[1990] Vol.
2 LLOYD'S LAW REPORTS
QUEEN'S BENCH DIVISION
(COMMERCIAL COURT)
Feb. 5,6,7,8,12,13,14,15,19,20,21, and 22, 1990
____________________
ARCTIC SHIPPING CO. LTD.
v.
MOBILIA A.B. AND OTHERS
(THE "TATRA")
Before Mr. Justice Gatehouse
Sale of ship - Contract - Validity - Whether binding contract
concluded - Whether brokers had authority to contract on behalf
of buyers - Whether buyers ratified and or were estopped from
denying brokers' authority.
On June 27, 1985 a firm of Norwegian shipbrokers entered, or at
least appeared to have entered, into a contract by telex and
telephone for the sale of the bulk carrier Tatra. They acted as agents
for and on behalf of the plaintiffs, the registered owners of the
vessel.
The contract was made with a firm of Swedish shipbrokers
purporting to act on behalf of the first defendants (Mobilia) as
purchasers, and Magnus Lindholm the second defendant as
guarantor of Mobilia's obligations under the contract.
Mobilia contended that no binding contract was concluded. They
argued that the Swedish brokers had no authority to contract on their
behalf.
The plaintiffs contended that the first defendants had ratified the
brokers' action and/or they were estopped from denying the brokers'
authority. The plaintiffs joined the Swedish brokers as third
defendants in the action
-Held, by Q.B. (Com.Ct.) (Gatehouse, J.), that (1) on the evidence
no actual express authority was given to the third defendants by the
first defendants (see p. 58, col. 1);
(2) the directors and shareholders of Mobilia had not the least
intention of entering into the contract to purchase Tatra and it was
unthinkable that they subsequently ratified the brokers activities
(see p. 58, col. 2);
(3) an estoppel by silence only arose when there was a duty to
speak; in the face of the defendants evidence nothing approaching
sufficient knowledge to raise a duty to speak had been established;
and the plaintiffs had failed to show that they had suffered detriment
by relying on the first defendants' duty to speak if the brokers had
no authority to negotiate and conclude the contract of June 27 (see
p. 58, col. 2; p. 59, cols. 1 and 2; p. 60, col. 1);
(4) the plaintiffs' claim against the defendants failed and would be
dismissed (see p. 60, col. 1).
____________________
[1990] Vol. 2 LLOYD'S LAW REPORTS
Q.B. (Com. Ct.) The "Tatra"
51
The following cases were referred to in the judgment:
Dibbins v. Dibbins, [1896] 2 Ch. 348;
Freeman & Lockyer v. Buckhurst Park Properties (Mangal)
Ltd., (C.A.) [1964] 2 Q.B. 480;
Henrik Sif, The [1982] 1 Lloyd's Rep. 456.
Moorgate Mercantile Ltd. v. Twitchings, (H.L.) [1977] A.C.
890;
Suwalki, The [1989] 1 Lloyd's Rep. 511;
Watson v. Davies, [1931] 1 Ch. 445
____________________
This was an action by the plaintiffs, Arctic Shipping Co.
Ltd., against the defendants Mobilia A.B., Marcus Lindholm
and Rudling & Bjengtssen Shipping A/S claiming inter alia
declarations that the defendants were bound by the contract
entered into for the purchase of the plaintiffs' vessel Tatra and
that they had ratified or were estopped from denying the third
defendants authority to contract on their behalf.
Mr. Martin Moore-Bick, Q.C. and Mr. E. Broadbent
(instructed by Messrs. Sinclair Roche & Temperley) for the
plaintiffs; Mr. C. Russell (instructed by Messrs. Simmons &
Simmons) for the first defendants. The defence of the second
defendant was struck out and he was debarred from taking
any further part in the action and the third defendants took no
part in the proceedings.
The further facts are stated in the judgment of Mr. Justice
Gatehouse.
Judgment was reserved.
Thursday Mar. 8, 1990
____________________
JUDGMENT
Mr. Justice GATEHOUSE: On June, 27, 1985 a firm of
Norwegian shipbrokers entered, or at least appear to have
entered, into a contract by telex and telephone for the sale of
the bulk carrier Tatra. They acted as agents for and on behalf
of the plaintiffs, a Hong Kong company, who were then the
registered owners of the vessel. The contract was made with a
firm of Swedish shipbrokers purporting to act on behalf of the
first defendants, Mobilia A/B, as purchasers, and Magnus
Lindholm, the second
52
Gatehouse, J.
defendant, as guarantor of Mobilia's obligations under the
contract.
Mobilia contend that no binding contract was concluded, but
their principal defence to the plaintiffs' claim under the
contract is that the Swedish brokers had no authority to
contract on their behalf. The plaintiffs' reply is that if not,
nevertheless the first defendants ratified the brokers' action
and/or (by a late amendment of the points of reply) they are
estopped from denying the brokers' authority.
The plaintiffs joined the Swedish brokers as third defendants
in the action, claiming in the alternative against them
damages for breach of warranty of authority.
If the first and second defendants are bound by the contract,
which incorporated the standard Norwegian Sale Form terms
with some typed additional clauses, there is an arbitration
clause. The plaintiffs accordingly set the machinery of
arbitration in motion. As the first and second defendants' case
is that there was no binding contract, it followed that they
were not parties to the arbitration agreement, and the points of
claim accordingly seek declarations (i) that the defendants are
bound by the contract and (ii) that the arbitral tribunal has
been validly constituted.
The position changed by the time of the hearing. Mr. Justice
Saville, had made an order on Aug. 5, 1988 striking out the
defence of the second defendant and debarring him from
taking any further part in the action. The third defendants
have not entered an acknowledgment of service and so have
taken no part in the proceedings. I therefore have to consider
only the issues arising as between the plaintiffs and the first
defendants. At the hearing, Mr. Russell for these defendants
conceded that if I were to find in favour of the plaintiffs on
the main issue, the arbitral proceedings had been properly
begun, so the issues relevant to the second declaration sought
by the plaintiffs need not be further considered.
The action has unusual features and I need to set out the
background in some detail.
Although the plaintiffs were the registered owners of the
vessel, the beneficial owners were the well-known Norwegian
shipowners Wilhelm Wilhelmsen Ltd. A/S. In the period
before these events high wage rates had made it
uneconomical to own and trade a ship under the Norwegian
flag and with a Norwegian crew, and Wilhelm Wilhelmsen
("WWL") incorporated the plaintiff company in Hong Kong
as a wholly-owned subsidiary to which they transferred Tatra
among other vessels. But, as I
[1990] Vol. 2 LLOYD'S LAW REPORTS
Q.B. (Com. Ct.) The "Tatra"
understand it, the plaintiffs did not take part in the
management of the vessels: the Hong Kong flag was simply a
flag of convenience. All management decisions and certainly
all major decisions such as sale or purchase of ships owned
by the subsidiary company were taken by the parent company
in Oslo.
When WWL decided to sell Tatra they instructed Oslo
brokers P. F. Bassoe A/S & Co., and Mr. Jan Olafsen of that
company circulated details in late March 1985. There is no
issue as to the authority of the plaintiffs' brokers, but there is
an issue as to whether the plaintiffs' board of directors - as
distinct from WWL's board - approved the sale in time, as
required by one of the terms of the contract. To this I will
return later but I now set out the parties concerned on the
other side of the transaction.
At the centre of this is Mr. Magnus Lindholm, the erstwhile
second defendant. Formerly a practising lawyer in Stockholm
(he was senior partner of a firm of advocates called Lagerlöf),
he also had considerable business interests including a stock
and share portfolio and, more particularly, investments in real
estate. The latter developed to such an extent that he retired
from his law practice in 1981 in order to concentrate on his
activities as a businessman. These were so successful that by
1984 he sold his group of property companies for a very large
sum. The purchasers did not wish to take over certain
peripheral companies in the group and these were disposed of
separately.
Among them was Mobilia, by that time a shell company
which Mr. Lindholm sold to his two brothers, Gerhard and
Peo. On Dec. 1, 1984 Magnus resigned as managing director
and was replaced by Gerhard. Sigbjorn Olsson and Christa
Hakannson, both partners in Lagerlöf, the lawyers retained by
Mobilia, together with a Mobilia employee, were the other
three directors. Peo appears to have taken no active part in the
company: Gerhard managed its affairs and took the day-to-
day decisions required in the normal course of business.
Major decisions, particularly the purchase of assets, required
the concurrence of at least two directors. The objects of
Mobilia included the ownership of real estate, securities and
personal property. The articles made no mention of the
company owning ships or any related activity, and the
company has never been involved in anything except stock
and share and real estate investment.
At the time of the sale of Magnus Lindholm's property
group, Swedish Exchange Control laws were draconian. A
person in his position
53
Gatehouse, J.
would naturally be interested in any lawful method of
transferring assets abroad. In April, 1985 such a scheme was
suggested to him by a Swedish friend, Mr. Adam Backström.
Mr. Backström was an entrepreneur then working in New
York. At the material time he owned a company dealing
principally in real estate and the stock market but he had also
invested in ships in the past, mostly new buildings. In early
1985 he had bought at auction and was operating a single ship
and he had on his staff an employee, Mr. Barry, who was
knowledgable about the shipping world. Mr. Backström told
Magnus Lindholm that money could be lawfully moved out
of Sweden by a Swedish national purchasing a ship and
registering it in Sweden and then applying to the Swedish
Central Bank for a licence to resell the vessel abroad to
another flag. If the licence were granted the proceeds of the
resale received outside Sweden could, "after some
manoeuvres" as he put it, be retained abroad without paying
additional Swedish tax or remitting the proceeds to Sweden.
Magnus Lindholm was interested in the idea.
One of the shipbrokers with whom Mr. Backström did
business from time to time was Mr. Bjorn Rudling of Rudling
& Bjengtssen Shipping A/S in Stockholm, the third
defendants.
When Mr. Olafsen was instructed to sell Tatra, one of the
brokers to whom he circulated particulars of the vessel was
Mr. Rudling. Mr. Rudling, who knew from Backström of
Magnus Lindholm's interest in entering the shipping market,
immediately contacted Backström. The latter had assured
Rudling that he, Backström, had authority to act for Magnus
Lindholm, and as they had carried through previous
satisfactory deals with each other, Rudling accepted the
assurance without hesitation.
Backström's evidence was that Magnus Lindholm was not
interested in negotiating the detailed terms of a deal; this was
his role and he was to present Magnus with what he described
as a "push-button" operation. Magnus Lindholm's evidence
was to the same effect: that he knew nothing about shipping,
could not understand the jargon of shipbrokers' telexes and, if
a deal appeared to be viable from a financial point of view
and provided permission was granted for the vital re-flagging
of the vessel outside Sweden, he wanted the details to be
settled by Backström and then presented to him for his
approval. The ability to re-flag the vessel outside Sweden was
the lynch-pin of the scheme. Mr. Backström's evidence, which
I But I do need to consider the history of the memorandum of
[1990] Vol. 2 LLOYD'S LAW REPORTS
Q.B. (Com. Ct.) The "Tatra"
accept, was that this was known to and discussed with Mr.
Rudling, who formerly worked for Salen A/B and was wholly
familiar with the shipping world and with this system. As in
Norway so also in Sweden, anyone in the shipping world
would know that it was economically disastrous to attempt to
operate a ship under the Swedish flag.
A major change of plan occurred towards the end of May.
Magnus Lindholm decided to emigrate. His considerable
assets would remain blocked in Sweden and he ceased to be
personally interested in the purchase of a ship. He lent a large
sum, approaching the equivalent of $50m to his brothers'
company Mobilia without collateral security and against two
promissory notes carrying interest, but the capital of one of
the notes is repayable only on terms tied to the success of the
company.
When Magnus Lindholm told Backström of his ceasing to
be personally interested in the proposed venture, the
suggestion came from one or the other of them - probably
from Magnus Lindholm - that it might be possible to replace
Magnus Lindholm by Mobilia. The directors of Mobilia were
not, as I find, consulted as to this, although no doubt Magnus
discussed it informally with Gerhard, and the name of the
company as the proposed buyer found its way into the telexes
from Backström to Rudling and thus from Rudling to
Olafsen. At that time Rudling believed that Magnus
effectively owned Mobilia.
After the typical interchange of telexes between the brokers,
it appears that both Olafsen and Rudling thought agreement
had been reached on May 28. Olafsen drafted a memorandum
of agreement on the Norwegian Sale Form naming Mobilia as
the buyers, had this signed on behalf of Arctic and, on about
June 10 sent it to Rudling, who sent it round to Mobilia's
office.
Whether there was in fact a concluded agreement at this
stage is not a question I need to address because the
transaction was subject, inter alia, to inspection of the ship
and this proved unsatisfactory with regard to the state of the
vessel's holds. The inspection, carried out in Australia,
appears to have been arranged by Mr. Barry, and the cost met
by Mr. Backström's office but there is no evidence to show
whether this was on behalf of any, and if so, what principal.
So these negotiations came to nothing.
agreement received at
54
Gatehouse, J.
Mobilia's office, though the receipt was not acknowledged.
The evidence of Gerhard Lindholm was that at some stage,
which he puts as early June, his brother Magnus had
mentioned the possibility of Mobilia being used to purchase a
ship with a view to re-flagging and thus securing the legal
export of currency. He was not much interested: he had in the
past been the financial director of a subsidiary company in the
state-owned shipyard group and, although he had not been
directly concerned in shipping operations, he knew enough of
the hazards of owning a Swedish ship to be very sceptical of
Magnus' idea. He and his brother Peo did not themselves wish
to export Mobilia's funds which they were using in Mobilia's
business of stock and share investment in Sweden. Magnus
had told him that a document would be sent to him but that it
did not represent a deal which Magnus approved, that he
should ignore it and that if and when a suitable deal had been
worked out in principle, Magnus would discuss it further with
him.
When Gerhard Lindholm received the memorandum of
agreement dated May 30, 1985 he said he did not read it
carefully, though he no doubt would have looked at it and he
must, I think, have noticed Mobilia's name as buyer of the
ship and he saw that it had been signed on the final page. If he
had read it with any care, he would probably have been
somewhat confused - quite apart from the fact that he was
wholly unfamiliar with the Norwegian Sale Form of contract
and knew nothing of the telexes which had passed between
the brokers. The document was dated May 30 and recorded
that -
. . . Mobilia . . . have today bought m/s Tatra
when the company, to his knowledge, had done no such thing.
It also referred to various other matters as having already
happened which could not have happened.
A copy of the memorandum of agreement was telefaxed to
New York by, it seems, a secretary, and that is how it reached
Magnus Lindholm who by this time had emigrated from
Sweden. He said he was very annoyed when he saw Mobilia's
name as buyer because he had not yet discussed it with his
brothers and that Backström had no authority to tell Rudling
and Rudling had no authority to tell Olafsen that Mobilia's
name was to be used. In fact he went further in cross-
examination and asserted positive instructions not to use
Mobilia's name. He spoke of a tripartite telephone call to
Rudling in which harsh words were used by him. I did not
find this part of Magnus Lindholm's evidence
[1990] Vol. 2 LLOYD'S LAW REPORTS
Q.B. (Com. Ct.) The "Tatra"
satisfactory, but he was largely supported by Backström who
also gave evidence and impressed me as a generally reliable
witness.
The name of Mobilia as buyer had appeared in the inter-
broker telexes as early as the end of May, and I have no doubt
that Rudling confidently assumed that this would be the case.
At that time be believed that Magnus Lindholm was still a
major shareholder in Mobilia and Backström had told him
that Mobilia would be the buyer. Backström was either told or
at least given the impression by Magnus Lindholm that he
had obtained his brothers' agreement.
One of the difficulties throughout this case which has faced
the plaintiffs' claim against the first defendant is the tenuous
line of communication on the other side of the negotiations.
Rudling never got any written or other authority to act on
behalf of Mobilia. His instructions came, by telex and
telephone, from Backström in New York, who assured him
that he was acting on Magnus Lindholm's authority and in
view of their previous entirely satisfactory dealings he
accepted Backström's assurance. Backström was indeed
acting with Magnus Lindholm's authority, but he too never
received any authority from Mobilia and he had never had
any dealings with Gerhard or Peo.
When the inspection of the vessel's cargo holds proved
unsatisfactory Backström instructed Rudling to withdraw. As
inspection was a "subject" of the May contract (assuming
there was a concluded contract) this was an end of the matter
at this stage and Tatra was put back on the market. But within
days Rudling was instructed to re-open negotiations, but at a
lower price, and he did so. There followed a series of offers
and counter-offers between the brokers, culminating in an
agreement reached over the telephone on the night of June 27
and confirmed in a telex of the following day. The
negotiations had principally been concerned with the price,
the state of the cargo holds and the method of payment
(whether it was to be entirely in cash or, as under the previous
deal, a mixture of cash and blue-chip Swedish shares). The
basis of the new agreement was a price of $5,087,500 all in
cash: otherwise the detailed terms were to be as contained in
the memorandum of agreement of May 30, with the addition
of a newly-agreed term as to the cleaning of the tanks and the
deletion of the previous clauses relating to payment partly by
shares.
Two other terms were specifically mentioned in Rudling's
confirmatory telex of June 28. Both have featured
prominently in this case. Both had in a slightly different form
appeared in the memorandum of agreement of May 30.
55
Gatehouse, J.

The first had been cl. 26(a) of that document, which read:
This Memorandum of Agreement is subject to:
(a) the Sellers' Board approval. Same is to be lifted within
48 hours after the meeting referred to in clause 26(b) is
terminated.
That meeting, to decide inter alia on the blue-chip shares
payment was no longer required now that payment was to be
entirely in cash, so cl. 26(b) was deleted. The new term read:
. . . Sellers' Board approval 1 July 85. (Sellers undertake not
to use this time to trade with anyone else. Time needed
because three important Board members away).
The other term had been cl. 21 of the memorandum of
agreement of May 30 which read:
The Swedish Central Bank have approved the payment
procedures agreed in this Memorandum of Agreement. See
clauses 2, 3, 7, 8, 17 and 26(b) herein.
In the new agreement this clause read:
Swedish Central Bank approval (currency licence/s) to be
in order 5 July 85 1600 hours Swedish time.
One of the alternative defences raised by Mobilia (pars. 11
and 11A of the amended points of defence and par. 2 of the
points of rejoinder) is that there never was approval by the
sellers' board by July 1 or at all. I therefore set out the
relevant facts in this chronology in some detail.
There was no board meeting of the sellers at any relevant
time. There are Civil Evidence Act statements from the
directors of the sellers stating that all commercial decisions
relating to the sellers' business, including sale of its vessels,
have always been made and executed by the parent company,
WWL in Oslo, and that although there has never been any
formal authority to this effect, WWL has always acted in this
way with the knowledge and approval of all the directors of
the seller. In particular, WWL had authority to sell Tatra, to
instruct brokers, to authorize the conclusion of the contract
and to approve the sale on behalf of the sellers' board.
(Discovery in the action revealed that this is not correct, or
not wholly correct. In the case of at least some other sales of
the sellers' vessels, formal board meetings have been held
either in Oslo or Hong Kong, authorizing the sale and giving
authority to various persons to act on behalf of the sellers.
Indeed when Tatra herself was eventually sold in January
1986 this procedure was followed.)
[1990] Vol. 2 LLOYD'S LAW REPORTS
Q.B. (Com. Ct.) The "Tatra"
What happened on the instant occasion was that two
directors (one being the managing director) of WWL
informally agreed to the sale of Tatra on July 1, i.e. within the
time limit. On the following day there was a meeting of the
executive committee of WWL (this, it seems, is effectively a
board meeting). The agenda, obviously circulated previously,
noted that the sale of -
. . . Tatra must be decided Monday 1.7 within 1600 hours
NB!!!!
and this item was annotated at the executive committee
meeting minutes on July 2:
Given by IL after conferring with MWW at 14.20 hours.
IL was the managing director of WWL; MWW another
director.
On June 28 Mr. Olafsen had drawn up a working version of
the new memorandum of agreement, dated it June 27 and sent
a copy to Mr. Rudling, pending sellers' board approval. After
the events related above the two original memoranda of
agreement were signed for and on behalf of the plaintiffs by
WWL. The person signing for WWL was a Mr. Killand
Mörderer who was a director of the plaintiffs but not it seems
either a director or employee of WWL. On the same day, viz,
July 2, Olafsen sent the memoranda of agreement to Rudling,
whose assistant sent them to Gerhard Lindholm on the 3rd
with a covering note asking that one should be returned after
signing as soon as possible.
Gerhard Lindholm had not been much involved since
receiving the first memorandum of agreement on about June
12 which he claimed not to have read. Towards the end of
June Magnus told him that a proposal was again under
discussion that might be of interest to Mobilia. Gerhard had
been in hospital until July 1 but was in Stockholm on 2nd, 3rd
and part of the 4th. That afternoon he flew to Gothenburg to
go to his country house for a convalescing vacation. He said
he was not in Stockholm again until about Aug. 1. I accept
that evidence, and it is impliedly confirmed by his diary. His
evidence was that he received a telephone call in the country
from Rudling (whose name may have been mentioned to him
but about whom he knew nothing more) telling him to expect
some documents regarding Tatra, and he then arranged for his
office to forward him a copy and at the same time send a copy
to Mobilia's lawyer, Sigbjorn Olsson.
Gerhard Lindholm asked Olsson to examine the documents
from a contractual point of view and to start a feasibility
study as to the structure of the intended transaction. Olsson
was not only
56
Gatehouse, J.
one of Mobilia's lawyers (and a director of the company) but
was also Magnus Lindholm's lawyer. He had no experience of
shipping and had not seen a Norwegian Sale Form
memorandum of agreement before, so he passed this on to his
London correspondents, Messrs. Simmons & Simmons, for
their advice. At the same time he was instructed by Magnus
Lindholm to investigate the procedure for flagging out a
Swedish vessel.
From the Lindholms' point of view, as I have said before,
this was a crucial matter. Without the necessary licence the
transaction had no purpose. Neither of them had any
experience of owning or operating ships: their expertise lay in
the field of real estate and stock market investments. They
were both aware of the folly of trying to operate a ship
economically under the Swedish flag. Any deal that might
eventuate regarding Tatra was therefore wholly dependant, in
their eyes, on obtaining permission from the Central Bank to
re-sell the vessel abroad. Backström, the middleman in New
York, was equally emphatic and his evidence was that
Rudling (with whom he had discussed the matter) was also
well aware of this particular requirement. Rudling, in his
Civil Evidence Act statement, does not deal with this except
to say that in his experience there had never been a problem
in obtaining Central Bank approval for such a purchase (and I
emphasize that word for reasons that will appear). He did,
however, indicate that by the summer of 1985 the bank's
policy may have changed as a result of the collapse and
liquidation of Salen A/B.
This appears to have been partly correct. When Olsson
started his investigation two things became clear. First, there
was no problem at all in purchasing a foreign ship.
Presumably because the export of currency would be matched
by the import of equivalent goods, exchange control
permission was not required. But the re-sale of a Swedish
ship to a foreign flag, the proceeds being paid and retained
abroad, was a very different matter. Consultations followed
between Olsson and another member of the firm who had
some experience in this field, and it became clear that permits
were required both from the Central Bank and from the Board
of Commerce. These would take some time to obtain but were
in any case unlikely to be granted.
Olsson had not been brought into the matter until about July
5 (the date when he sent the memorandum of agreement to
Simmons & Simmons). The deadline for Central Bank
approval under the telephone/telex agreement was imminent
and Rudling, after speaking to
[1990] Vol. 2 LLOYD'S LAW REPORTS
Q.B. (Com. Ct.) The "Tatra"
Olsson, sent a telex to Olafsen asking for an extension of
time. His telex started "Have spoken Mobilia" but this was
not of course, correct. He had spoken only to their lawyer and
the information in the telex came partly from him but with
assumptions or glosses added by Rudling, whose own idea it
was to ask for an extension of time. Olsson was unaware of
there being any deadline because he had seen none of the
inter-broker telexes.
The sellers were understandably irritated at this and further
subsequent requests for extensions of time, but these were
granted reluctantly.
On July 9 Rudling again telexed Olafsen that he had -
. . . been in contact with buyers and the official reply we
have is a request for an extension until Thursday end of
business Oslo.
On this occasion the message purporting to come from the
buyers in fact was the result of discussions with Backström.
On July 10 Rudling telexed "Have met with buyer this
morning" and he passed on further information to Olafsen. In
his statement, Rudling said that to the best of his recollection,
on or about July 10 he had a brief meeting with Gerhard
Lindholm in the offices of Mobilia. I am satisfied that this is
incorrect: that Gerhard did not return to Stockholm from his
country house on this or any other occasion in July, and that if
there was such a meeting it must have been with Olsson.
A further telex on July 10 from Rudling says:
. . . meantime have an official request from Mobilia to
extend reply 1600 hours Monday 15th July. Buyers repeat
that they wish to maintain the deal and say they have every
legal right to maintain the deal . . .
But this came not from "the buyers" but from Backström.
There is no evidence that Backström sought instructions from
Mobilia. He may have done so from Magnus or he may have
instructed Rudling on his own initiative. Backström was
himself interested in the scheme going through. His
"carrot" (as he expressed it) was to manage the vessel after re-
flagging.
WWL were by now very impatient and their sale and
purchase department consulted Mr. Martens, the vice
president of their legal department. He was briefed,
principally by the broker, and concluded that a binding
contract had been made, subject only to the buyers' obtaining
Swedish Central Bank approval. He telephoned Mr. Olsson
on July 11 and made a
57
Gatehouse, J.
contemporaneous note summarizing the discussion. It reads
(in translation):
Law firm Lagerlöf, Stockholm.
Lawyer Sigbjorn Olsson. "Tatra."
Olsson confirmed on telephone that currency licence has
been applied for two days ago and can be expected Friday/
Monday. Has received MOA recently and forwarded to
principal in New York as well as to English lawyer. Expect
comments today/tomorrow. Brokers have advanced a bit too
fast. Also principal's impression.
If the first sentence is an accurate summary, as I am inclined
to think it is, Olsson was misleading Martens. No application
was ever made - because Lagerlöf's inquiries eventually
showed it would be useless - and there was no question on
Thursday, July 11 of a permit being "expected Friday/
Monday". But there was, I think, room for misunderstanding
between them. They were operating on different planes.
Martens probably had the telexes before him. Certainly he
had been fully briefed and was in a very familiar field. The
purpose of his call was simply to find out the progress of the
re-flagging application. Olsson had just entered an entirely
unfamiliar field, knew nothing of the background, and had
passed to London for advice a document which had the
appearance of a draft contract.
The second sentence of Mr. Martens' note is certainly
accurate. The third should be translated, as I have said as
appears in the documents:
Brokers have advanced a bit too fast. Also principal's
impression.
Olsson said that he was deliberately unforthcoming in this
telephone call and that there was some "fencing" as to the
existence or otherwise of a binding contract. His explanation
of Martens' note was not very convincing but as the
conversation took place over four years ago that is perhaps
not surprising. I do not think that any significant inference
can be drawn from the reference to the brokers advancing too
fast.
Shortly after this WWL became aware that what was
holding up the lifting of the currency licence subject was the
question of re-flagging. This, they said, was wholly irrelevant
- the subject in the contract related only to the purchase of the
vessel. This I will return to later.
On July 19 Mr. Martens telexed Mr. Olsson formally
requiring the buyers to state by return whether they intended
to fulfil their obligation under the telex contract of June 27 or
28, or to repudiate, and Mr. Olsson replied (in translation):
[1990] Vol. 2 LLOYD'S LAW REPORTS
Q.B. (Com. Ct.) The "Tatra"
19th July 1985, Reference your telex today of 11.30 hours:
(1) Mobilia has not concluded any agreement. Although the
draft agreements were discussed by (among others) brokers
involved, no agreement was made.
(2) The telexes you refer to have not been sent by and are
not known to Mobilia.
(3) No other representative, broker or other has had
instructions from Mobilia to act on behalf of the company in
entering into an agreement. Signed, Olsson.
Thus the battle lines were drawn.
The most important issue before me is whether Rudling had
authority to act for Mobilia. In the pleadings as they stood as
late as Jan. 15, 1990 in answer to the defendants' request for
particulars reading:
In so far as any argument may be raised based upon
authority other than actual express authority [and then
followed the request] . . .
The plaintiffs answered:
. . . no other argument as to authority is relied upon by the
Plaintiffs.
In their amended points of reply the plaintiffs allege that if
Rudling did not have (actual express) authority, Mobilia
ratified his acts, and six separate facts are relied upon in
support.
At the hearing Mr. Moore-Bick, Q.C. for the plaintiffs
applied for leave further to amend the amended points of
reply to raise in the further alternative a plea of estoppel. This
took three forms: (i) by par. 5(a) a plea of estoppel by silence
in the period up to the agreement on June 27, 1985 based on
the principles set out in the speech of Lord Wilberforce in
Moorgate Mercantile Ltd. v. Twitchings, [1977] A.C. 890 at p.
903 and applied by Mr. Justice Webster in The Henrik Sif
[1982], 1 Lloyd's Rep. 456; (ii) by par. 5(b) a similar plea
based, as I understand it, on the period between early July
when the second memorandum of agreement was received
and July 19, and (iii) by par. 6, a plea that Mobilia represented
that they accepted that there was a contract binding upon
them, the basis of this being the six matters relied on for the
claim or ratification together with Mobilia's failure to deny
the existence of such a contract at any time up to July 19.
Although Mr. Russell, for Mobilia, opposed these further
late amendments, I allowed them on condition that the fullest
particulars of the new case were provided, and 12 pages of
par-
58
Gatehouse, J.
ticulars were produced with commendable speed.
As to actual express authority, I had the oral evidence of Mr.
Gerhard Lindholm and Mr. Olsson, and short Civil Evidence
Act statements of the other two directors of Mobilia. There
was also the oral evidence of Mr. Backström and Mr. Magnus
Lindholm. As a summary of the position I find the following
facts:
Until early July, after the conclusion of the contract
(assuming there was one) on June 27, those representing
Mobilia did not know anything of Mr. Rudling. Hakansson
and Nordlinder, the other two directors, and Peo Lindholm,
the other shareholder, do not come into the picture at all.
Olsson only came into it about July 5 in his capacity as legal
adviser to Mobilia and Magnus Lindholm. Gerhard Lindholm
knew in outline of Magnus' original plan to export currency
and knew that if Magnus could organize what he regarded as
a satisfactory deal, it was likely to be put to Mobilia for their
approval. Gerhard did not carefully read the first
memorandum of agreement but he saw Mobilia's name as
buyer. He regarded it as a draft contract or proposal which
Magnus told him was not ready for consideration. He
received the second memorandum of agreement while on
holiday. This he also regarded as a draft or proposal and asked
the lawyer to look into it. Neither he, nor Olsson, had any
experience of ship sales: they were unaware that (authorized)
brokers customarily entered into sale and purchase contracts
by telex and/or telephone and they knew nothing of the
extensive telex exchanges between Olafsen and Rudling.
Their view that the second memorandum of agreement was a
draft proposal which could not bind until approved and signed
on behalf of Mobilia was, I think, perfectly reasonable in
view of their experience in the field of real estate. This
transaction was wholly different from a contract for the sale/
purchase of shares, the other activity of Mobilia. Gerhard, at
least, knew that a permit to re-flag the vessel was an essential
prerequisite of any viable scheme under which, originally
Magnus and subsequently Mobilia, might become the
purchaser. I come easily to the conclusion that no actual
express authority was given by the first defendant to the third
defendants. The evidence of the witnesses is all one way.
Mr. Moore-Bick recognized the hurdle he faced; viz, that I
would have to disbelieve all this evidence and rely upon such
contrary inferences as might be drawn from the
contemporaneous documents, if I were to find in his favour
[1990] Vol. 2 LLOYD'S LAW REPORTS
Q.B. (Com. Ct.) The "Tatra"
on this aspect. I am quite unable to do so. Although I had
some reservations about the evidence of Magnus and, on one
narrow point already mentioned, Olsson, I accept the
substance of their evidence. Backström and Gerhard were, I
find, reliable witnesses.
I turn next to the question of ratification. Much the same
considerations apply because if, as I am satisfied, the
directors and shareholders of Mobilia had not the least
intention of entering into the contract to purchase Tatra - they
had never collectively turned their minds to the possibility - it
is unthinkable that they subsequently ratified Rudling's
activities. The furthest the evidence goes is that the managing
director, Gerhard Lindholm, must have given some thought to
a possible purchase by the company, if and when the crucial
re-flagging permit was obtained, and subject to a careful
consideration of all the terms and satisfactory legal advice. It
appears that at the time Mobilia would have been bound by
the joint concurrence of two of the directors, not necessarily
at a formal board meeting. Just as I am satisfied that Gerhard
and Olsson had never even considered, let alone concurred in,
any proposal to purchase the vessel, I am equally satisfied
that they never even considered ratifying Rudling's entirely
unauthorized acts.
The six matters specifically relied upon by the plaintiffs in
par. 2 of the amended points of reply lead nowhere. As to
these, I take them in turn: (i) The extension of time was asked
for by Rudling on his own initiative. (ii) Even if this
information was given, it does not support a claim that
Mobilia were thereby ratifying Rudling's entering into a
contract of which the company was unaware. (iii) This came
from Backström. (iv) The meeting did not occur. (v) This, too,
came from Backström. (vi) Whatever was said in this
conversation, no extension of time was asked for. That leaves
the question of estoppel.
As I understand the law, an estoppel by silence can only
arise where there is a duty to speak. And adopting the words
of Mr. Justice Webster, in The Henrik Sif, sup. at p. 465, that
duty arises where a reasonable man would expect the person
against whom the estoppel is raised "acting honestly and
responsibly" to bring the true facts to the attention of the other
party known by him to be under a mistake as to their
respective rights and obligations. Where the party against
whom the estoppel is raised is a corporation, the question
obviously arises as to who, within the corporation, may be
saddled
59
Gatehouse, J.
with the duty because of his personal knowledge of the other
party's misapprehension. It seems to me that wherever the line
is to be drawn, the class at least includes any director, in this
case Gerhard and Olsson being the only candidates.
The essence of the allegation in par. 5(a) of the amended
points of reply is that in June 1985 Mobilia were aware that
Rudling was purporting to act on their behalf in and about
"the negotiation and conclusion of a contract" and that the
plaintiffs believed Rudling had such authority: if he did not,
Mobilia had a duty to tell the plaintiffs but they kept silent
and thus represented that Rudling had such authority; and that
in reliance upon that silence the plaintiffs concluded the
agreement of June 27.
This allegation must fail on the facts. Olsson knew nothing
before about July 5. Gerhard Lindholm had some knowledge
of Magnus' plans and that they might in due course involve
Mobilia as purchaser. He knew nothing of Rudling - certainly
not that he was purporting to act as an agent for Mobilia. He
received the first memorandum of agreement in mid-June but
did not study it. Whatever information he did derive from it -
and I have dealt with this - it of course made no mention of
Rudling or his firm.
The only other evidence affecting Gerhard prior to the
conclusion of the agreement of June 27 are the matters set out
in pars. (h), (j) and (m) of section I of the particulars served
with the estoppel amendment. All the other matters are
inferences the Court is invited to draw from what other
people did or said or would have done or would not have
done, and also, it is alleged, what Gerhard himself would or
would not have done.
As to par. (h) there is no evidence to support the date relied
upon, May 30.
As to par. (j) this is a curious matter. But the information
passed to Rudling and from Rudling to Olafsen came from
Backström in New York. There is nothing to show that
Backström may not have got it from, for example, a secretary
in Stockholm consulting an engagement diary. There is
certainly no direct evidence that Gerhard himself was
consulted, and he only recollected a later attempt to fix a
meeting, in July when he was on vacation.
As to par. (m) I am not at all persuaded that any such
conversation took place. This allegation comes from
Rudling's typed-up (but unsigned) statement. It does not
appear in the manuscript notes of interview which in all other
[1990] Vol. 2 LLOYD'S LAW REPORTS
Q.B. (Com. Ct.) The "Tatra"
respects appear to coincide very closely with the typescript.
Mr. Moore-Bick agreed that his estoppel arguments fell into
two parts: events prior to June 27, and events thereafter. As to
the first, the basis of claim was Rudling's ostensible authority,
and I agree with Mr. Moore-Bick that the only "detriment"
that has to be shown in such a case is the entering into the
contract by the party relying on that authority. (See, for
example, the third proposition in the judgment of Lord Justice
Diplock, in Freeman & Lockyer v. Buckhurst Park Properites
(Magnal) Ltd., [1964] 2 Q.B. 480, at p. 506 cited in the 15th
edition of Bowstead, p. 295.)
But Mr. Moore-Bick also accepts, of course, that he cannot
succeed unless he can establish knowledge of the facts (on the
part of Gerhard Lindholm) so as to raise the duty to speak.
It seems to me that the new pleading, par. 5(a) and the
particulars relevant to it, are a valiant effort to make bricks
without straw, or perhaps more appropriately, to reach a
conclusion with wholly insufficient logical or evidential
foundations. In the face of the defendants' evidence which,
with minor reservations, I accept, nothing approaching
sufficient knowledge to raise a duty to speak has been
established. I do not therefore need to consider the point
raised by Mr. Russell that the new pleading alleges only
(ostensible) authority in Rudling to "negotiate and conclude a
contract" which is insufficient because in the shipping trade a
broker does not have authority to commit his principals
without reference back to them (see The Suwalki, [1989] 1
Lloyd's Rep. 511). The point appears to be a good one, but the
plaintiffs fail on the facts.
The next ground of estoppel is that alleged in par. 5(b). The
essence of this is that as from about July 5 the second
memorandum of agreement came to the notice of both
Gerhard Lindholm and Olsson; that there was, again, a duty
to speak if Rudling did not have actual authority to negotiate
and conclude the contract of June 27; and that in reliance on
their silence and also on the positive representations pleaded
in support of the ratification plea:
The Plaintiffs granted the First Defendants extensions of
time for signing the Memorandum of Agreement and
obtaining Swedish Central Bank approval, kept the vessel
off the market and took no steps to arrange further
employment for the vessel until after 19th July and booked a
yard for the dry-docking of the vessel.
Mr. Moore-Bick accepts that on this part of
60
Gatehouse, J.
his case he has to establish detriment suffered by the
plaintiffs. But there are problems facing him, which is why I
have quoted the words of the pleading in full. First, there is
no detriment in granting the extensions of time per se.
Secondly, there is no evidence of any detriment suffered as a
result of not taking steps to arrange further employment of the
vessel for a period of two weeks. Thirdly, there is no evidence
concerning the booking of a yard for dry-docking; either as to
wasted expense or otherwise. The only possible detriment that
can be relied upon is, therefore, that the vessel was kept off
the market for, in practice, a maximum of about 14 days.
The plaintiffs say that the market was weakening at this
period and they point to the fact that on May 30 at the time of
the first abortive memorandum of agreement, the price was
$5.3m, whereas by June 27 it was $5.0875m. There was a
nibble by another possible purchaser in mid-June at $4.9m
but that does not assist in the light of the June 27 price. The
evidence of a falling market is exiguous, to say the least, and
in the relevant period, non-existent. I do not think it possible
to come to any conclusion to support the necessary
"detriment", and this part of the estoppel argument must also
fail.
I have previously dealt with the positive representations
alleged in par. 2(2) of the pleading, which do not assist the
plaintiffs. Paragraph 6 adds nothing.
So far as I am asked to draw inferences from the other
matters particularized, the same comments apply: it is a brave
attempt to construct a case of knowledge out of insufficient
material.
In the result, the plaintiffs' case against the first defendants
fails and must be dismissed. In view of this conclusion it is
strictly unnecessary to consider the other matters relied upon
by the defendants; in particular that any contract was subject
to (1) plaintiffs' board approval, and (2) Swedish Central
Bank approval, and that neither condition precedent was
fulfilled. It would unduly lengthen an already long judgment
if I were to do justice to the elaborate arguments and the
numerous authorities cited, particularly on the first point, but
I will briefly indicate my conclusions.
As to the first, it would be wholly unrealistic, and contrary
to common sense if I had felt obliged to hold that an
otherwise concluded contract never became effective for the
sole reason that the sellers' board approval was not obtained
within the deadline. It is clear beyond argument that as a
matter of fact the sale was
positively approved by the parent company as the sole
beneficial shareholder of Arctic and at least tacitly approved
by the Arctic board itself. It seems to me that there are several
alternative ways in which the realistic answer can be reached.
First, it can properly be said, I think, that this was a term of
the contract introduced for the sole benefit of one party and
could therefore be waived by that party, just as the other term,
Swedish bank approval, was a term introduced solely for the
benefit of the buyer. If that is wrong, the approval given on
behalf of WWL by two of its directors on July 1 amounted to
the approval of the beneficial owner of the nominal seller: the
one share not directly owned by WWL was held by a trustee,
not an independent shareholder. If that is wrong, ratification
by the executive committee meeting on July 2 would not have
"unfairly prejudiced a third party" so as to bring the case
within art. 18(2)(a) of Bowstead and authorities such as
Watson v. Davies, [1931] 1 Ch. 455 and Dibbins v. Dibbins,
[1896] 2 Ch. 348.
If that is wrong there remains the question of estoppel. Had
the sellers wished to resile and claimed that this condition
precedent was never satisfied, and the buyers had wished to
dispute it, it may well be that the sellers would have been
estopped by reason of their authorized agent's telex of July 1
informing the buyers that the sellers' board subject had been
lifted.
On the other question an objective view of the meaning of
the contract is that the bank's approval was required only for
the purchase from WWL. This is plain when one considers
how the clause came to feature in the agreement of June 27,
and I think the history must be admissible as part of the
background facts known to both brokers when they reached
agreement. This was not the intention or understanding of any
of those behind the broker level on the defendants' side and,
on the evidence, I do not think it was Rudling's intention
either. But this is irrelevant. The objective meaning of the
contract is clear, and as no bank approval was needed for the
purchase operation, as distinct from the re-flagging operation,
this was not a condition precedent to the formation of a
contract, and the failure to apply for the re-flagging permits
was irrelevant.
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