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England and Wales High Court (Commercial Court) Decisions
You are here: BAILII >> Databases >> England and Wales High Court (Commercial Court) Decisions >> Rimpacific Navigation Inc v Daehan Shipbuilding Co Ltd (Rev 1)  EWHC 2941 (Comm) (24 November 2009)
Cite as:  Bus LR D61,  2 All ER (Comm) 814,  EWHC 2941 (Comm),  2 Lloyd's Rep 236
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QUEEN'S BENCH DIVISION
Strand, London, WC2A 2LL
B e f o r e :
| Case No: 2009 FOLIOS 295 AND 1168
|RIMPACIFIC NAVIGATION INC
|- and -
|DAEHAN SHIPBUILDING CO. LTD
"MV JIN MAN"
And Between :
|Case No: 2009 FOLIOS 296 AND 1169
|WONDER ENTERPRISES LTD
|- and -
|DAEHAN SHIPBUILDING CO. LTD
"MV JIN PU"
David Wolfson Q.C. & Michelle Menashy (instructed by Mc Dermott Will & Emery) for the Defendant
Hearing dates: 9 & 10 November 2009
Crown Copyright ©
Mr Justice David Steel :
i) The Defendant's application made pursuant to CPR 11.1 for an order that the English Court has no jurisdiction to determine the claims.
ii) The Claimants' application for anti-suit injunctions restraining the Defendant from pursuing related proceedings issued in South Korea.
"This guarantee shall be governed in every respect by English law. Any disputes arising under or in connection with this guarantee shall be referred to the exclusive jurisdiction of the English Courts."
"7 Separability of arbitration agreement
Unless otherwise agreed by the parties, an arbitration agreement which forms or was intended to form part of another agreement (whether or not in writing) shall not be regarded as invalid, non-existent or ineffective because that other agreement is invalid, or did not come into existence or has become ineffective, and it shall for that purpose be treated as a distinct agreement."
"17 The principle of separability enacted in section 7 means that the invalidity or rescission of the main contract does not necessarily entail the invalidity or rescission of the arbitration agreement. The arbitration agreement must be treated as a "distinct agreement" and can be void or voidable only on grounds which relate directly to the arbitration agreement. Of course there may be cases in which the ground upon which the main agreement is invalid is identical with the ground upon which the arbitration agreement is invalid. For example, if the main agreement and the arbitration agreement are contained in the same document and one of the parties claims that he never agreed to anything in the document and that his signature was forged, that will be an attack on the validity of the arbitration agreement. But the ground of attack is not that the main agreement was invalid. It is that the signature to the arbitration agreement, as a "distinct agreement", was forged. Similarly, if a party alleges that someone who purported to sign as agent on his behalf had no authority whatever to conclude any agreement on his behalf, that is an attack on both the main agreement and the arbitration agreement."
"18 On the other hand, if (as in this case) the allegation is that the agent exceeded his authority by entering into a main agreement in terms which were not authorised or for improper reasons, that is not necessarily an attack on the arbitration agreement. It would have to be shown that whatever the terms of the main agreement or the reasons for which the agent concluded it, he would have had no authority to enter into an arbitration agreement. Even if the allegation is that there was no concluded agreement (for example, that terms of the main agreement remained to be agreed) that is not necessarily an attack on the arbitration agreement. If the arbitration clause has been agreed, the parties will be presumed to have intended the question of whether there was a concluded main agreement to be decided by arbitration."
"24 The next proposition is that a jurisdiction clause, like an arbitration clause, is a separable agreement from the agreement as a whole. This is uncontroversial both as a matter of domestic law (see Mackender v Feldia AG  2 Lloyd's Rep 449;  2 QB 590 and Fiona Trust & Holding Corporation v Privalov  1 Lloyd's Rep 254 ) and as a matter of European law (see Benincasa v Dentalkit Srl Case C-269/95  ECR I-3767 and Briggs, Civil Jurisdiction and Judgments , 4th Edition, 2005, para 2-105, especially at page 131). It follows that disputes about the validity of the contract must, on the face of it, be resolved pursuant to the terms of the clause and, indeed, the last sentence of the clause expressly so provides. It is only if the jurisdiction clause is itself under some specific attack that a question can arise whether it is right to invoke the jurisdiction clause. Examples of this might be fraud or duress alleged in relation specifically to the jurisdiction clause. Another example might be if the signatures to the agreement were alleged to be forgeries, although no authority has so far so stated. Even in such a case someone has to decide whether the signatures were in fact forged. It might well be thought that a mere allegation to that effect could not have the effect of rendering a jurisdiction clause inapplicable."
i) The underlying principles are to be derived from Seaconsar (Far East) Ltd v Bank Markazi  1 A.C. 438 which held that the standard of proof for the purposes of establishing long arm jurisdiction under the RSC was one of good arguable case. This in turn requires in a contractual claim sufficient proof of the existence of the relevant contract: per Lord Goff at p.455.
ii) In this context the requirements of RSC Ord II and its successor CPR Part 6 are quite distinct from the provisions of Section 7 of the Arbitration Act 1996 and Article 17 and 23 of Regulation 44. In particular the emphasis is not so much on the existence of a jurisdiction or arbitration clause but on whether there is a sufficient nexus with the jurisdiction of this court to justify service out.
iii) This is further demonstrated by recent cases involving issues of a similar kind containing no hint let alone argument that the concept of separability has any application: Marubeni Hong Kong and South China Ltd v Mongolia  2 All ER (Comm) 873, Vitol SA v Arcturus Merchant Trust Ltd  EWHC 800 (Comm).
"15. Mr White QC accepted that the Claimants have to satisfy the court that there is a "good arguable case" that the contract being sued upon has in it a term to the effect that the court shall have jurisdiction to determine the claim in respect of the contract: see Seaconsar Far East Ltd v Bank Markazi Jomhouri Islami Iran  1 AC 438 at 454 per Lord Goff of Chieveley. This means that the Claimants have to prove that there is more to their case than the existence of a "triable issue". But the Claimants do not have to prove at this stage that, on a balance of probabilities, there is a valid contract and a jurisdiction clause in it. Mr White also accepts, for the purposes of this application, that the relevant sentence in the guarantee of 11 May 1996 would constitute an English jurisdiction clause. (The question of whether it was an exclusive jurisdiction clause was left open). Therefore the issue is whether there is a good arguable case that the guarantee is a valid contract at all."
Good Arguable Case
"Under the law of England and Wales a contract may be made— …
(b) on behalf of a company, by any person who, in accordance with the laws of the territory in which the company is incorporated, is acting under the authority (express or implied) of that company;"
i) Such was common ground in SEB Trygg Holding Akfiebolas v Manches  2 Lloyd's Rep. 129 per Gloster J at para. 18 and the contrary was not argued before Andrew Smith J in Sea Emerald SA v Prominvestbank - Joint Stockpoint Commercial Industrial & Investment Bank 1 Lloyd's Rep. 96: see para. 106.
ii) The proposition was expressly considered and rejected by Colman J in Azov Shipping Co v Baltic Shipping Co  2 Lloyd's Rep 159:
"It was further argued on behalf of Baltic that, if the agreement were not invalid under Ukrainian law, then even if there were no actual authority, there was ostensible authority and, in view of the proper law of the GUCA being English law, Azov was bound by the GUCA on that basis. An issue was raised whether the effect of the 1994 statutory instruments extending ss. 36, 36A and 36C of the Companies Act, 1985 to foreign corporations to which I have already referred was to exclude the doctrine of ostensible authority in a case where the putative contract was governed by English law. I do not consider that to be the effect of the statutory instruments. If it had been the intention to disapply the doctrine of ostensible authority where the putative contract was governed by English law, which is a reasonably well-established principle in English conflicts rules: see Dicey & Morris, The Conflicts of Laws, 12th ed., pp. 1458 to 1462, express provision to that effect would surely have been included."
i) Britannia Steamship Insurance Association v Ausonia Assicurazioni SpA  2 Lloyd's Rep. 98
"Once it is accepted that English law was the proper law of the contracts, if contracts had been entered into, then it seems to me that it is for English law to decide whether the conduct of the two "managers" of the defendants who had signed the agreements had been so held out by the defendants as to give rise to a valid plea of ostensible authority, or whether the conduct which has been referred to in summary by the learned Judge was such as, under English domestic law, to have amounted to a ratification of the disputed contracts. This does not seem to me to involve the application of any English private international law": per Ackner LJ at p. 100
ii) Presentaciones Musicales S.A. v Secunda and Another  Ch. 271 approved a passage from the 12th ed. of Dicey as follows:
"Where the agent lacks actual authority from the principal, it seems right in principle, that the law applicable to the contract between the agent and a third party, should determine whether the principal is bound or entitled. In effect in this situation one is asking whether the agent had apparent or ostensible authority to bind the principal. . . . As between the principal and the agent, the scope of the agent's authority to bind the principal and to confer rights upon him is necessarily determined by the law which governs their relationship, but third parties must be able to assume, at least where the agent has no actual authority from the principal, that the agents' authority covers everything which would be covered by the authority of an agent appointed under the law applicable to the contract made between the agent and the third party."
iii) In Merrill Lynch Capital Services Inc v Municipality of Piraeus  C.L.C. 1214, Cresswell J stated in terms at p.1231:
"Questions of ostensible authority, ratification and estoppel are governed by English law as the putative proper law."
iv) The latest edition [14th] of Dicey draws the thread of some of these authorities together at p.1851 and identifies the fact that the outcome is consistent with the requirements of business needs:
"English Conflicts rules. Where A lacks actual authority from P, it seems right, in principle, that the law applicable to the contract between A and T should determine whether P is bound (or entitled). In effect in this situation, one is asking whether A had apparent or ostensible authority to bind P. Hence, if P in one country appoints A to act for him as regards certain matters, e.g. the sale and purchase of goods, in a specified or unspecified number of countries, A must be taken to have the authority to do any of the acts which an agent of his class may do under the law of that country with reference to the laws of which he contracts. This responds to the requirements of commercial intercourse. As between P and A, the scope of A's authority to bind P and to confer rights upon him is necessarily determined by the law which governs their relationship, but third parties must be able to assume, at least where A has no actual authority from P, that A's authority covers everything which would be covered by the authority of an agent appointed under the law applicable to the contract made between the agent and the third party…..
Again, the extent to which A must be deemed to be authorised by P to sell property on his behalf or enter into other contracts, i.e. the definition of A's ostensible authority, is a matter for the law applicable to the contract which he concludes, as are the consequences of lack of authority and the effect of later ratification."
i) There had been an earlier guarantee issued by the Defendant in October 2006 which had been signed by Hynn Tae Shin as "President" and which had been stamped. Likewise a guarantee by an associate company had been issued (stamped but not signed) in June 2007. No suggestion had been made that such were unenforceable.
ii) Mr. Oh signed the present guarantee expressly as "CEO / President". A stamp or chop had also been applied (albeit different from the earlier ones).
iii) This designation as "CEO / President" is a translation of the Korean title "daepyo isa" which is perhaps better rendered as "representative director". The KCC confirms that a representative director has broad authority and is authorised in principle to represent the company in "all judicial and extra judicial acts relating to the company's business."
iv) Whilst there can be limitations imposed by the KCC or internal regulations requiring sanction by the board for a specific transaction, the position as summarised by the Claimants' Korean lawyer and unchallenged is as follows:-
"Prof. Chan-Hyung Chung, a renowned legal scholar in commercial law, states in his book, titled Lecture on Commercial Law (I) (page 851, 12th edition) [CJK3/7] that "a representative director of company carries out decisions made by the board of directors and decides and executes day - to - day business matter and matters for which he is generally and specifically authorized (or delegated) to do by the board of directors." It is an established view under Korean law and practice in respect of the authority of representative director and in practice, it means that a representative director can do all the things the board of directors can do on behalf of the company."
"Ostensible or apparent authority is the authority of an agent as it appears to others. It often coincides with actual authority. Thus, when the board appoint one of their number to be managing director, they invest him not only with implied authority, but also with ostensible authority to do all such things as fall within the usual scope of that office. Other people who see him acting as managing director are entitled to assume that he has the usual authority of a managing director. But sometimes ostensible authority exceeds actual authority. For instance, when the board appoint the managing director, they may expressly limit his authority by saying he is not to order goods worth more than £500 without the sanction of the board. In that case his actual authority is subject to the £500 limitation, but his ostensible authority includes all the usual authority of a managing director. The company is bound by his ostensible authority in his dealings with those who do not know of the limitation."
i) Since there was no actual authority as a matter of Korean law, there could be no ostensible authority as a matter of English law.
ii) The Claimants ignored the opportunity to ascertain the true extent of Mr. Oh's actual authority.
i) The potential exposure under the guarantees.
ii) The change in terms of the signatory and the stamp from the earlier guarantee.
iii) The information made available as regards the status of Mr. Oh within the charterers' organisation.
i) The exposure under the guarantees is put forward as $80 million being no more than a calculation of the gross hire payable over the life of the charterparties. But the charter was entered into on a bull market where the prevailing sub-charter rates readily absorbed the charter hire exposure. Furthermore it was the charterers themselves who had proposed the change of guarantor to another company in the group.
ii) The change in the identity of the signatory and stamp would have been perceived as of marginal interest not least because the present guarantee was executed over a year after the earlier one.
iii) The suggestion that the Claimants were aware of Mr. Oh's dual status only emerged during argument by reference to an email from Maersk, acting as charterers' brokers, forwarded to members of the Claimants' staff. It quoted an email from charterers signed "Yasoo Oh / CEO" (in contrast to "Oh le Su - CEO / President" in the guarantee as executed). In my judgment this is thin material on which to base an allegation of awareness on the part of the Claimants of joint directorship. But even if that fact was apparent despite the difference in name, it does little if anything to suggest that the Claimants ignored the opportunity of ascertaining the consequential limitation on Mr. Oh's authority to execute the guarantee.
Interested directors transaction
"A director may effectuate a transaction with the company for his own interest or for the interest of a third person only if he has obtained the approval of the board of directors."
"Here, gross negligence indicated circumstances where the duty of care commonly expected of a transaction was significantly breached by the third party who could have, with the slightest attention, become aware that the aforementioned transaction was one executed between the director and the company that requires the approval of the Board of Directors and such an approval had not been obtained, but simply chose to believe that such an approval had been obtained, and accordingly, from the perspective of fairness, it is acknowledged under such circumstances that the protection of the third party is not particularly necessary."
Limitation of Authority under the Articles of Incorporation
i) the Claimants simply chose to believe that any necessary approval had been obtained;
ii) "with the slightest attention" they could have been aware (a) the board approval was necessary and (b) that board approval had not been obtained;
iii) in the circumstances protection of the Claimants is not necessary "from the perspective of fairness".
"However, the facts of the Supreme Court Judgment 2003Da64688 should be distinguished from the assumed facts of the present matter; in that case (i) the director of the company issued a promissory note to himself in the name of the company and it was obvious to third party, the bank (namely, the Industrial Bank of Korea), that it was solely for his own benefit since it was to secure his personal loan from the bank; (ii) there was a manual for the bank to confirm the approval of the board of directors in such cases; and (iii) the employee at the bank knew that the director issued the promissory note on behalf of the company in favour of himself and endorsed it to the bank on the same day."
"regarding transactions with a company, it is common and ordinary for the representative director of the company to fulfil all the necessary internal decision-making process before carrying out a legal act on behalf of the company, and it is difficult to presume that there is a positive duty for the contracting counterparty to ascertain whether these is any limitation to the authority of the representative director"
"since it cannot be deemed that the third party has a duty of care to check the existence of approval of the board of directors for every transaction he makes with the representative director on behalf of the company, just a simple degree of negligence [but not gross negligence] shall not be sufficient to exclude the third party from the protection under the law."
i) Even a Korean company would probably need legal advice to identify the requirement for board approval. Such is not, as noted, apparent from the express terms of Art. 398 of KCC but only from decisions of the Supreme Court.
ii) The Claimants were a foreign shipping company. The negotiations for both the charterparties and the guarantees had been conducted in English. Yet the materials relating to the company and the applicable law were in Korean. Even allowing for the need to treat Korean and non- Korean companies even-handedly, at present I prefer the view of the Claimants' lawyer that in reviewing the justice of the matter this would be a material consideration.
iii) Similar guarantees by the Defendant or an associate company had been issued earlier with no suggestion that the signatory had exceeded his authority or had avoided doing so by getting board approval.
iv) There was nothing in the nature of the transaction which would have put the Claimants on inquiry as to whether it was not in the commercial interests of the Defendant. The terms of the charterparty and the level of the market would provide a substantial profit to the charterers more than outweighing the risks of a call on the guarantees. There was no contemplation of any significant fall in freight rates. Indeed the index had increased to 10995 in November 2007 and went on up to 11771 in May 2008.
Articles of Incorporation
i) It is a threshold requirement that the guarantees were matters "having substantial effect on the profits / loss of the company". In one sense, given the collapse in the dry freight cargo market (the index bottomed out at 600 in December 2008), the requirement is made out. But as already observed the perceived market fundamentals in December 2008 were strong. It was not until the collapse of Lehman Brothers in September 2008 that the bull run ended. In the meantime substantial profits were being made.
ii) The AOI are not in the public domain. Accordingly the restriction on a representative director's authority was not readily accessible.
Serious issue to be tried