Stocznia Gdanska SA v Latvian Shipping Co

Stocznia Gdanska SA v Latvian Shipping Co [2001] 1 Lloyd’s Rep 537

[2001] CLC 1290; [2001] All ER (D) 275 (Feb)

SHIPBUILDING, BREACH OF CONTRACT, RESCINDED CONTRACT, REPUDIATION, TORTIOUS LIABILITY, LIABILITY OF PARENT COMPANY FOR BREACH BY SUBSIDIARY, TORT, INDUCEMENT TO COMMIT BREACH OF CONTRACT

Facts

Lacto (L) was a shipowning company belonging to the Latvian state. Lacto entered into agreement with a Polish shipyard – Stocznia Gdanska (SG). Under the contract, SG – the plaintiffs, would construct three reefer vessels for L’s specially incorporated Liberian subsidiary – ‘Latreefers’ (LR). The contract contained a clause for the option of a construction of three further vessels which was subsequently exercised. The price was payable by installments as the construction progressed. Following a market decline, L and LR attempted to renegotiate the contract and hired a broker (H) to assist them in doing so. The negotiations proved unsuccessful and the installment due on the keel laying of the first vessel were not paid. SG commenced proceedings against LR for breach of contract and against L and H alleging inducement of breach and other tortious acts.

Issues

(1) Is SG entitled to succeed in its claim for damages against LR?

(2) Was L guilty of inducing breach of contract by virtue of its relationship with LR?

(3) Did the refusal of L to provide funds to LR to pay for the installments to SG amount to inducement of breach of contract?

(4) Had nevertheless L induced breach of contract by virtue of other factors?

(5) Was H guilty of inducing breach of contract?

Decision/Outcome

The judgement was in favour of the plaintiffs.

(1) As LA had been in repudiatory breach of all six contracts, SG was entitled to succeed in its claim for damages against LR.

(2) L was not guilty of inducing breach of contract by virtue of its relationship to LR. Applying Salomon v Salomon & Co Ltd [1897] AC 22, LA had to be treated as a separate legal entity. L had requested that LR should not respond to SG’s notices. However, the decision not to pay SG was taken by LR’s directors.

(3) The fact that L was LR’s parent company which did not provide funds when SG issued notices to LR did not amount to actionable inducement as there was no obligation for L to provide funds to its subsidiary.

(4) Regardless of above, L failed to meet its obligations to C – another company whose employees were appointed as LR directors in order to keep LR in funds. Therefore, L’s actions prevented LR from complying with its obligations

(5) H was not guilty of inducement as he did not exercise any control over LR and his conduct was not such as to amount to an inducement of subsequent breaches.