Frota Oceanica Brasiliera SA v Steamship Mutual Underwriting Association (Bermuda) Ltd [QBD (Comm)]
| Jurisdiction | England & Wales |
| Judge | Longmore J. |
| Judgment Date | 22 May 1995 |
| Court | Queen's Bench Division (Commercial Court) |
| Date | 22 May 1995 |
Queen's Bench Division (Commercial Court).
Longmore J.
Stephen Tomlinson QC and Adam Fenton (instructed by Elborne Mitchell) for the shipowners, Frota.
Jeremy Cooke QC and Dominic Kendrick (instructed by Richards Butler) for the P & I club.
The following cases were referred to in the judgment:
Bjornstad & Anor & Ouse Shipping Co Ltd, ReELR [1924] 2 KB 673.
Botany Triad and Lu Shan, TheUNK [1993] 2 Ll Rep 259.
Bremer Vulkan Schiffbau und Maschinenfabrik v South India Shipping Corp LtdELR [1981] AC 909.
Irish Agricultural Wholesale Society Ltd v Partenreederei: MS EurotraderUNK [1987] 1 Ll Rep 418.
Nea Agrex SA v Baltic Shipping Co Ltd & AnorELR [1976] QB 933.
Presentaciones Musicales SA v SecundaELR [1994] Ch 271.
Richmond Shipping Ltd v Agro Co of Canada Ltd (“The Simonburn”) (No. 2)UNK [1973] 2 Ll Rep 145.
Sparrow v Sovereign Chicken LtdUNK (unreported, 8 June 1994, CA).
Stoomvaart Maatschappy Nederland v Peninsular & Oriental Steam Navigation Co (“The Khedive”)ELR (1882) 7 App Cas 795.
Arbitration — Delay — Two vessels damaged as result of collision — Apportionment of blame agreed — Settlement of liability between owners — Shipowner in dispute with P & I club as 25 per cent insurers over liability — Application to appoint arbitrator — Whether inordinate and inexcusable delay in bringing application — Whether discretion should be exercised to appoint arbitrator — Whether prejudice essential requirement — Arbitration Act 1950, s. 5, 10(1)(a).
This was an application to appoint an arbitrator to adjudicate on a claim by shipowners against their P & I club as insurers for 25 per cent of their collision liability. The claim was resisted on the ground of inordinate and inexcusable delay.
On 21 August 1978 the “Frotanorte” collided with the “Theopaes”. Both vessels were damaged. It was subsequently agreed that the Frotanorte was 73.5 per cent to blame and the Theopaes 26.5 per cent, but since the Frotanorte was more extensively damaged, the owners of the Theopaes were liable to pay $220,000 to the owners of the Frotanorte (“Frota”). A settlement to that effect was concluded on 11 April 1979. Frota had insured the hull as to 75 per cent with hull and machinery insurers and 25 per cent with their P & I club (“the club”). The hull and machinery insurers paid Frota for her physical damage as a constructive total loss.
For the benefit of the reinsurers of the hull and machinery insurers, Frota sought to sue the club for the club's 25 per cent share of Frota's liability to the owners of the Theopaes. The claim was first made on 20 April 1983 and was rejected by the club on 1 June 1983 because the settlement between the owners of the two vessels was on a single liability basis. Frota relied on a standard form of proviso to the “running down” clause in the cover providing for a settlement on the principle of cross-liabilities. The parties failed to agree on a resolution of the dispute. In December 1988 the club asserted, on the basis of counsel's opinion, that the claim was time-barred. Frota sought and obtained extensions of time until 30 November 1991. On 11 October 1994 Potter J granted leave to serve the originating summons for the application to appoint an arbitrator under s. 10 of the Arbitration Act 1950. The club resisted the claim on the grounds that it was bound to fail on the merits and because of inordinate and inexcusable delay.
Held, refusing the application:
1. On the facts there was an agreement between the parties to arbitrate the claim on 20 November 1984, which was within the limitation period. There was no subsequent agreement to take a binding opinion from counsel, and neither was there an express nor an implied revocation of the earlier agreement to arbitrate. The parties having failed to appoint an arbitrator, Frota was entitled to apply under s. 10 of the Arbitration Act 1950 for an arbitrator to be appointed.
2. By s. 10(1)(a) of the 1950 Act the judge had an unfettered discretion to determine whether or not to appoint an arbitrator. Since the issue was essentially one of construction the club would suffer no real prejudice because of the lapse of time if the arbitration proceeded. However, prejudice was not required for an application under s.10(1)(a) of the 1950 Act.
3. The delay was so inordinate and inexcusable, in particular between 30 November 1991 when the last agreed extension of time expired and 11 October 1994 when Potter J granted leave to issue the originating summons, that despite the absence of prejudice to the club the discretion should be exercised to decline to appoint an arbitrator. (Bremer Vulkan Schiffbau und Maschinenfabrik v South India Shipping Corp LtdELR[1981] AC 909distinguished.)
Longmore J:
Shipowners became statutorily entitled to limit their liability in the reign of George III, and it was not until Victorian times that a problem which arose in collision cases when both vessels were to blame was finally resolved. If vessel A suffered damage in, for example, an amount of £50,000 and vessel B suffered damage in an amount of £30,000, each vessel was liable for one half of the other's damage until the Maritime Conventions Act 1911 permitted other apportionments of liability. If, however, vessel B was entitled to limit her liability to say, £10,000, it became important to know whether there was a single liability of B to pay the difference between half of £50,000 (£25,000) and half of £30,000 (£15,000) for his £10,000 which was within the limit and would result in a payment from B to A of £10,000; or whether there were two cross-liabilities. In other words, a liability of B to A for £25,000 which the law permitted to be limited to a sum of £10,000, and a liability of A to B for £15,000 resulting, on this example, in a net payment from A to B of £5,000.
There was considerable disagreement in the decided cases about this question until the matter was authoritatively settled in the House of Lords in Stoomvaart Maatschappy Nederland v Peninsular & Oriental Steam Navigation (‘The Khedive')ELR(1882) 7 App Cas 795. It was there decided that there was a single liability to be ascertained and only after such ascertainment was limitation to apply. Ever since that case, that has been the basis on which collision damages cases have been decided as between the respective shipowners. See The Botany Triad and Lu ShanUNK[1993] 2 Ll Rep 259.
Collision liability underwriters appear to have been unhappy with this single liability approach as far as their own liabilities to shipowners have been concerned. Historically, hull and machinery underwriters have insured shipowners for three faults of their collision liability and the shipowner was his own insurer for the remaining fourth. For a very long time now protection and indemnity associations have offered — and many of their shipowner members have taken up — cover for the remaining fourth. But both hull and machinery insurers and P & I clubs have added a proviso to that cover in some such terms as the following:
“If both ships are to blame then, unless the liability of the owners of one or both of them becomes limited by law, claims shall be settled upon the principle of cross-liabilities, as if the owner of each ship had been compelled to pay the owner of the other ship one half or other proportion of the latter's damages as may have been properly allowed in ascertaining the balance, or sum payable by or to the former in consequence of the collision.”
The clause to which this proviso is attached is commonly known as the “running down” clause. The dispute in the present case has arisen because I am asked to appoint an arbitrator to adjudicate on a claim made by the owners of a vessel called Frotanorte against their P&I club for 25 per cent of the full amount of their liability to another colliding ship named Theopaes although those owners have not merely paid nothing to the owner of the Theopaes but have in fact received a sum from the other owner, whose liability exceeded the amount payable the other way by the owners of the Frotanorte.
It is not surprising to learn that although the claim against the P&I club is formally in the name of the member of the club, it is in fact being prosecuted for the benefit of hull and machinery underwriters or, more accurately, their reinsurers pursuant to what they regard as their rights of subrogation to which they became entitled once they paid the owners of the Frotanorte for her physical damage claim after collision.
Thus the dispute is, in reality, a dispute between the reinsurers of hull and machinery underwriters on the one hand, and the P&I club on the other. Although both sets of insurers instructed leading and junior counsel, no-one has been able to tell me the commercial purpose of insurers wishing to settle on a basis of cross-liabilities rather than a single liability, nor were either counsel able to tell me how the clause was expected to work in practice if the shipowners, as between themselves, have settled on a single liability basis as they are obliged to do pursuant to the House of Lord's decision in the Khedive and as they did in fact do in the present case.
The collision took place on 21 August 1978. Both vessels were damaged and it was subsequently agreed the Frotanorte was 73.5 per cent to blame and Theopaes 26.5 per cent to blame. Frotanorte suffered considerably more damage than Theopaes and the result of the apportionment was that despite being more to blame, the owners of Frotanorte became entitled to receive about $220,000 from the owners of Theopaes. It so happened that this was part of a comparatively small sum to which Theopaes was entitled to limit her liability although, since the matter was disposed of by agreement, no limitation fund was ever established in any court.
The owners of Frotanorte — Frota Oceanica...
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