Nakanishi Marine Co Ltd v Gora Shipping Ltd & Ors

Nakanishi Marine Co Ltd (“the Claimant”) brings before the Court pursuant to Part 24 a number of issues for summary determination, and it is now common ground, and results from an order of Hamblen J dated 17 October 2012, that not all such issues can be dealt with on that basis. Before me, Ms Vasanti Selvaratnam QC and Mr Andrew Leung have appeared for the Claimant, and Mr Socrates Papadopoulos for the Third Defendant (“Attica”). There was a hearing lasting one and a half days, and subsequently with my permission certain further evidence and submissions were supplied by counsel.

Although the First Defendant (“Gora”) and the Second Defendant (“MFS”) have been served with the relevant summonses for this hearing, they have not attended or been represented before me, and, at the instance of the Claimant, but without opposition from Attica, I have made an order that they should be bound by the result of this hearing if they did not take within a fixed period, which has now expired, any opportunity to seek to take part in it.

The context can be shortly set out. The Claimant’s claim is for sums loaned to Gora, guaranteed by MFS, by virtue of a series of agreements dated 8 September 2011: the most material agreements for my purposes being the Nakanishi Loan Agreement (“NLA”) and the MFS Corporate Guarantee (“the Guarantee”). The Claimant was informed at the time that there was a prior loan by Attica to Gora, to which the Nakanishi Loan was to be subordinated. On the same day, 8 September 2011, a Deed of Co-ordination (“DOC”) was signed between Gora, Attica and the Claimant. By Clause 2 of that Deed, Attica consented to the execution of the “Second Finance Documents” (defined so as to include the NLA and the Guarantee) on the terms and conditions contained in the Deed. Those terms and conditions, to which I shall refer, made provision for subordination of the Junior Indebtedness (the indebtedness of Gora to the Claimant) to the Senior Indebtedness (the indebtedness of Gora to Attica).

The Claimant asserts that it was entitled on 17 January 2012 to treat a non-payment by Gora of an instalment due on 9 January 2012 under the NLA as an event of default triggering Gora’s liability to repay in full (by way of ‘accelerated liability’) the sums due under that Agreement (and accordingly also MFS’s liability under the Guarantee). Attica asserts that, by virtue of the subordination of the Junior Indebtedness, the Claimant is not entitled to the relief it seeks, and that it has itself been entitled, by virtue of non-payment by Gora of an instalment due on 7 December 2011, as of 10 February 2012, to exercise its right to demand repayment from Gora under the Attica Loan Agreement, of which it asserts it gave notice to the Claimant, sufficiently in accordance with the provisions of the DOC.

Attica also sought summary judgment in these proceedings in respect of Gora’s indebtedness to it under the Attica Loan Agreement, but, in the light of a challenge by the Claimant to the genuineness of that agreement, and as to whether there is in fact anything owed by Gora to Attica, it has been agreed that that question cannot be decided summarily. Hence the first six issues formulated on an indicative basis by the Claimant have not been pursued before me. It is common ground that these issues are not suitable for determination by way of summary judgment. There is also a seventh issue, as to whether an event of default has occurred under the Attica Loan Agreement, as to which Hamblen J left it to me to decide whether it should be heard, but, in the light of the dispute as to whether anything in fact was owing under the Attica Loan Agreement, I have, without material opposition from the parties, concluded that that issue too cannot presently be resolved.

The balance of the issues, to which I shall make reference after setting out the clauses in issue in the various agreements, has been contested, in accordance with the directions of Hamblen J, on the basis that it is assumed for the purposes of the arguments, which have related only to the Claimant’s claim in respect of the Junior Indebtedness, that the Attica Loan Agreement was genuine, that sums were owed under it, and that an event of default under that agreement did occur on 7 December 2011.

I set out the relevant clauses of the 8 September 2011 agreements in issue before me:

I have drawn together the fifteen live issues as follows:

Much of the argument has depended upon construction, in particular of Clause 7 of the NLA and Clause 3.3 of the DOC. It is common ground that I am entitled, indeed obliged, to apply in relation to this commercial contract, entered into between commercial parties, in cases of ambiguity or where two constructions are possible, the approach which favours common sense and commerciality (The Antaios [1985] AC191, Rainy Sky v Kookmin Bank [2012] 1AER 1137 (SC). It is also apparent on the evidence that the NLA was drafted by the solicitors acting for Gora, such that in the event of ambiguity I am entitled where appropriate to adopt the approach of construing contra proferentem, Gora being the proferens. Finally, if a question of ambiguity arises in respect of a clause relied upon so as to deprive a party of a valuable right, Ms Selvaratnam relies upon the proposition (which Mr Papadopoulos does not contest) derived from Stocznia Gdynia SA v Gearbulk Holdings Ltd [2010] QB 27 that clear words are required before a court would so construe such a clause.

I have set out, in paragraph 7(iii) above, Clause 15, being the Notices provision contained in the DOC. Attica sent what it relies on as a notice of EOD on 16 February 2012 addressed to law@bentleys.co.uk “for the kind attention of Mr William Chetwood”, being a partner in Bentleys, Stokes and Lowless (“Bentleys”), the Claimant’s solicitors. It sent it again, but not till 15 June 2012, as an attachment to a fax of that date addressed to the Claimant (attention Mr Hirakawa Yoshihiro), which stated “for the sake of good order, we are attaching our email of 16 February 2012 notifying your solicitor Mr William Chetwood of Messers [Bentleys] of the occurrence of an event of default under the Senior Loan Agreement”. A further letter dated 26 June 2012 (sent by fax and by post) was sent “without prejudice to all previous notices”, in accordance with the terms of Clause 15.

According to the evidence of Mr Chetwood, which has not been challenged, the email of 16 February did not reach him, and was not forwarded to the Claimant, in circumstances which he describes. The 15 June fax was sent to Mr Chetwood by Attica’s solicitors after he had told them, by email of 14 June, that the Claimant had no record of receiving a notice mentioned by the Claimant’s solicitors in their email to him of 7 June. The 15 June fax was passed on by him to the Claimant, who did not receive a notice in accordance with Clause 15 until 26 June, as above.

The EOD under the Attica Agreement was thus only notified in accordance with Clause 15 on 26 June, but had come to the attention of the Claimant on 15 June. Although Attica puts forward a case as to the validity of the first and second notices, its fallback case is to rely on the third (26 June) notice. Although the Claimant does not admit the validity of the second notice, in the event there is no material difference in terms of timing, or impact on the dispute between the parties, in the effect of the notices as between 15 June and 26 June, and I do not reach, and have no reason to reach, any conclusion as to the effect of the 15 June fax, but shall concentrate on the dispute as to whether the 16 February email was valid notice, as opposed to notice having been given in June (whether on 15 or 26 June).

By Clause 3.6 of the DOC, set out in paragraph 7(iii) above, Attica was obliged to serve a notice of EOD as soon as reasonably practicable after becoming aware of an EOD under the Attica Loan Agreement. I shall refer to this as the timeousness point. It is conceded by Attica that none of the three notices upon which they rely was timeous or complied with Clause 3.6, not those in June and also not that of 16 February (in respect of the default by Gora on 7 December 2011). The Claimant submits that such non-compliance with Clause 3.6 renders all the notices ineffective. Attica submits that there is no impact of such breach of obligation, save for a claim for damages (if any) and that the notice, once served, has retrospective effect. I shall return to this below.

I deal then with the validity of the 16 February email as a notice. It obviously did not comply with the terms of Clause 15, and, insofar as such could have any relevance, I am satisfied that it did not come to the attention of the Claimant, as explained in the witness statement of Mr Chetwood, to which I have referred. Attica contends that Bentleys had express, implied and/or ostensible authority to receive the notice addressed to its generic email address, for reasons explained in the third witness statement of Ms Anastassiou. She refers to the fact that Attica had received on 24 January 2012 a fax from Mr Chetwood giving (in accordance with the terms relating to notices to Attica under Clause 15) notice of the EOD under the NLA, and then on 30 January 2012 a fax notifying Attica of the Claimant’s intention to issue High Court proceedings. Ms Anastassiou states in paragraph 20: “throughout this period, Bentleys did not object to receiving correspondence with respect to the Deed of Co-ordination directly, and, moreover, responded on matters relating to the Deed of Co-ordination on behalf of [the Claimant]. Attica presumed [the Claimant] had instructed Bentleys to (a) send notices on [the Claimant’s] behalf under the Deed of Co-ordination and (b) as would logically be expected, accept notices on [the Claimant’s] behalf in response. Bentleys’ messages of 24 January 2012 and 30 January 2012 gave the impression that Bentleys acted for [the Claimant] in respect of all matters relating to the Deed of Co-ordination”.

The relevant authorities to which I have been referred are:

I have no doubt whatever that the 16 February email did not constitute good notice:

There was no valid 16 February notice. There was valid, but non-timeous, notice in June 2012 (as I have said above, I need to make no differentiation between 15 and 26 June, although plainly only the latter was in formal compliance).

This issue depends on the construction of Clause 7 of the NLA, set out in paragraph 7(i) above. The Claimant submits that Clause 7.1 provides for an EOD in the event of non-payment on the due date pursuant to Clause 7.1(a). There was such a failure, which gave the option to the Claimant to follow one of the Consequences of Default set out in Clause 7.7, and the Claimant opted (as it “may without prejudice to any other of its rights” do), pursuant to Clause 7.7(c) to “declare the whole of the Loan immediately due and repayable”. Attica relies upon Clause 7.9, which provides that “the non-payment of any sum of money in time has to be proved conclusively by simply the passage of time upon lapse of the Period of Notice”. Such Period of Notice is a cross-reference to Clause 7.7(a), and Attica submits that the Claimant cannot therefore rely upon non-payment as an EOD entitling immediate acceleration, but must first give such a Period of Notice in accordance with Clause 7.7(a). The Claimant did not do so, and thus there was no valid declaration of acceleration, without its first having served a Clause 7.7(a) Notice.

Clause 7.9 is not well drafted, and to the extent the Claimant needs to do so, Ms Selvaratnam relies upon all three of the principles of construction referred to in paragraph 9 above, namely contra proferentem (Gora being the proferens), commercial sense (the apparent overriding of a clear discretion in Clause 7.7) and the principles of Stocznia Gdynia, namely its right to terminate in accordance with Clause 7.1(a) needing clear words to be ousted.

Mr Papadopoulos relies upon the wording of Clause 7.9, particularly that set out in paragraph 18 above in subparagraph (i) of the clause, but also the reference in subparagraph (ii) to the words providing for proof of “this (non-payment) and any other event of default”, suggesting, as he submits, a dichotomy between any non-payment and any other event of default not consisting of non-payment. Insofar as a commercial purpose is to be derived, he submits that it is an intention to alleviate the harshness of the otherwise well established principle of commercial law apparent from the Laconia [1977] AC 850 esp. at 867G per Lord Wilberforce, whereby, once a punctual payment of any instalment has not been made, a right of withdrawal accrues, such that (in that case) a charterer who had failed to make a punctual payment could not avoid the consequence of his failure by later tendering an unpunctual payment.

I reach the following conclusions, assisted by the submissions of counsel for the parties:

The declaration of 17 January 2012 was thus, pursuant to Clause 7.7(c), and unaffected by Clause 7.7(a) and 7.9(i), a valid declaration under the NLA that the whole of the loan was immediately due and repayable.

Clause 3.1 recites in general terms that the Junior Indebtedness (under the NLA) is subordinated to the Senior Indebtedness (under the Attica Loan Agreement), but, other than as setting the scene for what follows, neither counsel relied in argument before me on this subclause as giving a separate or additional or different answer to the questions I have to resolve in respect of Clause 3.3.

Clause 3.3 has what were described by both sides as two limbs, which I shall set out below, with the substitutions/clarifications which I made when setting out the clause in paragraph 7(iii) above:

Ms Selvaratnam submits that if, as I have found, the declaration of acceleration was valid as of 17 January 2012, the Claimant is entitled to payments of any unpaid instalments, and to payment of the accelerated sums, under limb (i), and as to limb (ii), while she accepts that a June notice by Attica would stand in the Claimant’s way as from June, if it is effective at all, that notice is not retrospective.

Attica submits that the first limb prevents payment of all instalments of principal and interest other than the scheduled payments (Mr Papadopoulos accepts that it cannot have been intended to prevent payment of the regular instalments of interest under Clause 3, and that the reference to Clause 4 alone must have been in error). It prohibits any payment of any accelerated sums if (as I have found) such arose on 17 January: and that in any event the (as I have found) June notice prevents (on his case retrospectively) any payment at all, both in respect of the scheduled payments and in any event in respect of any accelerated sums.

Once again the wording is not well drafted, and the various canons of constructions referred to in paragraph 9 above apply, in each case favourably to the Claimant, where appropriate.

I deal first with the issue of the effect on limb (ii) of the valid June notice, as I have found it to be. As to the timeousness point,I am satisfied that the June notice was, while not timeous, effective. The existence of Clause 3.6 significantly imposes an obligation on Attica to serve its notice diligently, because of its effect (Clause 3.3 limb (ii)) once it is served. But although late it was, in my judgment, effective. The significance of Clause 3.6 is that it brings down the shutters, by virtue of limb (ii), and the sooner it does so, the more effective for Attica, but I do not conclude that it is of no effect once it is, belatedly, served. However, I am equally satisfied that it does not have retrospective effect once it is served, as that would or might deprive the Claimant of any accrued rights or entitlements. The effect is that if any payments permitted by limb (i), but which would otherwise have been prevented by limb (ii), were made prior to the June notice, they were valid and permitted. However it is clear to me that payments otherwise permitted under limb (i) cannot by virtue of limb (ii) be made, if they have not been made earlier, after the June notice.

I turn then to the construction of Clause 3.3:

The Claimant submits that Attica’s construction renders Gora’s obligation under Clause 7 nugatory, and that Clause 3.3 should be read so as not to override Gora’s obligations, at least until the service of a valid notice. Although the Claimant accepts that Clause 10.7 Inconsistency of Terms (set out in paragraph 7(i) above) does not apply as between the NLA and the DOC, nevertheless Attica consented, by Clause 2 of the DOC, to the terms of Clause 7, and so neither it nor Gora should be heard so to construe Clause 3.3 of the DOC as to oust the Claimant’s entitlement under Clause 7 of the NLA.

Mr Papadopoulos submits that Attica’s consent in Clause 2 is expressly recited in Clause 3.1 in the context of agreed subordination of the Junior Indebtedness to the Senior Indebtedness, and that the provisions of Clause 3.3 do not oust Clause 7, but that they rather subject the entitlements of the Claimant under Clause 7 to the limitations of subordination during the period in which the Senior Loan remains outstanding. Mr Papadopoulos refers to the authoritative words in Wood: Project Finance, Securitisations, Subordinated Debt [2007] at paragraphs 12-015 to 12-029. Although these clauses are not identical to, they are certainly not in principle different from, those discussed by Wood under the headings of “restrictions on payment of junior debt” and “permitted payments of junior debt and payment blockages” and “restrictions on enforcement by junior creditor”. In particular Mr Papadopoulos refers to 12-015: “the agreement usually restricts direct or indirect payment of the junior debt except for permitted payments on the junior debt, which can be paid until a payment block event occurs”. As for acceleration of the junior debt, he refers to paragraph 12-029, where Wood recites a common clause providing that the junior creditor will not accelerate liability in respect of junior debt so long as any of the senior debt is or may become outstanding.

Taking into account the various submissions, I reach the following conclusions:

In the light of my conclusion that there was no requirement for a Period of Notice before the Claimant was entitled to enforce its EOD pursuant to Issue (ii), there is no need for the Claimant to rely on any additional EOD such as it seeks to establish by reference to Clause 6. However I shall deal briefly with the question, as it was argued before me.

Ms Selvaratnam’s submissions are as follows. If (as I have found) Clause 3.3 prevents the Claimant from recovering, then Gora is in breach of the representation/warranty in Clause 6.2(e) (and hence 6.3 (c) of the NLA) set out in paragraph 7(i) above. That is a breach which constituted a default upon which the Claimant would have been and hence now is entitled to rely under Clause 7, and without any Period of Notice.

Mr Papadopoulos submits that this is unarguable:

In any event, in the light of my conclusions on Issue (iii), no reliance on any alternative EOD would avail the Claimant, so that at best it could pursue an (in any event in my judgment unarguable) claim for damages for breach of the warranty, but that would not avail it on this application.

It is common ground that whatever claims can be brought by the Claimant against Gora (and I have found that in the circumstances above there are at present none), they cannot in any event now be enforced because of Clause 5.1 of the DOC, which I have set out in paragraph 7(iii) above. The Claimant has only brought proceedings for a declaration, and Ms Selvaratnam submits that, by making an application for declaration as to the Claimant’s entitlement, the Claimant is not taking a step to enforce any of its rights. In his Skeleton for the hearing, Mr Papadopoulos contended that it was a step towards enforcing, which Ms Selvaratnam relied upon as showing that Attica is only able to assert something short of a breach, but Mr Papadopoulos responds that this was simply an unwitting mistake, and, by amending the Skeleton, made it clear that he does contend that seeking a declaration is taking a step to enforce the Claimant’s rights. Ms Selvaratnam relies upon the dicta of Toulson LJ in The Front Comor [2012] EWCA Civ. 27:

“22.

A declaratory judgment or award decides some question as to the respective rights and obligations of the parties. It is not “executory” in form in that it does not formally order either party to do or to refrain from doing anything. I include the words “in form” because the practical as distinct from the formal effect may be compulsive…

23.

If authority were needed for this, Judge LJ said in Saint George’s Healthcare NHS Trust v S [1999] Fam 26, 60:

“Non-Compliance with a declaration cannot be punished as a contempt of court nor can a declaration be enforced by any normal form of execution, although exceptionally a writ of sequestration might be appropriate: see Webster v Southwark London Borough Council [1983] QB 698.”

…

25.

Ordinarily speaking…a declaration cannot be enforced by the ordinary methods of execution provided under the CPR.”

She also relied upon Trimast Holding Sarl v Tele Columbus Gmbh [2010] EWHC (Ch) 1944, where Norris J granted a declaration which did not seek associated relief, which was opposed on the basis that there was no prospect of any payment being made, concluding that the Court could, and he would, make a binding declaration, whether or not any other remedy was claimed, in order to establish a position in law.

Mr Papadopoulos submits that the Claimant here is, by claiming a declaration, taking a step to enforce its rights. Ms Selvaratnam submits to the contrary, that the Claimant is establishing whether or not it has a right, and then once that fact has been established (the subject matter of some legal dispute, as has been apparent on this hearing), then questions of enforcement may follow later. Her submission is supported as follows:

I am satisfied that, for the reasons Ms Selvaratnam gives, her claim for a declaration is not a step to enforce any rights, but an inquiry as to whether there are any rights, and if so a declaration to that effect, which cannot be enforced. I disagree with Mr Papadopoulos’ submission that it makes little commercial sense if the Claimant were entitled pursuant to Clause 5.1 to sue Gora for declaratory relief only. The establishment of the rights, if any, in my judgment serves a valid purpose: I shall return to this in relation to Issue (viii).

There are two areas of dispute between the parties:

I refer to my conclusions in respect to Issue (v), with regard to the effect of Clause 5.1 of the DOC. In accordance with the terms of that subclause, the rights which the Claimant cannot take “any steps to enforce” are “any of its rights under or pursuant to” not only the NLA but, by virtue of the definition, the Guarantee also. However in the light of my conclusions above, I am satisfied that it is permissible, notwithstanding that clause, for the Claimant to proceed with these proceedings for a declaration against MFS as to its liability to the Claimant pursuant to Clause 3 of the Guarantee.

In this regard, unlike my conclusions in respect of Issue (iii), I have resolved Issue (vi) such that the Claimant does have rights under the Guarantee against MFS. It cannot, upon this application before me, seek to enforce such rights, and only at this stage seeks a declaration. But, as adumbrated in paragraph 38(ii) above, the Claimant will wish to assert (over the opposition of Attica) that, if Attica refuses its consent to enforce the Guarantee against the third party, MFS, there is a contractual route to establish that such consent would be unreasonably withheld. The battleground is already laid out. First there must be resolved the question as to whether there is an implied term to that effect in Clause 5.1. If there is (and the factual context will obviously be relevant to such question in any event), then on the facts the Claimant will assert that, even if there could be some reasonable ground for Attica’s refusing to consent to enforcement against Gora, there could be no such reasonable ground for Attica’s refusing to consent to enforcement of a claim against the third party MFS. Attica has, subsequent to the hearing before me, produced evidence which suggests that MFS is the parent company of Gora, but I cannot resolve either that fact or what (if any) impact that fact, if such it be, would have on the issue, if it arises, of unreasonable refusal to consent to enforcement by the Claimant against MFS, particularly in the absence of any evidence that Attica itself has any remedy against MFS.

I turn to consider Clause 3.5 of the DOC. This too is set out in paragraph 7(iii) above. It imposes an obligation on the Claimant to hold on trust for Attica all or any sums received by it under or pursuant not only to the NLA but also the Guarantee. However there is an exception for sums “payable to it, or which it is permitted to receive, pursuant to”the DOC. So far as concerns monies payable by MFS, they would not be payable to the Claimant pursuant to the DOC, but the Claimant would be permitted to receive such sums (not excluded by the provisions of Clause 3.3) if they were permitted to receive them pursuant to and in the light of Clause 5.1. If therefore at the end of the day it were found that the Claimant can enforce its rights pursuant to Clause 5.1 by obtaining, or dispensing with, Attica’s consent, then such monies would not be held on trust pursuant to Clause 3.5. The issue and the result would be the same in respect of Clauses 5.1 and 3.5.

It has become quite clear, by virtue of the argument before me, and in particular the terms of this judgment, that there was indeed a purpose in this application. In the result, and after considerable dispute, it has become clear as a result of my judgment that the Claimant has no rights against Gora, at least until all sums due under the Attica Loan Agreement have been paid or (see paragraph 5 above) the Attica Loan Agreement were found not to be genuine and/or nothing were found to be due thereunder. On the other hand, again after considerable argument, I have concluded that the Claimant does have rights against MFS (irrespective of the reserved issue just referred to) which cannot at present be enforced, but which may be capable of enforcement either if Attica consents or if it can be established in law that its consent should be dispensed with.

I shall leave it to the parties to agree a form of order which reflects the conclusions to which I have come with regard to each of the eight issues, so far as that is necessary or appropriate.