BNP Paribas v Pacific Carriers Ltd
[2005] NSWCA 72
•28 April 2005
NEW SOUTH WALES COURT OF APPEAL
CITATION: BNP PARIBAS v PACIFIC CARRIERS LTD [2005] NSWCA 72
FILE NUMBER(S):
40852/01
HEARING DATE(S): 15 February 2005, 16 February 2005, 17 February 2005
JUDGMENT DATE: 28/04/2005
PARTIES:
BNP Paribas - Appellant
Pacific Carriers Ltd - Respondent
JUDGMENT OF: Handley JA Sheller JA Giles JA
LOWER COURT JURISDICTION: Supreme Court - Equity Division
LOWER COURT FILE NUMBER(S): SC 8/99
LOWER COURT JUDICIAL OFFICER: Hunter J
COUNSEL:
B W Rayment QC/I E Davidson - Appellant
A W Street SC/GJ Nell - Respondent
SOLICITORS:
Corrs Chambers Westgarth - Appellant
Norton White - Respondent
CATCHWORDS:
CONTRACT LAW - liability under contract of indemnity for misdelivery of cargo - assessment of damages - whether costs incurred in settling claim at arbitration recoverable - whether settlement reasonable - consequences for the damages assessed when settlement was unreasonable - whether contract of indemnity allowed for recovery of legal costs
LEGISLATION CITED:
Trade Practices Act 1974
DECISION:
(1) Grant leave to amend ground 15 of the notice of appeal by substituting "in contract" for "in tort"; (2) Appeal allowed; (3) Set aside the judgment for PCL against BNP for $US4,378,788.49 and in lieu thereof judgment for such sum calculated in accordance with these reasons as the parties may agree and advise the Registrar within 21 days, taking effect on 24 October 2001; (4) Cross-appeal dismissed; (5) PCL pay seventy-five per cent of BNP's costs of the appeal and cross-appeal; (6) Liberty to apply on seven days notice in the event of inability to agree upon the substituted judgment sum.
JUDGMENT:
IN THE SUPREME COURT
OF NEW SOUTH WALES
COURT OF APPEAL
CA 40852/01
SC 8/99 (Equity)HANDLEY JA
SHELLER JA
GILES JA
BNP PARIBAS v PACIFIC CARRIERS LTD [NO 2]
This is a remitted appeal from the decision of the High Court, Pacific Carriers Ltd v BNP Paribas [2004] HCA 35, that held BNP Paribas (BNP) liable to Pacific Carriers Ltd (PCL) under contracts of indemnity (NEAT LOIs).
PCL contracted to deliver a shipload of legumes to SSOE. However, the cargo arrived before the bills of lading and delivery was in fact made to the purchaser, Royal, other than on presentation of the bills of lading. A claim for conversion by SSOE against the ship owner, Bolton, was settled in London at arbitration (the London Arbitration). Bolton was indemnified by PCL, who in turn, sought to rely on their contract of indemnity with BNP.
The issues for determination by the Court of Appeal included:
whether the monies paid by PCL to Bolton to fund the settlement of the London Arbitration, were recoverable by PCL from BNP under the contract of indemnity;
whether SSOE consented to the delivery of the legumes to Royal thereby providing a defence to conversion and whether the settlement of the London arbitration was, in the circumstances, reasonable and if the settlement was not reasonable, whether the court was able to undertake a reassessment to determine what a reasonable settlement would have been; and
whether the contract of indemnity, properly construed, allowed for recovery of legal costs of this litigation on an indemnity basis.
Held in relation to (i):
Per Giles JA (Sheller JA agreeing):
BNP is a contractual indemnifier, and is in breach of contract. PCL is entitled to damages in an amount which will put it in the position it would have been in if BNP had provided indemnity. The measure of the indemnity is found in the terms of the NEAT LOIs, relevantly indemnity against liability or loss of any nature sustained by reason of delivering the cargo to Royal (which was taken to the extent to Bolton’s delivery of the cargo to Royal).
The settlement of the arbitration was a matter of causation loss sustained by reason of delivering of the cargo, and it must have been within the reasonable contemplation of BNP and PCL that a claim of misdelivery would be made if the cargo was delivered without production of the bills of lading. Provided the settlement was reasonable, the payment by PCL in settling the arbitration was recoverable.
Per Handley JA:
Where a contract of indemnity is repudiated the innocent party, who is faced with an adverse claim, is in the difficult position having to litigate the issues on two fronts instead of one. In such circumstances a settlement of the adverse claim, if reasonable, will crystallise the loss for which the innocent party is entitled to indemnity. Such a settlement is within the notional reasonable contemplation of the parties and a result of the breach.
Held in relation to (ii):
Per Giles JA (Sheller JA agreeing):
The fax of 13 January 1999 played no part as an instruction to deliver the cargo to Royal. Neither was there was a consent by SSOE which allowed Bolton to deliver the cargo without liability for misdelivery.
The amount of the settlement of the arbitration was not reasonable and so it is appropriate for the Court to undertake a re-assessment to determine what is recoverable. PCL could reasonably have settled the London Arbitration for a sum up to the order of seventy percent of SSOE’s claims, in round terms $US2,000,000 plus interest should replace the $2,900,000 plus interest.
Per Handley JA (dissenting):
1.SSOE as the owner of the cargo, provided a delivery order by fax of 13 January, to PCL requesting that PCL deliver the cargo to Royal. The request in that fax was capable of being revoked by SSOE at any time and the fax of 5 March had that effect. The cargo discharged after 5 March was not discharged pursuant to that request and, as to any such cargo, SSOE has its full rights under the bills of lading. The settlement was not reasonable because PCL did not establish that it was the result of negotiations conducted in circumstances calculated to lead to a reasonable compromise.
2.Where a plaintiff relies on a settlement to quantify his damages but fails to establish that it was reasonable he is left with the onus of proving his damages. If the failure to negotiate a reasonable settlement was seen as a failure to mitigate his damage the defendant would have the onus of proving the extent to which the actual settlement exceeded one which would be reasonable.
PCL is entitled to recover in full the amounts shown in its schedule for the other losses and out of pocket expenses which total US$910,000. This should carry pre-judgment interest of US$141,581.02 in accordance with the decision of the Judge. The judgment should take effect from 24 October 2001 and being in US currency should carry simple interest at the rate of 3.83% from that date.
Held in relation to (iii):
Per Sheller JA (Giles JA and Handley JA agreeing):
In clause 3 of the indemnity, concerned with the case of arrest or detention or threatened arrest or detention of the vessel, the indemnity is expressed as being “in respect of any liability, loss, damage or expenses caused by such arrest or detention or threatened arrest or detention.” PCL did not contract to indemnify PCL for its costs of this litigation.
Legislation cited:
Trade Practices Act 1974Cases cited:
Attorney General v Arthur Royal Automobiles Ltd [1938] 2 KB 16 CA
Bagnall v National Tobacco Corporation of Australia Ltd (1934) 34 SR (NSW) 421
Biggin & Co Ltd v Permanite Ltd [1951] 1 KB 422; [1951] 2 KB 314
BNP Paribas v Pacific Carriers Ltd [2002] NSWCA 379
Burns v MAN Automotive (Aust) Pty Ltd (1986) 161 CLR 653
Cackett v Keswick [1902] 2 Ch 456
Commercial Union Assurance Company of Australia Ltd v Ferrcom Pty Ltd (1991) 22 NSWLR 389
Cotterell v Stratton [1872] LR 8 Ch Apps 295
Distillers Co Biochemicals (Aust) Pty Ltd v Ajax Insurance Co Ltd (1974) 130 CLR 1
Dobson v Espie (1857) 157 ER 33
Edwards v Insurance Office of Australia Ltd (1934) 34 SR 88
General Omnibus Co Ltd v London General Insurance Co Ltd (1936) IR 596
Gomba Holdings (UK) Ltd v Minories Finance Ltd [No 2] [1993] Ch 171
Kai Yung v Hong Kong and Shanghai Banking Corporation [1981] AC 287
Lawlor v Gray [1984] 3 All ER 345
Maynegrain Pty Ltd v Compafina Bank (1984) 1 NSWLR 258
McIntosh v Dalwood (No 3) (1930) 30 SR (NSW) 332
McIntosh v Dalwood (No 4) (1930) 30 SR 415
O/Y Wasa Steamship Co Ltd v Newspaper Pulp & Wood Export Ltd (1940) 82 Lloyds L Rep 936
Pacific Carriers Ltd v Banque Nationale de Paris [2001] NSWSC 900
Pacific Carriers Ltd v BNP Paribas [2004] HCA 35
Post Office v Norwich Union Fire Insurance Society Ltd [1967] 2 QB 363
Rawlinson v Clarke (1984) 153 ER 442
Robinson v Harman (1848) 1 Ex 850
Rosenberg v Percival (2001) 2005 CLR 434
Sandtara v Australian European Finance Corporation Ltd (1990) 20 NSWLR 82
Smith v Chadwick (1884) 8 App Cas 187
The Sormovskiy 3068 (1994) 2 Lloyd's Law Rep 266
South Eastern Sydney Area Health Service v Gadiry (2002) 54 NSWLR 495 CA
Unity Insurance Brokers Pty Ltd v Rocco Pezzano Pty Ltd (1998) 192 CLR 603
Vero Insurance v Baycorp Advantage [2004] NSWCA 390
West v AGC (Advances) Ltd (1986) 5 NSWLR 610ORDERS
1.Grant leave to amend ground 15 of the notice of appeal by substituting “in contract” for “in tort”.
2.Appeal allowed.
3.Set aside the judgment for PCL against BNP for $US4,378,788.49 and in lieu thereof judgment for such sum calculated in accordance with these reasons as the parties may agree and advise the Registrar within 21 days, taking effect on 24 October 2001.
4.Cross-appeal dismissed.
5.PCL pay seventy-five per cent of BNP’s costs of the appeal and cross-appeal.
6.Liberty to apply on seven days notice in the event of inability to agree upon the substituted judgment sum.
*****
IN THE SUPREME COURT
OF NEW SOUTH WALES
COURT OF APPEAL
CA 40852/01
SC 8/99 (Equity)HANDLEY JA
SHELLER JA
GILES JAThursday 28 April 2005
BNP PARIBAS v PACIFIC CARRIERS LTD (No 2)
Judgment
HANDLEY JA: The summary of the facts in the judgment of Giles JA, which I gratefully adopt subject to what follows, enables me to proceed to the critical issues. The High Court held that the Letters of Indemnity (LOI) were binding on the Bank and enforceable by Pacific Carriers Ltd (PCL) in accordance with their terms, but it left undisturbed this Court’s decision that PCL had no cause of action in tort or under s 52 of the Trade Practices Act 1974.
In its amended summons PCL sought a declaration of its rights under the LOIs and specific performance, an order that the Bank indemnify it against its liability to indemnify Bolton against any award obtained in the London arbitration by Swiss Singapore Overseas Enterprises Pte Ltd (SSOE) and against its other liabilities and expenses, and damages.
The Bank repudiated the LOIs but PCL did not accept the repudiation and the contracts remained on foot. PCL was therefore entitled to a declaration of its rights, orders for specific performance of the contracts in respect of liabilities within the indemnities (McIntosh v Dalwood (No 3) (1930) 30 SR (NSW) 332, McIntosh v Dalwood (No 4) ibid 415), and damages for liabilities it had already discharged (McIntosh v Dalwood (No 4) above). However its claims in negligence and under s 52 involved once and for all assessments of its damages in respect of all losses and actual or potential liabilities within the terms of the LOIs.
The need for a final assessment of the plaintiff’s damages in tort and under s 52 created an embarrassment for PCL and its advisers. PCL had indemnified Bolton and taken over the conduct of its London arbitration. Bolton was claiming that it was not liable to SSOE because that company had consented to the cargo being delivered to Royal and wrongfully arrested the MV Nelson at Calcutta. If this was correct and it obtained an award its rights of indemnity against the Bank would be limited to its solicitor and client costs and losses it could not recover from SSOE.
PCL’s claims for declaratory relief, specific performance and damages for amounts it had already paid created no forensic difficulties in the New South Wales proceedings because that relief could be obtained without any prejudice to the arbitration in London. This could then have been prosecuted to an award on the merits. In that situation PCL would have been entitled to have its legal costs funded by the Bank under the indemnity. Those claims did not require PCL to prove in New South Wales that Bolton was liable to SSOE and would lose the arbitration. As each loss covered by the LOI crystallised and as each liability was finally incurred PCL could have obtained an order for payment of that amount by the Bank either direct or by way of reimbursement. Compare Attorney General v Arthur Ryan Automobiles Ltd [1938] 2 KB 16 CA; South Eastern Sydney Area Health Service v Gadiry (2002) 54 NSWLR 495 CA; Lawlor v Gray [1984] 3 All ER 345.
There were a number of possible answers to the dilemma in which PCL found itself in the New South Wales proceedings because of its claims for damages in tort and under s 52. PCL had the conduct of the arbitration and could have brought those proceedings to finality before the proceedings in New South Wales went to trial. An award adverse to Bolton would establish its liability to SSOE, and PCL’s liability to Bolton under its LOI given pursuant to cl 63 of the time charter.
The promises of PCL to Bolton and the Bank to PCL under their respective LOIs extended to any “liability” incurred by the party indemnified. Liability for this purpose would be established by proof of an award and the issues would not have to be re-litigated in proceedings to enforce the indemnities. See Spencer Bower, Turner and Handley “Res Judicata” 3rd ed, 1996 p 225 and Edwards v Insurance Office of Australia Ltd (1933) 34 SR (NSW) 88. While PCL could have brought on the London arbitration first, the Bank could not.
Another solution, if the New South Wales proceedings were to be brought on first, would have been to press for a separate trial of the issues of liability and damages on the tort and s 52 claims. The trial started on 19 June 2000 but by then or shortly afterwards PCL and its advisers had the opinion of Mr Teare QC of 16 June which gave it every reason to press for separate trials. These were familiar features of admiralty practice. Oral applications to this effect were made to Hunter J after the trial started, but they were opposed by counsel for the Bank, and rejected. They were made “off the cuff”, and were not pressed and fully argued. The legal difficulties facing PCL were not squarely presented to the Judge who did not appear to accept the right to specific performance of contracts of indemnity.
If an application for separate trials had been pressed and refused before a date for hearing was fixed or even after the trial had started, PCL could have abandoned its somewhat speculative claims in tort and under s 52, taken the matter to the Court of Appeal, or elected to defer the trial in New South Wales and have the London arbitration heard first. Instead PCL painted itself into a corner in the New South Wales proceedings and because of its claims in tort and under s 52 found itself in the embarrassing position of having to prove it was liable to SSOE, contrary to its stance through Bolton in the arbitration.
Even then it might have argued the case SSOE pleaded in London on the basis that if it won it would recover in full and if it lost after a proper contest the adverse decision would be followed by the arbitrators or would lead to a proper settlement. This was risky because PCL could not call all of the relevant witnesses from SSOE.
The opinion of Mr Teare that Bolton was liable to SSOE and would lose the arbitration was tendered on 30 January 2001, notice having been given in December. This made an already difficult position worse since SSOE as a cross-defendant obtained access to the opinion. No attempt was made to have it marked as a confidential exhibit to deny SSOE access but the application for such an order, even if successful, would have disclosed that the opinion was adverse to the position adopted by Bolton in the arbitration.
In any event the opinion, so far as it dealt with the merits of the arbitration, was clearly inadmissible. There is no suggestion of any relevant difference between the law of New South Wales and England. The opinion was nothing more than a written submission on legal questions which would have to be decided by Hunter J in due course. It only became relevant and admissible when the arbitration was settled.
Where a contract of indemnity is repudiated the innocent party, who is faced with an adverse claim, is in the difficult position having to litigate the issues on two fronts instead of none. In such circumstances a settlement of the adverse claim, if reasonable, will crystallise the loss for which the innocent party is entitled to indemnity. See Edwards v Insurance Office of Australia Ltd (1933) 34 SR (NSW) 88. Such a settlement is within the notional reasonable contemplation of the parties and a result of the breach. As I read Unity Insurance Brokers Pty Ltd v Rocco Pezzano Pty Ltd (1998) 192 CLR 603 (Unity Brokers) all judgments support this conclusion. McHugh J (612-4) and Gummow J (625) refer to Edwards v Insurance Office of Australia Ltd with approval.
The judgments in Unity Brokers confirm that the onus is on the plaintiff to prove that the settlement was reasonable and also establish that the test of reasonableness is objective and evidence from the legal advisers involved in the negotiations is admissible and will ordinarily be essential. McHugh J held (618) that reliance on the fact that the settlement was entered into on legal advice, disclosed or otherwise, is a waiver of legal professional privilege.
In that case the High Court sustained by a 3:2 majority the concurrent findings of the lower courts that the settlement was reasonable although the legal advisers had not given evidence in support of the settlement. McHugh J, in the majority, was only prepared to uphold the settlement because of the concurrent findings (618). He also relied on the fact that the defendant had not sought to cross-examine the insured’s director about the reasons the legal advisers gave for advising that the settlement was reasonable.
This decision does not establish a general principle that a settlement can be upheld without evidence from the legal advisers or that the failure of the opposite party to cross-examine can fill gaps in the evidence. The fact that the High Court were prepared, by majority, to uphold the settlement in that case, although evidence had not been given by the legal advisers, establishes no principle for settlements effected since that decision. Until then legal advisers and lower courts would have been guided by the decision of the Court of Appeal in Biggin & Co Ltd v Permanite Ltd [1951] 2 KB 314 which suggested that such evidence was not required.
A party relying on a settlement as proof of his loss has the onus of proving that it was reasonable. This requires proof not only that the result was reasonable but also that the negotiations were conducted with proper care and skill. The settlement must reflect the plaintiff’s true prospects of success if the proceedings had been conducted with care and skill because otherwise it will merely reflect his impaired prospects. Compare the analysis of McHugh JA in West v AGC (Advances) Ltd (1986) 5 NSWLR 610 at 620, 622 where his Honour held that a contract could be unjust because of the way it was made or because of its operation.
There is much to be said for the view that the outcome of the settlement negotiations was affected because PCL had painted itself into a corner in the New South Wales proceedings and placed itself in a very difficult position by bringing them on first without obtaining a separate trial of the issue of damages in tort and under s 52. These matters were not emphasised in the argument for the Bank and I will treat them as no more than background.
In my judgment the tender of the opinion of Mr Teare on 30 January 2001 and its prior disclosure were fatal to any claim that the settlement negotiations were conducted with reasonable care and skill. The opinion was clearly inadmissible when tendered and its disclosure to SSOE destroyed any chance of negotiating a settlement of the arbitration on a compromise basis.
The only evidence adduced by PCL to establish the reasonableness of the settlement was the opinion of Mr Teare, who was made available for cross-examination, and the affidavit of Mr Robert Wilson of 9 February 2001 (blue 18/7570). This proved that the settlement was concluded shortly before 2 pm on 8 February and annexed correspondence between the solicitors for PCL and the solicitors for the Bank. That was all. There was no evidence from Mr Wilson or anyone else as the course of the negotiations, and when where and between whom they were conducted. Apart from the opinion of Mr Teare there was no evidence of the factors considered by those conducting the negotiations on behalf of PCL.
The Court does not know whether PCL bargained SSOE down and by how much or whether it agreed to the amount demanded. This state of the evidence is not the result of a forensic accident but reflects a deliberate election by PCL and its advisers.
It has been suggested that the Bank should have cross-examined Mr Wilson but I cannot agree. The onus of proof was on PCL. It adopted the forensic position it did notwithstanding statements in the judgments in Unity Brokers on the importance of calling evidence about the negotiations and the factors which led the legal advisers to advise in favour of the settlement. In these circumstances counsel for the Bank were under no obligation to cross-examine Mr Wilson and the Court should not draw inferences about the settlement in favour of PCL. See Commercial Union Assurance Company of Australia Ltd v Ferrcom Pty Ltd (1991) 22 NSWLR 389 at 418-9. Smith v Chadwick (1884) 9 App Cas 187 could be added to the authorities there referred to.
Another course open to PCL was to seek a second opinion in London. There was ample time for this to be done. If this had favoured the view later supported by Mr Popplewell QC PCL could have tendered both opinions and asked Hunter J to choose which he would accept. They could also have negotiated with SSOE on the basis that the case was evenly balanced and should be compromised on that basis.
In my judgment the settlement was not reasonable because PCL did not establish that it was the result of negotiations conducted in circumstances calculated to lead to a reasonable compromise.
The merits of the settlement in substantive terms involve issues of considerable complexity and difficulty which were canvassed in the opinions of Mr Teare and Mr Popplewell and the judgment of Hunter J. These turn on the fax of 13 January 1999 from SSOE to PCL quoted in full by Giles JA, and the telephone conversation between Ms Farhana of SSOE and Captain Liang of PCL which preceded it.
Ms Farhana swore an affidavit in the Singapore proceedings which went into evidence in the Bank’s case as part of that Court file (ex 32, 9/5357). She was employed as a secretary by SSOE and her affidavit annexed a fax of 4 January 1999 (5370) which advised the imminent sailing of MV Nelson from Brisbane with an estimated arrival at Saugor Roads on 17/18 January. She deposed to her conversation with Captain Liang on 13 January which she said was confined to the switching of the bills of lading (5361). She was not called in Sydney.
As she was preparing the fax she was told by Mr Balodi, an assistant manager of SSOE, to ask PCL to release the cargo to the notify party, ie Royal, against Banker’s Guarantee (5361). Mr Balodi said in his affidavit in the Singapore proceedings that he received a telephone call that day from Mr Bhura of Royal who asked him to instruct the shipping company to release the cargo without production of the original bills of lading (5282-3). Mr Balodi obtained the necessary authority from Mr Jain (5284).
Mr Jain said in his Singapore affidavit that he asked Mr Balodi to give instructions to the shipping company to release the cargo without production of the original bills of lading against a bank guarantee “from the buyer” (5131-3). This part of the instruction was not passed on to Ms Farhana or Captain Liang.
Captain Liang, PCL’s operations assistant, said in his Singapore affidavit (5377-005) that he received a telephone call on 13 January from Ms Farhana who told him that SSOE were the owners of the cargo. She asked not only about switching the bills but also for PCL to instruct its Calcutta agents to release the cargo to the notify party against Banker’s Guarantee.
Both matters were confirmed in Ms Farhana’s fax which Captain Liang sent on to Mr Chua of PCL. The receiver’s copy bears that notation (5377-014). He said that he told Ms Farhana that PCL were not owners, as she thought, but time charterers and “disponent owners”. As to the meaning of this expression see O/Y Wasa Steamship Co Ltd v Newspaper Pulp & Wood Export Ltd (1940) 82 Lloyds L Rep 936, 953-4. PCL had entered into the voyage charterparty with Neat as disponent owner (blue 8/4648). Nothing was said about Bolton and it seems that SSOE was not aware of its involvement.
The Captain said despite the reference in the fax to 14 pages only one other page arrived with details for one of the switched bills (5377-005). It identified Royal as the notify party with its Calcutta address and showed SSOE as the consignor (5377-015). He did not confirm its receipt to Ms Farhana as she had requested in the fax and no one from PCL did this (5364). Mr Chua told Captain Liang “as for the matter of the Banker’s Guarantee this was a contractual matter … which would be dealt with by” him (5377-006). Captain Liang was not called in Sydney.
The two versions of the conversation differ as to whether or not Ms Farhana asked for the cargo to be delivered to the notify party without production of the bills of lading. This is marginal because that request was made in the fax. The Bank relies on Ms Farhana’s fax (5373) as a consent by SSOE to the delivery of the cargo to Royal, and as a request which attracts an implied indemnity from SSOE to PCL. The part relied upon reads:
“PLEASE ALSO INSTRUCT YOUR DISCHARGE PORT AGENT TO RELEASE THE CARGO TO THE NOTIFY PARTY AGAINST BANKERS GUARANTEE.”
Neither version of the conversation throws any light on the meaning of these words and the only evidence of surrounding circumstances it provided was Ms Farhana’s claim that SSOE were owners of the cargo. Nothing was said in the conversation about the party who would provide the banker’s guarantee, the party for whose benefit it would be obtained, the debt or liability which would be guaranteed or any other terms.
Neither Bolton nor PCL were named in the original bills of lading (blue 9A/5377-075 & foll) but Ms Farhana obtained the contact details for her call to Captain Liang from Mr Murali of Neat or Beaufort Shipping Agency in Singapore (5360). The latter were PCL’s agents in Singapore who had been identified by Neat when it copied to her the fax of 4 January from Kilby to Sniekers (5370).
The request or instruction in the fax of 13 January was given by the company which claimed to be the owner of the cargo and was the notify party in the original bills. It was given to PCL which Ms Farhana now knew was the time charterer and disponent owner. SSOE was seeking to obtain switched bills which would show it as the shipper (5377-015) with Royal as the notify party.
It is evident that the fax falls to be construed in accordance with its terms with little assistance from surrounding circumstances known to both parties. This Court is therefore in as good a position as Hunter J or anyone else to construe it and has the background evidence . Many different constructions have been suggested but in my judgment that adopted by Mr Popplewell should be preferred.
For reasons which will appear, if PCL acted on SSOE’s request in the fax, and discharged to Royal as the notify party under the switched bills, without production of the originals, the claims for which it would need protection would be those from unknown third parties in the chain between SSOE and Royal, or after Royal. As at 13 January they may not have been ascertained or ascertainable. PCL could only protect itself against such parties by obtaining a suitable bank guarantee or LOI. However if it acted on the fax it would be protected against claims from SSOE and Royal.
I am unable to accept the view that the bank guarantee was to be for the benefit of SSOE. This was not stated in the fax nor was the party who was to procure the guarantee identified. There was no request for a copy to be sent to SSOE either for approval or for its records. The whole matter was left entirely in the hands of PCL and it is evident that the guarantee was to be for its benefit. The request was not subject to a condition for the benefit of SSOE or indeed any conditions. The reference to a banker’s guarantee was a statement of the obvious viz “and of course you will still need a bankers guarantee for your protection against possible third parties”. I conclude that it was to be a guarantee or indemnity against claims by parties other than SSOE for delivering the cargo to Royal without production of the original bills of lading.
In the typical situation where a Bankers Guarantee or LOI is obtained the consignee presumptively entitled to the cargo provides a LOI from its bank to protect the carrier from claims arising from delivery to the consignee without production of the original bill of lading. The parties to the arrangement are the carrier, the consignee and its bank. See The Sormovskiy 3068 [1994] 1 Lloyd’s Rep 266. The consignor shows no interest and the willingness of the consignee to provide a bank LOI is evidence of its good faith.
As at 13 January SSOE thought that the MV Nelson was due at Saugor Roads on 17 or 18 January [para 26] and the bills of lading had not been switched. PCL was not privy to the contractual arrangements between SSOE and Royal and was not on notice of Royal’s defaults, or the fall in the market price of legumes in Calcutta.
The fax of 13 January stated on its face that SSOE, which had claimed to be the owner of the cargo, was content for it to be delivered to Royal, and the Court knows from the affidavits of Messrs Balodi and Jain that SSOE had acted on Royal’s request to this effect.
In my judgment the fax was a delivery order given by SSOE as the owner of the cargo to PCL which it understood was either the carrier in possession of the cargo, or was in a position to give binding directions to the true carrier. See the discussion on delivery orders in “Carver on Bills of Lading” 1st ed, 2001, paras 8-027 to 8-034.
If SSOE wished at that stage to retain control of the cargo it might have refused to act on Royal’s request, and said nothing or else foreshadowed to PCL a request for delivery to it at Calcutta or into a bonded warehouse. It might also have asked PCL to obtain a bank LOI or guarantee from Royal. Instead it requested delivery to Royal without production of the original bills of lading. What was the point of this unless it was to indicate that so far as SSOE were concerned PCL could safely deliver to Royal?
PCL submitted that the request in the fax did not take effect because it had not been confirmed as requested. But PCL acted on the fax by switching the bills of lading and for this purpose used the information in the proforma which accompanied it. SSOE knew that the fax had been received and that the first paragraph was being acted on.
A request, like a representation, can continue until it is revoked. SSOE did not revoke this request until 5 March when it notified PCL that it was reserving its rights in relation to the cargo delivered to Royal. In the meantime the request stood and PCL was entitled to act on it. Mr Jain said in evidence quoted by Hunter J [para 646] that he thought during February 1999 that PCL might be acting on a banker’s guarantee it had obtained pursuant to the fax of 13 January.
The request in the fax must be construed in the light of the surrounding circumstances known to both parties. It should not be construed in the light of circumstances known only to SSOE. PCL would need a LOI to protect it from claims by parties other than SSOE and Royal, and was never likely to act on the fax alone. Having obtained LOIs from the Bank it proceeded to act on the fax by discharging cargo to Royal who was otherwise known to it only from the information provided by SSOE for the preparation of the switched bills. The natural inference is that PCL acted on both the fax and the LOIs, and indeed acted on the fax by obtaining the LOIs. The self serving evidence of Mr Chua at the trial contrary to the affidavit he swore in the Singapore proceedings and the position PCL adopted there is of no weight. The inference of reliance can and should be drawn from objective considerations rather than the ex post facto subjective of an interested witness.
The situation is comparable with that considered by McHugh J in Rosenberg v Percival (2001) 205 CLR 434, 443-4, a case of alleged negligence by a dentist. McHugh J referred to the importance of objective factors in determining whether to accept a patient’s evidence about the decision he or she would have made if differently advised, and the diminished weight to be given to the patient’s own evidence after the event on that topic. As McHugh J said:
“… human nature being what it is, most persons who suffer harm as the result of a medical procedure and sue for damages genuinely believe that they would not have undertaken the procedure if they had been warned of the risk.”
The same point was made by Farwell J in Cackett v Keswick [1902] 2 Ch 456, 463-4, a prospectus case:
“… it cannot be enough for a man to swear that he would not have entered into the contract if he had known something … It is easy to be wise after the event, and many men can honestly persuade themselves when a company has failed that they would have been influenced by a circumstance which in all probability would have made no impression whatever on their mind … The test must be, Is the omission material? And if the Court sees that the fact omitted is of such a nature that it might reasonably deter … the ordinary investor … this is sufficient. It is in great measure an inference of fact to be drawn … from the circumstances of the case.”
Hunter J appeared to think that if the Bank’s construction of the fax of 13 January was correct the request from SSOE, acted on by PCL, would have given rise to an implied right in PCL to be indemnified by SSOE. Compare Kai Yung v Hong Kong and Shanghai Banking Corporation [1981] AC 287. In my judgment a construction of the fax having that result is excluded by its terms because PCL is asked or advised to obtain a Banker’s Guarantee which is inconsistent with any implied indemnity by SSOE against claims by third parties. However it is not inconsistent with an implied indemnity against claims by SSOE itself.
I am unable to construe the fax as a request by SSOE which it acted on by PCL would leave SSOE free to sue PCL for doing what it had been requested to do. This would make it an involuntary guarantor of Royal and at the same time increase the assets of the latter. If that had been spelt out in the fax PCL would almost certainly have refused to act on such a request which involved the risk that the ship would be arrested. PCL would have been bound to disclose this information to any party it asked to procure a bank LOI. Why would any party other than Royal ask its bank to provide an LOI in those circumstances and why would a bank other than Royal’s ever be willing to provide it?
The vessel arrived at Saugor Roads on 24 January and this was known to SSOE shortly afterwards [Hunter J paras 68, 69, 118-9, 169]. Lightening commenced on 9 or 10 February, ceased on the 15th, recommenced on the 19th and continued without any indication of SSOE’s interest in the cargo being communicated to PCL until 3 March. On 5 March SSOE sent PCL a fax asserting to be the rightful owner of the cargo in possession of the original bills of lading, and threatening to hold PCL responsible for the cargo and its discharge [Hunter J para 254].
The request in the fax of 13 January was capable of being revoked by SSOE at any time and the fax of 5 March had that effect. The cargo discharged after 5 March was not discharged pursuant to that request and, as to any such cargo, SSOE has its full rights under the bills of lading. The vessel was arrested on 31 March.
By 18 February at the latest, on Hunter J’s findings [paras 180, 181, 182, 187, 188, 189] SSOE knew that cargo was being discharged from the vessel. Moreover he found [para 264] there was never any real prospect of the switched bills of lading being available at the time of anticipated discharge of the MV Nelson in Calcutta. He said there was no dispute that SSOE were aware by mid-February that discharge had commenced [para 223]. Mr Jain was told by Mr Murali of Neat by telephone on 19 February that 4000 tonnes had been discharged, but the news did not provoke any protest or assertion of right [para 224].
Hunter J [paras 68, 69, 179, 180, 189, 226, 646, 653, 657] held that until 5 March SSOE allowed discharge to continue without interference. It seems that during this period 8,700 tonnes was discharged. In my judgment there was no defence to SSOE’s claim in respect of cargo discharged after receipt of the fax of 5 March and before the arrest of the vessel, but PCL was not liable for cargo discharged under the orders of the High Court in Calcutta [Hunter J para 262].
The position in respect of cargo discharged before receipt of the fax of 5 March depends on the construction of the fax of 13 January and the effect of SSOE’s inactivity between the arrival of the vessel at Saugor Roads on 24 January and its fax of 5 March. The Bank is entitled to rely on the combined effect of the fax of 13 January and SSOE’s subsequent inactivity.
SSOE was the original party to the switched bills (blue 9/5212 & foll. Unfortunately the back pages of the original and switched bills do not appear to be included in the appeal books) and could sue for misdelivery of the cargo as a breach of contract, or in tort for its conversion. The consent of the true owner is a defence to an action for conversion: Maynegrain Pty Ltd v Compafina Bank [1984] 1 NSWLR 258, 58 ALJR 389 (PC).
PCL as the time charterer of the MV Nelson did not itself deliver any cargo to Royal. Bolton did. However PCL directed Bolton to discharge to Royal and thus was in the same position as BTE in Maynegrain Pty Ltd v Compafina Bank which instructed Maynegrain to load the barley onto the MV Bellnes. BTE had the consent of the ANZ Bank, as pledgee of the barley, just as PCL had the consent of SSOE as the holder of the original bills of lading. In my judgment the delivery of the cargo to Royal before receipt of the fax of 5 March was not a conversion and SSOE had no rights against Bolton in tort in respect of that cargo. The position in contract is not the same because consent without more is not a defence to an action for breach of contract (Bullen & Leake “Precedents of Pleadings”, 3rd ed, 1868, pp 673-4; Rawlinson v Clarke (1845) 153 ER 442, 445 and Dobson v Espie (1857) 157 ER 33).
In answer to an action by SSOE for misdelivery in breach of contract Bolton must therefore rely either on the fax of 13 January as an authority to deliver to Royal or on an estoppel. The carrier’s promise in the bill of lading is in substance to deliver the cargo to the holder of the original bill, or as he directs. The fax was a direction to deliver to Royal which was acted on until revoked. As such it was a defence to any action for breach of the bill of lading contracts.
Mr Teare, Mr Popplewell, Hunter J and counsel did not refer to Maynegrain Pty Ltd v Compafina Bank which was referred to by the Court during argument. This does not matter because Unity Brokers establishes that the test for the reasonableness of a settlement is objective.
Hunter J held that the settlement for US$2,900,000 plus interest was “right at the top of the scale” (para 732), but that is an understatement. SSOE’s claim in respect of the whole cargo was US$3,159,725.80 less $194,974.32 for dun peas delivered to it by the Court appointed receivers of the cargo. There had been “a dramatic slump” in the market at Calcutta for chick peas and a lesser drop for dun peas, and Hunter J held that a further deduction of $250,000 should be made for this. However by some slip his Honour (paras 722-3) quantified the claim at “approximately $2,800,000” when on this basis it was $2,714,750.54. The effect is marginal but does not help PCL establish that the settlement was substantively reasonable.
The settlement on 8 February 2001 included the costs of the proceedings in Singapore and London and interest. Hunter J thought that SSOE may have had a claim for the higher contract price payable by Royal but it is well established that the measure of damages in contract for misdelivery and in tort for conversion is the market value of the goods at the relevant time and place. PCL is not entitled to any allowance in the settlement for a claim by SSOE for the contract price payable by Royal which was in default. PCL failed to establish that the settlement with SSOE was substantively reasonable having regard to the strengths and weaknesses of Bolton’s case in the arbitration.
There is no clear guidance in the authorities as to the result of a finding that a settlement was not reasonable. Unity Brokers does not assist because the minority ordered a new trial on the issue of damages. On any view the settlement, even if unreasonable, establishes an upper limit (Biggin & Co Ltd v Permanite Ltd [1951] 2 KB 314 CA).
Where a plaintiff relies on a settlement to quantify his damages but fails to establish that it was reasonable he is left with the onus of proving his damages. If the failure to negotiate a reasonable settlement was seen as a failure to mitigate his damage the defendant would have the onus of proving the extent to which the actual settlement exceeded one which would be reasonable: Bagnall v National Tobacco Corporation of Australia Ltd (1934) 34 SR (NSW) 421, 430; McGregor on Damages 17th ed, 2003, para 7-019.
This would produce a conflict between the onus on the plaintiff to prove that the settlement was reasonable and the onus on a defendant to prove the extent to which the settlement was unreasonable. In my judgment there is no such conflict because the mitigation principle only applies once the plaintiff has proved his damages on a prima facie basis. If a failure on his part to mitigate his damage is relied on to reduce that prima facie measure the defendant has the onus of establishing that failure and the quantum of any deduction. The failure to establish that the settlement was reasonable meant that there was no prima facie measure of damage, and the question of mitigation does not arise.
In this situation the task of the Court is not to determine what would have been a reasonable settlement. It has no authority to make a notional compromise binding on the parties which the plaintiff and the third party may never have accepted. Its task is to assess the plaintiff’s damages on the available evidence, and if that it not possible it must hold that the plaintiff failed to prove that part of his damages.
There is evidence which enables the Court to make an assessment. PCL is entitled to recover its direct out of pocket losses and expenses and those of Bolton for which it was liable under its indemnity. These fall within the terms of the LOIs given by the Bank and PCL is entitled to recover them in full.
SSOE having revoked its consent and request by the fax of 5 March, Bolton had no defence in respect of deliveries to Royal after that date and SSOE was entitled to arrest the ship in respect of further deliveries. This means that Bolton’s cross-claim in the arbitration would have failed but SSOE would only have recovered for deliveries to Royal after 5 March.
SSOE’s claim in London (6040) was based on switched bills of lading 1A-F for 5762.58 m.t. and switched bills of lading 3A-E for 4169.23 m.t. of dun peas, a total of 9931.81 m.t.; and switched bills of lading 4A-D for 3800 m.t. of chick peas. However a total of 10,469.23 m.t. of dun peas had been shipped [Hunter J paras 24-5], and 9273.96 m.t. of chick peas [paras 25-6]. Bills of lading for dun peas were switched as follows [Hunter J paras 73-7]:
| Bill of lading 1 | 5762.58 m.t. | Switched bills of lading 1A-E for 1000 m.t. each and bill of lading 1F for 762.58 m.t. |
| Bill of lading 2 | 537.42 m.t. | Switched bill of lading 2 for same tonnage |
| Bill of lading 3 | 4169.23 m.t. | Bills of lading 3A-D for 1000 m.t. each and bill of lading 3E for 169.23 m.t. |
The original bills of lading for the chick peas were switched as follows:
| Original bills of lading 4A-C | 1000 m.t. each | Switched bills of lading 4A-C for 1000 m.t. each |
| Original bill of lading 4D | 800 m.t. | Switched bill of lading 4D for 800 m.t. |
| Original bills of lading 5A-E | 1000 m.t. each | These bills were not switched [para 77] |
| Original bill of lading 5F | 473.96 m.t. | This bill was not switched |
It will be seen that SSOE did not claim in respect of substitute bill of lading 2 for 537.42 m.t. of dun peas or original bills of lading 5A-F which had never been substituted for 5473.96 m.t. of chick peas. Its claim in the arbitration was for 9931.81 m.t. of dun peas and 3800 m.t. of chick peas (6040). The full cargo on MV Nelson was 10,469.23 m.t. of dun peas and 9273.96 m.t. of chick peas. The vessel still had on board at the time of its arrest 1397.04 m.t. of dun peas and 5473.96 m.t. of chick peas [para 259]. This was enough to satisfy SSOE’s claim for delivery of 3800 m.t. of chick peas and part of its claim for delivery of dun peas. A further 140.22 m.t. of chick peas and 623.47 m.t. of dun peas were held by the barge contractor.
SSOE only took up and paid for the 3800 m.t. of chick peas comprised in bills of lading 4A-D and the second LOI related only to those bills and that tonnage. In these circumstances PCL and through it Bolton should be understood as appropriating the chick peas it discharged to the bills of lading for which PCL held the second LOI from the Bank and in performance and discharge of those bills. The MV Nelson discharged 3800 m.t. of chick peas prior to its arrest, the quantity covered by its second LOI and those bills of lading.
Mr Popplewell stated in his opinion that 8700 tonnes of dun and chick peas had been discharged by 5 March (7682) but did not give figures for the different types.
The first LOI related to the whole of the cargo of dun peas of 10,469 m.t. but SSOE’s claim was only for 9931.81 m.t., the difference being the 1397.04 m.t. still on board at the time of the arrest. SSOE gave credit in their points of claim in the arbitration for the quantity of dun peas still on board which was delivered to them (6040).
The Judge found that SSOE took delivery of 1499 m.t. of dun peas from the Court appointed receivers in July 1999 [para 725]. This must have included the cargo of 1397.04 m.t. of dun peas still on board at the time of the arrest and some of the 623 m.t. of dun peas in the possession of the barge contractor at that time [para 259]. He would have reduced the damages by $194,974.32 to allow for the receipt of this tonnage [paras 725-6, 731]. The Bank is entitled to this deduction in the computation of the damages.
The log book of the MV Nelson covering the relevant period is in evidence (ex Q) but is not in the appeal books made available to all the members of the Court. The information in the log would provide precise figures for the tonnages of dun peas and chick peas discharged from the vessel up to the end of work on 5 March. These tonnages should be adopted as the basis for this part of the award against the Bank.
The Judge accepted evidence of the market value of these commodities in Calcutta at the end of February 1999 [para 719] of US$200 per m.t. for dun peas and US$244.70 per m.t. for chick peas. These values should be applied to the tonnages disclosed in the ship’s log to provide the measure of damages to reflect the amount that would have been recovered by SSOE from PCL in the London arbitration which is now recoverable by PCL from the Bank subject to the deduction of $194,974.32 previously referred to. The net amount, in US dollars, should carry interest at the rate accepted by the Judge of 3.83% [second judgment 24 October 2001 paras 20, 22, 28].
PCL is entitled to recover in full the amounts shown in its schedule for the other losses and out of pocket expenses which we were informed total US$910,000 (red vol 1 pp 444-5, red vol 2 pp 462-5). This should carry pre-judgment interest of US$141,581.02 in accordance with the decision of the Judge [second judgment paras 49-50]. The judgment should take effect from 24 October 2001 and being in US currency should carry simple interest at the rate of 3.83% from that date.
I agree with Sheller JA that the cross-appeal fails and I agree with the orders for costs proposed by Giles JA.
The following orders should be made:
1.Appeal allowed.
2.Judgment entered by Hunter J for US$4,378,788.49 set aside.
3.In lieu thereof judgment entered for the amount to be determined in accordance with these reasons, such judgment to take effect from 24 October 2001.
4.If the parties are unable to agree on the appropriate figure they are to bring in short minutes before Handley JA to give effect to Order 3 on a date to be fixed.
5.The judgment is to carry simple interest at the rate of 3.83% from 24 October 2001, credit being given as appropriate for the interim payment and repayment of the original judgment debt.
6.The orders for costs should be made as proposed by Giles JA.
SHELLER JA: I have had the benefit of reading in draft the judgments prepared by Handley and Giles JJA.
Consent
In general I agree with what Giles JA says about the meaning of the facsimile of 13 January 1999 from Swiss Singapore Overseas Enterprises Pty Ltd (SSOE) to Pacific Carriers Ltd (PCL). The unique characteristic of a bill of lading, which requires delivery of the goods only against presentation of the document, has at times caused serious practical problems both to carriers, shippers and those entitled to delivery of the goods. Factors such as the speeding up of transportation and delays in banking and postal services have increased the number of cases where cargo reaches its destination before documentation. This places the carrier in a dilemma because insistence on presentation of the bill raises other problems particularly if there is no place available to store the cargo, pending the arrival of the bill, except on board the ship.
“In such an event a charterer may face liability for demurrage or damages for detention, while the shipowner may run the risk of losing the next charter should it contain a cancelling clause … Again there are the obvious risks to the cargo owner should the goods be perishable or subject to fluctuating market prices.”
(See generally Wilson Carriage of Goods by Sea, 5th ed, at 158.)
A common, though not necessarily infallible solution, is for the carrier to require an indemnity before agreeing to deliver without presentation of the bill of lading. Normally, a bank indemnity would be demanded but occasionally a charter-party may require the shipowner to deliver against personal guarantee only. These concerns explain cl 63 in the time charter of 9 December 1998 between Bolton Navigation SA (Bolton) as owners of the MV Nelson and PCL as the charterer. The clause provided:
“In the event that original bills of lading are not available at the time of the vessel’s arrival at the port of discharge, owners to agree to discharge the cargo at a safe facility or facility designated by charterers without presentation of original bills of lading provided that charterers request such discharge by cable, telex or telefax.
Charterers to agree to issue a telexed or telefaxed ‘Letter of Indemnity’ in the form of owners P & I Club wording, but no bank guarantee or counter signature of owner’s bank is required. Charterers to forward original to owners promptly.”
Understandably no similar clause is found in the voyage charter between PCL, as disponent owners, and New England Agricultural Traders Pty Ltd (NEAT) as charterers.
The charter-parties in The Sormovskiy 3068 (1994) 2 Lloyd’s Law Rep 266 at 268, one of which was made between the plaintiff purchaser who ultimately paid for and became the holder of the bill of lading and the charterer of the vessel from the defendant owner, contained cl 46 as follows:
“In the event that original bill of lading are [sic] not at discharge port in time for the vessel’s discharge, then Owners to agree to discharge of the cargo against production of a Bank Guarantee.”
At 274 Clarke J said:
“The purpose of the clause was to ensure that the defendants would discharge the cargo even if the bill of lading was not available for presentation, but on terms that they would be protected by a letter of indemnity. It thus contemplated that they would be liable to the holder of the bill of lading if they delivered otherwise than in return for an original bill of lading.”
In other words it was not contemplated that the holder of the bill of lading as a party to one of these charter-parties could be understood, by requiring the discharge of the cargo against production of a bank guarantee, to have released the shipowner from liability in the event that delivery was so made but other than to a party entitled to delivery. By such arrangements the shipowner was protected but so too was the supplier and rightful owner because of the unlikelihood that a person not entitled to delivery of the goods could produce a bank backed indemnity for wrongful delivery to it.
If Bolton or PCL were to consider acting on the facsimile of 13 January 1999 they clearly would have been entitled to look to SSOE to furnish a bank backed LOI in the same terms as those to be found in the NEAT LOI. That they took no steps to obtain such an indemnity from SSOE is, in my opinion, a powerful reason for saying that they did not regard themselves as acting on SSOE’s instruction. PCL acted, as was plain enough, on the instruction of NEAT found in the NEAT LOI addressed to PCL, namely “… we, New England Agricultural Traders Pty Ltd hereby request you to give delivery of the said cargo to: … M/s Royal Trading Company [Royal] … without production of the original bills of lading.” At the request of PCL, Bolton acted as it was contractually bound to do by cl 63 of the time charter.
I am confident that SSOE did not intend its facsimile to be read as insisting that before delivery of the goods to Royal, Bolton would obtain a bank backed LOI from SSOE. In what circumstances would a bank, at the request of SSOE as the financier and unpaid creditor of Royal, be prepared, even with recourse to SSOE, to agree to indemnify the shipowner for delivering goods to Royal without production to it of the original bills of lading? If the bank guarantee intended before delivery to Royal was from Royal it would only have been available if in fact a bank was satisfied that Royal was indeed entitled to or the holder of the bills of lading, though not available for presentation in Calcutta and that Royal was financially able to reimburse the bank if Royal was in fact not entitled to delivery.
Settlement of the London arbitration
I, like Giles JA, and for the reasons he has given, respectfully disagree with Hunter J’s conclusion that the settlement of the London arbitration was reasonable.
Though for somewhat different reasons, I agree with Mr Teare when he said in dealing with what he described as the pleaded defence “delivery in accordance with the instructions of Swiss Singapore” that PCL’s defence in the London arbitration was misconceived and ought to fail. As Mr Teare said in his postscript, the whole purpose of the scheme whereby PCL provided a letter of indemnity to Bolton was to protect Bolton against the claims of the person entitled to possession of the goods, who in the present case, happened to be SSOE. PCL in its turn obviously wanted protection, hence its demand that NEAT provide a letter of indemnity backed by a bank.
I do not think the observations of Mr Popplewell are really in point. I agree that it would be counter productive for SSOE to instruct the shipowner to discharge the goods without production of the original bills of lading but at the same time insist that the shipowner obtain indemnity backed by a guarantee from a party such as the original true shipper. As Mr Popplewell said it seems commercially far-fetched to expect the recipient of 13 January facsimile to construe it as meaning that SSOE was seeking to protect its position by requiring that the shipowner be able to draw on a bank guarantee should the shipowner be sued by SSOE. The words of the facsimile might be, in a commercial sense, meaningless unless they be read as a requirement that before delivery to Royal, Royal provide a bank guarantee. But PCL did not act on the instruction of SSOE but at the request of NEAT.
I agree with Giles JA for the reasons that he has given that the facsimile of 13 January 1999 played no part as an instruction to deliver the cargo to Royal. I also agree with his Honour’s reasons for concluding that the settlement of the London arbitration between SSOE and PCL was not for the purposes of assessing the extent to which BNP was bound to indemnify PCL, a reasonable settlement. I agree with his Honour that it is appropriate that this Court undertake a re-assessment and with the conclusion his Honour reaches in making that re-assessment.
Cross-appeal
By ground 21 of its cross-appeal, PCL claimed that assuming it succeeded in its claim in contract “his Honour should have held that BNP Paribas (BNP) pay PCL’s costs of the proceedings on an indemnity basis.” In his oral submissions in support of this ground, Mr Street SC, who appeared for PCL, claimed a contractual right to indemnity which extended “to the legal costs incurred the appropriate legal costs order in this Court would be costs on an indemnity basis”. Mr Street said that he sought to distinguish the letter of indemnity from the mortgagee cases; see for example AGC (Advances) Ltd v West (1986) 5 NSWLR 301 and Sandtara v Australian European Finance Corporation Ltd (1990) 20 NSWLR 82. Hunter J dealt with an application by PCL for indemnity costs but that application was based upon an exchange of communications. If failed and PCL did not appeal against that part of the decision.
Hunter J did not deal with a contractual claim that costs be paid as part of the contractual obligation of BNP, perhaps because he concluded that there was no contract of indemnity.
Asked by the Court whether he was seeking to have the Court exercise its discretion as to costs conformably with the obligation to indemnify or saying that PCL was entitled to its costs on an indemnity basis as a head of damage or as specific performance of the contract of indemnity, Mr Street said that he was putting it as a matter of discretion taking account of the terms of the indemnity.
In Gomba Holdings (UK) Ltd v Minories Finance Ltd [No 2] [1993] Ch 171 the English Court of Appeal considered as a matter of principle the right of a mortgagor on the taking of a mortgage account to object to the level of costs, charges and expenses which the mortgagee claimed to be entitled to charge against or retain out of the mortgage property. Scott LJ gave the judgment of the Court of Appeal. In that case, by a clause of the mortgage the mortgagor guaranteed to pay the secured lender “All costs charges and expenses howsoever incurred by the bank or any receiver under or in relation to this mortgage … on a full indemnity basis including (but without prejudice to the generality of the foregoing) all costs, charges and expenses which the bank or any receiver may incur in enforcing the security (p179).” An issue between the plaintiffs and the defendants was about whether the contractual provisions entitled the receivers to retain out of the monies they had received “costs, charges and expenses” which were of an unreasonable amount or which had been unreasonably incurred. Scott LJ said at 180:
“This is primarily an issue of construction but it may involve also a question as to how far, if at all, the powers of the court in respect of litigation costs can curtail a contractual right of recovery.”
At 182 Scott LJ observed that the indemnity basis of taxation under the English rule was based on concepts of reasonableness or unreasonableness. At 184 his Lordship set out what Lord Selborne LC said in Cotterell v Stratton [1872] LR 8 Ch Apps 295 at 302:
“The contract between mortgagor and mortgagee, as it is understood in this court, makes the mortgage a security, not only for principal and interest, and such ordinary charges and expenses as are usually provided for by the instrument creating the security, but also for the costs properly incident to a suit for foreclosure or redemption. … These rights, resting substantially upon contract, can only be lost or curtailed by such inequitable conduct on the part of the mortgagee … as may amount to a violation or culpable neglect of his duty under the contract.”
At 194 Scott LJ set out principles which emerged from the cases and dicta to which he had referred as follows:
“(i)An order for the payment of costs of proceedings by one party to another party is always a discretion order: s51 of the (English) Supreme Court Act 1981. (Compare s76(1) of the Supreme Court Act 1970 (NSW)).
(ii)Where there is a contractual right to the costs, the discretion should ordinarily be exercised so as to reflect that contractual right.
(iii)The power of the court to disallow a mortgagee’s costs sought to be added to the mortgage security is a power that does not derive from s51 but from the power of courts of equity to fix the terms on which redemption will be allowed.
(iv)A decision by a court to refuse costs, in whole or in part, to a mortgage litigant may be a decision in the exercise of the s51 discretion or where a decision in the exercise of the power to fix the terms on which redemption will be allowed or a decision as to the extent of a mortgagee’s contractual right to add his costs to the security or a combination of two or more of these things. …
(v)A mortgagee is not, in our judgment, to be deprived of the contractual or equitable right to add costs to the security merely by reason of an order for payment of costs made without reference to the mortgagee’s contractual or equitable rights and without any adjudication as to whether or not the mortgagee should be deprived of those costs.”
This is not a mortgage case which may give rise to questions not here present but unique to the rights of a mortgagor. In the present case, the matters to be examined are first whether under the contract of indemnity PCL is entitled to be indemnified for its costs of the trial and appeal and secondly, whether the court should, as a matter of discretion, disallow the recovery of any part of those costs.
Clause 1 of the NEAT LOI is an agreement by BNP to indemnify PCL and hold it harmless in respect of any liability, loss or damage of whatsoever nature which it might sustain by reason of delivering the goods to receivers as directed by Royal in accordance with NEAT’s request.
Mr Rayment QC, who appeared for BNP, submitted that the terms of this indemnity were no wider than those of many insurance policies. Ordinarily one would not regard a claim against an insurer to enforce the policy as within the indemnity contained in the policy. He submitted that the loss was not one sustained by reason of delivering the goods to the receivers as directed but one sustained by reason of BNP’s denial of PCL’s entitlement to indemnity and by dispute over the meaning of the NEAT LOIs. It is to be noted that in cl 3 of the NEAT indemnity, concerned with the case of arrest or detention or threatened arrest or detention of the vessel, the indemnity is expressed as being “in respect of any liability, loss, damage or expenses caused by such arrest or detention or threatened arrest or detention.” The language of cl 1 is to be contrasted with the language under consideration in Sandtara which included the word “costs”.
In my opinion, PCL did not contract under the NEAT LOIs to indemnify PCL for its costs of this litigation.
Conclusion and Orders
I agree with the orders proposed by Giles JA.
GILES JA: The details of the events from which arose the issues in this appeal can be found in the reasons of Hunter J at first instance (Pacific Carriers Ltd v Banque Nationale de Paris [2001] NSWSC 900 and [2001] NSWSC 963) and of this Court in the earlier appeal (BNP Paribas v Pacific Carriers Ltd [2002] NSWCA 379). I will not repeat the details, but will refer to material matters so far as necessary for these reasons. I will use the acronyms and abbreviated descriptions found in the earlier reasons.
PCL claimed against BNP in three ways: first, in contract for indemnity under the NEAT LOIs; secondly, for statutory liability pursuant to ss 52 and 82 of the Trade Practices Act 1974 in relation to issuing the NEAT LOIs; and thirdly, in tort for negligence in relation to issuing the NEAT LOIs. Hunter J held that BNP was liable in negligence, but that it was not liable in contract or under statute. He awarded damages, including interest, of $4,378,788.49.
This Court held that BNP was not liable in any of the three ways. It was held that PCL failed in contract because the NEAT LOIs were issued without BNP’s authority and so did not bind it.
PCL appealed to the High Court. The High Court held that BNP was liable in contract (Pacific Carriers Ltd v BNP Paribas [2004] HCA 35). It was said that that “the other causes of action do not require consideration” (at [45]), and the matter was remitted to this Court “to deal with outstanding issues in conformity with the reasoning of this Court” (at [46]).
The outstanding issues were concerned with assessment of damages. Damages for BNP’s failure to provide indemnity under the NEAT LOIs had not been assessed at all, and therefore had to be addressed by this Court. Issues which had been raised in connection with Hunter J’s assessment of damages for liability in negligence arose in that new context.
The indemnity under the NEAT LOIs
The two NEAT LOIs were in the same form. The NEAT LOI of 28 January 1999 was addressed to PCL, wrongly described as the owner of the MV Nelson. It referred to the voyage, the cargo of dun peas and the relevant original bills of lading, and continued -
“The above goods were shipped on the above vessel by Messrs NEW ENGLAND AGRICULTURAL TRADERS PTY LTD (and consigned to order) for delivery at the port of CALCUTTA, INDIA, but the Bills of Lading have not yet arrived and we, NEW ENGLAND AGRICULTURAL TRADERS PTY LTD hereby request you to give delivery of the said cargo to:
RECEIVERS AS DIRECTED BY M/S ROYAL TRADING COMPANY
NO 2, CLIVE GHAT STREET
5TH FLOOR, ROOM NO 8
CALCUTTA 700 001 (W.B)without production of the original Bills of Lading.
In consideration of your complying with our above request we hereby agree as follows:
1. To indemnify you, your servants and agents and to hold all of you harmless in respect of any liability loss or damage of whatsoever nature which you may sustain by reason of delivering the goods to RECEIVERS
AS DIRECTED BY
M/S ROYAL TRADING COMPANY
NO 2, CLIVE GHAT STREET
5TH FLOOR, ROOM NO 8
CALCUTTA 700 001 (W.B)in accordance with our request.
2. In the event of any proceedings being commenced against you or any of your servants or agents in connection with the delivery of the goods as aforesaid to provide you or them from time to time with sufficient funds to defend the same.
3. If, in connection with the delivery of the cargo as aforesaid, the ship or any other vessel or property belonging to/chartered by you should be arrested or detained or if the arrest or detention thereof should be threatened, to provide on demand such bail or other security as may be required to prevent such arrest or detention or to secure the release of such vessel or property and to indemnify you in respect of any liability, loss, damage or expenses caused by such arrest or detention or threatened arrest or detention whether or not such arrest or detention or threatened arrest or detention may be justified.
4. As soon as all original bills of lading for the above goods shall have come into our possession, to produce and deliver the same to you whereupon our liability hereunder shall cease.
5. … “
The NEAT LOI of 19 February 1999 referred to the chick peas and to different bills of lading, but was otherwise in the same terms.
As held in the High Court and construed in the High Court and this Court -
(a)notwithstanding that NEAT was the entity requesting delivery of the cargo without production of the bills of lading, BNP undertook liability as an indemnifying party to support the liability undertaken by NEAT; and
(b)on their proper construction the LOIs extended to delivery of the cargo without production of the switched and split bills of lading which replaced the original bills of lading.
There was a general indemnity in cl 1 of the LOI. BNP was obliged to indemnify PCL against liability or loss of any nature sustained by reason of delivering the cargo to Royal, in accordance with NEAT’s request, without production of the original bills of lading. There was a more particular indemnity in cl 3. BNP was obliged to indemnify PCL against liability or loss caused by arrest or threatened arrest of the MV Nelson, whether or not the arrest or threatened arrest was justified. For the issues in this appeal, it is not necessary to go beyond the indemnity in cl 1.
If BNP did not provide indemnity in accordance with its obligations, PCL could claim as damages the amount of the relevant loss. BNP was in breach of contract, and PCL was “so far as money can do it, to be placed in the same situation with respect to damages, as if the contract had been performed” (Robinson v Harman (1848) 1 Ex 850 at 855 per Parke B; 154 ER 363 at 365). If PCL was yet to pay a claimant against it, and BNP’s obligation was to relieve it from having to pay, it could obtain an order that BNP pay (McIntosh v Dalwood (No 4) (1930) 30 SR 415 at 418-9); and it could obtain a declaration of entitlement to indemnity (Post Office v Norwich Union Fire Insurance Society Ltd (1967) 2 QB 363 at 374).
The loss in respect of which PCL claimed damages
In the summons as it stood at the commencement of the hearing on 19 June 2000, it was alleged in para 38 that PCL had suffered and was continuing to suffer loss or damage by reason of, amongst other things, “breaches of [the NEAT LOIs]”. The loss was particularised as -
“(a)liability to the ship owner for the continued arrest of the said vessel;
(b)liability in respect of damages [sic] sustained by cargo interests by reason of the delivery of cargo without surrender of the original bills of lading”.
PCL relevantly claimed a declaration that BNP “is liable to indemnify [it] in accordance with [the NEAT LOIs]” (claim 3), an order that BNP “indemnify [it] in accordance with [the NEAT LOIs]” (claim 11), and in the alternative an order that BNP “indemnify [it] with respect to any liability incurred or found against [it] as a result of [it] releasing the cargo which is the subject of [the NEAT LOIs]” (claim 12). The reason for the alternative is not obvious; presumably it was intended as a more direct reference to PCL’s responsibility to indemnify Bolton against liability found in the arbitration brought by SSOE against Bolton in London (“the London arbitration”). There was no claim to damages.
The London arbitration was prominent in PCL’s claim, and as will be seen at the heart of Bolton’s defence in the London arbitration was a fax dated 13 January 1999 from SSOE to PCL. The London arbitration was part only, but the focal point of, a wider litigious landscape.
The other litigation was as follows.
(a) In March 1999 SSOE brought proceedings in Calcutta to arrest the MV Nelson; the vessel was arrested on 31 March 1999. In May 1999 the remaining cargo was delivered to court-appointed receivers. It was sold, and the net proceeds were held to await resolution of the disputes. In June 1999 PCL provided a bank guarantee as security for SSOE’s claim against Bolton, with the claim to be determined in the London arbitration. The vessel was released on 29 June 1999.
(b) In April 1999 Bolton brought proceedings in Durban to arrest a PCL vessel. The vessel was released upon PCL providing a SKULD letter of undertaking as security for Bolton’s claim against it.
(c) In May 1999 Bolton instituted an arbitration against PCL under the time charter. Hunter J said that this was “subsumed … in the set of arrangements involving the London Arbitration”.
(d) In June 1999 PCL brought proceedings in Singapore against SSOE, claiming damages and a declaration of indemnity in reliance on a direction to deliver the cargo to Royal against bankers’ guarantee in the fax of 13 January 1999. The proceedings were settled on 15 February 2000. They were discontinued with provision for the costs to follow the event in the London arbitration.
(e) PCL instituted an arbitration against NEAT, the details of which were unclear but which appears not to have proceeded to a conclusion.
PCL’s summons as at 19 June 2000 was uninformative. It had suffered some loss, and was exposed to further loss if an award was made in the London arbitration adverse to Bolton and perhaps in other respects. It did not properly describe the loss already suffered or the further loss for which it claimed indemnity, and could not reasonably have expected an open-ended order for indemnity. Indeed, for its claim in tort for negligence, and perhaps for its claim under statute, PCL had to establish loss claimable as damages. The dispute over whether BNP was liable under the NEAT LOIs put it in a difficult position; forced to a tort claim, it had to reduce its loss to money.
It seems that PCL provided to the other parties a document entitled “Summary of damages” shortly after the hearing began, which it sought to support through evidence of Mr Chua Say Ong and Mr Lam Wing Hong. Hunter J plainly considered that insufficient attention had been given to quantum, saying in connection with another party’s application for an adjournment that “both [PCL] and [BNP] have failed to meet what I consider basic obligations in advancing and meeting quantum claims” and that the adjournment could be used “to bring some order in to the quantum issue”. His Honour suggested that that PCL might amend “to properly support all items of claim which it presently wishes to advance”.
PCL’s loss was described more fully in amendments made on 28 June 2000. The particulars of para 38 were expanded by the addition of subparas (c) – (ah). There were descriptions of losses quantified as stated amounts, some amounts said to be “and continuing”; some descriptions of unquantified losses; and descriptions of a number of liabilities. Some of the new subparagraphs appeared to give content to, and replace, the existing subparas (a) and (b). Subparagraphs (c) and (ac) will be particularly mentioned below.
Despite this, there was still not a formal claim to damages. A new claim 12A claimed an order that BNP “indemnify [PCL] in respect of” certain liabilities and unquantified losses, broadly -
(a)PCL’s liability to indemnify Bolton against an award of damages and costs to SSOE in the London arbitration;
(b)PCL’s liability to indemnify Bolton against, or liability to Bolton for, various other claims and costs, including in the time charter arbitration;
(c)PCL’s liability to SSOE in damages or costs in the Singapore proceedings;
(d)PCL’s costs of the London arbitration, the time charter arbitration and the arbitration brought by it against NEAT.
The correspondence between the liabilities and losses in the subparagraphs in para 38 and the losses described in claim 12A was not always evident. On 29 June 2000 Hunter J took up with PCL its case on quantum. PCL said that, if an order for indemnity were made, it was not necessary for his Honour to determine what losses fell within it. This was not well received. Hunter J pointed out that PCL was seeking to make good a claim at least in part in damages, and PCL accepted that it could only recover damages for the claim in tort for negligence. PCL eventually agreed that his Honour was “obliged to come to grips with a claim for damages”.
From then on, and soon with an adjournment to late 2000, it is apparent that PCL undertook establishing quantified losses under the subparagraphs of the particulars of para 38 of the summons.
Hunter J arrived at the damages of $4,378,788.49 through a schedule based on the particulars of para 38. Although as assessed by Hunter J they were damages for liability in negligence, on appeal the items in the subparagraphs were accepted as representing losses the amounts of which could be taken up as damages for failure to provide indemnity.
Thus the issues for this Court’s assessment of damages were those which had been raised in connection with the assessment of damages for liability in negligence, although now to be resolved as issues in the assessment of damages for failure to provide indemnity under the NEAT LOIs.
The major issue: indemnity against loss suffered by payments in settlement of the London arbitration
Subparagraphs (c) and (ac) of para 38 particularised the loss or damage -
“(c)liability to [Bolton] arising out of the principal London arbitration reflecting the market value of the cargo delivered under the letters of indemnity the subject of these proceedings – amount US$3,159,725.86;”
“(ac)liability to indemnify [Bolton] against any award obtained by [SSOE] in respect of its costs of the Indian arrest proceedings and/or these proceedings and/or the principal London arbitration.”
Hunter J noted at [784] that PCL accepted that subpara (ac) had been “subsumed” by the settlement of the London arbitration. Attention can be confined to subpara (c).
In the schedule before Hunter J the item based on this subparagraph was described as “Liability to indemnify Bolton in respect of the claim by SSOE in the London arbitration”. There was allowed for the item the two amounts of $US2,900,000 (the settlement amount) and $US426,717.70 (interest pursuant to the settlement agreement), as the amounts paid by PCL to SSOE, on behalf of Bolton, in settlement of the London arbitration.
The major issue was BNP’s liability to indemnify PCL against loss suffered by its payment of these amounts to SSOE.
(a) The London arbitration
In the London arbitration SSOE claimed against Bolton damages for misdelivery of the cargo. Its points of claim were dated 28 July 1999. It claimed as the owner of the cargo and the holder of the switched bills of lading, against Bolton as the shipowner and issuer of the bills of lading. The claim was for a cargo value of $US3,159,725.80 less the value of the dun peas of which SSOE took delivery; costs incurred in Calcutta in arresting the MV Nelson; costs incurred in the Singapore proceedings; costs incurred in the proceedings in New South Wales; interest; and the costs of the arbitration.
PCL had indemnified Bolton by a letter of indemnity issued on 24 January 1999. The indemnity conformed with cl 63 of the time charter, whereby the time charterer could require discharge on providing a letter of indemnity in the form of the owner’s P & I club wording and without bank guarantee or bank counter signature. PCL took over the conduct of the London arbitration on behalf of Bolton. It was common ground that, if Bolton was liable to SSOE, PCL was obliged to indemnify Bolton, and that the loss PCL would thereby suffer was within cl 1 of the NEAT LOIs.
The points of defence and counter-claim on behalf of Bolton were dated 1 October 1999. The substance of the defence was that the cargo was delivered to Royal, admittedly without production of the bills of lading, in accordance with SSOE’s instructions, and that by reason of its instructions and conduct SSOE was estopped from denying that the cargo was lawfully and properly delivered to Royal. The particulars of the defence were extensive, but at their heart was SSOE’s fax to PCL of 13 January 1999, as to which it was said -
“(9)Upon its true construction, the same was an express instruction and request to release the cargo to the notify party, namely Royal, in the absence of the bills of lading but against a bank guarantee the purpose of which was solely to protect the shipowner against third party claims in circumstances where the shipowner was waiving its right to have bills of lading presented to the Master before discharge. The Claimants knew and intended that the said request would be passed to the Master and/or shipowners, who would relay and act upon the same to discharge the cargo to Royal without production of the bills of lading.”
In the present case SSOE was not in the position of the owner of the cargo as at 13 January 1999. If what I have earlier said be correct, what the fax of 13 January 1999 addressed was delivery against security to the shipowner, that is, delivery against a letter of indemnity under the known procedure; and in any event delivery as something for the future and if then appropriate. The equivalent to ANZ’s implied communication to Maynegrain is strained, but at best was an implied communication by SSOE to Bolton that there could be followed the procedure by which the cargo was delivered to Royal on PCL providing a letter of indemnity to Bolton. This was not consent to delivery of the cargo to Royal free of any claim by SSOE and, in this respect with similarity in part to the opinion of Mr Teare, in my opinion there was not a consent by which Bolton could deliver the cargo without liability to SSOE for misdelivery.
My assessment of the defence available to Bolton, therefore, is that it would fail. That does not mean that reasonableness of the settlement is determined according to all or nothing failure. It means that I do not accept BNP’s contention that Bolton had a good defence in the London arbitration. I do not get to the point made by Handley JA, that consent was revoked on 5 March 1999 so the defence was only partial, a matter which escaped notice in the pleadings in the London arbitration and was not raised by PCL.
(ii) Disclosure of Mr Teare’s opinion
Although I have come to the view that the fax of 13 February 1999 did not give Bolton a good defence to SSOE’s claim for misdelivery, there was an arguable case to the contrary. Contrary to my view, both Mr Teare and Mr Popplewell regarded the fax as an instruction to deliver the cargo – they differed upon conditionality and preservation of a claim to misdelivery. Mr Poppelwell’s opinion as to conditionality can not lightly be dismissed. Nor can an argument based on Maynegrain Pty Ltd v Compafina Bank. PCL had a bargaining position in any settlement negotiations.
At first sight, PCL gave that bargaining position away when it tendered Mr Teare’s opinion. Perhaps it would have been difficult to achieve, but no attempt was made to restrict dissemination of the opinion so as to keep it from those conducting the London arbitration on behalf of SSOE. Having disclosed the opinion, PCL had little option but to settle, in Hunter J’s words (see his [732] above), “right at the top of the scale”. It called no evidence of the negotiations in order to displace the obvious impact, in settling with SSOE, of telling SSOE that its major defence “had no merit … and ought to fail”.
PCL could not prove loss by a lawyer’s opinion that Bolton was liable to SSOE. As I have said, we were told that Mr Teare’s opinion was originally tendered because evidence of liability under English law was required. That is not apparent from the transcript. There was argument as to the relevance of the opinion on 5 February 2001. Counsel for PCL told Hunter J that BNP objected to Mr Teare’s affidavit on the ground that “evidence as to the probabilities of the outcome of the London arbitration is irrelevant”. Council for BNP said “Exactly”. His Honour remarked on the unsatisfactory position, and said he wanted detailed submissions; counsel for PCL said that he had not found “an authority that is factually close to this situation”. The settlement came about a few days later, prior to any detailed submissions. Admissibility was very much in question. Still at first sight, for speculative advantage in the proceedings PCL disadvantaged itself for any settlement of the London arbitration.
PCL submitted that the impression at first sight was not justified. In substance it argued as follows. At least from the amendments of 28 June 2000, the trial involved PCL quantifying the loss in respect of which it claimed indemnity, including its loss referable to Bolton’s liability to SSOE in the London arbitration. Its case had to be that Bolton was liable to SSOE, and it could not have been lost on SSOE that PCL had to make out that case. The disclosure of Mr Teare’s opinion in December 2000 added little, if anything, to the disadvantage already suffered for any settlement of the London arbitration. SSOE already knew that, on PCL’s case, PCL expected Bolton to lose the London arbitration. The bargaining position was really given away when the proceedings came to include a claim to damages in relation to Bolton’s liability to SSOE in the London arbitration, and that was after PCL had attempted to defer proof of its loss.
Why was the London arbitration not brought on for determination, with the opportunity to settle? At least with hindsight, that course had much to commend it. We do not know why the London arbitration went into, or was left in, abeyance. We were referred to a statement by SSOE, in discussion before Hunter J, that “[o]riginally [its] position was staying these proceedings and seeking to sort out these problems in London” and that “that was not a course we would [sic] persuade the other parties to adopt”. Not enough is known of this to place much weight on it.
In early June 2000 PCL applied for separation of liability and quantum, it seems because it was recognised that Mr Lam’s evidence was not in a satisfactory state but saying that “the real issue in these proceedings is one of liability” and “given the ongoing arbitrations [sic] in London, the most expedient and efficacious course is to sever the determination of quantum”. The application was refused on 8 June 2000 (see Pacific Carriers Ltd v Banque Nationale de Paris [2000] NSWSC 722 at [49]). In a notice of motion filed on 26 June 2000 BNP asked that the proceedings be adjourned until the determination of the London arbitration, alternatively for separation of liability and quantum, because of difficulty in dealing with PCL’s damages claim. There was an adjournment, over PCL’s opposition. Even with the period thus available the London arbitration appears to have been left in abeyance.
It is not easy to understand why the proceedings went ahead as they did. PCL’s evidence did not explain how or why the unfortunate relationship between the London arbitration and these proceedings came about, any more than its evidence explained the circumstances in which the settlement of the London arbitration came about. On the other hand, BNP’s particulars of PCL’s failure to prove that the settlement was reasonable did not include that PCL had mismanaged the relationship between the London arbitration and these proceedings, or that a settlement should have been reached before PCL put forward a claim to damages in these proceedings.
I do not think that PCL has satisfactorily explained away what must have been a significant effect of disclosure of Mr Teare’s opinion. PCL retained a case that Bolton was not liable to SSOE; if for that reason it did not recover damages, as a practical matter it could reasonably have anticipated the same outcome in the London arbitration, although not with certainty. It let itself get into an unfortunate position, and then it surrendered.
(iii) Partial defence of mitigation of loss
BNP essentially repeated its position before Hunter J, but confined to that part of the cargo delivered after SSOE “had relevant knowledge of the discharge”. It put that time at 17 February 1999, and said that SSOE knew the cargo was being delivered to Royal, had not been paid for the cargo, but did not object to the delivery of the cargo to Royal. It said also that SSOE’s inaction was a novus actus interveniens. It suggested that SSOE failed to act because the market for the cargo had fallen and it was better off claiming against Bolton.
The submission was brief, and the response can be the same. His Honour accepted that SSOE was aware by mid-February 1999 that discharge of the cargo had commenced. On 5 March 1999 SSOE faxed PCL complaining that the cargo was being released to Royal without production of the bills of lading and stating that it would “hold [PCL] responsible for the cargo and all other cost [sic] and consequences out of this act”. I will not repeat Hunter J’s discussion of the conduct of SSOE over the period from mid-February to early March. He was plainly concerned as to the genuineness of the evidence of Mr Jain of SSOE, to the effect that SSOE regarded itself as financier only and acted only in that respect. But his Honour was not satisfied that SSOE had acted unreasonably. I do not think it has been shown that his Honour’s conclusion was incorrect.
As to the notice of contention points, I can see no reasonable basis for SSOE recovering in the London arbitration its costs of these proceedings, and any risk of that would be a minimal factor at best in assessing the reasonableness of the settlement; but for the reasons earlier given in my view SSOE’s costs of the Singapore proceedings were properly to be taken into account in the settlement.
I go then to the principles on which it is decided whether the settlement of the London arbitration was reasonable, and again to Unity Insurance Brokers Pty Ltd v Rocco Pezzano Pty Ltd.
As to the reasonableness of the settlement, Brennan CJ said at [5]-[8] -
"[5] The onus is on a plaintiff seeking damages in tort or more than nominal damages in contract to establish the nature and extent of the damages suffered as the result of the defendant's negligence. Where the damages claimed are the difference between what could have been obtained from a third party but for the defendant's negligence and the sum accepted in settlement of the plaintiff's rights against the third party, the plaintiff must prove that that sum equals or exceeds what was reasonably obtainable in the circumstances from the third party having regard to the effect of the defendant's negligence on the plaintiff's rights against the third party.
[6] The plaintiff must show that the sum accepted in settlement was reasonable. The test of reasonableness is, as Hayne J says, an objective one. Evidence of the advice which the insured received to induce it to accept the settlement is not proof in itself of the reasonableness of the settlement advised. The factors which lead to the giving of the advice are factors relevant to the reasonableness of the settlement but the only relevance of advice given by the insured's legal advisers to settle is that it tends to negative the hypothesis that the insured acted unreasonably in accepting the settlement.
[7] If an amount be accepted by a plaintiff in settlement with a third party and subsequently discovered events demonstrate that the settlement was more favourable than it would have been had those events been known at the time, the defendant is not disadvantaged by the settlement. On the other hand, if events subsequently discovered by a plaintiff show that a more favourable settlement could have been obtained, the damages assessed against the wrongdoer are not necessarily diminished. The reasonableness of a settlement depends on the circumstances existing at the time, provided the plaintiff has acted reasonably in discovering the circumstances material to the settlement at that time.
[8] I respectfully agree with Hayne J that there was sufficient evidence to support the concurrent findings of fact made by the learned trial judge and the Full Court that the settlement reached between the insured and the insurer was reasonable. It would have been against the weight of such evidence as there was to hold to the contrary. The insured was entitled as against one or other of the defendants it had sued to a full indemnity. Its acceptance of a sum less than the full indemnity from the insurer left the insured exposed to the risk of litigation against the broker alone, a risk of losing the full indemnity which would have been obtained from one or other defendant had there been no settlement.”
Going straight to Hayne J, his Honour said at [129]-[132] -
“[129] Whether the compromise of a claim was reasonable must be judged objectively, not subjectively. Thus whether a party to litigation has received advice to settle may be important in deciding whether that person's conduct in settling the case was reasonable but, standing alone, the fact that a litigant was advised to settle at a particular figure reveals little or nothing about whether the settlement reached was reasonable. This is not to say that evidence may not be led that such advice was given and adopted; it may. But evidence of that kind does not conclude the issue. What will usually be much more important is the reasoning that supported the advice that was given for that will ordinarily reveal why it was thought reasonable to compromise the claim as it was.
[130] Next, the question whether the settlement was reasonable must be judged by reference to the material the parties had available to them at the time the compromise was reached. It is not to be judged according to whether material which was obtained later shows that the opposite party could or could not have prosecuted or defended the claim successfully but according to the assessment which could properly be made at the time of settlement of the chances of success or failure.
[131] Often that will require consideration of whether the party that later seeks to say that the settlement was reasonable had made sufficient inquiries and had sufficient information available to it to warrant reaching a compromise. In turn that may invite attention to whether the cost of seeking further information would outweigh the benefit that it was reasonable to expect may be obtained from doing so, but it does not assume knowledge of the opposite party's brief to counsel.
[132] All of these, and no doubt other, considerations may bear upon the question whether the settlement arrived at was reasonable. And it is inevitable that there will be no single answer to the question "for what amount was it reasonable to compromise this claim" — there will be a range of answers. What is a reasonable compromise of the claim will almost always require consideration of the chances of the parties succeeding in their respective claims or defences and that prediction of likely outcomes must always be imperfect and imprecise. To state the obvious, that is why the compromise of a claim, which is a monetary claim that will succeed entirely or fail entirely, will usually fasten upon a figure that is less than would be recovered if the claim were to succeed and why it is that there will be a range of figures within which the reasonable observer may conclude that settlement of the claim would be reasonable.”
His Honour identified the “several strands” (at [133]) in the trial judge’s reasoning to reasonableness, as approved in the Full Court. He did not accept them all, in particular because they went to the insured’s subjective view rather than objective reasonableness. He concluded at [146] -
[146] Was there, then, enough material to show that the settlement was reasonable? The trial judge and the Full Court held that the evidence that was led, exiguous as it was, was sufficient to show that it was reasonable and I am not persuaded that that conclusion was wrong. The settlement discounted the insured's claim by between 40 and 50 per cent. Presumably, then, the insured is to be taken to have estimated the chances of the insurer succeeding in its defence as being about that level. It is as well to remember, however, that there are uncertainties inherent in litigation and that predictions of the chances of success in litigation can never be precise. It follows that the comparison between the amount of the settlement and the amount of the claim can never be anything more than a general indication of what the parties see as the risks of continuing the litigation. There was evidence available to the insured, at the time it compromised with the insurer, that the insurer had refused to deal with it in the previous year and the insurer alleged that if it had known all the facts it would not have dealt with the insured in the year in question. No doubt it was on this basis that senior counsel retained to advise the insured about the possible compromise told the insured that it should settle "because the way things were [the insured] would lose" and that it was better to accept the sum of $900,000 rather than "losing everything because there was no disclosure" of the claims history.”
McHugh J was more sceptical, but was not prepared to set aside the trial judge’s conclusion. His Honour noted that the insured “called no evidence from its legal advisers” (at [36]), although there was evidence that they advised the settlement. He said at [38]-[41] -
“[38] Apart from the fact that the insured's solicitors and senior counsel advised the settlement, there was simply no evidence upon which the learned trial judge could determine whether objectively the settlement was reasonable. In addition, his Honour accepted that, for the payment of an additional premium, the insured would have obtained insurance of the kind obtained from the insurer even if it had disclosed the history of the prior claims. It may be that this insurer would not have accepted the insured's proposal in any circumstances once it learned of the prior claims history. In that event, the insurer would have been entitled to reduce its liability to nil and the settlement would have been a reasonable one. But the insured led no evidence from the insurer or its officers as to what it would have done if it had known the true claims history of the insured. Moreover, there was evidence, which his Honour seemed to accept, that the insurer in this case was "a reasonable insurer". This suggests that the insurer would not have been able to reduce its liability by more than the cost of the additional premium.
[39] In these circumstances, the question arises as to whether the evidence of the advice of the solicitors and senior counsel was sufficient to make out a case that the settlement was reasonable. In the light of the evidence that the insured would have obtained cover from a reasonable insurer, although at a higher premium, and that the insurer involved in this case was a reasonable insurer, the insured was fortunate indeed to obtain a finding that the settlement was reasonable. However, the insured has concurrent findings in its favour to that effect. Although this Court is not bound by law or practice to uphold concurrent findings of fact, an appellant "faces a difficult task in seeking to overturn concurrent findings of fact".
[40] Given the uncontradicted evidence that the solicitors and senior counsel thought that the settlement was reasonable — indeed necessary — the further evidence that the insurer in this case was "a reasonable insurer" is not sufficiently compelling to convince me that the conclusions of the trial judge and the judges of the Full Court on the reasonableness issue should be set aside. The insurer, by its pleadings, denied any liability. For all we know, it may have had a particular policy not to enter into policies with persons with poor claims histories. Moreover, the broker made no attempt to explore the reasons for the legal advice given to the insured. By relying on what it had been told by its lawyers, the insured waived its legal professional privilege. Yet no attempt seems to have been made to cross-examine the insured's director as to the reasons why the legal advisers thought that the insured might lose everything if it did not settle.
[41] In these circumstances, I do not think this Court would be justified in setting aside the trial judge's finding that the settlement was reasonable. Once the trial judge found that the settlement was reasonable, the basic principles of the law of contract concerning causation and remoteness required the conclusion that the insured was entitled to recover from the broker the sum of $1,041,166.”
Gummow J did not agree that the true issue was whether the settlement was reasonable, but observed that if it had been “then the criterion would have been an objective one” (at [69]).
These observations provide guidance in the present case. The following can be said –
PCL had the burden of establishing that the settlement of the London arbitration was reasonable;
whether the settlement was reasonable was to be judged objectively, not according to whether PCL’s officers or its legal advisers thought that it was reasonable;
the judgment was to be made upon the information available to PCL at the time of the settlement, at least if sufficient enquiries after relevant information had been made;
evidence from PCL’s officers or its legal advisers was admissible to explain the circumstances in which the settlement was reached and the considerations leading to it; and
advice to settle was relevant but not conclusive – what mattered was the reasoning supporting the advice.
The facts in United Insurance Brokers Pty Ltd v Rocco Pezzano Pty Ltd show that a settlement may be found to have been reasonable even if, as in the present case, there is little evidence of the circumstances in which the settlement was reached. It is not irrelevant, see the reasons of McHugh J at [40], that BNP did not cross-examine Mr Wilson as to the circumstances in which the settlement was reached and the considerations leading to it.
I respectfully disagree with Hunter J’s conclusion that the settlement of the London arbitration was reasonable.
Although Bolton was likely to fail in its defence founded on the fax of 13 January 1999, as earlier discussed it had a bargaining position. Failure to mitigate was not untenable, and if made out would in substance have provided a defence. Bolton was also likely to fail in that respect, but again had a bargaining position. Its position on the merits was by no means hopeless.
SSOE had a sound negotiating position, but although its advisers may have considered that it would succeed in the London arbitration it could not be confident of success. It had no obvious incentive to reach a settlement; it had security from PCL given in order to obtain the release of the MV Nelson, and could afford to take a hard line. But there is no reason to conclude that it was not open to compromise, or that it would not have been prepared to recognise that it was at some risk.
The disclosure of Mr Teare’s opinion was in those circumstances particularly significant. Evidence from PCL of the circumstances in which the settlement was reached and the considerations leading to it was all the more important, and BNP’s failure to cross-examine Mr Wilson does not enable a view more favourable to the settlement to be taken.
SSOE claimed $US2,964,751.48 for the cargo (being $US3,159,725.80 less $US194,974.32); $US40,250 for costs incurred in the Calcutta proceedings; unquantified costs incurred in the Singapore proceedings, which PCL suggested could be up to the order of $US90,000; interest; and the costs of the arbitration. It also claimed $233,625.32 as its costs of these proceedings, but that can be put aside. Hunter J assessed the cargo claim at approximately $2,800,000, although his figures meant a lesser sum, say $2,750,000. His Honour suggested that SSOE might have had a claim for the contract price payable by Royal for the cargo, but I do not think that was reasonably arguable. The settlement paid SSOE, as a round assessment, all it could have expected to be awarded.
Bolton claimed damages for wrongful arrest and its costs incurred in the Calcutta proceedings, neither quantified; its costs of the Singapore proceedings, of the order of $90,000; interest; and the costs of the arbitration. It was able to stop the running of interest and recover the security given in order to obtain the release of the MV Nelson. There was some detriment and some benefit to Bolton in the settlement in these respects. It remains that there was no element of compromise commensurate with the negotiating position which PCL had prior to disclosure of Mr Teare’s opinion. Objectively assessed, without the assistance of evidence better explaining it, PCL failed to establish that the settlement was reasonable.
It is then necessary to consider the consequences for the damages assessed under subpara (c) of para 38.
If the settlement at the level agreed be put aside, I do not think it correct that PCL recovers no damages referable to the settlement of the London arbitration. PCL has sustained a loss by reason of delivering the cargo to Royal, within cl 1 of the NEAT LOIs. The payment in settlement of the London arbitration was causally related to the delivery. PCL proved that loss. How much of the loss is recoverable depends on other considerations, but it would be unacceptable to ignore that the loss was sustained.
So far as BNP submitted that damages were recoverable according to the court’s assessment of the result in the London arbitration, it contended that Bolton would succeed in the arbitration. On the view I have taken that Bolton was likely to fail in the arbitration, the whole of the loss would be recoverable, with the settlement amount acting as a ceiling because no more than the actual loss could be recovered.
In my view, the third alternative is to be preferred. As earlier discussed, a settlement of the London arbitration was a foreseeable and reasonably contemplated event. There was a settlement. A finding that the settlement was unreasonable leaves the recoverable loss to be arrived at by regard to the principles of causation and remoteness discussed in Unity Insurance Brokers Pty Ltd v Rocco Pezzano Pty Ltd.
Brennan CJ there said at [3] -
“As the insured was obliged to act reasonably to mitigate any loss suffered by reason of the broker’s breach of retainer or negligence, the loss incurred by the acceptance of an unreasonably low sum in settlement could not be attributed to the broker’s wrongful conduct, either because the acceptance of such a sum was not a reasonable step to take in mitigation of the insured’s loss or because it was not foreseeable that the insured would act unreasonably.”
His Honour cited Burns v MAN Automotive (Aust) Pty Ltd (1986) 161 CLR 653 at 673, where he had said of losses from an unserviceable haulage vehicle that they were foreseeable and -
“Losses actually incurred are in a different situation. Was it foreseeable that the appellant would persist in the incurring of losses during the whole of that period once it was obvious that he was engaged in a loss enterprise? In other words, do foreseeable losses stop short of the losses incurred at the stage when the injured party, acting reasonably, would mitigate the losses resulting from the breach of warranty? When an act on the part of the person to whom a warranty is given is needed to put an end to losses resulting from breach of the warranty, foreseeability provides no different limitation on damages from the limitation which is imposed by a failure to act reasonably in mitigation of damage. A party who, when he gives a warranty, has such knowledge that he can foresee that the loss which will result from a breach of the warranty will continue until the other party acts to stop the loss, can foresee that the loss will continue until it is reasonable to expect that the injured party will act to stop it. Foreseeability extends until it would be unreasonable for the injured party to fail to act to mitigate his loss, and the onus of proving such a failure is on the party in breach.”
In the present case a reasonable settlement was foreseeable. The burden was on BNP to prove the level at which it became unreasonable for PCL to fail to settle the London arbitration, but on the view that I have taken on the basis that Bolton was likely to fail in the arbitration. The level is less than the settlement in fact reached, and on the incomplete evidence is something to be arrived at in a fairly broad manner; there being a loss, the court must do its best. In my opinion, PCL could reasonably have settled the London arbitration for a sum up to the order of seventy per cent of SSOE’s claims, in round terms $US2,000,000 plus interest should replace the $2,900,000 plus interest.
Other issues: further items in the schedule
BNP contended that if, because of the fax of 13 January 1999, there was no misdelivery of the cargo, all other items in the schedule based on the particulars of para 38 of the summons were not recoverable by PCL. PCL contended, on the other hand, that even in that unhappy situation it could recover other items in the schedule to the value of $US977,417.18.
It is not necessary to go through the schedule item by item. BNP’s position was not that, even if there had been misdelivery of the cargo, the items in the schedule were outside the indemnity in the NEAT LOIs. It was that whether they were caught by the indemnity turned not on a reasonable settlement over misdelivery, but on PCL establishing that there had indeed been misdelivery. The discussion earlier in these reasons answers that question.
At one point BNP challenged particular items in the schedule. I do not think the challenges were maintained. For the reasons I have given, I consider that there was misdelivery notwithstanding the fax of 13 January 1999.
Costs on an indemnity basis
I agree with what has been said by Sheller JA.
The result
PCL is entitled to less than the amount awarded by Hunter J. The interest component of the item based on subpara (c) of para 38 must be calculated. Interest on the sum recoverable by PCL under the LOIs must be calculated. The judgment for the substituted amount should take effect on the date Hunter J’s judgment took effect, 24 October 2001. More calculations are necessary, but the parties should be able to agree. The order made by Hunter J on 23 November 2001 as to interest on the judgment stands.
We were informed that BNP paid PCL following the judgment of Hunter J and PCL repaid BNP following the judgment of this Court in the earlier appeal, in each case with interest. PCL wished to safeguard its entitlement to interest on the judgment, which is done by making the judgment take effect on 24 October 2001. Again, the parties can make the calculations.
The High Court set aside this Court’s earlier costs orders. PCL has retained its judgment against BNP, although for a lesser amount, and the costs order made by Hunter J should stand. Viewing the appeal and cross-appeal together, in both stages in this Court and as corrected by the High Court, BNP failed to displace the judgment against it although the basis for the judgment changed; it succeeded in materially reducing the amount of the judgment. PCL should pay seventy-five per cent of BNP’s costs of the appeal and cross-appeal.
I propose the orders -
1.Grant leave to amend ground 15 of the notice of appeal by substituting “in contract” for “in tort”.
2.Appeal allowed.
3.Set aside the judgment for PCL against BNP for $US4,378,788.49 and in lieu thereof judgment for such sum calculated in accordance with these reasons as the parties may agree and advise the Registrar within 21 days, taking effect on 24 October 2001.
4.Cross-appeal dismissed.
5.PCL pay seventy-five per cent of BNP’s costs of the appeal and cross-appeal.
6.Liberty to apply on seven days notice in the event of inability to agree upon the substituted judgment sum.
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