Total Liban SAL v Vitol Energy SA [QBD (Comm)]
| Jurisdiction | England & Wales |
| Judge | Peter Gross |
| Judgment Date | 28 May 1999 |
| Court | Queen's Bench Division (Commercial Court) |
| Date | 28 May 1999 |
Queen's Bench Division (Commercial Court).
Peter Gross QC (sitting as a deputy High Court judge).
Richard Jacobs QC (instructed by Holman Fenwick & Willan) for the claimant/applicant.
Andrew Popplewell QC (instructed by Ince & Co) for the respondent.
The following cases were referred to in the judgment:
Biggin & Co Ltd v Permanite LtdELR [1951] 2 KB 314
Birmingham & District Land Co v London & North Western Railway CoELR (1887) 34 ChD 261
Bradley v Eagle Star Insurance Co LtdELR [1989] AC 957
Brownton Ltd v Edward Moore Inbucon LtdUNK [1985] 3 All ER 499
Charter Reinsurance Co Ltd v Fagan [1995] CLC 1345 (CA); [1996] CLC 977; [1997] AC 313 (HL)
Collinge v HeywoodENR (1839) 9 Ad & E 633; 112 ER 1352
Deeny v Gooda Walker Ltd [1994] CLC 1224; [1995] 1 WLR 1206
Donnelly v JoyceELR [1974] 1 QB 454
Firma C-Trade SA v Newcastle Protection & Indemnity Association (“The Fanti”)ELR [1991] 2 AC 1
Forster v Outred & CoWLR [1982] 1 WLR 86
Giles v ThompsonUNK [1993] 3 All ER 321 (CA); [1994] 1 AC 142 (HL)
Hadley v BaxendaleENR (1854) 9 Exch 341
Harlow & Jones Ltd v Panex (International) LtdUNK [1967] 2 Ll Rep 509
Household Machines Ltd v Cosmos Exporters LtdELR [1947] 1 KB 217
Hydrocarbons Great Britain Ltd v Cammell Laird Shipbuilders LtdUNK (1991) 53 BLR 84 (CA)
Littlewood v George Wimpey & Co LtdELR [1953] 2 QB 501
M'Gillivray v HopeELR [1935] AC 1
Post Office v Norwich Union Fire Insurance Society LtdELR [1967] 2 QB 363
Randall v RaperENR (1858) EB & E 84; 27 LJQB 266; 120 ER 438
Telfair Shipping Corp v Inersea Carriers SA (“The Caroline P”) (No. 2)UNK [1984] 2 Ll Rep 466
Trans Trust Sprl v Danubian Trading Co LtdELR [1952] 2 QB 297 (CA)
Wednesbury Corp v Lodge Holes Colliery Co LtdELR [1907] 1 KB 78
Breach of contract — Damages — Champerty — Whether party could claim substantial damages in relation to liability which had not been discharged by payment — Whether agreement assigning rights under contract champertous.
This was an appeal from an arbitrator's decision that the claimant was not entitled to claim substantial damages from the respondent in relation to a liability which the claimant had not discharged by payment.
“Vitol” sold gasoline to “Mackay” which Mackay used to fulfil a contract for the sale of gasoline to Total. The contracts contained London arbitration clauses. Total claimed that the gasoline was seriously off specification and claimed against Mackay for alleged losses of some US5m. Mackay in turn claimed against Vitol in respect of any liability that Mackay owed to Total. Arbitrations were commenced in London but, on the basis that Mackay did not have the financial resources to pursue an arbitration against Vitol in London and that its primary claim was to recover any sums it was ordered to pay Total, Mackay assigned to Total its claims against Vitol in return for a share of any recoveries. In an interim award the arbitrator held that Total was not entitled to recover substantial damages against Vitol because Total stood in the shoes of Mackay and Mackay had not had to make any payment to Total. Even if Vitol was in breach of contract to Mackay and Mackay was in breach of contract to Total, a liability without payment did not constitute a recoverable loss. Total appealed. The arbitrator rejected Vitol's submission that the assignment was void for champerty and Vitol challenged that decision by respondent's notice if Total's appeal failed.
Held, allowing Total's appeal:
1. A legal liability owed by B to C, consequent upon and not too remote from A's breach of contract with B, was capable of constituting recoverable loss entitling B to substantial damages from A. There was no rule of English law requiring B first to have paid C. Such a “prior payment rule” would be unjust (particularly where an intermediate party was impecunious), inconvenient and contrary to everyday practice. Practical justice could be done without such a rule and there was in this case no problem of “windfall” damages or uncertainty in calculating the amount of any damages. (Randall v RaperENR(1858) EB & E 84; 27 LJQB 266; 120 ER 438 and Hydrocarbons Great Britain Ltd v Cammell Laird Shipbuilders LtdUNK(1991) 53 BLR 84 (CA)applied.)
2. Cases concerned with contracts of indemnity did not point to a different conclusion since they turned on construction of the terms of the contracts in issue. (Collinge v HeywoodENR(1839) 9 Ad & E 633; 112 ER 1352 and Firma C-Trade SA v Newcastle Protection & Indemnity Association (“The Fanti”)ELR[1991] 2 AC 1considered.)
3. The arbitrator was right that the assignment was not champertous because Total had a genuine and sufficient interest in the outcome of Mackay's claim to make the assignment valid. There was no real prospect of double recovery by Total such as would tend to invalidate the assignment.
Peter Gross QC: Total Liban SAL (“Total”) appeals, by leave of an order of Timothy Walker J dated 31 March 1999, from an interim award of Mr Mark Hamsher dated 19 February 1999 (“the award” and “the arbitrator” respectively), in which he determined a preliminary issue in favour of Vitol Energy SA (“Vitol”).
That issue raised the following question of law (on the basis of certain assumed facts):
“If A breaches its contract with B, so as to result in B being liable to C, does B have any claim for substantial damages against A (or is B entitled to equivalent declaratory relief) prior to B discharging its liability to C by payment?”
Here, Vitol was A, Mackay Commercial Inc (“Mackay”) was B, Total was C and Total was proceeding against Vitol in the shoes of Mackay, having (in broad terms) taken an assignment of Mackay's rights against Vitol (“the assignment”). The arbitrator's answer was that Total (in the shoes of B) was not entitled to the relief it claimed; in the arbitrator's words:
“liability without payment did not constitute a recoverable loss”.
From that decision Total appeals.
In circumstances to which I shall have to refer in more detail later, Vitol seeks to raise, by way of respondent's notice, a further issue on which the arbitrator's decision was in favour of Total. The issue here is the arbitrator's rejection of the Vitol argument that the assignment was void on the ground of champerty.
This appeal has itself been expedited because the main hearing of the arbitration is due to take place in June. The appeal was heard on 4–6 May 1999. Because of these time pressures, I was asked by the parties to indicate my decision as soon after the hearing as possible and I did so by note on 7 May 1999, stating:
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(1) That I would allow the Total appeal; in effect, on proof of the relevant facts, Total would be entitled to the relief it claimed; reverting to the language of the question, B would be entitled to claim substantial damages from A (or equivalent declaratory relief) without B having discharged its liability to C by payment (“issue 1”).
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(2) That, although unnecessary for the decision on the appeal, I would agree with the arbitrator on the assignment not being void for champerty; in the circumstances, I would not express any concluded view on the related procedural point raised by Total, namely, that it was in any event not open to Vitol to have raised the champerty issue by way of respondent's notice (“issue 2”).
These are the reasons for my decision.
The underlying facts relevant to this appeal may be taken directly from the arbitrator's reasons, where they are stated with clarity:
“1. This arbitration arose out of two contracts for the sale and purchase of a cargo of gasoline which, it was alleged, was seriously off specification.
2. Vitol…sold 19,000–23,000 metric tons of gasoline to Mackay…FOB Amsterdam, under a contract dated 11 October 1991. Under an earlier contract dated 4 October 1991, Mackay had sold 20,000–22,000 metric tons of gasoline to Total…CIF Beirut/Dora.
3. The cargo was shipped on the “ATHENIAN OLYMPICS”. It was Total's case that the cargo was seriously off specification. After it caused nausea and other problems to motorists and others who came close to it in the Lebanon, its use and distribution were prohibited. Total were ordered to re-load the cargo on board the “ATHENIAN OLYMPICS”. The vessel sailed to Rotterdam where the cargo was discharged and subsequently sold at a judicial auction.
4. Total made claims against Mackay for losses which were quantified at over US$5,000,000 which they alleged they had suffered as a result of the defective quality of the cargo. Mackay in turn claimed against Vitol in respect of any liability that they owed to Total.”
The arbitrator goes on to recount that he was appointed sole arbitrator in both references.
It subsequently transpired that Mackay did not have the funds to honour any award that Total could have obtained against it nor was Mackay in a financial position to pursue a claim against Vitol. In these circumstances, on 27 July, 1995, Mackay assigned to Total its rights under the Mackay-Vitol contract, including its claims in the Mackay-Vitol arbitration (“the assignment”) a more detailed consideration of the terms of the assignment can be postponed for the moment. At all events, following the assignment, the claims in the Mackay-Vitol arbitration were pursued in the name of Total as “the legal assignees of all the rights title and interest of Mackay”. The award (the subject of this appeal) was made in the Mackay-Vitol reference.
Against this background, the arbitrator was asked, in effect, to determine two preliminary issues.
As already foreshadowed, Vitol submitted that even if it was in breach of contract to Mackay and if, in turn, Mackay was in breach of contract to Total, in the words of the reasons:
“a liability without payment did not constitute a loss that could found a claim for substantial damages”.
A number of features of issue (1) may be noted. First, it is to be...
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