BAILII [Home] [Databases] [World Law] [Multidatabase Search] [Help] [Feedback]

England and Wales High Court (Commercial Court) Decisions


You are here: BAILII >> Databases >> England and Wales High Court (Commercial Court) Decisions >> Abu Dhabi Investment Company & Ors v H Clarkson & Company Ltd & Ors [2007] EWHC 1267 (Comm) (25 May 2007)
URL: http://www.bailii.org/ew/cases/EWHC/Comm/2007/1267.html
Cite as: [2007] EWHC 1267 (Comm)

[New search] [Printable RTF version] [Help]


Neutral Citation Number: [2007] EWHC 1267 (Comm)
Case No: 2004 FOLIO NO: 282

IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT

Royal Courts of Justice
Strand, London, WC2A 2LL
25/05/2007

B e f o r e :

THE HON. MR. JUSTICE TOMLINSON
____________________

Between:
(1) Abu Dhabi Investment Company
(4) Al Shira'a Marine Investments Company LLC
(3) Al Suffun Holding Company LLC
Claimants
- and -

(1) H Clarkson & Company Limited
(2) G G Lucas & Company Limited
(3) ADX Shipping Limited
(formerly Norasia Shipping Limited)
(4) ADX Services SA
(formerly Norasia Services SA)
(5) Johann Wilhelm Steiger
(6) Hartmut Menzel
(7) Kreditanstalt Fur Wiederaufbau
Defendants

____________________

Mr. R. Salter QC, Mr. A. Fletcher QC, Mr. G. Chapman & Ms. C. Dixon
(instructed by Holman Fenwick & Willan) for the Claimants
Mr. A. Baker QC & Mr. M. Ashcroft
(instructed by Ince & Co.) for the First Defendant
The Second and Fourth Defendants do not appear
The Third Defendant is unrepresented
Mr. M. Hoyle & Ms. A. Laney
(instructed by Le Boeuf, Lamb, Greene & MacRae) for the Fifth & Sixth Defendants
Mr. A. Popplewell QC & Mr. C. Smith
(instructed by Stephenson Harwood) for the Seventh Defendant
Hearing dates: October 3-5, 10-12, 18-20, 23-26, 30-31
November 1-3, 6-9, 13-16, 20-23, 28-29
December 1, 4-7, 18-20

____________________

HTML VERSION OF JUDGMENT
____________________

Crown Copyright ©

    Mr. Justice Tomlinson:

    Introduction

  1. There are three Claimants in this action although the second and the third are special purpose subsidiary companies formed by the first named Claimant for the purpose of investing in what was essentially a joint venture between Abu Dhabi Investment Company and Norasia Shipping Limited, i.e. the First Claimant and the Third Defendant. The joint venture was a vehicle for the investment in and operation of ten relatively small but fast container ships of innovative if not revolutionary design. The joint venture was an abject failure although it is a moot point what part in the failure was played by possible shortcomings in the design concept. It was a failure because not long after it had been put together one party thereto discovered that it had been misled by the other joint venturer, with the result that the joint venture could not survive the inevitable breakdown in trust. Abu Dhabi Investment Company, to which I shall refer hereafter as "ADIC" seeks to recoup its investment therein. ADIC is, as its name suggests, an investment company. It is jointly owned by the Abu Dhabi Investment Authority and the National Bank of Abu Dhabi. Its assets are substantial, albeit by the standard of its owners modest. In the year to 31 December 1998 ADIC and its subsidiaries had assets of about US$270M. Norasia Shipping Limited is part of the Norasia group of companies, to which I shall mostly refer as simply "Norasia". Norasia was at any rate until the year 2000 well-known in the world of container shipping as a hitherto successful and innovative company operating in niche markets rather than in direct competition with the giants of the industry.
  2. Both the action and, for the first 23 days thereof, the trial involved parties other than those who were the immediate participants in the joint venture. ADIC sought redress from not just its contracting partner Norasia but also from Norasia's bankers, Kreditanstalt Fur Wiederaufbau, to which I shall refer as "KfW", who played a significant role in the transaction, and furthermore they sought redress from their professional advisors, Messrs H Clarkson & Company Limited, "Clarkson", and Messrs GG Lucas & Company Limited, "Lucas". The fourth-named Defendant, as its name suggests, is a service company, which was never served with the proceedings. Messrs Lucas were served and did participate in the action but proceedings against them were discontinued before trial.
  3. The trial began on Tuesday 3 October 2006. Just days before it began on 27 September 2006 all of the members of Norasia Shipping Limited petitioned the court in Bermuda where Norasia Shipping Limited is registered to wind up the company on the ground that effectively it had ceased to trade and was insolvent. The petition was supported by an affidavit of the fifth-named Defendant Mr. Steiger which exhibited a Board Resolution signed by both him and the sixth-named Defendant Mr. Menzel. Simultaneously therewith the instructions to London solicitors who had hitherto represented Norasia Shipping Limited in this litigation were withdrawn. The Claimants are sceptical about the alleged insolvency of Norasia Shipping Limited, so much so that they regarded it as worthwhile to pursue the company and at trial they sought to prove their case against it and they seek judgment accordingly.
  4. Mr. Steiger is to all intents and purposes the alter ego of the Norasia group of companies which at all material times he effectively controlled. Mr. Menzel was at all material times a director of Norasia Shipping Limited and, to put it colloquially, was Mr. Steiger's right-hand man. Mr. Menzel had no financial interest in Norasia Shipping Limited. Mr. Steiger and Mr. Menzel were both involved in the negotiations with ADIC which preceded entry into the joint venture. Both made representations on behalf of Norasia Shipping Limited which unquestionably were intended by them to be relied upon by ADIC with a view to inducing ADIC to enter into the joint venture transaction. The representations are said by the Claimants to have been made by both Mr. Steiger and Mr. Menzel with deliberate dishonesty. Notwithstanding their representations were made on behalf of Norasia Shipping Limited, both are sued personally in the tort of deceit. The Claimants rely upon the by now hallowed words of Lord Hoffmann in Standard Chartered Bank v Pakistan Shipping Corporation 2003 1 AC 959 at page 968, where a fraudulent director sought to escape personal liability by reliance on the representative capacity in which he uttered his falsehoods:
  5. "No-one can escape liability for his fraud by saying: "I wish to make it clear that I am committing this fraud on behalf of someone else and I am not personally liable"."
  6. In the alternative the Claimants say that Mr. Steiger and Mr. Menzel were negligent. They accept that in order to succeed against them under that head they must prove a personal assumption of responsibility, an assumption of a duty of care owed to the Claimants - see Williams v Natural Life Limited 1998 1 WLR 830 at page 835 per Lord Steyn.
  7. On either showing the Claimants claim that Norasia Shipping Limited is answerable for the representations made by Mr. Steiger and Mr. Menzel. Norasia Shipping Limited in its defence admits and indeed positively avers that at all material times Mr. Steiger and Mr. Menzel were acting on its behalf. There can be no real debate but that if Mr. Steiger and/or Mr. Menzel made any relevant representation either dishonestly or negligently Norasia Shipping Limited is potentially liable in damages in respect of representations so made on its behalf. The Claimants also have claims against Norasia Shipping Limited in contract and pursuant to the Misrepresentation Act 1967.
  8. When the trial began the Claimants were also vigorously pursuing claims against the first-named Defendants Messrs Clarkson and against the Seventh Defendants KfW.
  9. Clarkson are well-known shipping consultants based in London. There was a dispute between ADIC and Clarkson as to the ambit of the latter's retainer by the former but on any showing Clarkson were retained by ADIC to produce and did produce a report which contained advice on the operation of container ships in general and in particular as to the operation of the 10 specialised container ships which were to be the subject of the joint venture. The Claimants alleged that Clarkson's advice to them was negligent.
  10. KfW is a German state-owned bank. Norasia was a long-standing customer for whom it had financed the building of many vessels, including the 10 ships in respect of which NSL sought and obtained investment by ADIC by way of participation in the joint venture. From the very outset of the relationship between Norasia and ADIC KfW, as Norasia's bankers, took an active indeed a proactive role in relation to the negotiations, attending various meetings at which the bank's officers expressed strong support at the very least for Norasia although allegedly for and of the proposed project itself. The Claimants alleged that their participation had involved KfW in making statements about Norasia's financial performance that were either untrue or were a misleading half-truth. To this I would add that the very manner of KfW's involvement of itself conveyed, in my judgment, a strong endorsement of the suitability and reliability of Norasia as a prospective joint venture partner. It was not alleged by the Claimants that KfW by its officers had acted dishonestly – the allegation was one of negligence brought about by an error of judgment as to what could legitimately be said.
  11. As a state-owned bank KfW presented an attractive and solvent target. Having regard to the nature and seriousness of the allegations against it, the sudden absence and alleged insolvency of Norasia Shipping Limited and the fact that Mr. Steiger and Mr. Menzel were sued in their personal capacity, it seemed from the outset of the trial that it would be KfW against whom the heaviest fire would initially be directed and upon whom the principal burden of the defensive effort would fall. With some encouragement from me it was agreed that the Claimants' witnesses of fact would for the most part be cross-examined first by Mr. Popplewell QC for KfW, then by Mr. Baker QC, as happily he became between Days 6 and 7 of the trial, on behalf of Clarkson and finally by Mr. Hoyle on behalf of Mr. Steiger and Mr. Menzel. The potential for each of the Claimants' witnesses to be cross-examined three times required of the Defendants' counsel for their part restraint and cooperation and of the court patience. The Defendants' counsel responded appropriately. The upshot of the exercise was however inevitably that for the most part Mr. Hoyle cross-examined the Claimants' witnesses at significantly shorter length than did Mr. Popplewell and Mr. Baker. Furthermore at the stage at which the Claimants' factual witnesses were giving their evidence the court was faced with the daunting prospect of, in addition to the Claimants' own potential 14 factual witnesses, 8 factual witnesses on behalf of KfW and 3 on behalf of Clarkson in addition of course to Mr. Steiger and Mr. Menzel themselves, not to mention 12 expert witnesses in the fields of marine engineering, ship valuation and consultancy, forensic accountancy and the law of the United Arab Emirates. All this in a trial scheduled to be accommodated in the 48 working days available between the beginning of term and the Christmas vacation.
  12. The Settlement on Day 23

  13. On Monday 13 November 2006, which was Day 23 of the trial, at the conclusion of the evidence of the Claimants' 9th and, as it proved, final witness of fact, the Claimants, KfW and Clarkson settled their differences. Shortly thereafter there were discontinued all claims to contribution as between Mr. Steiger and Mr. Menzel and KfW and Clarkson, and all claims to contribution by the departing Defendants against Norasia Shipping Limited – the latter had never asserted claims to contribution against anyone. There was therefore no need for Clarkson or KfW to take any further part in the trial as no relief was sought against them under any head. This very welcome development reduced from 13 to 2 the number of outstanding factual witnesses and halved the number of expert witnesses. It also however meant that the trial assumed a somewhat unbalanced shape. It meant that whilst Mr. Steiger and Mr. Menzel were each cross-examined only once, their cross-examination was conducted in an atmosphere in which there was little or no pressure of time over and above the ordinary desire to proceed expeditiously since it was apparent that the trial could and would be concluded comfortably within the estimated time, as indeed it was. In practical terms the effect was that, through no fault of Mr. Hoyle, in broad terms Mr. Steiger and Mr. Menzel were cross-examined at much greater length and in much greater detail about their allegedly dishonest representations than were the Claimants' witnesses about their alleged reliance thereupon. To put it into context, both Ms. Hammoudi for ADIC and Mr. Menzel were cross-examined for three and a half days (Mr. Steiger for six) but the three and a half days of Ms. Hammoudi's cross-examination (where as it happens Mr. Hoyle cross-examined second in turn and for about one day) included cross-examination as to the discrete aspects with which Clarkson and KfW were principally concerned. The witness in respect of whom it seems to me in retrospect Mr. Steiger and Mr. Menzel may perhaps most have been disadvantaged was Mr. Agarwal. Once the spotlight of the trial was focused upon the misrepresentations attributed to Mr. Steiger and Mr. Menzel as opposed to the contribution of Clarkson and KfW, so the role played by Mr. Agarwal, an accountant entrusted with the accounting aspects of the Claimants' due diligence, assumed much greater prominence. Mr. Agarwal was the penultimate witness for the Claimants, called at a time by which it had begun to appear that the Claimants' evidence was taking a disproportionately long time. As it happens Mr. Hoyle cross-examined Mr. Agarwal second in turn too, albeit for only about one and a half hours. I raise these matters not because I consider that the trial was thereby rendered unfair nor because I consider that the Defendants lacked a proper opportunity to put their case. Undoubtedly the atmosphere in which Mr. Hoyle cross-examined Mr. Agarwal was more constrained than that in which Mr. Salter QC cross-examined Mr. Steiger and Mr. Menzel. In fact the scope for detailed cross-examination of Mr. Agarwal was limited by a lack of relevant documentation (ironic in a heavily over-documented case) and by a failure on either side to have kept a record of what it was that Mr. Agarwal had been shown. As it happens there were suggestions made by Mr. Menzel in his oral evidence as to explanations proffered by him to Mr. Agarwal which suggestions were never put to Mr. Agarwal in cross-examination. In weighing the inevitable submission that Mr. Menzel's evidence was in this regard belated invention I have borne in mind the constraints under which Mr. Hoyle was operating, and indeed more generally I have tried to bear in mind the unbalanced shape of the trial.
  14. The issue at trial

  15. Ultimately the trial resolved itself into an inquiry whether Mr. Steiger and Mr. Menzel made a series of dishonest misrepresentations about the performance of the ships whilst in the service of Norasia. In evaluating the evidence I have borne in mind the unlikelihood that men of their stature would so behave, the more so where Mr. Menzel had no or no substantial financial interest in the outcome of the joint venture and where Mr. Steiger, although he did have such an interest, had a correspondingly wider reputation as a business man of integrity to preserve. I also have well in mind that both may well have thought, indeed I am sure that they did think, that in the event that the freight market improved sufficiently from where it then stood, so the rewards to be made from operating these vessels would be sufficient to cover financing and operating costs with a decent return on capital on top. I also bear in mind that Mr. Steiger and Mr. Menzel quite quickly became frustrated at the speed with which an essentially bureaucratic rather than entrepreneurial organisation moved and that they formed the view, rightly, that those individuals with whom they were dealing had little understanding of the shipping industry. Reluctantly I have been forced to conclude that there is no explanation for certain things said, or left unsaid, by Mr. Steiger and Mr. Menzel other than that they embarked upon a deliberate policy of misleading ADIC as to the performance of the ships and their financial return to date. At the end of the day the facts speak for themselves. However Mr. Steiger and Mr. Menzel did not assist themselves by variously asserting in relation to various matters that ADIC was not interested in them, that if they had been they would have asked questions about them and that ADIC was a sophisticated investment house which ought to and would verify information on the basis of which it was minded to invest. None of these unattractive assertions justify the giving of false information nor renders it unreasonable for ADIC to have accepted at face value the natural interpretation of what they were told.
  16. Mr. Hans Steiger

  17. Mr. Steiger is a Swiss national who is now 62. After training as a fighter pilot with the Swiss air force he turned to accountancy. In 1982 he bought a large parcel of shares in Norasia Lines Limited, a company registered in Hong Kong. The shares were bought through his family trust the IWEBA Foundation of Liechtenstein. In 1983 he joined the company as Executive Vice President in its newly opened administrative office in Fribourg, Switzerland. He had responsibility for treasury and accounting matters. Between 1983 and 1990 Mr. Steiger acquired the shares of other shareholders as they became available. In 1990 he acquired the final 41% of the share capital and became the Chairman and Chief Executive Officer. The shares were all acquired through the foundation. Mr. Steiger told me that in addition to himself other family members were also beneficiaries of the trust by which the shares were held. The trust had been formed by his father. Mr. Steiger accepted that since 1990 he personally had had effective control over the Norasia group of companies. It is unclear to me what is the real extent of his personal financial interest, or potential interest, in the trust property, and it probably does not matter. It is not suggested that anyone other than family members has an interest. Tellingly in a key document which he himself prepared in February 1999 Mr. Steiger describes himself as the sole shareholder of Norasia. It is for these reasons that I have already described him as the alter ego of Norasia, which is how at all times he behaved and how, as I understood him frankly and effectively to acknowledge, he would have been perceived.
  18. The Norasia Group

  19. The same document described the development of Norasia, stating that in 1999 the group of companies had an equity capital of about US$100M. The structure of the group is of some importance to the issues which I have to decide since the Claimants allege that Mr. Steiger and Mr. Menzel used it in order to further their dishonest design. The structure which was in place at all material times until May 2000 is represented by an organigram created by Mr. Taylor, the Claimants' forensic accounting expert, which I gratefully adopt and reproduce here:
  20. Image 1

    At the head is the main holding company, Norasia Holdings Limited, a Bermuda company. It had three principal sub-groups as depicted. Norasia Lines (Malta) Limited, "NLM", was incorporated in Malta in 1994 and took over from Norasia Lines Hong Kong the operation of Norasia's liner services in the market. This move was prompted by Mr. Steiger's perception of the risks involved in the run-up to the handover of Hong Kong to the People's Republic of China in 1997. Quite late in the history with which I am concerned, although shortly before ADIC became irrevocably bound to the transaction in July 2000, the business of NLM and the name "Norasia" was sold to the Chilean Compania Sudamerica de Vapores SA, "CSAV." This sale is of no immediate relevance to the relationship with ADIC although it is reflective of the poor financial returns made by Norasia in the conventional container trade in a depressed market in which it had been yet further squeezed by the large global carriers. By May 2000 when this sale was achieved all of the alleged misrepresentations upon which the Claimants rely had long since been made.

  21. Norasia Shipping Limited "NSL" was also incorporated in Bermuda in 1989. NSL was the vehicle through which the group conducted its shipowning activities. The ships which Norasia owned were registered in the name of one-ship companies, typically Gibraltar companies, each of which was a 100% subsidiary of NSL. Also within this sub-group was N-Xpress Limited, similarly registered in Gibraltar. The presence of this company within the sub-group is of significance, since the vessels which were to become the subject of the joint venture were, on delivery to their respective single ship-owning companies, time chartered to N-Xpress for a period of 5 years at a rate of US$15,000 per day. There were then further marketing arrangements between N-Xpress and NLM which I shall have to describe in due course in some detail. None of these transactions were ordinary commercial transactions conducted at arm's length. The use of the corporate structure in this way meant that perfectly legitimate group accounting treatment could obscure the reality of the return achieved by Norasia on their operation of these vessels. At a time when the Norasia group as a whole was in financial difficulties, reflecting in large part the poor returns on container ship operations, the audited results of Norasia Shipping Limited gave an impression of profitability without revealing that that success was posited on the recovery from NLM of receivables which NLM was in no position to pay, not least because the amounts contracted to be paid by NLM were unrelated to the returns available in the market. It was the accounts of NSL which were routinely proffered as being relevant since that was the company in which resided ownership of the vessels whose financial performance was of interest to potential investors. The accounts of NLM which actually reflected the performance of the vessels in the market were deliberately withheld from potential investors.
  22. The third sub-group of companies within the group was that headed by Norasia Investment Est. Vaduz. Boxco Ltd. Gibraltar handled the containers on behalf of NLM. Ganymed Ltd. Malta acted as managers of the Norasia vessels. Mr. Menzel held 30% of the shares in Ganymed, the remaining 40% being held by an associate of Mr. Steiger, Mr. Barfuss and by Mr. Scholz, the General Manager.
  23. Mr. Hartmut Menzel

  24. Mr. Menzel is a German national and has since the trial ended retired. He has a sea-going background with Hapag Lloyd obtaining his Master's ticket in 1970. In 1973 he joined Hapag Lloyd's shore organisation on the operations/commercial side of container shipping. He worked in various locations and roles, ultimately as managing director of a consortium of container lines before joining Norasia Lines Hong Kong as Vice President Operations in 1984, working out of the Fribourg office. In 1991 he became President of NLM. At all times material to this action he was a director of Norasia Shipping Limited, of each of the one-shipowning companies, of N-Xpress and of NLM. Mr. Salter submitted that Mr. Menzel had thrown in his lot with Mr. Steiger with whose fortunes he was by 1999 inextricably bound up. Mr. Menzel for his part observed that he looks forward to recourse in retirement to a pension fund quite independent of Mr. Steiger. Whilst I would not myself wish to portray the position pejoratively, Mr. Salter's suggested appraisal was in my judgment broadly correct. Mr. Menzel allied himself to Mr. Steiger's cause to the extent that he had become his indispensable right hand man who provided continuity of management during Mr. Steiger's frequent absences travelling on business. Mr. Steiger's early training in flying translated into ownership of a private jet aircraft, a point which I mention since a later proposal to dispose of it in order to raise funds for the business is said to be indicative of the dire financial straits in which Mr. Steiger found himself. Furthermore whilst I treat with some scepticism Mr. Steiger's attempts to distance himself from everyday familiarity with the performance of the component parts of the group, there is no doubt that Mr. Menzel concerned himself with the day-to-day management and accounting aspects of the business in a manner which Mr. Steiger would have found unattractive had he had himself to adopt it, he being constitutionally more inclined towards strategy and the broader picture. Their complementary skills made for a formidable partnership, Mr. Steiger's urbanity counterbalanced by Mr. Menzel's omniscient competence as the manager of a shipping operation.
  25. The Ships of the Future

  26. There is no doubt that Mr. Steiger was something of a visionary. He was by nature inventive and innovative. Thus between 1985 and 1989 Norasia commissioned the building at the yard of Howaldswerke Deutsche Werft AG, hereinafter "HDW" of 10 new containerships of about 1800-2000 TEU capacity, "TEU" meaning twenty foot trailer equivalent unit, which were known as "Ships of the Future", a designation derived from a research programme sponsored by the German Government. They were said to be the first vessels with computer controlled navigation and operation. An automated bridge was said to ensure safer navigation, a free-fall lifeboat improved safety for the crew. An asymmetric stern led to low fuel consumption. In his February 1999 document to which I have already referred, and which at the trial was described as the "Business Plan", Mr. Steiger asserted that the technology introduced by these vessels was by then standard for any modern containership. I have no reason to doubt any of these claims. Four of these vessels were registered in Sharjah and flew the UAE flag. These vessels were owned by or through AML Arabian Maritime Lines Limited, hereinafter "AML", a company incorporated in Sharjah in which a Mr. Remu Nagji was a shareholder and of which he was a director. Mr. Nagji's company Great Circle Line Limited acted as Norasia's agents in Dubai. The vessels were time chartered to Norasia for a period of 12 years. The success of the "Ships of the Future" led Sealand to choose Norasia in 1989 as a joint service partner in the operation of a weekly liner service between the Far East and Europe. In this enterprise Norasia was one of the first companies to include calls to ports in the Arabian Gulf en route to the Far East. This business strategy resulted in Norasia becoming well-known in the Arabian Gulf with good customer support. In due course Norasia replaced part of its fleet with 4 newbuildings of yet further innovative design including features to reduce the aerodynamic resistance of the vessels – bigger and faster than their predecessors they were also without hatch covers. The scale of the business can be gauged from the financial statements of Norasia Holdings for the period ending 31 March 1996. Fixed and non current assets were of the order of US$391M, current assets US$81M matched by current liabilities of US$89M financed in part by shareholders' funds of US$110M.
  27. Throughout this period of sustained business development Norasia had been supported by KfW which between 1985 and 1997 financed the construction of 10 vessels of between 1700 and 3000 TEU. As a state-owned bank KfW had a particular interest in funding projects which generated business for German industry – here the shipbuilding contracts with HDW of Kiel. The total value of the orders was US$0.5 billion and the typical loan to value ratio was 60%. The period of the loans varied from ten and a half to twelve years. Norasia performed all of its obligations under the various loan agreements. The debt was serviced in accordance with the terms thereof.
  28. The feeder vessel strategy

  29. By the mid 1990s it had become clear to Mr. Steiger that there was over-supply in the container shipping market, caused in large part by competition among liner companies to reduce unit costs which they sought to achieve primarily by the introduction of increasingly large vessels. The market had also been distorted by the introduction in certain countries of tax incentives to support the local shipbuilding industry. Against this background, which had produced or contributed to a slump in an in any event notoriously cyclical freight market, Mr. Steiger considered that the way forward for Norasia lay not in attempting to compete with the major global operators but in carving out a niche position as an owner and possibly operator of a new generation of fast but relatively small containerships which would act as "feeder vessels" to the principal East-West trade routes, connecting major hub ports with regional ports and operating regular liner services on North-South routes or other routes where trade volume, size or infrastructure restrictions precluded the use of the largest container vessels.
  30. Initially Mr. Steiger came up with his so-called "triangle plan," envisaging a new form of fast containership which would have a 30 knot service speed provided by 30 MW of power and would cost US$30M to build. At 30 knots or possibly even a little more the vessels would undoubtedly have added something to the market and would have had a competitive edge, albeit limited by reference to the trades in which realistically they could in fact operate competitively. With the assistance of "a British ship designer, Nigel Gee" Mr. Steiger explored the possibility of a "pentamaran" – a hull supported by 4 stabilising sponsons which could achieve speeds in excess of 30 knots. However the shipping industry is notoriously conservative and Mr. Steiger found that so bold a concept met only with scepticism. Eventually he compromised, instructing Nigel Gee to design a series of conventional mono-hull vessels capable of carrying up to 10,000 tonnes of cargo at an operating speed of 25 knots. This speed was to be achieved on a power output of less than 20 MW to be provided by two medium speed diesel engines driving a single controllable-pitch propeller ("CPP"). These vessels' sleek hulls were to be unhindered by bilge keels – in their stead the vessels were to have an anti-rolling ballasting device manufactured by a company called Intering. For reasons which are unclear to me a feature of the design was that the stern of the vessels extended significantly beyond the aft perpendicular, a feature which was to make them susceptible to wave impact. Mr. Gee's design was for a nominal capacity of 1384 TEU, included within which was a capacity to accommodate 300 refrigerated containers, a relatively high proportion of the overall space. This nominal capacity was however unachievable in real terms. The homogeneous capacity of a container vessel is the maximum number of containers that can be loaded taking into account the vessel's deadweight on the assumption that the containers are full to an average weight of 14 tonnes. On this basis the vessels' capacity was about 845 TEU. The vessels were gearless, of "open top" design, i.e. without hatch covers and were fitted with cell guides, all features designed to assist in achieving a fast turnaround time in port and to increase the vessels' versatility.
  31. On 23 November 1996 Norasia placed an order for five of these vessels, which became known as the "S" Class or fast feeder boxships, "FFB's," with the Chinese Jiangnan shipyard. The basic price of each vessel was US$32.5M. The contracts called for delivery of the first vessel by 15 December 1998 and of the last by 20 September 1999. They also provided for a minimum speed of 25 knots on trial with the main engine developing 90% MCR (maximum continuous rating).
  32. News of the contracts placed with the Chinese yard persuaded HDW to reduce the price which it had previously quoted for construction of five of these vessels. On 17 February 1997 Norasia placed an order with HDW for five further vessels to be built, substantially, to the same Nigel Gee design. The basic price for each vessel was here DM 35,800,000 plus US$20,252,000. Again the contracts provided for a minimum speed on trial of 25 knots, here expressed to be at a power output at the propeller of 18,330 kW. Delivery was scheduled to take place between June and December 1998, i.e. before the Chinese vessels were to come on stream.
  33. The financing for this programme of construction was exclusively provided by KfW. In May 1997 Norasia and KfW jointly made a presentation to a number of German banks who they hoped might take part in a syndication of the lending but no interest was shown. With the exception therefore of some limited guarantee of the indebtedness furnished by the State of Schleswig Holstein, in which territory Kiel and thus HDW is situated, the risk of default by Norasia lay entirely with KfW who alone funded the fast feeder project.
  34. Initially, in December 1996, Norasia approached KfW to provide US$51M funding during the construction of the Chinese vessels, a guarantee for US$81M and final funding for the purchase of the vessels of US$130M. Mr. Uibeleisen of KfW recommended approval, noting that "until now Norasia has always had a good feel for new market developments." The KfW Board approved the request on the basis of a presentation dated 13 January 1997 prepared by Mr. Seissinger. The presentation proceeded upon the basis that the vessels would from delivery for the whole term of the loan be chartered to NLM. The cash flow forecast was based on an assumed time charter rate of US$12,500 per vessel per day payment of which would be guaranteed by Norasia Holdings Limited which, it was noted, "in turn is owned by Hans Steiger from Switzerland, known to us for many years as a competent ship owner."
  35. Approval for the funding of the HDW vessels was given by the KfW Board on the basis of a further presentation by Mr. Seissinger dated 22 March 1997. Similar in terms to the previous presentation, the cash flow forecast this time was based upon a charter rate of US$14,000 per vessel per day.
  36. Although there were earlier facility agreements and Heads of Terms, the formal Loan Agreements were themselves not signed until 4 September 1997. As one would expect these are complex agreements. Relevantly however they incorporated the following structure. The borrower under each agreement was Norasia Shipping Limited, NSL. The bank took an assignment of all rights and claims of the Owner, NSL, arising from the "respective charter agreement" to be executed between the Owner and the Charterer and to be approved by the bank with notice of assignment to and confirmation thereof by the Charterer in accordance with a draft attached to the Loan Agreement as Annex 4. Annex 4 recited that the Owner had chartered the ship on a long term basis to Norasia Lines Malta Limited, NLM "or to another charterer acceptable to KfW." In order to perfect the assignment the Loan Agreements further required an earnings account for each vessel to be opened at Citibank Zurich into which all hire payable under the charters was to be paid. Finally there was required of Norasia Holdings Limited a parent company guarantee in respect both of the obligations of the Borrower under the Loan Agreements and of the obligations of the charterer under the long term time charterparties.
  37. When these vessels were ordered Mr. Steiger had no clear idea as to how or by whom they would be employed. They were very much his project – with the exception of Mr. Menzel, Mr. Steiger seems not to have consulted his senior management team concerning the wisdom of ordering 10 vessels of this nature. Certainly Mr. Kerner was not consulted. Admittedly between 1993 and 1996 he was based in Hong Kong, responsible for sales and marketing for Norasia in the Far East region. He was however a senior member of the management team who in 1998 became Vice President of commercial operations for Norasia based in Fribourg. He was one of several former senior employees of Norasia who gave evidence at the trial on behalf of ADIC. Another was Mr. Vikas Khan who by 1995 was also a Vice President based in Fribourg with responsibility for the overall operations of NLM. He first heard of the fast feeder boxships in around 1996 or 1997 from talk around the office and then from a casual remark made by Mr. Steiger. An effort was made at trial on behalf of Mr. Steiger and Mr. Menzel, although not I think by them themselves, to portray Mr. Kerner, Mr. Khan and others including Mr. Zitz as disaffected former employees with a grudge against Norasia or perhaps more accurately against Mr. Steiger. I found this unconvincing. To have acquired so many former senior employees whose evidence was apparently to be disregarded as tainted was suggestive rather of some shortcoming on the part of their former employer. In any event all three were careful and impressive witnesses, Mr. Kerner and Mr. Zitz especially so. Mr. Khan gave his evidence by video link from Hong Kong. Somewhat unexpectedly Mr. Steiger appeared at the video conference suite in Hong Kong very shortly before Mr. Khan was due to give his evidence. He was of course perfectly entitled to attend. At one time it looked as if Mr. Khan was going to be accused of dishonestly colluding with a Mr. Safdar in removing confidential documents from his previous employers CSAV with whom he was now in competition by virtue of a business he had established since leaving them. Happily this suggestion was eschewed by Mr. Hoyle, wisely as it seemed to me once I had had an opportunity to read a judgment of the Hong Kong Court of Appeal in certain proceedings between CSAV and Mr. Safdar. As I have already indicated, I found Mr. Khan a careful witness who whilst giving his evidence conducted himself with some dignity in trying circumstances.
  38. It was the evidence of Mr. Kerner that these vessels were not an exciting prospect. Even at 25 knots, which in the event they could not achieve as a consistent service speed, he regarded them as not particularly fast, bearing in mind that there were at that time a number of 6000 TEU vessels which could achieve a nearly comparable speed. Their inability consistently to achieve 25 knots in service compounded the problem. They were often full with only 900 TEUs on board, particularly in their first employment in the North Atlantic where, due to the nature of the trade, the average weight of cargo carried is very heavy. In his view the vessels were never going to make money – economically and commercially they were white elephants. They were too slow, too small and too expensive to operate. His evidence was blunt – "the fast feeder boats were a financial disaster from the day that they were delivered." In cross-examination he accepted that the S-Class concept could have been a good one if the vessels had been operated in a niche market as intended, but they never were. Moreover he could identify no market, niche or otherwise, in which the vessels could in fact have been profitably employed. The feeder concept he regarded as wholly flawed. Since the feeder leg is by definition only the adjunct to a longer voyage, it is not a leg on which in his view a premium for speed was achievable. As well as being careful Mr. Kerner was both knowledgeable and balanced. I found his evidence authoritative and convincing. Perhaps more pertinently, it was borne out by Norasia's efforts to employ the vessels. Equally pertinently, notwithstanding his obvious enthusiasm for the project, it is I think inconceivable that Mr. Steiger cannot himself privately have reached much the same conclusions in the course of 1999. The S-Class vessels were at best a step on the road towards his triangle plan. Mr. Menzel I suspect, from his position of greater objectivity, must have reached these conclusions even earlier.
  39. Attempts to charter the vessels in the market

  40. The first vessel, Norasia Samantha, Hull No. 336, was delivered from the HDW Yard in July 1998. In the period leading up to delivery Norasia had explored a number of avenues with a view to finding employment for the vessels. Attempts had been made to charter the vessels out. As early as July 1997 Norasia was in discussions with Mediterranean Shipping Company and SeaLand. Attempts were also made to interest Moller/Maersk and Evergreen. According to Mr. Kerner Mr. Steiger told him in early 1998 that he could not secure a charter in the open market for US$15,000 per day and he was therefore looking to employ the ships in one of NLM's liner services. The evidence certainly justifies a finding that at all material times no operator would have been prepared to charter the vessels at US$15,000 per day if that is what Mr. Steiger and Mr. Menzel were seeking. Mr. Menzel said expressly in his evidence that "I was not successful in chartering the vessels at US$15,000." He went on to say "I am sure we could have done a deal probably between US$12,000 and US$13,000, at least with Maersk." Mr. Steiger for his part said that "Maersk showed an interest at a charter rate of I think it was US$13,000." Both of these assertions were to put it charitably hopelessly over-optimistic. The only foundation for them in the documentary evidence before me is a letter from AP Moller dated 25 February 1998. The natural reading of that letter is that Moller in fact had no interest in chartering the vessels, although by way of softening the message they indicated that calculations showed that in any event only a charter rate of about US$13,000 could be justified, below Norasia's "earlier rate indications" which I take to have been at US$15,000 per day. This was a polite brush-off not an expression of interest. Whether Mr. Steiger would have been prepared to consider chartering the vessels out at this stage at less than US$15,000 per day I do not know, although in view of the talismanic quality which the figure of US$15,000 per day later achieved, the manner in which Mr. Steiger expressed himself to Mr. Kerner and the fact that Mr. Menzel was expressly looking for a rate of US$15,000 per day, I doubt if Mr. Steiger would have been prepared to fix the ships at below this rate. However this is perhaps beside the point. Presumably some time charter employment could have been found at some rate but on the basis of the evidence before me I cannot safely conclude that there was in fact at any material time any container shipping operator expressing a serious interest in chartering these unconventional ships at any price. CSAV employed some of the ships for a short while after acquiring the line in 2000, but only in order to ensure continuity of the services which they had thus acquired. That the situation was quite desperate is borne out by the fact that, as it seems to me, Mr. Steiger was again somewhat over-optimistic when he explained to KfW the status of negotiations which he had had with SeaLand with a view to some sort of cooperative venture using the fast feeder boxships. His letter of 22 April 1998 reads:
  41. "At a meeting between the undersigned and John Clancy, the CEO of SeaLand, held on 2 April 1998, SeaLand stated that it was prepared to enter into a joint venture agreement for the operation of the 10 new ships, with the deployment of the ships being coordinated between Norasia and SeaLand, and with SeaLand taking over around 5 of the ships under a time-charter arrangement. An agreement to this effect has not yet been set down in writing. SeaLand would like above all to take over new buildings 3-5 under a time-charter arrangement for its own use. We have agreed a time-charter rate of US$15,000 per day. We have been told to expect a definite go-ahead at the end of April."

    Only two weeks later on 5 May 1998 Mr. Sforza, Vice President of Strategic Planning and Business Development at SeaLand wrote to Mr. Steiger in these terms:

    "Confirming our telephone conversation of earlier today, SeaLand is in the final stages of our evaluation for the potential usage of 3 fast ships. As indicated, if we move forward, SeaLand would require all three vessels in September upon delivery of the third vessel.
    I will contact you next week and update you on the progress. Hopefully we will be at a stage where we can pursue further discussions relative to charter terms and conditions."

    Nothing came of this – indeed Mr. Khan gave unchallenged evidence to the effect that in the early summer of 1998 Mr. Menzel told him that all the plans for the vessels had fallen through and that Norasia had therefore itself to find employment for them. Mr. Menzel's solution was a route from Europe to Canada, the Canadian Express or "CEX" service. Mr. Kerner gave it as his opinion that this service was devised by Mr. Menzel by calculating how far the fast feeder boats could travel in a week and simply choosing ports to serve within that range. However that may be, by the time that the decision was taken to employ the first two vessels in this way Norasia had only a very short time within which to make the necessary arrangements to set up the service, a situation exacerbated by Norasia's poor credit history which led for example to one of the two terminals in Montreal indicating to Mr. Khan that they would deal with Norasia only if it paid in advance for using their services. On 13 July 1998 Mr. Steiger met with Mr. Reich, Dr. Klaus, Mr. Uibeleisen, Mr. Seissinger and Mr. Proeve of KfW. He reported that the first two ships would be used in the newly established N-Xpress service on the Antwerp-Felixstowe-Montreal route. Mr. Proeve's note of the meeting includes the following:

    "As yet there are obviously no clear plans for the use of the other ships. Mr. Steiger admitted being in discussions with various potential charterers, including SeaLand, Chiquita and a South African orange juice producer. In summary, it must be stated that there is nothing concrete."

    Mr. Steiger did not accept that this last comment was accurate. He said that he had very concrete plans for the first 5 ships to put them on the service Canada-North Europe-Mediterranean and back. It was only in relation to the next 5 ships that he was canvassing further possibilities. I cannot accept this evidence. Mr. Kerner said that it was out of desperation what to do with the further vessels as they became available that the CEX service was extended to include the Mediterranean. On 18 June 1998 Mr. Steiger and Mr. Menzel executed an agreement and an addendum thereto between N-Xpress and NLM to which I must refer in greater detail in due course. It dealt with the marketing of slots on the vessels. As Mr. Menzel explained in evidence these agreements were unworkable by reference to a service which included legs from Northern Europe to the Mediterranean and the Mediterranean to Northern Europe. The agreement was only amended to cater for this extension to the service on 5 October 1998. It seems to me likely that the decision to extend the service into the Mediterranean was taken rather later than Mr. Steiger asserts, probably in early October shortly before the third vessel was delivered. The second vessel had meanwhile been delivered on 6 August. This at the least enabled Norasia to offer a weekly service which hitherto they had been unable to achieve.

    Norasia's financial difficulties 1996-1998

  42. I have already set out a snapshot of Norasia's financial position as at 31 March 1996, the last reporting period before in November 1996 and February 1997 Norasia committed itself to the 10 S-Class vessels. Whilst the balance sheet was strong, it should perhaps be noted that the financial statements for NLM, the main operating arm of the group, show for the year ended 31 March 1996 a profit before tax of only US$11,327 on a turnover of in excess of US$350M. However during the financial year from 1 April 1996 to 31 March 1997 Norasia was hit hard by the collapse in freight rates, KfW expressing the view internally that Norasia did not have sufficient substance to survive a long-term collapse in the market. NLM suffered an operating loss of almost US$30M and whilst this was to an extent covered by the parent company through results in other divisions, cash payments and other loans, Norasia Holdings itself showed a loss of US$7.7M. A particular running sore for Norasia was created by its relationship with Conti, a German tax shelter company based in Munich with whom it had entered into sale and leaseback transactions in respect of 4 vessels. The upshot was that by 1997 NLM had on 5 year charter from Conti four Fribourg Class ships of 3200 TEU at rates which were way above the prevailing market. The daily hire commitment was about US$100,000, producing for Norasia serious cash flow problems. On 23 December 1997 KfW approved a liquidity loan to Norasia of US$6M in order to facilitate the payment of charter hire to Conti. Outstanding hire was said at this time to be US$6M and DM 6M. Inevitably with the market showing no sign of improvement so Norasia's position worsened. In the year to 31 March 1998 NLM made an operating loss of US$48.3M. Norasia Holdings recorded a loss of US$16.8M and an excess of current liabilities over current assets of US$9.8M. KfW's assessment of the situation as at 15 December 1997 was that the collapse of freight rates had hit Norasia hard before it had been able to complete its planned withdrawal from the operation of large containerships.
  43. Throughout 1998 the financial position worsened, now exacerbated by heavy costs incurred in hastily setting up the CEX service, costs which Mr. Steiger estimated as being at least US$10M, and heavy losses incurred in actually operating the S-Class vessels in the CEX service as they were delivered. The HDW vessels, alone relevant for present purposes, were delivered as follows:
  44. Samantha 16 July 1998
    Savannah 6 August 1998
    Salome (sometimes known as Shamsaa or Shamsha) 8 October 1998
    Sheba 3 November 1998
    Scarlet 28 January 1999.

    Losses on the CEX service between July 1998 and 31 March 1999 were calculated by Mr. Taylor, the Claimants' expert forensic accountant, as being US$11,234,611, a calculation which Mr. Steiger and Mr. Menzel did not attempt to challenge. Their expert forensic accountant witness was instructed not to consider the issue. Initially a weekly service between north Europe and Montreal performed by two vessels, by February 1999 all 5 HDW vessels were operating a 5 week round voyage as follows:

    Week 1 Depart Montreal Eastbound
    Week 2 depart Le Havre Southbound
    Week 3 the vessel reaches Alexandria, the furthest point served in the Mediterranean
    Week 4 depart Genoa Northbound
    Week 5 depart Zeebrugge or Southampton Westbound.

    The slot marketing contract between N-Xpress and NLM

  45. I must next describe the strange internal contractual structure set up by Norasia pursuant to which the vessels operated whilst in the CEX service. In the context of the allegations made in this case this is of some importance. Without a full explanation of the structure, which was never offered to them, ADIC had little chance of understanding the significance of some of the figures which were provided to them as being allegedly relevant to an evaluation of the financial performance of the vessels.
  46. It will be recalled that the Loan Agreements called for a long-term charters to NLM or to another charterer acceptable to KfW. Each of the HDW vessels was in fact as from delivery from the yard chartered by its single shipowning company to N-Xpress Limited Gibraltar. Each charter was on the Boxtime form of charterparty for 5 years at a daily rate of hire of US$15,000. It will also be recalled that N-Xpress Limited Gibraltar is a 100 percent wholly owned subsidiary of NSL, of which in turn the individual shipowning companies were themselves 100 percent subsidiaries. The charters were dated as follows:
  47. Samantha and Savannah 20 May 1998
    Salome 20 August 1998
    Sheba 20 October 1998
    Scarlet 11 January 1999.

    Although not documented in the evidence before me KfW must have approved of this arrangement. Mr. Steiger said that this structure was in fact required by the bank. This seems to me wholly implausible. There is no reason why the bank should have required it. Mr. Menzel could supply no reason for the interposition of N-Xpress between NSL or the shipowning companies and NLM. He said simply that it was a structure that Mr. Steiger discussed with the bank.

  48. The Chinese vessels did not operate in the CEX service and the first of them, Sultana, was not delivered until 7 September 1999. At any rate the Sultana and the Selina, delivered on 4 December 1999, were like the HDW ships chartered as from delivery for five years at US$15,000 per day to N-Xpress Gibraltar by charterparties of 9 July 1999 and 24 September 1999 respectively. It can also be noted that the first four Chinese ships were in fact owned by two companies, rather than by four, whilst the fifth vessel, the Sabrina, delivered on 14 November 2000, was sold directly by NSL to ADCL without even passing through a NSL subsidiary shipowning company.
  49. On 18 June 1998, i.e. shortly before delivery of the first HDW vessel, N-Xpress in the shape of Mr. Steiger and NLM in the shape of Mr. Menzel executed an agreement relating to the operation of the vessels. Recitals D and E provided:
  50. "(D) Certain of the Newbuildings (elsewhere defined to mean all 10 Newbuildings) will be time chartered by their respective Owners to companies outside of the Norasia Holdings Limited group of companies and the remainder will be time chartered to N-Xpress (such of the Newbuildings which are time chartered to N-Xpress being hereinafter called the "N-Xpress Ships").
    (E) N-Xpress intends by this Agreement to appoint Lines (elsewhere defined as Norasia Lines (Malta) Limited) as its agent to market the hire of Slots on the N-Xpress Ships on its behalf."

    The agreement proceeded by its terms to do just that – N-Xpress appointed NLM to act as its agent for the hiring out of slots on the N-Xpress Ships. NLM was not without the express consent of N-Xpress to hire out any slot at a rate below such minimum rates as were from time-to-time to be specified by written instruction or in an addendum to the agreement. Reflecting the term in the Loan Agreements regarding the setting up of dedicated earnings accounts for the vessels at Citibank Zurich, NLM was to procure, as a term of all slot charters entered into by it on behalf of N-Xpress, that all monies earned from the hire of slots on N-Xpress Ships pursuant to such charters be paid directly by the slot charterers to a bank account in the name of N-Xpress with Citibank Zurich. For its services NLM was to be paid by N-Xpress a commission of 5 percent on revenue received by N-Xpress from the hiring out of slots on the ships. For an internal agreement there was a law and arbitration agreement of some formality – the agreement was governed by English Law and disputes were to be resolved by arbitration under the auspices of the International Chamber of Commerce. Mr. Steiger said in evidence that this agreement had been drafted by Mr. George Hodgkinson, a partner in Messrs Sinclair Roche and Temperley, the solicitors who acted for KfW in connection with the Loan Agreements and indeed Mr. Hodgkinson's initials "GHH" appear at the foot of each page of the agreement.

  51. On apparently the same day, 18 June 1998, Mr. Steiger and Mr. Menzel executed an addendum to this agreement. Although it was not I think noticed at trial the second and final page of this addendum in fact also bears Mr. Hodgkinson's initials, albeit here with a different reference number. That notwithstanding Mr. Menzel said in evidence (Day 29 page 147) that Addendum Number 1 was, in contrast to the agreement itself, prepared within Norasia. Mr. Steiger for his part gave an answer (Day 29 page 66) which in retrospect I can see may have been intended to convey that Mr. Hodgkinson drafted this first addendum to the agreement as well as the agreement itself. In view of this confusion it would not be right to infer, as I was invited to by the Claimants, that KfW was not informed about the first addendum although it seems unlikely that they can have known or approved of the manner in which the agreement was in fact operated since they subsequently claimed that no monies appeared to have been remitted to the earnings accounts. What is important however is that the addendum, somewhat ambiguous on its face, was apparently intended to transform the nature of the original agreement. On the face of it the purpose of the addendum was simply to supply the minimum authorised rates at which NLM could sell slots on the vessels. Clause 2 read, so far as material, "[NLM] shall not without the…consent…of N-Xpress conclude any contract for hiring out any slot below the following minimum rates" and there then followed a list of rates which included "US$105 per Leg per TEU for unused slots up to max. 750 TEU's/vessel." "Leg" was defined as a voyage from a port in Europe to a port in Canada or vice versa but even with this elucidation the provision is on the face of it senseless since NLM would hardly be concluding contracts for slots which were to be unused. However the intention was apparently that NLM should be under an obligation to pay for unused slots on the basis that on each Leg a minimum of 750 slots should be utilised. The evidence given concerning this agreement was confused and confusing, compounded by the fact that it was not until Day 28 of the trial, the penultimate day on which Mr. Steiger gave evidence, that Norasia disclosed a file of debit and credit notes generated by N-Xpress and NLM which demonstrated how the agreement had in fact been operated in practice. On 5 October 1998 Mr. Steiger and Mr. Menzel entered into a second addendum to this agreement which dealt with the forthcoming extension of the service into the Mediterranean, a development to which I have already adverted. A further tariff was introduced for voyages including Mediterranean ports and the charge for unused slots was increased to US$112.50, now expressed to be per week rather than per Leg. The trigger remained "for any unused slots up max. (sic) 750 TEU/vessel/week." It is not entirely clear to me why in fact this second addendum was executed, bearing in mind that according to Mr. Steiger, and as borne out by the belatedly disclosed documents, the arrangements with differential price structure turned out to be "too complicated" and they were in consequence simplified. The "simplified arrangements" had the effect that at one stage NLM paid a flat rate slot cost of US$275 per TEU up to 500 TEU's, US$250 per TEU if the volume was above 500 and they were charged also for the shortfall below 750 TEUs at US$105 per TEU. At other stages the fixed but arbitrary charges were different. NLM seem also to have had to pay N-Xpress a fixed cost for repositioning empty containers. As far as I can see the agency agreement was never in fact operated according to its terms at all, i.e. it never operated as an agency agreement and the pricing structure adopted did not follow the addenda. Mr. Steiger said that he thought that this "simplification" had been put into writing but if there was such a document it has not been disclosed.
  52. The upshot of all this is that the revenue which in consequence accrued to N-Xpress from NLM was not the vessels' earnings in the market. NLM received the vessels' true income generated in the CEX service. The revenue of N-Xpress, all derived from NLM, was wholly unrelated to the actual performance of the vessels in the prevailing market conditions. By these agreements or arrangements, as they were interpreted and operated, N-Xpress was guaranteed a certain income irrespective of the volume of cargo actually carried and the rates paid by cargo interests for its carriage. NLM not N-Xpress carried the market risk, at any rate theoretically, since NLM was of course in no position to pay N-Xpress money which it had not in fact generated in the market. Thus according to the belatedly disclosed documents in the period from commencement of the CEX service in July 1998 until 31 March 1999 N-Xpress raised charges on NLM of US$18,452,480, broken down as US$12,951,982 for used slots and US$5,399,580 for unused slots. This figure is close to that of US$18,742,000 shown in the NSL consolidated statement of income for the year ended 31 March 1999 as "charter hire." (It is possible that this latter figure includes income generated in the short introductory period during which the service was operated with chartered-in conventional tonnage.) Although the accounts did not reveal it, about US$8M out of the total US$18.7M had not been paid, and NLM was in no position to pay.
  53. It is worth noting that the total sum which in consequence accrued due from NLM to N-Xpress equates to more than US$15,000 per vessel per day. However since the vessels were not in fact chartered to NLM, N-Xpress bore the cost of bunkers, port charges etc. in addition to the ordinary operating costs and the US$15,000 per vessel per day payable by it to the single ship-owning companies. No accounts of N-Xpress have been disclosed, but, as is clear from the foregoing, financial statements of neither that company nor of NSL reflected the financial results or outcome of the operation of the S-Class vessels in the CEX service. Information as to the performance of the vessels was however at all times available to Mr. Steiger and to Mr. Menzel in the shape of internal management accounts prepared for NLM by a Mr. Theodor Pauw. Although management accounts were apparently produced on a weekly basis, only a few have been disclosed. It is said that as a result of the sale of the business of NLM to CSAV these are all that could be located. However that may be, in order to be useful management accounts must have been produced with a frequency sufficient to render them, as Mr. Menzel described them, an "interim tool for the management to monitor financial performance." Obviously the "nearly contemporaneous snapshots of the performance of Norasia's business" which they afforded were by their nature provisional since invoices might be received or income and expenses referable to a particular period ascertained or assigned only some time after the period to which it or they related. As I have already set out above, analysis of such management accounts as are available together with the further information concerning how in practice the agreement between N-Xpress and NLM was operated reveals that the CEX service made a loss of US$11,248,611 between July 1998 and 31 March 1999. It was no doubt because of these mounting losses that at the end of March 1999 Norasia decided to switch the S-Class vessels into a transpacific service from South East Asia to the West Coast of North America, to become known as the "APX" Service.
  54. The S-Class vessels were transferred to the new service in June 1999, beginning sailings in July. The CEX service was continued with first 7 then 6 conventional vessels which were chartered in. Despite the lower operating costs of these vessels the CEX service continued to make heavy losses until it was closed down in February 2000 with the heavy start-up costs in consequence also unrecovered. From July 1999 until May 2000 the S-Class vessels continued to serve in the APX service. In May 2000 Norasia sold its liner business (and brand name) to CSAV. NSL and the S-Class ships were not included in the sale. Six of the ships were time chartered to CSAV for relatively short periods (in 4 cases 180 days, otherwise 20 and 30 days) to enable them to continue to operate the service in the short-term. Others of the ships began in July 2000 to operate in a newly established Hong Kong to Trieste service. By now however ADIC had become contractually committed to invest or to procure the investment of US$80M in order to enable the newly created ADCL to purchase the ships from Norasia. I must next turn to summarise the critical situation in which Norasia found itself in the early months of 1999 which in turn led Mr. Steiger to search for a partner willing to invest in the S-Class vessels.
  55. Norasia's financial difficulties 1998-1999

  56. I have already described the heavy losses suffered by Norasia in the year to 31 March 1998. It was against this background that the S-Class vessels began to be delivered and to commence operations in the CEX service. In particular, Norasia began to experience severe cash flow embarrassments and the evidence of the former employees bore testimony to their difficulty in juggling the demands of the various creditors. By July 1998 Norasia had fallen into default of its obligations under its container leasing agreement with Transamerica. Norasia was four months in arrears. Something of the order of US$3.5M was outstanding. On 29 July 1998 Transamerica threatened legal action unless they received an immediate payment of US$2.5M and weekly payments of US$200,000 thereafter. On 31 July they followed up their threat by arresting the containers onboard the Samantha at Antwerp which of course contained cargo which Norasia had contracted to deliver. This was an inauspicious start for the Samantha on her second voyage and a serious embarrassment to the Line. By August 1998 the arrears to Conti had again reached US$6M. Norasia asked KfW to reinstate the liquidity loan to its original US$6M, in effect an advance by the bank of a further US$4M. KfW agreed, not just because they wished to support a hitherto reliable customer in whom they had trust and confidence but also because they did not wish the liquidity problems to affect the whole Fast Feeder project to which they were of course by now committed. By November 1998 Norasia was not in a position to pay US$2M due to HDW on the delivery of Hull 339, the Sheba. At a meeting with KfW and the yard on 4 November, at which meeting HDW agreed to defer payment of the outstanding amount until 31 March 1999, Norasia in the persons of Mr. Steiger and Mr. Menzel explained that they did not anticipate in the short term any improvement in the market which would resolve their difficult situation. Norasia was said to be in active negotiations with a view to finding a partner to join them in the Fast Feeder project and with whom they hoped to be able to continue to operate the 5 HDW vessels. KfW and the yard were told that Norasia expected the negotiations to be successful by January 1999, with the prospective partner joining within that timescale. In such circumstances Norasia would repay all amounts outstanding to HDW and reduce its indebtedness to KfW.
  57. Norasia's search for a partner

  58. Although Mr. Steiger was in evidence inclined to downplay both the necessity for a financially strong partner and the urgency of the search, I have no doubt that both the need and the urgency were real and were communicated at the time by Norasia to KfW and HDW. On the other hand Mr. Steiger was unable to recall any very concrete discussions which would have justified the prediction of a successful outcome by January 1999. There were discussions with an American company concerning a possible sale and leaseback but nothing came of this. In early October 1998 Mr. Steiger had a first meeting with Mr. Dahm and Mr. Perry of Credit Agricole Indosuez – hereinafter "CAI." CAI acted as advisors for clients who had "offset" obligations under contracts to supply military hardware to the UEA. Apparently these substantial contracts imposed upon the suppliers an obligation to invest a certain percentage of the contract value in the UEA. Investments had to be made within a certain timeframe otherwise the supplier had to repay to the buyer the sums not invested. CAI was considering the setting up of a shipping company in Abu Dhabi in which their clients could invest as shareholders together with local partners. The scheme was similar to that in which Norasia had participated with AML Arabian Maritime Lines Limited. In connection with this proposal on 7 January 1999 Mr. Steiger prepared a short, 8 page presentation document to which he gave the title Abu Dhabi Container Lines Limited ("ADCL"). That document proposed the use of the 10 "new type of container vessels" under the umbrella of ADCL in a regional distribution network based in Abu Dhabi. Nothing came directly of the offset proposal although indirectly it led to Norasia and ADIC being introduced. Mr. Steiger discussed the offset proposal with his old friend and business associate Mr. Nagji. Mr. Nagji in turn introduced Mr. Steiger to his friend Mr. Richard Cox who was evidently well connected in Abu Dhabi. In particular Mr. Cox had a personal connection with Sheikh Sultan or at any rate with his office, Sheikh Sultan being the son of the then Ruler of Abu Dhabi Sheikh Zayed. Sheikh Sultan was at the time himself a person of great possibly central importance and influence in the commercial life of Abu Dhabi. It was Mr. Steiger's evidence that at a meeting on 25 January 1999 Mr. Cox mentioned to him that it would be helpful to have a more detailed presentation regarding the proposed formation of ADCL and that he accordingly produced the document of 1 February 1999 with appendices ("Enclosures") which at trial was referred to, possibly somewhat inaccurately, as the "Business Plan."
  59. Norasia, by Mr. Steiger, was involved in meetings and discussions between October 1998 and April 1999 with various potential "offset" partners including the Oasis Group and the French groups GIAT Industrials and Dassault Aviation. Ultimately these discussions were fruitless but through them and possibly through the offices of Mr. Cox in early April Mr. Steiger met in Dubai with Sheikh Saeed, the Chairman of the Abu Dhabi Port Authority. Evidently the port of Abu Dhabi, "Mina Zayed," was regarded at the time as an underused facility, ripe for development. Sheikh Saeed welcomed the ADCL project and promised support from both the Port Authority and the Government. In due course through the good offices of a Mr. Jamal Souaiss Mr. Steiger was introduced to ADIC. Mr. Cox made the arrangements for the first meeting which took place on 12 April 1999. I have no doubt that by the time Mr. Steiger met with ADIC, of whom he said he had never heard before early April 1999, he had the firm impression that the ADCL project which he was taking to them had the backing of not just the Port Authority but also of Sheikh Sultan himself.
  60. On any view by the time that Mr. Steiger met ADIC all other avenues explored with a view to finding a partner had come to nothing. A situation which was bad when in early November 1998 Norasia first told KfW of their search for a partner had deteriorated still further. Shortly after that meeting KfW discovered that the hitherto trustworthy and reliable Norasia was not performing the Loan Agreements in accordance with their terms – there was virtually no credit balance in the earnings accounts at Citibank Zurich into which the charter hire of US$15,000 per day due from N-Xpress was required to be paid, having been assigned to KfW as part security for performance of the agreements. It is perhaps from this incident that one can date a growing impatience on the part of KfW with Mr. Steiger with whose interests they were however closely allied. Whilst pointing out the irregularity concerning the earnings accounts on 17 November 1998 KfW found it necessary also to point out that the first payments of principal and interest were due in mid January 1999 and they enquired what plans Norasia had for servicing the loan. Whilst perhaps a small point, it is indicative of the depth of Norasia's problems that as from November 1998 they began to fall into arrears in the payment to KfW of fees due in respect of the Fast Feeder facilities – fees due to lawyers and in connection with the provision of the Schleswig Holstein state guarantee. Fees accruing due and unpaid in November 1998 totalled DM 160,447, US$11,606 and £19,947. These were fees which KfW had disbursed, non-payment of which was likely to be a source of irritation out of proportion to their size. It is for that reason that non-payment by Norasia is perhaps telling. It was in this context that KfW reported to the relevant agency of the state of Schleswig Holstein that Norasia was looking for a financially strong partner in order to overcome the difficulties in the long term. On 8 February 1999 Norasia was unable to and did not pay to the bank an instalment of US$2M principal and interest which fell due on that day. Mr. Steiger suggested to Mr. Seissinger that he might make payment out of the proceeds of refinancing his private jet aircraft, a Falcon. Mr. Seissinger did not reveal to Mr. Steiger that Conti had approached KfW direct to discuss Mr. Steiger's failure to honour promises to reduce Norasia's outstanding liability to them, which now stood at around DM 11M. At a meeting in Fribourg on 1 March 1999 KfW asked for an audited status report on Norasia Holdings, Norasia Shipping and Norasia Lines Malta as well as a liquidity forecast for 1999/2000. In a fax sent to Mr. Steiger seven days later summarising the outcome of the meeting KfW said this:
  61. "Moreover, we would ask you to advise us of the position regarding the discussions held with potential investors. What period is it realistic to expect a final decision to be made? The timing is something we regard as exceptionally significant given Norasia's tight liquidity situation. What precautions have you taken in the event of negotiations going on for longer than expected or else breaking down altogether?
    The payment of the instalments for the HDW Fast Feeder due on 08.02 and 08.04 should, according to your information, be covered by the proceeds of refinancing your aeroplane. You are expecting to receive the money by 31.03.1999. What is the current state of play with debts and can the timeframe be respected?"

    Again Mr. Steiger tended to downplay the significance of these requests but the plain fact is that the pressure was increasing. On 26 April 1999 Mr. Menzel in a fax to KfW sought to excuse Mr. Steiger's failure to provide certain information on the basis that "finalising negotiations in the Middle East has absolute priority." That was an accurate appraisal. Whilst the bank was more patient than Conti, whose negotiating position as the owner of four ships on time charter in a declining market was in any event weak, it is clear that both were persuaded by Norasia to stay their hands pending the outcome of the discussions with "the Arab investors." Norasia had by now no one else to whom to turn.

    Technical problems with the vessels before April 1999

  62. I have not so far mentioned the technical problems by which the S-Class vessels were from the beginning assailed. There is no doubt that the significance of these problems increased with time and as it became apparent, as in my judgment it did, that they could not be dismissed as mere teething problems. Ultimately what acted as the trigger for the final breakdown in the relationship between ADIC and Norasia was ADIC's realisation in April 2001 that they had been throughout deceived by Norasia who had told them nothing about what were by then catastrophic technical problems with the ships. In the early stage of the story, and in particular during the period April to October 1999, during which the initial misrepresentations about the ships were made upon which ADIC placed reliance in making their decision to invest, the technical problems although not of the same severity and effect were nonetheless important. They were important not just because they cast doubt upon the integrity and robustness of the design but also because the constant irritating breakdowns which they caused were wholly inimical to the maintenance of a reliable liner schedule. ADIC was principally concerned with the financial viability of the project presented to them, key to their consideration being whether the vessels had the capacity to generate and had demonstrated a capacity to generate earnings of an order which would be sufficient not just to finance the projected borrowings but also to produce a worthwhile return on capital. Representations as to the ability of the vessels to do that or the extent to which they had demonstrated themselves to be so able have to be viewed in the light of technical shortcomings which had already manifested themselves and were in every relevant sense disabling. The technical problems which manifested themselves in the early months included vibration and excessive rolling, which appear to have caused or at the least contributed to other problems, notably hull cracking and clutch and coupling failures and the vessels' inability to maintain a service speed of 25 knots. I take the following account of the problems as they manifested themselves before April 1999 very largely from Paragraphs 106-127 of the Claimants' Closing Submissions.
  63. Even before delivery of the first vessel, Samantha, problems had surfaced. In June 1998 it was reported that the delivery of Samantha would be delayed because of problems with her gearbox. Following a visit to the HDW yard to attend one of Samantha's sea trials, KfW's technical consultant Dr. Schreiver reported that the gearbox problems had also led to vibration difficulties but that he considered that these had been resolved following alterations. Initially this proved to be the case. Reports from the maiden voyages of both the Samantha and the Savannah indicated that they had performed well. Matters however soon took a turn for the worse.
  64. On 1 September 1998 Mr. Menzel was notified that Samantha was proceeding on one engine as a result of a damaged exhaust gas compensator. About a week later Mr. Menzel was notified that Savannah had suffered similar damage and as a result was running 5 days late. Two weeks later Mr. Menzel was notified that Savannah was again running on one engine this time because of a leak from a fuel pipe.
  65. On 2 October 1998 it was reported to Mr. Menzel that one of Samantha's generators was damaged.
  66. The third vessel Salome was added to the route on her delivery from the yard on 8 October 1998. On that same day the Masters of the Samantha and the Savannah were reported as saying that their vessels had behaved:
  67. "Extraordinarily restlessly on heavy seas and high winds…in extreme cases, the ships "rolled" by up to 30 degrees on each side. The stabilisation system could obviously not compensate for this. Moreover, continuous, strong, impacts and poundings were experienced against the ship's structure in these heavy seas, which could be felt solidly in the engine room and had been amplified on the bridge, where the crew had problems with stability. The fear was expressed that these extreme loads could lead to long-term damage to the ships. The rescue boat of one ship had been severely damaged by these impacts…the described phenomena were intensified by comparable strong vibrations of the ships."

    This account is taken from notes of a meeting between the Masters of the two vessels and Mr. Proeve of KfW on the occasion of the delivery of the Salome.

  68. The day-to-day operational problems continued. On 21 October 1998 it was reported in an e-mail copied to Mr. Menzel that Samantha's bow thrusters were out of operation and that she required tug assistance, while three days later the same vessel suffered damage to the Vulkan coupling on one of her main engines. On 9 November 1998 Mr. Menzel was sent a report by the Master of Savannah which stated that the vessel was rolling by up to 40 degrees in 10 metre waves. Later that same month matters had become sufficiently serious for Norasia to prepare, at any rate internally, the claims that it was contemplating bringing against HDW in respect of vibration and of the defects with the freefall lifeboat and davits. These claims were said to be of the "utmost importance" to the safety of the vessels' crew. On 15 December 1998 Sheba, which had entered service on 3 November, had to stop her main engines at sea because of clutch damage. Two days later Mr. Menzel was informed that the Samantha was proceeding with only one main engine as a result of a further failure (following that in October) of a Vulkan coupling which caused delay of over a day.
  69. On 19 January 1999 KfW produced an in-house status report on the HDW vessels which detailed a variety of resolved and unresolved technical problems including: heavy rolling, extreme vibrations in the deckhouse, damage to lifeboats and davits, gears, compensators, clutch, Intering installation and elastic bedding of the main engines. On the same day Salome suffered damage to her Vulkan coupling. On the next day, 20 January 1999 Mr. Menzel was provided with details of the delays so far incurred by the HDW vessels which were: Samantha, exhaust gas bellows – 22.5 hours; Savannah, exhaust gas bellows – 4 days 30 minutes; Samantha, Vulkan coupling – 1 day 2 hours and 42 minutes and Salome, again Vulkan coupling. In fact the Samantha suffered her third Vulkan coupling failure on 23 January 1999 leading to a delay of over 1 day 20 hours. Sheba too suffered delay arising of a gear clutch problem.
  70. On 26 January 1999 the vessels' classification society Germanischer Lloyd reported the results of superstructure vibration tests on the Scarlet to HDW, tests at which Dr. Schreiver had also been in attendance. Following this voyage Dr. Schreiver gave it as his opinion that the vibration levels could impair the well-being of the crew on a continuing basis.
  71. With the onset of March problems in reaching the required speed of 25 knots and the discovery of cracks in the hulls of the vessels began to dominate the reports. Thus on 8 March 1999 it was reported within Norasia that, despite fine weather, Salome was proceeding at only 22.9 knots rather than the expected 24 knots. Only three days later Mr. Menzel was informed that the Samantha likewise was not performing in terms of speed. She appears according to a report of that day to have achieved 21.75 knots, although on 19 March Mr. Zitz reported to Mr. Menzel that Samantha's speed through the water was less than 20 knots and that her Master "seriously doubted" whether she would be able to achieve 24 knots when fully loaded.
  72. Mr. Steiger said in evidence that he took up the speed problem with the yard. He discovered that the pitch setting for the propeller had been adjusted to enable the vessels to make the speed of 25 knots on their trials and had then been altered back before delivery. Mr. Steiger accused the yard of "cheating him" an accusation which they rejected but as a result of which the pitch was re-set to a higher level. Although Mr. Steiger said in evidence that the speed problem thereafter became a secondary issue that is not in my judgment an accurate assessment. However it is true to say that the speed problem only really surfaced as a major issue shortly before Mr. Steiger first met ADIC. I should perhaps here mention briefly an issue on which I heard considerable evidence from the technical experts Mr. Gibson and Mr. Fyans, although it is fair to say that the issue only crystallized somewhat late in the trial. The suggestion made by the Claimants through Mr. Gibson is that the belief that the vessels were technically capable of a service speed of 25 knots, for which clearly they were designed, may have derived from an erroneous extrapolation from the sea trials data by Nigel Gee. With all due respect to the experts, this issue was not approached in quite the way in which it would have been approached had it been a central issue in the litigation or had the experts had the time and the opportunity to research it as they would have wished, including no doubt the opportunity to go back to those who had been principally concerned in the exercise in the first place. On the other hand, had an exercise of this sort been conducted, I have no doubt that there could have been a long trial on this issue alone. Since I do not regard a conclusion on this point as essential to anything which I have to decide it would I think be unwise to express any concluded view upon it, especially since the suggestion is of an error made by a professional man. As I understood the argument, the suggestion is that Mr. Gee erred in his adjustment of certain model test results recorded by Marintek. Mr. Gee adjusted these figures because Marintek had used a stock propeller for its tests rather than a model of the LIPS propeller which was in fact fitted to the vessels. The two types of propeller would have a different open water efficiency. A question also arises whether an adjustment to increase propeller efficiency should have led to a corresponding deduction in the efficiency of the hull. Conventionally, it should, although as Mr. Fyans pointed out, there may be a question whether the approach in fact adopted by Mr. Gee was justified by the rather peculiar hull form. Mr. Fyans had not done the calculation, which I have no doubt is complex. There were in evidence results from tests on "as built" models carried out by HSVA and Potsdam which appeared to predict a lower maximum speed of 24.25 and 24.19 knots respectively. It is I think appropriate that I record that the material before the court, as expounded by Mr. Gibson and Mr. Fyans, was sufficient at any rate to cast doubt upon the accuracy of Mr. Gee's extrapolation, a doubt which if made good would explain the difficulty experienced by the vessels in maintaining their expected speed even in benign conditions. It is not of course suggested that either Mr. Steiger or Mr. Menzel had any reason to believe that any error had been made.
  73. On 12 March Mr. Menzel was informed that the Savannah had suffered a crack in a weld in the shell plating. In a message to him Mr. Lefkaditis of the Managers Ganymed commented that these cracks were not as simple as Norasia would like to think. He pointed out that the initial shell weld crack had penetrated into the web frame (wash bulkhead) and had cracked it both port and starboard. He also reported that he had a letter from HDW, for which he had asked, to give to the agents etc. to dispel rumours. He went on "but the letter is a smokescreen. Maybe you can decide if you want it shown around." Six days later it was reported to Mr. Menzel that the Scarlet, delivered only six weeks or so earlier on 28 January, had a crack through which heavy fuel oil was penetrating into the cargo hold.
  74. On 26 March 1999 Mr. Hoffman, Norasia's Project Director, wrote a four page letter to HDW in which he summarised Norasia's understanding as to the vessels' technical shortcomings which he arranged under the headings Coupling Failures, Engine Stoppers Mountings, Free Fall Life Boats, Vibrations and other outstanding matters including speed, an "issue critical to our scheduled operation." Whilst it is right to say that Mr. Hoffman expressed Norasia's confidence in HDW's ability to rectify the problems, he also stressed that in light of the gravity of some of the problems this would take some time. He concluded by insisting that the guarantee period for all five ships should be extended to one year after satisfactory completion of the necessary rectifications. Mr. Steiger would not accept that these should be characterised as more than teething problems. He did nonetheless acknowledge, realistically, that repeated problems of this sort were particularly damaging to a liner operator attempting to maintain a tight schedule. I have already set out the losses incurred by the vessels whilst performing in the CEX service. It would be idle to pretend that the cause of the vessels being loss-making was anything other than a combination of reasons including the poor market and the fact that these vessels could not compete effectively with larger more traditional vessels operating on the North Atlantic route. However the disruptions to the service caused by the technical problems which I have described undoubtedly played their part. Furthermore, even leaving on one side the financial aspects, the technical defects of themselves made it impossible truthfully to represent to prospective investors in the vessels in April 1999 that they had a service speed of 25 knots at which they had operated successfully in the CEX service. That however is precisely what Norasia proceeded to do.
  75. Norasia and ADIC meet on 12 April 1999

  76. Mr. Steiger's meeting with ADIC on 12 April 1999 was an introductory meeting but it is the Claimants' case that at it Mr. Steiger made some important representations which were both central to their ultimate acceptance of his proposal to participate in the joint venture and fundamentally false. Before dealing with that meeting I should first say a word about ADIC which is, as I have already described, an investment company which was at the material time jointly owned by the Abu Dhabi Investment Authority and the National Bank of Abu Dhabi.
  77. ADIC's role was described in its Annual Report for 1998, a document which was in due course annexed to the Shareholders' Agreement executed on 3 July 2000 by ADIC and Norasia. The Chairman's statement in that document explained that the Projects and Investments Division's efforts concentrated on "identifying joint ventures in line with its objective to promote the industrial and commercial development of the country." The relevant reporting structure at the time was as follows. The Head of the Projects and Investments Division was Mr. Abdul Majeed Al Fahim. Mr. Al Fahim reported to the Deputy General Manager, the "DGM", who was at all material times Sheikh Hamed. The DGM in turn reported to the General Manager, who was at all material times Mr. Humaid Darwish. The Management was in turn answerable to a Board of Directors.
  78. Mr. Al Fahim, in accordance with the normal practice, put together a Project Team to consider the Norasia proposal. The team was headed by Mr. Adel Saudi[1], who had joined ADIC as a Projects Manager in the Projects and Investments Division as recently as 1 April 1999. Mr. Saudi was a finance graduate of the Pepperdine University in Malibu, California and had worked for Manufacturers Hanover in New York, the ABC group in Hong Kong, and had a number of other financial posts and interests including employment with Kidder Peabody before joining ADIC. He was born in Libya, but has dual Libyan and UK nationality. Mr. Saudi appeared to me to have a good understanding of general financial matters although he had no specialist experience of shipping. Initially the team contained only one other ADIC employee, Ms. Nada Hammoudi. Ms. Hammoudi was a UAE national who in April 1999 was 31 years old. She was a graduate of King's College London. She had joined ADIC in 1994 having worked first for the Centre for Global Energy Studies in London and then for a Tunisian bank for a period of about a year. In late May 1999 the team was joined by Mr. Santosh Agarwal. Mr. Agarwal is an Indian national who in May 1999 was 33 years old. He had lived and worked in Abu Dhabi since September 1992. Mr. Agarwal had trained as an accountant qualifying in 1991, and had then worked for major accounting firms including Price Waterhouse in Delhi and Ernst and Young in Abu Dhabi. He joined ADIC in July 1995 and was appointed as Senior Financial Analyst in about January 1998. His role in the Project Teams in which he worked was described in the evidence as "number crunching." Although all three team members worked closely together and consulted one with another, I had the impression that Mr. Agarwal confined himself fairly strictly to his assigned role. Although deferring to Mr. Saudi who was senior to her in the organisation, a little older and more experienced and the designated Team Leader, Ms. Hammoudi appears in fact to have played a role which was effectively equal to his own.
  79. ADIC disclosed no formal investment guidelines. However the evidence showed that ADIC had a policy of restricting its own cash exposure to any project in which it invested to US$6M, save in exceptional circumstances. Furthermore, although this was not, unsurprisingly, an inflexible policy, in general ADIC aimed for an investment return of 15 percent. One specific and relevant exception to this approach was that if a project was perceived as having some benefit to the economy of Abu Dhabi ADIC was prepared to accept a lower rate of return, of the order of 10 percent, but no project would be accepted unless it was commercially viable.
  80. ADIC itself had limited experience of investment in shipping enterprises, and effectively none in terms of the operation or deployment of vessels. One of the attractions for ADIC in the proposed joint venture with Norasia was that Norasia could supply the shipping knowledge and experience that ADIC itself lacked, and, from the outset of the negotiations that led to the joint venture, ADIC looked to Mr. Steiger and Mr. Menzel to explain to them the shipping-related aspects of the proposal. The ADIC personnel explained to Mr. Steiger at the outset that they were not experienced in shipping. Mr. Steiger said that he took this into account in the way in which he structured his presentation and explanations. It is likely that he reported accordingly to Mr. Menzel. As a corollary, it was an important part of Mr. Steiger's strategy, as Mr. Menzel also appreciated, to convince ADIC of Norasia's standing in the market as a reputable, successful and innovative shipping company. None of this should of course detract from the fact that notwithstanding its lack of relevant experience in the field, ADIC was the subsidiary of a major investment company and had the resources to buy in relevant external professional advice, as indeed in relation to this transaction it did. In this transaction there was no contest between the relevant accumulated business acumen, expertise and sophistication of Mr. Steiger and Mr. Menzel on the one side and of Mr. Saudi, Ms. Hammoudi and Mr. Agarwal on the other. This does not mean that ADIC is to be judged by anything other than the standards reasonably and objectively to be expected of an investment company operating in the market. It does however throw into somewhat sharp relief various telling observations which Mr. Steiger and Mr. Menzel from time to time made which indicated that they were acutely aware of the inexperience of their interlocutors. I have in mind frequent observations in evidence to the effect that if ADIC had been interested in a topic they could have asked questions about it, in circumstances where as Mr. Steiger and Mr. Menzel well knew ADIC did not appreciate that a question needed to be asked and moreover, in some cases, had not been given the basic information without which no one could have appreciated that further enquiry was required. An example of the latter is when they were denied the notes to the NLM accounts which might have at least alerted them to have enquired further as to the true nature of what was represented as NSL's earnings. I also have in mind an astonishingly cynical e-mail message which Mr. Menzel sent to Mr. Scholz, General Manager of Ganymed, on 19 January 2000. Mr. Scholz was about to visit Abu Dhabi where he would meet ADIC personnel. Mr. Menzel instructed him:
  81. "You know that ADIC as a shareholder is a Government organisation and not a collection of entrepreneurs that means we don't have to put on too much of a show there. The only thing that's actually important is that Ganymed has been there.
    Regarding the qualities of the vessels, you can talk away as long as you want, but please only about the qualities and not the problems we have. Up to now it has not penetrated there just what problems we previously had with the HDW vessels and in no way should a discussion [of] these begin now. It is vital for Ueli [Barfuss] to know this too."

    This speaks for itself. Its message was in no way blunted by Mr. Menzel's attempt in evidence to explain at any rate part of it as being prompted by the notorious loquaciousness of Mr. Scholz.

  82. The meeting on 12 April 1999 was attended by Mr. Al Fahim, Mr. Saudi and Ms. Hammoudi for ADIC and by Mr. Steiger, Mr. Cox and Mr. Nagji for Norasia. Mr. Al Fahim may have attended the whole of this meeting but his role was often limited to greeting visitors to ADIC, attending only the early, introductory part of meetings and no doubt effecting introductions and perhaps hosting entertainment at lunch or dinner afterwards. I do not say this critically. Mr. Al Fahim had broader responsibilities and did not claim to have studied Norasia's proposal in depth himself. He was a dignified and careful witness whose evidence was not of central importance, although corroborative of Mr. Saudi and Ms. Hammoudi in some significant respects. Mr. Cox and Mr. Nagji had prior to this meeting been given business cards by Norasia on which they were described as directors of Norasia based in Dubai. They were not in fact directors of Norasia although the fact that they were so held out is of no great significance. Although obviously active in the UAE business world, and in the case of Mr. Cox apparently enjoying some entrée into the ruling family, they were hitherto unknown to the ADIC personnel who at all times understood them to be the Dubai representatives of Norasia. Mr. Nagji's manner was as quiet and undemonstrative as that of Mr. Cox was flamboyant. Although the evidence and in particular the cross-examination of Mr. Cox and Mr. Nagji generated much sound and fury at the trial it likewise was not ultimately of central importance to the issues which remain for me to resolve.
  83. Although it was not in evidence how precisely this had occurred, or at what level, it is plain that the proposal which Mr. Steiger brought to ADIC for investment as partners in a prospective Abu Dhabi Container Lines Limited had indeed been commended to ADIC by the Abu Dhabi Port Authority. However it is also clear on the evidence that this recommendation did not make acceptance of the proposal a fait accompli. For one thing it did not meet ADIC's investment criteria as it proposed an equity injection of more than US$6M and a yield of less than 15 percent. However there was a possibility of placing the bulk of the investment with third parties and thereby earning placement fees. Furthermore, it is plain that Mr. Steiger held out the prospect of a yield of 10 percent on the investment, a prospect which he probably described as guaranteed. I leave out of account how precisely such a statement should be analysed, i.e. whether it amounted to a representation, since it is not a statement on which reliance is alleged to have been or was placed, but a yield of 10 percent on a project calculated to confer economic benefit on Abu Dhabi would be acceptable within the guidelines. It was for these reasons that Mr. Al Fahim was encouraged by both his Project Team and his senior management to look into the project in further detail.
  84. ADIC called no member of the Board to give evidence. I shall have to describe the decision making process in due course. However, whilst it may have been a proposal that was likely to receive a fair wind I am quite satisfied on the evidence that the Board would nonetheless not have approved the proposed investment had not the Project Team recommended its acceptance. ADIC is a commercial organisation and the evidence does not even begin to bear out the veiled suggestion that in this case because of the perceived wider benefit to Abu Dhabi ADIC was prepared to and did act in an uncommercial manner. Furthermore I reject any suggestion that acceptance of the proposal by the Project Team was dictated or even unduly influenced by the consideration that the proposal had the backing of the Port Authority and possibly even backing at a level above that. ADIC had quite an aversion to spending money in securing outside assistance in evaluating investment proposals and the professional assistance which they did here obtain, on the insistence of the Board, was in my judgment of somewhat dubious value but that was not to be known in advance. I do not consider that the protracted exercise through which the Project Team went was an expensive charade designed simply to bring about a pre-ordained conclusion. There are criticisms or observations which can be made about the expertise or insight which the members of the Project Team brought to their task but at the end of the day I was left in no doubt that it was a genuine exercise designed to evaluate the proposal as a commercial proposition just as any other proposal would have been evaluated.
  85. At the meeting Mr. Steiger handed over a copy or copies of the "Business Plan" of 1 February 1999 to which I have already referred.
  86. The Business Plan comprised:
  87. (1) A 13 page covering memorandum with 14 headings including:

    1: Preview
    2: Concept
    4: Investment
    5: Financing
    6: Operation

    (2) Enclosures as listed in an Index including:

    (a) 01: Cash flow projections 1999 - 2004
    (b) 04: Budget 1999 of the CEX Service
    (c) 15 & 16: Financial statements of NSL (but not NLM or Holdings) for periods ended 31 March 1997 and 1998.
  88. The investment proposal outlined was the purchase of the 10 Vessels at a total price of US$400,000,000. The price was calculated as the sum of the contract prices and associated costs. The sum was to be financed by mortgage debt of US$240,000,000, leaving equity of US$160,000,000 of which 51% or US$81,600,000 was to come from "UAE nationals". The Business Plan had been drafted before ADIC was identified as the prospect; but at all times after ADIC was identified it was envisaged that the equity share to be provided by ADIC was to be this amount. Because of the US$6M limit imposed by ADIC on its own exposure, the method of provision of this equity share evolved as US$6M in cash from ADIC, and the remainder to be raised via a subsidiary, in the event two subsidiaries, the Second and Third Claimants to which I shall refer hereafter as "ASMIC" and "ASH" respectively. It was in the event ASMIC which borrowed the balance of about US$77M from a syndicate of banks led by Paribas.
  89. The Business Plan explained that the requisite long-term financing was in place from KfW, and annexed at Enclosures 02 & 03 were repayment schedules for the HDW and Chinese Vessel facilities. It was said that Norasia had maintained an excellent relationship with KfW of over 12 years and a credit volume in excess of US$1 billion. Norasia's relationship with KfW was indeed in April still good although by now a little more strained than once it was. Since 8 February 1999, only 7 days after the document had been drafted, Norasia had in fact been in breach of its repayment obligations under the Loan Agreements as I have already described, although the bank had not as it could have done declared an event of default.
  90. In section 2 the concept was pithily expressed:
  91. Due to the speed of the vessels we can service most destinations on a weekly round trip where all other feeder operators need two (02) vessels to provide the same but much slower service.
    The Business Plan twice referred to the CEX service:
    Another successful application of this concept is the trade from Montreal …. to North Europe, the Mediterranean and vice versa.
    With the delivery of the first German newbuildings Norasia started a service between North Europe and Montreal. … Since November 1998 this has been extended from North Europe into the Mediterranean, allowing multiple use of the container slots and avoiding transhipment of destination containers. At today's low freight rates the vessels are able to earn a daily charter rate of approximately [US$15,000]. With an improvement of the market conditions in 2-3 years this figure could improve substantially.
  92. N-Xpress was to manage the vessels and provide an income deriving from their operation to ADCL:
  93. N-XPRESS (a fully owned subsidiary of [NSL] will manage the vessels for ADCL commercially and operationally. It will guarantee a minimum income to ADCL to cover the operation costs (crew, maintenance, insurance, drydocking etc.), the finance costs (interest and amortisation, the corporate administration (staff rent etc) and to pay a yearly dividend of 10% to the shareholders. Any profits in excess of above will be split 50/50 with ADCL and N-Xpress. This formula secures a guaranteed dividend to the shareholders in addition to sharing of profits. Shareholders will further benefit from increased value of the vessels.
  94. The proposed financial returns to ADCL (of which ADIC was to have 51%) were set out in the Estimated Cash Flow calculation (Enclosure 01). Its key features were:
  95. 1) Income to ADCL (the owner) was calculated on the basis of US$15,000 per vessel per day for 360 days a year, escalating at the rate of US$500 per day per year for 5 years. Thus for example:

    a) In the year 99/00, the German vessels are shown as earning US$27,000,000. This represents 5 vessels x 360 days x US$15,000 = US$27,000,000.
    b) In the year 00/01 the German vessels are shown as earning US$27,900,000, which represents 5 vessels x 360 days x US$15,500 = US$27,900,000.

    2) Operating costs (to the owner) were calculated on the basis of US$3,000 per day, escalating at US$200 per day per year for 5 years.

    3) On these core assumptions, the cash flow showed a dividend of 10% on ADCL's equity investment of US$160,000,000 i.e. US$16,000,000, with an accumulated surplus of US$20,961,000 by 31 March 2004.

  96. Thus, central to the Estimated Cash Flow calculation was the assumption of earnings from the vessels at the daily rate of US$15,000 from April 1999 onwards for 360 days a year. The underpinning for these suggested earnings came from Enclosure 04 described as "Budget 1999 (Canada – North Europe-Med Service 5 Vessels)" (the "Business Plan Budget"). This stated that it covered the period of 46 weeks from February to December 1999: i.e., a period that had already been running for more than two months at the time when Norasia and ADIC first met in April 1999.
  97. The Business Plan Budget showed a profit for the 46 week period of US$199,000, comprising:
  98. 1) Net revenue of US$74,393,000

    2) Less:

    (a) Variable costs of US$66,565,000
    (b) Fixed costs of US$7,629,000.
  99. The variable costs included a line for "Slot Costs CEX" in the sum of US$42,320,000. A separate breakdown of this was supplied, which identifies weekly charter hire costs of US$525,000 (i.e. 5 Vessels x US$15,000 x 7days). Thus the profit figure for the CEX service of US$199,000 for the 46 weeks from February to December 1999 was presented as net of charter hire to the owners of US$15,000 per vessel per day for all 1,610 vessel days (i.e. 46 weeks x 7 days x 5 Vessels) covered by that 46 week period.
  100. The Business Plan Budget was the keystone of the Business Plan. If it was viable, the figures in the Estimated Cash Flow calculation were viable. If however, operational experience to date had materially failed to match the returns suggested in the Business Plan Budget, then not simply was there no support for the Cash Flow estimate, but also actual experience would have demonstrated that it was not capable in current circumstances of being achieved.
  101. The Claimants contend that the key statement in the Business Plan Budget "At today's low freight rates the vessels are able to earn a daily charter rate of approximately [US$15,000]" needs to be read, in particular, in the context of two other aspects of the Business Plan:
  102. 1) The statement that the CEX service was a "successful application" of the Fast Feeder Concept.

    2) The Business Plan Budget, showing the Vessels managing to pay charterhire of US$15,000 per Vessel per day on the CEX route from February 1999 onwards.

  103. The Claimants' case is that Mr. Steiger knew when he wrote the Business Plan in February 1999, and when he provided it to ADIC in April 1999, that it was fundamentally misleading because:
  104. 1) The Business Plan Budget did not reflect Norasia's current management budget for the CEX service.

    2) The CEX service had in fact been loss making, and

    3) The Vessels had failed to generate US$15,000 per Vessel per day.

  105. It is the Claimants' case that Mr. Menzel was fully aware of the contents of the Business Plan, and that he also knew that it was fundamentally misleading in those three respects.
  106. Having regard also to what is alleged to have been said at the meeting by Mr. Steiger, the Claimants' case, in outline, in relation to the meeting on 12 April 1999, is that:
  107. 1) It was represented in the Business Plan that "at today's low freight rates the vessels are able to earn a daily charter rate of approximately US$15,000"

    2) It was represented orally by Mr. Steiger to ADIC that:

    a) The Vessels were capable of - and were in fact - earning in excess of US$15,000 per Vessel per day.
    b) The five HDW Vessels had operated successfully on the CEX Atlantic route.
    c) The Vessels had operated successfully on the CEX Route, were operating successfully at 25 knots and that this speed made them particularly attractive and, indeed, unique in the market such that they were able to command a premium over the rates earned by conventional tonnage.

    3) These representations were untrue:

    a) As to the vessels' earnings, the Vessels were not then earning, and were not in the immediate future capable of earning, US$15,000 per vessel per day.
    b) The Vessels had not performed successfully on the CEX route, but had made losses on that route.
    c) As to the state of the Vessels, the true position was that the Vessels suffered from serious defects which had impacted, and continued to impact, adversely upon their ability to trade as planned or at all.

    4) The true position, and thus the falsity of the representations made to ADIC, was known to Mr. Steiger and Mr. Menzel as at 12 April 1999.

    5) The Claimants relied on these representations when determining to invest in ADCL and in closing the transaction.

  108. Although his evidence on this was not easy to follow, it was I think Mr. Steiger's case that the Budget appended to the Business Plan had been prepared in or just before February 1999 and was based on actual freight rates achieved and actual costs incurred. On an average weekly load factor of 2739 TEU it showed an operational profit of US$4,326 per week, a little short therefore of US$2 per TEU. The budget showed "Boxco" costs at US$146,674 or about US$54 per TEU. Boxco costs are costs related to the containers themselves, some of which were owned by Norasia but most of which were leased in. Boxco costs are made up of various expenses – container hire, container maintenance and costs for repositioning empty containers. When for example containers were carried inland from their destination port Norasia would have to pay for their return from their ultimate destination and of course to pay hire on the containers for the duration of the trip even whilst empty. The costs are described as "Boxco" costs because it was Boxco Ltd Gibraltar, administered from Hong Kong, which handled the containers for Norasia Group.
  109. I cannot accept that the Budget in the Business Plan can have been based on actual figures available on or shortly before 1 February 1999. The Norasia Defendants have disclosed two sets of NLM management accounts which span the critical 1 February 1999 date, both created by Mr. Pauw, the first on 23 November 1998, the second on 24 March 1999. The second of these documents, created just 19 days before the 12 April meeting, also contains a 1999 Management Budget for the CEX service. Leaving on one side for one moment the fact that Mr. Steiger presented on 12 April a Budget allegedly prepared on 1 February rather than the more up to date document, the comparison between the figures contained in these three documents demonstrates that it is simply impossible for actual figures available to Norasia as at 1 February 1999 to have been such that the Budget in the Business Plan could have been derived therefrom. The management accounts for 23 November 1998 showed for the second quarter an operating profit on the CEX service of the order of US$311 per week, something rather less than US$1 per TEU carried. The actual Boxco costs there shown are US$121 per TEU. The situation did not thereafter improve – it deteriorated, as Norasia undoubtedly so perceived at the time. The budget against which actual performance in weeks 6 – 9 was measured in the 24 March 1999 management accounts predicted an average weekly loss of US$370,334 or about US$138 per TEU carried, on assumed Boxco costs of around US$143 per TEU carried. Actual performance in the four weekly reporting periods was worse than expected – an average weekly loss of US$509,605 or US$265 per TEU carried. Actual Boxco costs averaged US$156 per TEU. In the light of this it is simply not credible that Norasia can have had available to it at the end of January 1999 actual figures from which the Budget in the Business Plan could have been derived. Quite apart from anything else, the Business Plan budget figure for Boxco costs is completely aberrant. Indeed it is the figure for Boxco costs which provides the most striking contrast between the Business Plan budget and that apparently in use within Norasia in March 1999.
  110. In any event Mr. Steiger's position that the Business Plan budget derived from figures available as at 1 February 1999 was not supported by Mr. Menzel. He said that he thought that that budget had been produced at the end of 1998, and that it was believed to be accurate at the time. The apparent anomaly of presenting to ADIC in April 1999 a budget already known to be out of date and unjustified by actual performance he sought to excuse by saying that when at the end of March 1999 it was decided to switch the vessels out of the CEX service little attention was thereafter devoted to the CEX budget and the numbers were simply left as they had been previously. Whilst this latter suggestion is a wholly inadequate explanation for the provision of misleading information, I cannot accept that the budget attached to the Business Plan was in fact produced at the end of 1998. The budget predicted a profit per TEU carried of roughly double that shown in the November 1998 management accounts for the second quarter. Furthermore both Mr. Steiger and Mr. Menzel gave evidence to the effect that they did not expect the vessels to make a profit in the CEX service during the first year or two of operations following start-up. Mr. Steiger said that it was only when he had the figures for week 15 in 1999, the week commencing 12 April 1999, that he felt comfortable that a level had been reached at which the ships could achieve earnings sufficient to pay charter hire of US$15,000 per day. In these circumstances it is impossible to see how a bona fide budget drawn up at the end of 1998 could have been predicting this outcome on the basis of results thus far. Finally there is again the question of the Boxco costs, the figure for which simply cannot have been one derived from experience at the end of 1998. Mr. Menzel could not explain why "such low Boxco costs were inserted here."
  111. The natural and intended meaning of what is said in the Business Plan is that the vessels have proved themselves capable in service over time in a low freight market of consistently making earnings which equated to a time charter equivalent of US$15,000 per day, i.e. an amount which would enable an operator to pay such a daily rate of hire to the owner in addition to meeting the costs of operating the line. Looked at from an owner's point of view, the representation was that the vessels had proved themselves consistently capable in service of securing to the owner earnings of US$15,000 per day before payment of financing expenses and such expenses as would normally devolve upon the owner of a time chartered vessel. That is in my judgment the natural meaning of the words used "at today's low freight rates the vessels are able to earn a daily charter rate of approximately United States dollars 15,000 (US$15,000)." That natural meaning is reinforced by the context in which the words were used, and particularly by the support proffered, a 46 week February to December 1999 budget which any reader would reasonably infer was based upon the actual performance of the vessels in the "successful application of the concept" which was the CEX service. There was no real debate about what Mr. Steiger had in this regard said at the meeting. He accepted that what he said was designed to persuade ADIC that they could be confident that the ships would in their (part) ownership generate earnings of at least US$15,000 per day. What he said was not and was not intended to be simply a prediction for the future. It was and was intended to be a forecast in which one could have confidence by reason of the fact that the vessels had already in difficult conditions shown themselves consistently capable of achieving time charter equivalent earnings of US$15,000 per day.
  112. Mr. Menzel knew that the figures in the Business Plan were going to be presented to ADIC for this purpose. Both Mr. Steiger and Mr. Menzel knew that on the basis of the actual results of the CEX service to date and on the basis of the current management budget it was as at 12 April 1999 untrue and seriously misleading to suggest that the vessels were then able to earn a time charter equivalent of US$15,000 per vessel per day in the CEX service. These representations as to the vessels' proven earning capacity were central to ADIC's evaluation of the proposal. ADIC relied on these representations not as an unsubstantiated forecast of what the vessels might in their service achieve but as a clear and unequivocal statement of what they had achieved to date on the basis of which they could be confident for the future.
  113. Mr. Steiger accepted that one of the pillars of his sales pitch to ADIC at the meeting was that the vessels had a service speed of 25 knots and that they were operating successfully in the CEX service, by which would reasonably be understood that they were consistently operating at their 25 knots service speed. Mr. Menzel knew that it was likely that Mr. Steiger would say this at the meeting. The Business Plan itself emphasised the speed of the vessels, stating that it would allow them, when combined with their fast turnaround time, to generate approximately the same revenue during a weekly service as could be achieved by two slower less sophisticated vessels, and moreover at a lower overall cost. The way in which Mr. Steiger put this at the meeting was that by virtue of their service speed of 25 knots the vessels could command a premium in the market. In fact I think it likely that Mr. Steiger may have allowed himself in his enthusiasm to say that the vessels had a maximum speed in excess of 25 knots, and that he may have mentioned a figure of 27 knots. Certainly Mr. Cox and Mr. Al Fahim recollected a distinction being drawn between a top spe