Halla Merchant Marine Co. Ltd. v. Portserv Ltd., docket T-279-96

     T-279-96

BETWEEN:

     HALLA MERCHANT MARINE CO. LTD.,

     Plaintiff,

     - and -

     PORTSERV LTD., TRANSMAR SHIPPING INC. and

     NAZIR GULAMHUSEIN and THE OWNERS AND ALL

     OTHERS INTERESTED IN FREIGHTS, SUB-FREIGHTS

     AND CHARTER HIRE OF THE SHIP "LOK MAHESHWARI",

     Defendants.

     REASONS FOR JUDGMENT

LUTFY J.:

     Pursuant to Rules 432.3 through 432.5 of the Federal Court Rules, the plaintiff Halla Merchant Marine Co. Ltd. ("Halla"), as disponent owner of the ship LOK MAHESHWARI (the "ship"), seeks partial summary judgment for $635,009.71¹ against its charterer, the defendant Transmar Shipping Inc. ("Transmar"). The amounts sought represent substantially the claim for hire between January 1, 1996 and March 15, 1996 less adjustments on account of the value of bunkers on redelivery and the time loss due to crane breakdown.

     In support of its motion for partial summary judgment, Halla produced the affidavit of Mr. Chong-Kook Yoon, its senior executive vice-president. Transmar relies on its cross-examination of Mr. Yoon but on no further affidavit material.

     On October 25, 1995, Halla and Transmar entered into their time charterparty agreement which provided for the hire rate of $9,400 per day less 5% commission for a net daily rate of $8,930. Advance hire payments were to be made at the beginning of each 15-day period in the amount of $133,950. The term of the agreement commenced on November 1, 1995 for a period of up to five months. The ship went on hire as of 22:05 hours on November 1, 1995 Vancouver local time or 05:05 hours G.M.T. on November 2, 1995.

     After the loading of its cargo, the ship sailed from Vancouver for its destination ports in Indonesia and India. The ship arrived in Bombay on January 21, 1996 but the discharge of its cargo was not completed until March 15, 1996. The dispute among Halla, Transmar and the other defendants has to do in part with the circumstances surrounding the delay in discharging the cargo.

     It was not until February 1, 1996, some ten days after its arrival in Bombay, that the ship was able to berth. This delay was the result of Transmar's failure to pre-pay certain port authority charges. Subsequently, the discharge period which would normally have lasted no more than two weeks extended for a further month until March 15, 1996.

     In its submissions, Transmar attributes the slow discharge to: (a) the refusal of the port authority to let the vessel land; (b) various breakdowns of both the ship's equipment and the stevedores' equipment; (c) the refusal of the master to deliver cargo without receiving original copies of the bills of lading; and (d) the removal of the ship from its berth between February 24, 1996 and March 9, 1996 on the order of the port authorities issued due to the slow pace of the discharge operation.

     The delays in the discharge of the cargo have resulted in a demurrage claim by Transmar's subcharterer, the defendant Portserv Ltd., under the voyage charter parties. This demurrage claim, including the claim for detention, is alleged to be as high as $283,545. This claim is presently subject to arbitration in London.

THE ISSUES

     There is no real dispute that the fifth hire (05:05 G.M.T., January 1, 1996 to 05:05 G.M.T., January 16, 1996) and the sixth hire (05:05 G.M.T., January 16, 1996 to 05:05 G.M.T., January 31, 1996) are owing. The failure to pre-pay the port authority charges which resulted in the ten-day delay to berth the ship in Bombay can only be attributed to Transmar. With respect to the fifth and sixth hires, no evidence has been made establishing a genuine issue of fact for trial.

     Similarly, there is no genuine issue for trial concerning Halla's claim for $881.25, an outstanding amount with respect to the first hire.

     Transmar's defence to Halla's claim for partial summary judgment for the outstanding hire payments is three-fold: (a) Halla, by taking over control of the vessel, withdrew the ship from Transmar on or about February 1, 1996, thereby discharging the charterer of any subsequent obligations to pay hire; (b) in the alternative, Halla is not entitled to claim hire for the period of undue delay in discharging the cargo; and (c) in any event, Transmar is entitled to set-off the amount of the demurrage claim presently subject to arbitration against Halla's claim for hire. Counsel for Transmar acknowledges that the counterclaim for damages as a result of the arrest of the ship and the impact this had on Transmar's banker do not form part of the set-off claim in response to this motion for summary judgment.

CAN HALLA OBTAIN SUMMARY JUDGMENT FOR THE SEVENTH, EIGHT AND NINTH HIRES (January 31, 1996 through March 15, 1996)?

     Transmar's hire payments in November and December had not been punctual. In early January 1996, Halla became increasingly aware of Transmar's financial difficulties. Correspondence from Halla or its representatives to Transmar became more frequent and insistent. In response to a detailed request of January 8, 1996 concerning the non-payment of the fifth hire, which became due a week earlier, Transmar stated on January 9, 1996:

We refer to owners message pertaining to unpaid hire. We apologize for the delay in replying as the man in charge has been travelling. Charterers have been experiencing temporary cash flow problems since November 09, 1995 which have arisen as a result of closure of U.S. Government some substantial freight have been outstanding to charterers. Notwithstanding that the charterers have paid all hire due except for the last hire which they expect to pay in the next few days. We apologize for this and assure owners that we intend to live up to all our obligations under the C.P. We appreciate owners patience and, once again, apologize for the delay in remittance.

     Communications continued almost on a daily basis. Promises to pay were not kept. The sixth hire became due on January 16, 1996. Transmar explained that its non-payment was due to delay in arranging new financing and collecting outstanding freight. On January 29, 1996, Halla's officials met with a representative of the ship's registered owner. On January 30, 1996, Halla arranged for these two separate messages to be forwarded to Transmar (documents 502 and 503 respectively):

[#502]      WITH REFERENCE TO SETTLE PRESENT PROBLEMS BTWN CHRS N US ASAP, WE URGNTLY RQST CHRS TO SEND CHRS OFFICIAL NOTICE/CFMN MSG TO REDELIVER THE VESSEL TO OWRS AT BOMBAY AFTER COMPLETION OF DISCHARGING CARGO N COMPENSATE ALL OUTSTANDING HIRAGE/BALLAST BONUS/BOMBAY PORT CHARGE N ETC WITH EVIDENTAL REMITTANCE SCHEDULE.

[#503]      WE HEREBY ATTACHED OUR INVOICE N WE TAKE THIS OPPORTUNITY TO REMIND YOU THAT THE 7TH HIRE IS DUE ON 31ST JANUARY. FOR THE ADVANCE OF DOUBT, WE RESERVE ALL OUR RIGHTS UNDER THE CHARTERPARTY BETWEEN US, DATED 25TH OCTOBER 1995, INCLUDING THE RIGHT TO WITHDRAW THE VESSEL PURSUANT TO CLAUSE 29(B), FOR THE NON PAYMENT OF HIRE.

THE SUMS WHICH WILL BE DUE ON 31ST JANUARY ARE IN RESPECT OF THE 5TH, 6TH AND 7TH HIRES, TOTALING US406,764.04 PLUS THE ADVANCE PORT DUES.

The record contains no written responses from Transmar to these communications.

     The seventh hire became due on January 31, 1996 and was not paid.

     Mr. Yoon, Halla's senior executive vice-president met with defendant Nazir Gulamhusein, an officer and director of Transmar, in Markham, Ontario on January 31 and February 1, 1996 to discuss the situation. According to Halla, Transmar's representative at these meetings acknowledged that its indebtedness with respect to the ship was in excess of $400,000. Transmar was unable to provide the security demanded by Halla in consideration of any extension of time for the payments. Accordingly, after these meetings, Halla assumed responsibility for the discharge of the cargo. Halla dispatched its own employee to Bombay to deal with the consignees, reappointed Transmar's agent in Bombay as its own and instructed the master of the ship.

     According to Mr. Yoon's cross-examination, because he "kicked them hard", Transmar was arranging partial pre-payment of the Bombay port charges on "the second day of our meeting", February 1, 1996, or shortly after the two-day meeting. Halla subsequently made the balance of the pre-payments required by the port authority. According to the evidence, Transmar's partial payment was made after the seventh hire became due on January 31, 1996.

     The ship was berthed on February 1, 1996 and the discharge began. Halla continued to oversee the discharge of the cargo in Bombay with no apparent further involvement of Transmar.

     On February 14, 1996, Transmar received Halla's request for payment of the eight hire (February 15, 1996 through March 1, 1996) in addition to the outstanding payments that had yet to be made. The ninth and final hire was invoiced by Halla on March 18, 1996 for the period beginning March 1, 1996 and ending on March 15, 1996 upon completion of the discharge.

     On March 19, 1996, some four days after the completion of the discharge, Halla wrote to Transmar in the following terms:

We consider you to have been in repudiatory breach of the charter for your continued failure to pay hire. We hereby give you formal notice that we now accept your repudiatory breach thereby bringing the charter to an end and reserve all our rights to claim damages for your repudiatory breach of the charter, in addition to the total hire and expenses due up to the completion of the discharge amounting to USD $1, 052, 987.54.

     Transmar's first submission is that Halla withdrew the ship on or about February 1, 1996 and, accordingly, lost its right to claim for hire beyond that time. In support of its argument, Transmar relies on Halla's conduct in overseeing the discharge and the absence of any provision in the charterparty agreement allowing the owner to take control of the ship other than by withdrawal pursuant to clause 5.² Alternatively, Transmar argues that Halla, through its conduct as of February 1, 1996, accepted Transmar's repudiation of the contract.

     After some hesitation, I have concluded that the record is not sufficiently complete to determine on this motion Halla's right to the seventh and subsequent hires, either as hire or damages. To do so would require a determination of the parties' conduct on or about February 1, 1996: (a) did Halla withdraw the ship as asserted by Transmar; (b) did Halla accept Transmar's repudiation of the charterparty agreement; or (c) did the parties agree to continue the charterparty agreement until after the discharge of the cargo when the ship would then be redelivered to Halla?

     The incomplete evidence in this regard, in my view, is best demonstrated by a third message of January 30, 1996 sent to Transmar on behalf of Halla which reads: "PLS RESEND SUCH MSG BY TELEX WITH "MORE OFFICIAL WORDING" WE HEREBY NOTIFY OWNERS THAT...". It would appear that Halla was not satisfied with the response provided to its request in document 502 (above) and sought a less equivocal statement. That response does not appear on the record and there is no indication of what it might have contained. If it was re-sent with "more official wording", this second response does not appear on the file either. Transmar's first response or its second response, if it exists, may constitute important evidence in the legal characterization of the parties' conduct.

     Furthermore, the discharge was set to begin after the ship berthed on February 1, 1996. Mr. Yoon expected the discharge to last no more than two weeks. The Bombay port authority had charged $25,000 as pre-payment for the berth hire for fourteen days. In a message of January 29, 1996 conveyed to Transmar, Halla's broker estimated it could take about "12/13 days" to complete the discharge. The demurrage claim document notes the allowed laytime of fifteen days, a calculation presumably made on the basis of the voyage charter. The discharge of the ship in Bombay was expected to take close to and not more than two weeks.

     Accordingly, the expected discharge period would have substantially coincided with the seventh hire (January 31, 1996 to February 15, 1996). It may well be that the seventh hire is owing, if not as hire then as damages, regardless of the eventual legal characterization of the parties conduct on or about February 1, 1996. However, it would be more prudent, in my view, if any determination in that regard were made when the record on these issues is complete.

     Finally, the claim for the eight and ninth hires raises further genuine issues for trial to the extent that they are not otherwise resolved by arbitration. The period covered by the eight and ninth hires (February 15, 1996 to March 15, 1996) represents the delay in discharge beyond the expected time of about two weeks. The factual issues concerning the causes of and the responsibility for the delays are being contested and will be resolved by arbitration or at trial.

DOES TRANSMAR HAVE THE RIGHT TO SET-OFF THE DEMURRAGE CLAIM AGAINST HALLA'S CLAIM FOR HIRE?

     The demurrage claim of $283,545 is for liquidated damages for the delay beyond the laytime envisaged in the voyage charter for the discharging of the ship. This claim will be arbitrated in London.

     The demurrage claim is for the delay between February 9, 1996 when the laytime ended and March 15, 1996, when the discharge was completed. The hire claim which will be awarded in this partial summary judgment is for the period ending January 31, 1996 which is prior to the earliest date of the demurrage claim. In these circumstances, in my view, the case law is clear that it would be an error to set-off the demurrage claim against the award for hire.

     In Century Textiles and Industry Ltd. v. Tomoe Shipping Co. (Singapore) Pte. Ltd. ("The Aditya Vaibhav"),³ the charterers had deducted from hire their loss and expense incurred when the ship was delayed due to a breach of the charterparty by the owners. The breach by the owners resulted in a delay of some fourteen days. The owners sought summary judgment for hire for the period not related to the delay and against which the charterers sought to deduct their damages. Saville J. concluded the equitable set-off could not apply (at p. 574):

In these circumstances the question is whether, as the charterers submit, equitable set-off in relation to a claim for hire under a time charter allows the charterers to deduct from the claim all the recoverable loss and expense sustained by them through the owners' failure in breach of charter to provide the services for which the hire was payable or whether, as the owners submit, the charterers can only make such deductions up to the amount of hire otherwise payable for the period during which such services were not provided.

In my judgment, the owners' submission correctly represents the law. The most authoritative modern statement of the principle of equitable set-off in this context is contained in the judgment of Lord Denning, M.R. in Federal Commerce & Navigation Co. Ltd. v. Molena Alpha Inc. and Others, [1978] 2 Lloyd's Rep. 132 at p. 140, col. 1; [1978] 1 Q.B. 927 at pp. 974-975:

But one thing is quite clear: it is not every cross-claim which can be deducted. It is only cross-claims that arise out of the same transaction or are closely connected with it. And it is only cross-claims which go directly to impeach Halla's demands, that is, so closely connected with his demands that it would be manifestly unjust to allow him to enforce payment without taking into account the cross-claim.

     ...

To my mind that close connection exists in relation to a claim for hire which in effect is a claim in respect of a period during which the owners, in breach of the charter, have failed to provide the very thing for which that hire was payable... However, in respect of other periods when the owners are providing that for which hire is payable, such manifest injustice does not appear. The reason for this is that a claim for hire in respect of such periods cannot be impeached by saying that owners are in any sense asking to be paid for a service which they have not provided. In other words, the cross-claim has no connection with the period when the vessel is at the service of the charterers other than it arises out of the same transaction. This, however, only satisfies the first and not the second requirement for equitable set-off.

     Mr. Justice Saville also concluded that his summary judgment in favour of the owners' claim should not be stayed for execution pending determination of the charterer's cross-claim "...for to do so would in effect and to all intents and purposes achieve the same or virtually the same result as treating the cross-claim as providing a set-off."

     The dictum of Lord Denning, M.R. in Federal Commerce & Navigation Co. Ltd. (also referred to as The Nanfri) relied upon by Saville J. in the Aditya Vaibhav, supra, was also adopted by the Court of Appeal in Atlantic Lines & Navigation Company Inc. v. The Ship Didymi and Didymi Corporation.⁴ In speaking for the unanimous panel of the Court, Stone J.A. after reviewing the history of equitable set-off and its recognition in Rule 418 of the Federal Court Rules concluded as follows (at p. 20):

On the authorities already referred to, a right of equitable set-off relies on much more than the mere existence of a cross-claim. As Lord Denning put it in The Nanfri in a passage already recited, it is only "cross-claims that arise out of the same transaction or are closely connected with it" and "which go directly to impeach Halla's demands" such as to render it "manifestly unjust to allow him to enforce payment without taking into account the cross-claim" that may be the subject of an equitable set-off. That case furnishes a practical illustration of circumstances in which the doctrine may be invoked. A shipowner sought to recover charter hire under a time charter. The charterer sought to set off damages which flowed from the shipowner having wrongly deprived the charterer of the use of the vessel during the currency of the charter party. The Court of Appeal permitted the cross-claim for damages to be set off against the claim for charter hire. The cross-claim not only arose out of the same agreement but was directly connected to the claim for charter hire and thus, could be set up so as to reduce or extinguish the shipowner's claim. It would be manifestly unjust to compel the charterer to pay charter hire without first permitting him to set up his cross-claim for damages caused by the shipowner's wrongful act of depriving the charterer of use of the vessel during the period for which the charter hire was claimed.

(emphasis added)

     The facts in the present case cannot be distinguished in any substantial way from these decisions on the issue of equitable set-off. The hire claim which will be granted in this summary judgment is for a period ending prior to the commencement of the demurrage claim. The claim being asserted by Transmar, presently pending before arbitrators in London, cannot be set-off against Halla's hire claim in this motion for summary judgment. Similarly, it would not be appropriate to stay the execution of the judgment pending the resolution of the demurrage claim through the arbitration or at trial.

DISPOSITION

     Halla's motion for partial summary judgment will be granted in part. Transmar will be ordered to pay to Halla $133,950 for each of the fifth and sixth hires and the outstanding amount of $881.25 with respect to the first hire less the adjustments for time lost due to crane breakdown ($1,800) and the value of bunkers on redelivery ($56,630). There is no genuine issue for trial with respect to the amounts to be deducted for these two items. Similarly, neither party suggested that there is a genuine issue concerning the cumulative interest owing to September 30, 1996 (exhibit "O" of the Yoon Affidavit) with respect to the amount to be awarded in this judgment. There will be neither set-off of the demurrage claim against this award nor a stay of the execution of the judgment.

     The U.S. currency figures used throughout these reasons must be converted to their Canadian currency equivalents pursuant to section 11 of the Currency Act, R.S.C. c. C-52.

     Counsel may wish to make further representations within the next thirty days if they cannot agree on the total amount of the award in Canadian currency, including the issues of cumulative interest, pre-judgment interest and costs.

     Pursuant to Rule 337(2)(b), the plaintiff should prepare a draft of the appropriate judgment to implement this disposition and move for judgment accordingly.

                         Allan Lutfy

                         Judge

Ottawa, Ontario

February 26, 1997

__________________

     ¹      Unless otherwise indicated, all references to monetary amounts will be in U.S. currency.

     ²      Clause 5 of the charterparty agreement provides that, in the event of the charterer's failure to make punctual hire payments "...the Owners shall be at liberty to withdraw the vessel from the service of the Charterer, without prejudice to any claim they (the Owners) may otherwise have on the Charterers". The anti-technicality clause 29(b) provides the charterer forty-eight hours to rectify any payment deficiency.

     ³      [1991] 1 Lloyd's Rep. 573.

     ⁴      [1988] 1 F.C. 3 at pp. 17-18 and 20.