolation and ifthe LOU therefore has the meaning for which Canmer contends, the alleged agreement would directly contradict the express terms of that LOU. However, she contended that the LOU, the UK Club’s agreement to settle Canmer’s costs in the Time Charter reference and the UK Club’s undertaking to increase the security provided to Canmer in the event that the principal sum was not remitted to ConAgra Naples, formed part of a much wider transaction. The printed form of the LOU cannot therefore be construed in isolation. It formed part of a group of agreements, mutually dependent upon each other – effectively collateral contracts

In argument, the way in which Miss Gotts articulated her case in estoppel (and, indeed in collateral contract) was that there was a common assumption (or agreement) that the LOU would not respond to a demand for principal and/or that no sum could be due to Canmer within the meaning of the LOU save where the $315,000 had not been remitted and an application was made by Canmer to increase the security. The underlying facts upon which the UK Club relies were, in summary, that on 13 May 2003, Mr Rayfield advised Jackson Parton in writing that, if Seatex were first to pay ConAgra Naples the principal and interest awarded in the Bills of Lading reference, Seatex’s remaining potential liability to Canmer would be for costs alone. In the same communication, Mr Rayfield also drew the attention of Jackson Parton to paragraph 113 of the Reasons. She submitted that at no point did Jackson Parton indicate that they disagreed with such an analysis. She relied upon various telephone conversations on 16 May 2003, where Mr Roberts advised Mr Mills that, if Seatex were first to pay ConAgra Naples the principal and interest awarded in the Bills of Lading reference, Canmer would require security in the sum of US$650,000, a figure which reflected Canmer’s potential exposure to ConAgra Canada in respect of the costs incurred in the Voyage Charter reference. She also relied upon a subsequent e-mail of the same date, in which Mr Mills proposed that security be provided in the lesser sum of US$525,000 and explained the basis upon which this figure had been calculated, namely that it represented Canmer’s potential remaining costs exposure of US$650,000 less ConAgra Naples’ residual security of US$125,000. She therefore submitted that what was therefore represented to the UK Club, impliedly from everything that was said, if not expressly, was that there could be and would be no claim by Canmer under the LOU for the principal sum. Further, she submitted, it was self-evidently assumed by both parties, as the shared convention upon which the LOU was concluded, that the LOU would only respond in respect of a demand for payment of costs. She also submitted that from the date that the LOU was concluded and payment of the principal sum made to ConAgra Naples, Canmer expressed the view in open correspondence and in its submissions to the Tribunal both that its liability to ConAgra Canada had been discharged and that the LOU would respond only to a demand in respect of costs. In particular she relied upon the following correspondence:

On 19 May 2003, Jackson Parton wrote to HFW in the following terms:

“… In view of the arbitrators’ comments in the Reasons for their awards, we trust you will agree that the payment of $315,000 discharges any liability that our clients may have to remit $284,194.74 to your clients …”

On 3 June 2003, Jackson Parton wrote to the Tribunal in the Voyage Charter reference as follows:

“… The security obtained by Canmer is essentially in respect of Canmer’s exposure to ConAgra’s legal costs and, as we believe Holmans are aware, the level of security was reduced to take account of the $315,000 remittance…”

She also, in the context of her estoppel arguments, criticised Mr Roberts. She contended:

Having heard the evidence of both Mr Roberts and Mr Mills, I reject all these arguments. Nor do I accept Miss Gotts’ analysis of the correspondence or her criticisms of Mr Roberts. Both he and Mr Mills (as one would expect) were honest and straightforward witnesses.

Mr Roberts gave clear evidence to the effect that Canmer never agreed not to make a demand under the LOU for the Time Charter Award/cargo claim; that he never agreed that the LOU would be confined to the costs due to Conagra Canada; and that such an agreement was never even discussed. Mr Roberts certainly understood that the US$315,000 figure was arrived at based on the principal and interest under the Bills of Lading Award. But neither he nor Mr Mills was concerned at that time with allocation of monies. Instead, they were concerned with the much more pressing matter of calculating the amount of security the Claimants needed to cover their maximum possible exposure so that the Vessel could be released from arrest. He said (and I accept) that the relevance of the UK Club’s stated intention to transmit US$315,000 to HFW was that it reduced the Claimants’ maximum possible exposure, and hence the amount of security they needed, by that amount. What Mr Roberts was concerned about was to ensure that the Claimants were adequately secured in the event that HFW decided to get their money from Seatex/the UK Club indirectly via the Claimants. Moreover, Mr Mills accepted in cross-examination that:

In fact, a disagreement between Jackson Parton and Rayfield Mills on this very issue had already crystallised by 13 May, as the correspondence makes clear. Mr Mills’ evidence, and a proper analysis of the correspondence, in my judgment clearly establishes that there was no representation, agreed course of dealing or convention, or agreement along the lines alleged by the UK Club. Indeed, as recently as 27 August 2004, Rayfield Mills had made no mention of this alleged agreement when setting out the agreement reached on 16 May 2003 for the tribunal. Nor do the communications to the Tribunal relied upon by Miss Gotts provide any basis for the asserted estoppel or agreement.

Accordingly, in my judgment, no representation, let alone the unequivocal type of representation that is needed to establish an estoppel, to the effect that the Claimants would not claim under the LOU for the Time Charter Award, was ever made by Mr Roberts. Furthermore, in my judgment, it is impossible to regard the evidence as showing that both parties laboured under that common assumption. Even if Mr Mills took the view that the UK Club’s remittance to Conagra Naples under the Bills of Lading Award would discharge the Claimants’ liability to Conagra Canada under the Voyage Charter Award, that cannot unilaterally ground an estoppel. Jackson Parton had already expressly disagreed with that view as had HFW. Moreover, Mr Mills knew that neither Mr Roberts nor HFW agreed with his erroneous view. Finally, there is no injustice or unconscionability in the present case; as for the need for such a requirement, see The August Leonhardt [1985] 2 Lloyd’s Rep. at 35. The Conagra parties will only get from the UK Club the sums to which they are entitled under the terms of the Awards. Given that Conagra is entitled to recover its costs from the Club/Seatex and those costs have been estimated at US$650,000, there is no realistic prospect of the UK Club overpaying as a result of its payment of approximately US$315,000 to the Claimants under the LOU. In any event, if the payment under the LOU were to result in the Conagra parties being over compensated, the UK Club/Seatex will be able to recover the overpayment (if any) in restitution.

For similar reasons, it follows that the UK Club’s claim to rectification of the LOU fails. On the basis of my findings of fact, there is no evidential basis to support the argument that the LOU and the Side Letter do not reflect the common intentions of the parties.

I turn now to consider the UK Club’s final defence, namely that, on its true construction, the LOU only covers sums actually “due to” Canmer from Seatex and that no such sums are actually due, because of the remittance by the UK Club to HFW.

The first issue that arises under this head is whether, as a matter of construction of the LOU:

In support of his submissions that the LOU imposed an autonomous obligation on the UK Club to pay on a demand based on the Time Charter Award, Mr Karia contended that the LOU should be construed as having three limbs; the first limb was the UK Club’s undertaking to pay the Claimants “on demand such sum as may be due to you from owners of the M/V RAYS, Seatex Shipping Co. Ltd., Nicosia, Cyprus, in respect of your said claim and legal costs against owners by agreement between the parties”; the second limb was the undertaking to pay “upon first and any subsequent written demand pursuant to the final arbitration award . . dated 9 April 2003.”; and the third limb was the undertaking to pay “upon first and any subsequent written demand following any further final award of a competent arbitration tribunal or following an appeal therefrom by a final judgement of the High Court in London against the owners.”(emphasis added).

He submitted that, even in relation to the first limb, (and, so far as the words applied at all thereto, certainly in relation to the second and third limbs), the words “such sum as may be due to you from owners” were merely descriptive and thus did no more than

“identify the contractual events which trigger the right to call the refund guarantees in the same way as the bond in Esal referred to the underlying liability.”

as the Court of Appeal stated in Gold Coast v. Caja de Ahorros [2002] 1 Lloyd’s Rep. 617 at paragraphs 21 – 26. In support of this submission that the LOU imposed primary, autonomous liability upon the UK Club, he referred to Esal (Commodities) Ltd v. Oriental Credit Ltd [1985] 2 Lloyd’s Rep. 546 (CA). In that case, the guarantor bank had “undertake[n] to pay the said amount on your written demand in the event that the supplier fails to execute the contract in perfect performance .…” The Court of Appeal held that, absent clear evidence of known fraud, the guarantor was bound to pay upon any demand stated to be based on the supplier’s failure/breach. Provided that a breach was alleged in the demand, the guarantor could not avoid paying by proving that the supplier had not in fact failed/committed a breach as alleged in the demand; see [1985] 2 Lloyd’s Rep. at 549 col. 1 – 550. He also relied upon Gold Coast v. Caja de Ahorros supra, where the guarantors had irrevocably and unconditionally undertaken to pay upon the beneficiary buyer’s “first written demand ... if and when the instalment becomes refundable from the Builder under and pursuant to the terms and conditions of the Shipbuilding Contract.” The Court of Appeal, following Esal, held that the Builder’s underlying liability was irrelevant to the guarantor’s autonomous obligation to pay according to the demand made by the beneficiary. It explained that the reference to instalments becoming refundable under the Shipbuilding Contract did no more than identify the contractual events which triggered the right to call the refund guarantees. The Court of Appeal also expressly approved the statement in Jack, Malek and Quest, Documentary Credits (3^rd Ed. 2001) that

“a (demand) guarantee will not be construed as payable only if a particular event has occurred, simply because the guarantee sets out, without more, the event or events following the happening of which it is intended that a demand may be made.”

He sought to distinguish cases such as The London Lion [1980] 2 Lloyd’s Rep. 456 (CA), BOC Group v. Centeon LLC [1999] 1 All ER (Comm) 53 (Rix J), and Marubeni v. Government of Mongolia [2004] 2 Lloyd’s Rep. 198 (Cresswell J) and [2005] EWCA Civ 395 (CA), which were relied upon by Miss Gotts in her submissions to support her argument that the UK Club’s liability was a secondary liability dependent upon Canmer proving that sums were indeed due. (The decision of the Court of Appeal in Marubeni was delivered after the end of oral submissions in this case and was the subject of further post-hearing written submissions by both counsel.)

Further he submitted that the second limb of the LOU, pursuant to which the demand was in fact made in this case, was, in any event, not qualified by the words “such sum as may be due to you from owners”. He submitted that all that is required is that the demand be made pursuant to the Time Charter Award. Therefore, he submitted, whatever the position in relation to the first limb, the second and third limbs do create a primary, autonomous demand covenant, or guarantee, in favour of Canmer. He contended that there is an obvious reason why the parties should have drawn a distinction between claims that have been definitely proven and established by arbitral award or court judgment (i.e. the second and third limbs) differently from bare, unadjudicated claims in respect of unproven and unquantified liabilities (the first limb). On the other hand, Seatex’s liability in respect of the second limb had already been established by the Time Charter Award. He submitted that qualifying words, such as those relied upon by the Court of Appeal in paragraphs 31 and 32 if its judgment in Marubeni to conclude that merely a secondary liability was imposed in that case, were absent in the second and third limbs of the LOU.

I do not accept Mr Karia’s submissions, either as to the construction of the second and third limbs of the LOU or as to the characterisation of the obligation imposed on the UK Club. The starting point here is the construction of the wording of the LOU, or, put another way, the ordinary reading of the words. In my judgment, it is clear, on that wording, that the phrase “such sum as may be due to you from owners” is as much part of the second and third limbs of the operative part of the undertaking, as it is part of the first limb. A grammatical analysis, as well as the ordinary reading, of the words, shows that the operative undertaking by the UK Club, articulated in the main clause of the LOU, is to pay Canmer on demand such sum as may be due to Canmer from Seatex in respect of Canmer’s claim under the Time Charter and its legal costs incurred in the three arbitrations referred to in the title. The object of the undertaking to pay is clearly, in all three cases, “such sum”. Likewise, in all three cases “such sum” is defined by the sub-clause “as may be due to you from owners”. The quantification of the amount of that “sum” is either arrived at by agreement between the parties (the first limb), or simply by a written demand pursuant to the final arbitration award under the Time Charter (it being common ground that the reference to Mr Faint as opposed to Mr Oakley in the LOU was an error) (the second limb), or a subsequent award (the third limb).

So far as characterisation of the obligation is concerned, I see no reason why the principles applicable to performance bonds (i.e. the imposition of a primary liability) should not apply to letters of undertaking issued by P&I Clubs, in circumstances such as these, if, and only if, the language of the particular letter in question justifies such a construction. Obviously Clubs are not banks, but a claimant, which is agreeing to release a vessel from arrest, might well wish to obtain the certainty that a covenant of a Club, as insurer, will respond to a demand without having to prove any underlying liability on the part of the owner. The fact that Canmer has not identified any authority in which such undertakings have been so characterised, does not persuade me that the characterisation of a covenant as giving rise to primary liability is necessarily inconsistent with the function of a Club in these circumstances. But in this case, in my judgment, the wording makes clear that no such liability is imposed. The LOU does not describe itself in terms appropriate to a demand bond or similar instrument imposing primary liability. There is nothing in the language to rebut the presumption (see paragraphs 30 and 31 of Marubeni)that, outside the banking context, and in the absence of clear words applicable to a performance bond, such an undertaking is not regarded as imposing primary liability. Mr Karia sought to rely upon the fact that payment had to be made “upon first and any subsequent written demand pursuant to the final arbitration award”, at a time when the quantum of liability, at least in respect of principal, would be ascertained. But in my judgment that does not change the character of the obligation nor obviate the need for Canmer to establish that the sum claimed is indeed due from Seatex as owner to Canmer, pursuant to the Time Charter Award. Accordingly, it follows that I accept Miss Gotts’ submissions on this aspect of the case.

The next issue, which arises under this head, is whether the sum claimed by Canmer is, in fact, due to it under the Time Charter Award, as stated in the Claimant’s demand of 7 May 2004.

In paragraphs 19(2)(d) & 19(2)(e) of its Defence, and in its submissions at trial, the UK Club argued that its remittance to Conagra Naples under the Bills of Lading Award discharged the Claimants’ separate liability to Conagra Canada (a different legal person) under the Voyage Charter Award and that, accordingly, there is no sum due by Seatex to Canmer under the Time Charter Award. In my judgment this defence fails. My reasons for this conclusion, which broadly reflect the submissions made by Mr Karia in relation to this point, may be summarised as follows.

As I have already stated, Conagra Naples, by its solicitors HFW, has refused (and continues to refuse) to accept the sum remitted in respect of the Bill of Lading Award on the terms upon which it was tendered. Those funds remain in HFW’s client account, held to the UK Club’s order. Although HFW’s letter dated 22 May 2003 is perhaps somewhat ambiguous about the circumstances in which the sum will be repaid, it is clear that Conagra Naples has not accepted the sum as payment. Payment is a consensual act and thus requires the accord of both creditor and debtor. Even if a tender by a debtor to his creditor complies fully with the terms of the contract, and the creditor’s refusal to accept the payment thus constitutes a breach of contract, the tender does not discharge the debtor’s obligation, although the creditor may be prevented thereafter from claiming any interest or damages for late payment or for claiming damages for breach of the payment obligation; see R.M. Goode, Payment Obligations in Commercial and Financial Transactions (1983), at pages 14 –16; Chitty on Contracts, 29^th Edition, paragraph 21-084. It is not therefore necessary for me to consider whether the UK Club’s tender, and its attachment of certain conditions thereto, was or was not in conformity with Seatex’s obligations under the Bills of Lading Award. A creditor accepts payment either by expressly declaring its unconditional assent to the payment, or by acceptance or by treating the money as its own (e.g. by intermingling it with its own money or lending it out, etc.); see e.g. TSB Bank of Scotland v. Welwyn Hatfield District Council [1993] 2 Bank LR 267, 272-273 (Hobhouse J). That has clearly not happened here. It is therefore clear that no payment sufficient to discharge Seatex’s liability under the Bills of Lading Award has yet been made by the UK Club, because its remittance has not been accepted by Conagra Naples. Therefore it cannot be said that no sum is owing to Canmer from Seatex, because Canmer will have no liability to Conagra Canada under the under the Voyage Charter Award.

Secondly, even if I were wrong in the above view, and payment under the Bill of Lading Award had been made by Seatex to Conagra Naples, such payment cannot discharge the liability of a third party (Canmer) under a separate award (the Voyage Charter Award) in favour of a different claimant (Conagra Canada). I accept Mr Karia’s submissions that the mutual rights and liabilities of Canmer and Seatex, Canmer and ConAgra Canada, and Seatex and ConAgra Naples are governed by the Time Charter Award, the Voyage Charter Award and the Bills of Lading Award, respectively. Those three Awards are separate and independent. Liability under one Award cannot be “discharged” by the alleged or even actual satisfaction of a different Award. Each Award replaced the underlying causes of action upon which it was based and created new rights between the parties thereto superseding their previous rights: see Merkin, Arbitration Law, (2004) para 18.128, p. 787; The Sargasso [1994] 1 Lloyd’s Rep 412, 415 col. 2 (Clarke J).

Miss Gotts accepted that there was a logical difficulty in her argument because it was inherent in the three Awards that the Bills of Lading and Time Charter Awards impose upon Seatex an obligation to make immediate payment of US$284,194.74 to ConAgra Naples and Canmer respectively, and the Voyage Charter Award imposes upon Canmer an obligation to make immediate payment of US$229,603.07 to ConAgra Canada. However she contended that the Tribunals’ Reasons for making all three of those Awards expressly state that the sum of US$284,194.74 should only be paid once. She submitted that the Tribunals regarded the three Awards as intrinsically related. She relied upon paragraph 28 of the Reasons where the Tribunals held that, whilst ConAgra Canada had title to sue Canmer under the Voyage Charter, it would hold any net sums actually recovered for ConAgra Naples. She further relied upon paragraph 113, where they recognised that, although both ConAgra Canada and ConAgra Naples were entitled to their separate Awards, both could not receive and retain the full amounts awarded to them, and the fact that the only matter the Tribunals left unresolved was “the mechanics of how funds in payment of the Awards [were] to be treated”. She further submitted that, by leaving the mechanics of payment to the parties’ good sense, the Tribunals were simply recognising that there were various ways in which the Awards could properly be satisfied; that the particular way in which Seatex chose to satisfy the Awards was to remit the principal sum to ConAgra Naples (a course of action of which Canmer was fully aware and to which it agreed); and that, having done so, Canmer’s liability to ConAgra Canada in respect of the principal and interest awarded in the Voyage Charter reference was discharged and Seatex could have no liability to Canmer for the same. Finally she submitted in this context, based on paragraphs 19(2)(f) of the Defence, that there is an implied term in the Time Charter Award to the effect that the Award against Seatex “immediately to pay to Canmer the sum of US$284,194.74” plus interest does not mean what it says and that payment does not need to be made, if funds have been remitted to Conagra Naples . She argued that such a term must be implied “as a matter of law and/or pursuant to the intentions of the tribunal as evidenced in the Reasons for the Awards”.

In my judgment these arguments must also be rejected. The Tribunals expressly stated in paragraph 113 of the Reasons that they were making “no decision” as to the mechanics of payment or accounting. In those circumstances I do not see how Miss Gotts can derive any assistance from that paragraph for her submissions. Moreover it is impossible from that paragraph, or indeed the Reasons as a whole, to imply any term to the effect that the Time Charter Award, on its face, is not to be effective if a remittance has been made, even if it has not been accepted.

Accordingly I find in favour of Canmer on its claim. I will hear further argument, if necessary, as to the form of any order.

Finally I should express my thanks to counsel for their helpful written and oral submissions. The fact that I have not in this judgment addressed all the points which they respectively made does not mean that such points have not been considered in coming to my conclusion.