The Claims Against COSCO
38 BHPB claims against Cosco that it (1) breached s 52 of the Trade Practices Act 1974 (Cth) (TPA) (by engaging in misleading or deceptive conduct); (2) breached s 53B(bb) (by falsely representing that a particular person had agreed to acquire services from BHPB); (3) breached s 53(d) (by representing that it had approval of or affiliation with NCI it did not have); (4) was negligent; and (5) wrongly warranted that it had the authority of NCI to conclude a charterparty.
39 BHPB must succeed in its claim against Cosco on several of the pleaded causes of action. The damages recoverable are not the same under each cause. In respect of some, defences of (what I loosely describe as) contributory negligence and apportionment, which Cosco has pleaded, are not available.
40 The cause of action most beneficial to BHPB, and the one it presses first, is breach of warranty of authority. The cases establish that where a person (the first person) falsely represents that he has authority to act on behalf of another person in a particular transaction and the person to whom the representation is made (the second person) is induced to act on the faith of the representation and suffers loss, the second person may recover the amount of the loss from the first person in an action for breach of a collateral contract. It matters not that the first person acted in good faith, believing he had the authority which he purported to have. See generally Bowstead and Reynolds on Agency (18th ed 2006) 541; Chitty on Contracts, (30th ed, 2008) vol 2 65; Dal Pont, The Law of Agency (2nd ed 2008) 697; Collen v Wright (1857) 8 E & B 647. The action is based on collateral contract: Penn v Bristol & West Building Society [1997] 1 WLR 1356.
41 The first element of the cause of action which BHPB must establish is that Cosco represented it had authority to act on behalf of NCI. There is no doubt this is the effect of the emails from Cosco to Seawise. Mr Muller, a shipbroking expert called by Cosco, acknowledged that shipbrokers rely on statements made by fellow brokers. He explained that the essence of the relationship between brokers is captured in the motto of the Baltic Exchange: "Our word our bond". Mr Muller all but acknowledged that when a shipbroker is negotiating as an intermediary between shipowner and charterer, the shipbroker is deemed to warrant that he has the full authority of the principal to contact on the terms of the offer that he makes or accepts.
42 Mr Harvey, who appeared for Cosco, accepted his client had represented to Seawise (and therefore to BHPB) that it was acting for NCI. But he says there is no evidence the representation was false, at least up to the point Mr Bartlett was asked to, and did, deal directly with Jacky. Mr Harvey suggests that Jacky may have changed principals (from NCI to Nera) around 11 October 2004 when there was the change in the port of delivery from Lianyungang to Xingang.
43 In my view there is more than enough evidence from which to infer that Jacky had never acted for NCI. For one thing NCI appears to be a reputable organisation. Jacky, on the other hand, is a rogue. From June 2004 or thereabouts Jacky had been using Cosco's services in an attempt to charter a vessel for a variety of charterers other than NCI. Among the charterers for whom he was purporting to act were Hunan Walin International Shipping and Full Young Shipping Ltd. The negotiations for a charter got nowhere. Some fell through when hire was not paid in advance. Others did not go ahead because Jacky told Cosco that money had been remitted to the owner and it turned out it had not. When one considers what transpired with the Global Hawk, and with the other vessels Jacky attempted to charter, it is impossible to avoid the conclusion that Jacky was involved in several fraudulent schemes to charter a vessel without making payment until, if at all, the voyages were completed and money had come in.
44 Secondly, Jacky appears to have first mentioned to Cosco that he represented NCI around June 2004. It is notable that this was when a number of his other dealings had turned sour.
45 Thirdly, there is nothing, apart from assertions of authority by Jacky, to tie him to NCI in relation to his dealings with the Global Hawk. Indeed, in an email of 3 November 2004, Jacky dismissed any such link. Responding to a request from Mr Liu to clarify the nature of the relationship between NCI and Nera, Jacky wrote:
Chtrs rather confused by owners as this CP was under the account of Nera Shipping Co Ltd Hong Kong an individual HGK registered company. Further investigated was tha the misunderstanding could be since the beginning a Korean chtrs was trying to obtain an L/C from NCI Leasing to conclude the hiring…
Nera's negotiating on subject vessel was on a different issue and not this L/C basis, so there was nil connection whatsoever with NCI Leasing Company like applying with them for the L/C. Obviously they were 'named' as leasing and Nera being in shipping business… (emphasis added)
46 On this aspect it is also necessary to have regard to the pleadings. By its defence, Cosco denies it had ever acted on behalf of NCI. Implicit in this denial is that Jacky, the only person with whom Cosco was dealing, was not representing NCI.
47 To make out its warranty of authority claim BHPB must also show it was induced to act on the assertion that Cosco represented NCI by engaging in conduct which, but for the assertion of authority by Cosco, it would not have entered into. BHPB's pleading on this aspect is obscure. It alleges that Cosco had warranted it was acting on behalf of NCI. It alleges that in breach of that warranty Cosco was not authorised to act on behalf of NCI. But it says nothing about the respect in which it was induced to act. No point, however, has been taken about this potential deficiency in BHPB's pleading, apart from a comment by counsel during closing submissions.
48 Whatever is said in the pleadings, it is an inescapable conclusion that BHPB (through Seawise) was induced to enter into the charterparty in the belief that the arrangements were with NCI. Having not dealt with NCI previously, BHPB had satisfied itself that NCI was a reliable party to do business with prior to entering into the charterparty. The identity of NCI - and, therefore, Cosco's authority to represent NCI - was important to BHPB in its decision to enter into the charterparty. It is true, as Mr Harvey points out, that the charterparty was concluded during negotiations between Seawise and Jacky, at which point BHPB (through Seawise) was relying on Jacky being the representative of NCI. No doubt Seawise was of that view because Cosco said that Jacky acted for NCI. But the true or effective cause of the problem which has arisen here is Cosco's representation that it was authorised to act for NCI and it was on that basis Seawise concluded the fixture with Jacky.
49 In this connection reference should be made to Firbank's Executors v Humphreys (1886) 18 QBD 54. There Lord Esher MR said (at 60):
The rule to be deduced is, that where a person by asserting that he has the authority of the principal induces another person to enter into any transaction which he would not have entered into but for that assertion, and that assertion turns out to be untrue, to the injury of the person to whom it is made, it must be taken that the person making it undertook that it was true, and he is liable personally for the damage that has occurred.
That is to say, it is not necessary for the plaintiff to enter into a transaction with the supposed principal in order to establish an action for breach of warranty of authority. The cause of action is established even if the plaintiff enters into a transaction with another person: see also Penn v Bristol & West Building Society [1997] 1 WLR 1356.
50 As regards causation, if Cosco had actual instructions from NCI to enter into a charterparty Seawise would not have concluded the charterparty with Jacky and the vessel would not have been delivered to Nera. Cosco's failure to hold the authority which it warranted caused the loss that BHPB has suffered. That the vessel was delivered prior to the payment of the first hire in accordance with the usual practice, does not affect this conclusion.
51 So far as quantification of the loss is concerned, it is to be determined on the contractual measure. In a case where the plaintiff is induced to enter into some form of contract, the normal measure of damage is what the plaintiff would have recovered under that contract. That is to say, the measure of damage is arrived at by considering the difference in the position the plaintiff would have been in had the representation been true and the position he actually is in, in consequence of it being untrue: Firbank (1886) 18 QBD 54, 60. In this case the damage is the amount which BHPB has lost in being unable to recover from NCI the balance due under the charterparty.
52 Moving to the first of the statutory causes of action, s 53(bb) relevantly provides that a corporation shall not "in trade or commerce, in connexion with the supply or possible supply of goods of services or in connexion with the promotion by any means of the supply of goods or services (bb) … falsely represent that a particular person has agreed to acquire goods or services." There are several references to 'goods or services'. There is a question whether the 'goods or services' referred to in the preamble may be different from the 'goods or services' mentioned in subparagraph (bb). Section 53(bb) was introduced by the Trade Practices Revision Act 1986 (Cth). The Explanatory Memorandum (at para [88]) states that s 53(bb) "is directed at such practices as a person asserting a right to payment for goods or services that the person falsely asserts have been ordered by a recently deceased person." This suggests that ordinarily the various references are to the same 'goods or services'. In my view, however, s 53(bb) can be breached where the 'goods or services' the subject of the representation are different from the 'goods or services' referred to in the preamble. First, it is notable that subparagraph (bb) does not refer to 'those' goods or services (or words to similar effect suggesting that the goods or services must be the same). Second, the preamble refers to the promotion of goods or services, which contemplates future agreement regarding goods or services. In contrast subparagraph (bb) refers to 'goods or services' which a person 'has agreed' to acquire, which contemplates a concluded agreement. The 'goods or services' the subject of future and concluded agreements might well be different. Third, given that s 53(bb) aims to protect consumers, there is no reason to confine its operations to instances where the 'goods or services' are the same. The type of misconduct which s 53(bb) seeks to deter can easily involve different 'goods or services'.
53 In my opinion, Cosco has contravened s 53(bb) by falsely representing that it was supplying shipbroking services to NCI. That representation induced BHPB to conclude the hire with Jacky.
54 BHPB seeks to recover the loss it has suffered under s 82 or asks for compensation under s 87. The measure of damages which BHPB is entitled to recover under s 82 is similar to the measure of damages recoverable in an action in deceit: Marks v GIO Australia Holdings Ltd (1998) 196 CLR 494, 512. In certain circumstances, it may be possible to recover more under s 87 (For the Good Times Pty Ltd v Coltern Pty Ltd [2007] NSWSC 807, [243]). This, however, is not a case where that could occur. Thus, BHBP's loss is to be measured by comparing BHPB's actual position with the position it would have been in but for Cosco's breach of section 53(bb).
55 If not for the breach, in October 2004 BHPB would have had a vessel for hire in a reasonably buoyant market. Mr Elsworth did say the vessel may have ballasted to Australia, but more likely it would have been let at around the same hire as had been agreed with NCI which, according to the evidence, was at a reasonable rate. It would, however, have taken some days to fix the vessel and to have it delivered to a new charterer. Mr Everton, an expert called by BHPB, said the time the vessel would have been unemployed was 2 to 3 days, possibly less. Even in a buoyant market it may have been necessary for there to be an alternative charter. All in all, on the little evidence there is, it may fairly be concluded that BHPB's loss can be broadly characterised as follows:
The lost benefit of a charterparty (or charterparties) for 25 days (having made allowance for two periods of unemployment, and giving some time to fix the vessel and deliver it) at a rate of US$24,500 per day US$612,500
Less commission (at 5%) (US$30,625)
Less part payment (US$120,000)
KSI Port costs incurred US$9,393.00
Bunkers US$89,127.90
Total loss US$560,395.90