C. A. 1905 LAW AND TRUST V. RUSSIAN BANK FOR FOREIGN against loss or damage by fire to their full value in such office or offices as the trustees should appoint, and, as to the said vessels, under marine policies containing the ordinary conditions applicable to steamships with the usual collision clauses, and GUARANTEE should deposit all such policies with the trustees, and that, whenever required to do so by the trustees, they should insure the said vessels in such office or offices as aforesaid under proper marine policies against seizure, capture and war risks. Mortgages to the plaintiffs of the three steamers to which the action related had been duly executed in the statutory form and registered. At the time when the charterparties in question were entered into, and when the action was brought, Russia was at war with Japan. By charterparty dated September 16, 1904, and entered into between the agents of the defendants, the Heath Line, Limited, and the defendants, Messrs. Green, Holland & Sons, as agents for the charterers, the ship Heathbank was chartered for the carriage of a cargo of coals from Barry to Vladivostok at a freight of 40s. per ton, of which 30s. was to be payable in advance on signing bills of lading. On the same date a fictitious charterparty was also entered into between the same parties in identical terms, except that the port of destination was stated to be Manila and the freight to be 16s. per ton. By an agreement entered into by the parties to the charterparty of the same date it was agreed that, in consideration of a charterparty of the Heathbank for a voyage from Barry to Vladivostok at a freight of 40s. per ton (30s. per ton payable on signing bills of lading) being entered into at the time of signing the agreement, the charterparty of the ship for a voyage from Barry to Manila at a freight of 16s. already entered into should be thereby cancelled, and declared to be null and void, and the Heath Line's agents undertook to attach to the bills of lading an agreement to deliver the cargo at Vladivostok in accordance with the terms of the substituted charterparty. On October 15, 1904, the Heathbank was loaded with a cargo of coals, and a bill of lading was signed making the cargo deliverable at Manila, and on the same day an undertaking was given by the Heath Line's agents to deliver the coals at Vladivostok. It TRADE. C. A 1905 LAW GUARANTEE SOCIETY v. appeared that the fictitious charterparty and bill of lading were drawn up in order that the ship might be announced as having cleared from Barry for a neutral port, so as to deceive the AND TRUST agents of the Japanese Government. Similar charterparties and sets of documents were made and executed between the same parties with regard to the steamers Heathburn and Heathcraig respectively on October 28 and December 7, 1904; with the exception that in their case the fictitious port of destination was Shanghai. The defendants, the Russian Bank for Foreign Trade, were the holders of the bills of lading for the coal. It was admitted that the coal was really intended for the Russian Government. RUSSIAN BANK FOR FOREIGN TRADE. The ships had cleared from Barry for Manila and Shanghai respectively, and at the time of action brought they were on their way with their cargoes of coal to Vladivostok, and had respectively arrived at Amoy, Manila, and Colombo. The ships were not insured against war risks of the character involved in the charterparties. It appeared that, at the time when the first charterparty was entered into, the premium for insurance against war risks in respect of vessels bound for Vladivostok with coal was from 25 to 30 guineas per cent., to insure at which figure would have left little or no profit on the charterparties; that the premium subsequently continued rising; and that early in January of the present year such vessels became practically uninsurable against war risks, Vladivostok being then strictly blockaded by the Japanese. On March 9, 1905, the plaintiffs, having become aware in February that the steamers were engaged in carrying contraband of war to Vladivostok, passed a resolution to the effect that the defendant company had committed breaches of the debenture trust deed by not carrying on their business to the greatest possible advantage, by not giving to the plaintiffs such information as they required as to all matters relating to the company's business, or otherwise relating to the affairs thereof, and by not insuring the vessels under proper marine policies against seizure, capture, and war risks, and that the plaintiffs did therefore enter upon and take possession of the mortgaged premises in accordance with the powers of the C. A. 1905 LAW trust deed, and that the seal of the society should be affixed to a deed-poll appointing an agent on their behalf to enter upon and take possession of the mortgaged premises accordingly. Channell J. held that the charterparties were such as to impair GUARANTEE the security of the mortgagees and, therefore, according to the rule laid down in Collins v. Lamport (1), were not binding on He consequently gave judgment for the the mortgagees. plaintiffs for the declaration as claimed. Scrutton, K.C., and Leck, for the defendants, the Russian Bank for Foreign Trade. Whatever may be the rights as between the mortgagees and the shipowners, as between the mortgagees and the charterers and holders of the bills of lading, these charterparties were valid. It is well established that, subject to the limitation mentioned in Collins v. Lamport (1), a mortgagee of a ship cannot treat as invalid the contracts for its use entered into by a mortgagor who has been allowed to remain in possession. Such contracts may be regarded as authorized by the mortgagee: see Johnson v. Royal Mail Steam Packet Co. (2) The charterers, as a matter of business, were not bound to search the register of mortgages to see whether the ships were mortgaged, and as between the mortgagees and the charterers charters entered into by the mortgagors in possession in the ordinary course of the mortgagors' business were valid. There is no case, except perhaps The Celtic King (3), in which the limitation mentioned in Collins v. Lamport (1), namely, that the contract must not be such as to impair the security, has been applied, and a contract made by a mortgagor who remained in possession of the ship has been declared void against the mortgagee, pending the performance of the contract. It would be a great hardship on charterers or holders of bills of lading who had no notice of the mortgage, as was the case with these defendants, that, after the cargo has been shipped, and the vessel has with it reached a remote part of the world, the charter should be declared not binding on the mortgagees. The mortgagees, having left the (2) (1867) L. R. 3 C. P. 38. (1) 4 D. J. & S. 500. (3) [1894] P. 175. AND TRUST RUSSIAN BANK FOR FOREIGN TRADE. C. A. 1905 LAW GUARANTEE AND TRUST SOCIETY V. RUSSIAN BANK FOR mortgagors in possession of the ships as apparent owners, cannot avoid lawful contracts made by them in the usual way of business. These were perfectly lawful contracts, and such as are often entered into by shipowners. [They cited on this point Keith v. Burrows (1); The Heather Bell (2); The Fanchon (3); Cory Brothers & Co. v. Stewart (4) ; The Maxima (5); Williams v. Allsup. (6)] In this case it is submitted that the debenture trust deed gave authority to the mortgagors to bind the mortgagees by such contracts as these charterparties. Clause 4 of the deed authorizes the mortgagors to carry on business in accordance with their memorandum of association, which would cover the use of the ships for such voyages as those in question; and, reading that clause with clause 24, the deed appears to contemplate that such risks would be incurred, and that the mortgagors might enter into charterparties involving war risks, the right being reserved to the mortgagees to require that an insurance against such risks should be effected. In this case the mortgagees never inquired as to the nature of the ships' employment at the time when the charterparties were entered into, and they never required an insurance against the war risks thereby involved. At the time when the charterparties were entered into such insurances would have been possible, though the premiums would have been high. The mortgagors were entitled as against the mortgagees to make these charterparties, leaving it to them to require insurances if they thought proper. Pickford, K.C., and Maurice Hill (W. H. Cozens-Hardy with them), for the plaintiffs. There can be no doubt that, as a matter of fact, these charterparties were such as to impair the security. There is also no question that the general principle is that, although a mortgagor left in possession of the ship has authority to use her in the ordinary course of business, yet, if he makes a contract which impairs the security, the mortgagee can take possession and that contract will not be binding on (1) (1877) 2 App. Cas. 636. (2) [1901] P. 272. (3) (1880) 5 P. D. 173. (4) (1886) 2 Times L. R. 508. him. It makes no difference, on the authorities, whether the mortgagee interferes before or after the contract has begun to be carried out. The Celtic King (1), unless overruled, is an authority to this effect; and in that case the principle appears to have been applied, although the contract in question there was made before the mortgage. There is no special hardship in such a case upon the charterer or cargo owner. He must be taken to know that the ship may be mortgaged, and he can ascertain whether that is so from the register of mortgages. If he chooses not to examine the register, he takes the risk of there being a mortgage on himself. It is said for the defendants that the mortgagees did not inquire as to the nature of the ships' employment at the time the charterparties were made, and that they did not require insurances to be effected against war risks under these charterparties as they might have done; but care was taken by the charterers and mortgagors to conceal the real nature of the intended voyages by fictitious documents, which primarily, no doubt, may have been intended to deceive the Japanese agents in this country, but which were calculated to mislead any one. The mortgagees cannot, as a matter of business, be applying every day to the mortgagors for information as to what they are doing with the ships. With regard to the suggestion that the risks might have been covered by insurance, that fact, if true, could not affect the nature of the contract which is such as to impair the security; and in the present case the premium for insurance on such risks at the time of the making of the charterparties was so high that an insurance would have eaten up all the profits on the charterparties, and at a later date such risks became practically uninsurable; so that under the circumstances of this case there could be no question of insurance. The provisions of the debenture trust deed do not really affect the case. Clause 4 does not in truth give the mortgagors any authority with regard to the ships beyond that which they would have by ordinary law. Clause 24 is a clause for the protection of the mortgagees, and cannot be read as giving the mortgagors authority to make such charterparties as those in question; and, even if (1) [1894] P. 175. C. A. 1905 LAW GUARANTEE AND TRUST SOCIETY v. RUSSIAN BANK FOR FOREIGN TRADE. |