Tharros Shipping Company Ltd v Bias Shipping Ltd (No. 3)
| Jurisdiction | England & Wales |
| Judge | LORD JUSTICE PHILLIPS,SIR JOHN BALCOMBE,LORD JUSTICE BUTLER-SLOSS |
| Judgment Date | 20 November 1996 |
| Judgment citation (vLex) | [1996] EWCA Crim J1120-1 |
| Docket Number | QBCMF 95/0186/B |
| Court | Court of Appeal (Criminal Division) |
| Date | 20 November 1996 |
[1996] EWCA Crim J1120-1
IN THE COURT OF APPEAL
ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
(MR. JUSTICE RIX)
Royal Courts of Justice
Strand, London WC2
Lord Justice Butler-Sloss
Lord Justice Phillips
Sir John Balcombe
QBCMF 95/0186/B
K. ROKISON & MR. RICHARD WOOD (Instructed by Clyde & Co. London, EC3M LJP) appeared on behalf of the Appellants (Tharros Shipping Ltd)
MR. G. KEALEY QC & MR. S. PICKEN (Instructed by Richards Butler, London, EC3A 7EE) appeared on behalf of the Respondents (The Steamship Mutual Underwriting Association (Bermuda) Ltd)
This Appeal was heard at the same time as the Appeal in Murphy v. Youngs Brewery. While it calls for consideration of the same principles, both the facts and the issues in this case are of greater complexity. The facts are fully set out in the judgment of Rix J. appealed against, reported in [1995] 1 Lloyds Rep. 541 at pages 543 to 547. For the purposes of this judgment I shall adopt the brief summary helpfully provided by the Appellants in their skeleton argument:
The First Plaintiffs ("Tharros") were the owners of the vessel "GRIPARION". By a demise charter dated 25 April 1990 they chartered the vessel to Bias, for a minimum period of 38 months. By the terms of the charter Bias were obliged to maintain the vessel and to redeliver it in the like good order and condition as on delivery.
The obligations of Bias under the charter were guaranteed by the second and third Defendants.
The vessel was delivered to Bias on 25 April 1990 hence the earliest permitted date for re-delivery was 25 June 1993.
Bias purported to re-deliver the vessel early, in August 1992; at that time the vessel was not in the like good order and condition as it had been on delivery.
Tharros commenced an action against Bias (and the guarantors) by Writ issued on 3 September 1992; they claimed damages from Bias for early re-delivery and for failure to maintain the vessel. (The second Plaintiffs, Den Norske Bank, were joined as plaintiffs by reason of their position as mortgagees of the vessel; they played no active part in the litigation, and the costs of bringing the claim were entirely born by Tharros.)
Bias sought to defend the action by alleging that they had been induced to enter the charterparty by fraudulent misrepresentations as to the condition of the vessel's steelwork. The case of fraud was the only defence to the claim. Bias also counterclaimed damages for fraudulent misrepresentation.
Bias were entered as a member of the Club in February 1991. The Club was first informed by Bias of the existence of the action on 8 October 1992. On 1 December 1992 the Club confirmed that they would hold Bias covered in respect of its defence of Tharros' claim (but not in respect of Bias' counterclaim) with effect from 8 October 1992.
On 5 November 1993, a few days before the trial was due to start, the Club withdrew cover from Bias, on the basis of advice received from Bias' Leading Counsel as to the merits of their fraud case.
The trial commenced on 15 November 1993, before Rix J. On 17 January 1994 Leading Counsel for Bias informed the Court that they were withdrawing the allegation of fraud, and accepted liability for breach of the charterparty.
On 4 February 1994 Rix J. gave Judgment for Tharros awarding them substantial damages, and further ordering Bias to pay Tharros' costs of the action on an indemnity basis.
Tharros estimate their costs to be over £1.25 million.
Bias have paid nothing to Tharros in respect of either damages or costs. Tharros' attempts to enforce the judgment have proved fruitless.
By a Summons dated the 7th July 1994 Tharros sought an Order under Section 51 of the Supreme Court Act 1981 that the Club pay their costs. Rix J. dismissed their application by Order of the 9th February 1995 and it is against that Order that Tharros now appeal.
The Bases of Tharros' Application for Costs
Tharros advanced their claim for costs on three alternative bases:
(1) The Club had a binding contractual obligation to indemnify Bias in respect of Bias' liability to Tharros. In such circumstances it was just and reasonable that a costs Order be made that would require the Club to pay Tharros directly.
(2) In supporting Bias' claim, but denying any liability for Tharros' costs, the Club was unlawfully maintaining the litigation and should not be permitted to evade liability for costs in such circumstances.
(3) As a matter of general principle a non-party who funds unsuccessful litigation should be liable to pay the costs of the successful party.
The reasons for Rix J.'s decision.
Rix J. rejected the contention that the doctrine of unlawful maintenance renders "otherwise valid and useful insurance contracts illegal solely on the ground that they make no provision for the payment of the costs of a successful adverse party, or on the ground that they provide that an indemnity for such costs may fail in certain exceptional circumstances" (p.558). Nor did he accept that funding of litigation necessarily carries with it responsibility for the costs of a successful adverse party. After weighing the particular circumstances of this case he decided that they did not justify such an order. His conclusions in respect of the contractual obligations owed by the Club to Bias require a more detailed explanation.
The Club's Rules.
The Club, in common with other similar shipowners protection and indemnity associations, operates a system of mutual insurance whereby the members contribute to funds which provide them with insurance cover against different classes of risk. The relevant class in respect of which Bias was entered was Class 2. This provided members with cover:
"against costs and expenses which they or any of them may become liable to pay or may incur or cause the Club to pay or incur in respect of any entered ship"
The risks covered included the costs of establishing or resisting claims in respect of, inter alia, "breach of any charterparty".
It was accepted on behalf of the Club that, whether as a matter of legal obligation or by convention, Club cover would normally extend to meeting liability in respect of not only the member's own legal costs but any cost awarded against the member in favour of the opposing party in the litigation. Such liability was, however, subject to the provisions of Rules 8 and 9. They provided as follows:
8. The Directors shall have sole and entire discretion as to what cases may be undertaken by the Club and as to the initiation and conduct of all proceedings, legal or otherwise, which may be undertaken by the Club at its cost and expense and may give such directions as to compromise, continuation or discontinuation, costs and expenses as in their absolute discretion they may deem desirable. If the Member declines to act in accordance with such directions he shall then take upon himself the entire risk and expense of all future proceedings without any claim whatsoever for reimbursement out of the funds of the Club.
9. Where the Directors, after examination into the merits of any claim, shall consider the Member concerned entitled to the protection of the Club, they shall instruct the Solicitors to the Club to take or continue proceedings. Such proceedings shall be conducted under the superintendence of the Directors, and at the expense of the Club, who will keep the Member indemnified against all costs and expenses incurred to the extent and upon the terms, conditions and exceptions which may be provided by these Rules and by the Certificate of Entry, unless such costs and expenses become payable by the personal neglect or default of the Member"
The words that I have emphasised at the end of Rule 9 are of particular significance and I shall refer to them as 'the Rule 9 Proviso'.
The Club submits that, but for the Rule 9 Proviso, their liability to Bias in respect of Tharros' costs would have been as follows:
(i) for the period up to 8th October 1992, when they were notified of the Action ("period A")—no liability.
(ii) for the period from 8th October to 5th November 1993, when they withdrew cover ("period B") liability to indemnify Bias.
(iii) for the period after 5th November 1993 ("period C")—no liability.
The Club contends, however, that it has validly declined to indemnify Bias in respect of Tharros' costs in respect of period B on the ground that those costs have become payable by reason of the personal neglect of Bias. The basis of that contention is as follows. Bias' case of fraud, which was abandoned at the trial, was based upon the unjustified suspicions of their principal, Mr Schreiber, and the fallacious conclusions of their 'expert', Mr. Suffield, who was shown to lack the expertise that he needed if he was to form any such conclusions. It was this which led Rix J. to award costs against Bias on an indemnity basis. He put the matter thus as pp. 543–4 of his judgment.
Mr. Schreiber persuaded himself that fraud was in truth to be inferred, and set about finding the evidence, expert and otherwise, but essentially expert, to prove it. Mr. Suffield was, in effect, instructed to find the evidence to support a case of fraud which both Mr. Schreiber and Mr. Suffield were...
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