England and Wales High Court (Admiralty Division) Decisions

IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
ADMIRALTY COURT
Admiralty Action in rem against:
The Ship or Vessel "Selby Paradigm"

		Royal Courts of Justice Strand, London, WC2A 2LL
		23rd July 2004

Mr Justice David Steel :

Introduction

1. In this application the intended defendants seek the following relief:

a) permission to intervene in this action and be joined as second and third defendants pursuant to CPR Part 19.2(2);

b) the judgment in default obtained by the claimants on 23 May 2003 be set aside pursuant to CPR Part 13.3(1) or CPR Part 61.9(5);

c) that the intended defendants should be permitted to defend this claim (without prejudice to their denial of liability under the relevant contract of insurance between themselves and the first defendant).

The background

2. The background to this application is most unusual. The first defendant was the owner of a barge called Selby Paradigm. She was a barge built in 1974, some 43.49 metres in length with a gross tonnage of 340.55 tonnes. The barge had been modified and fitted with twelve cargo tanks for the carriage of edible oils.
3. It appears that during a cargo operation at the Unitrition berth on the River Ouse at Selby on 30 July 2001, the barge took the ground. Some three hours later, while subsequently proceeding down the River Ouse on passage to the Blacktoff jetty, those on board noticed the barge had developed a port list, which was initially controlled with pumps. The barge subsequently proceeded to the Anglia Oils Berth at Hull where the cargo was discharged on 31 July 2001.
4. The barge then proceeded to a tidal berth at a repairers' premises on the River Hull where internal examination in way of the port forward wing ballast tank revealed that the bottom plating was set up and holed locally over a diameter of approximately 75mm. Temporary repairs were carried out in that the plating was hammered down to close up the fracture and a cement box was fitted by the crew.
5. The barge subsequently loaded 489.120 metric tonnes of maize oil at the Cargill Premises on the River Hull between 0940 and 1600 on 2 August 2001. The barge sailed at about 1620 that day bound for No. 7 Quay in the King George Dock, Hull in order to discharge the cargo to the Intermol tank storage facilities nearby the following day.
6. Apparently no problems were encountered during the passage, the barge berthing portside alongside at about 1845 on 2 August 2001. The barge was left unattended overnight. However, at about 0340 on 3 August, the ABP Dock master advised the master of the barge that it was sinking.
7. The cause of the casualty appears to have been the failure of the temporary cement box fitted on 1 August 2001. It would appear that no securing of the cement box had been provided. This failure caused an uncontrolled ingress of water into the portside wing inter-connected ballast tanks.
8. The vessel had sunk in 35ft of water. During the course of the sinking and thereafter, she leaked her cargo of oil. The barge was subsequently re-floated by the claimants during the evening of 5 August 2001. One of the potential issues in the case is the identification of the party who requested the wreck-raising exercise.

The insurance cover

9. The intended defendants are the underwriters of the barge and of its owners. The barge was one of a number of vessels and barges belonging to or operated by Unititem Ltd and insured pursuant to a policy of insurance for Hull Port Risks for the period 23 May 2001 for 12 months. The insurance was affected on the Institute Time Clauses Hull Port Risk (including Limited Navigation).
10. The underwriters avoided the policy for non-disclosure. The basis for this was that the barge had undergone a pre-purchase condition survey during which a number of defects in the barge were identified, including significant areas of plate thinning. The work required to bring the barge into a seaworthy condition was not done after purchase and prior to her being traded. The underwriters were not informed of the defects or that the necessary work had not been undertaken.
11. The underwriters also contend that the vessel was traded in an unseaworthy state with the privity of the first defendants contrary to Section 39(5) of the Marine Insurance Act 1906. Not only did the first defendants know, it is contended, that the necessary repairs had not been carried out as set out above, but also they knew that the ballast tanks had been re-configured leaving the barge in an unseaworthy state. As regards this latter point, various modifications had been made to the vessel with the result that her wing ballast tanks were left in an unseaworthy condition with dividing bulkheads breached and with non return valves seized or bypassed and inadequate bilge or ballast pumping arrangements in place.
12. Finally, the underwriters contend that the crew negligently carried out the temporary repairs of the barge using the cement box without the use of shoring or a backing plate whereby the vessel was lost. The underwriters contend there was, in this connection, want of due diligence on the part of the first defendants. The underwriters contend that an incident as serious as that which threatened the safety of the barge and came to light on 30 July 2001 should have engaged the immediate concern of the owners or their managers through their personal attendance at the scene or through the employment of a competent surveyor to design and oversee whatever proper repair was recommended. In contrast the repair was simply left to the hands of the crew to do the best they could, a crew who in fact were unaware of the essential requirements of a cement box.
13. All these points are at issue between underwriters and the first defendants. However, in case the underwriters were to be unsuccessful and the policy held to be effective, the underwriters nonetheless wished to be heard and to defend the action by the claimants on its merits by standing in the shoes of the first defendants.

Joinder

14. Thus the applicant underwriters seek to be joined as defendants. The claimants in response raise a threshold issue to the effect that that the court has no jurisdiction to make such an order now that judgment in default has been entered. This proposition arises as follows.
15. The application for joinder is made pursuant to CPR Part 19.2, which provides as follows:

"The court may order a person to be added as a new party if-

(a) it is desirable to add the new party so that the court can resolve all the matters in dispute in the proceedings; or

(b) There is an issue involving the new party and an existing party which is connected to the matters in dispute in the proceedings, and it is desirable to add the new party so that the court can resolve that issue "

16. No such an order can be made, so the argument runs, because following the judgment there is, by definition, no "matter in dispute" in the proceedings.
17. I unhesitatingly reject this submission. Any proper analysis of the rule must be on the assumption that the existing defendants and/or the intended defendants have a defence that has a real prospect of success. If there is no such prospect, any joinder would be a barren exercise. If there is an arguable defence, then it is a bootstraps argument to assert that the default judgment can be relied upon to assert that the prosecution of such a defence is barred.
18. In this regard the Underwriters were correct to pray in aid CPR Part 1 and the overriding objective. Further as Diplock LJ observed in Gurtner v Circuit [1968] 2QB 587 at p. 602: -

"A matter in dispute is not in my view effectually and completely adjudicated upon unless the rules of natural justice are observed and all those it will be liable to satisfy the judgment are given an opportunity to be heard."

19. Of course an underwriter usually has contractual right to conduct the defence of an assured (assuming that there is no issue about the validity of the contract). Thus it would not usually be necessary to affect a joinder of the underwriter in an action brought against the insured. But the test prescribed by the rule is whether it is desirable in all the circumstances. Thus, in my judgment there can be no doubt that there exists a discretionary jurisdiction to achieve justice in a case such as the present despite the existence of a default judgment.
20. To the extent that it may be relevant, the position now is no different from that under the former RSC. Ord. 15 rule 6 (2) (B) (ii): see Wood v Perfection Travel Ltd et al., Court of Appeal, 8 February 1996. Thus, under the former rule, where an underwriter could demonstrate that there was a defence which carried a real prospect of success which had not been run by the assured, the discretion to permit joinder was available despite the fact that a default judgment had been obtained: see Rees v Mabco, Court of Appeal, 11 December 1998.
21. I am not sure how far the point was taken but I believe the claimants had a second string to their bow on jurisdiction. This was broadly to the effect that the underwriters were not entitled to pray in aid the discretion by reason of their election not to participate in the proceedings which led to the summary judgment.
22. Whether this is relied upon by way of exclusion of the discretion in the form of some estoppel or simply as relevant to the exercise of the discretion, the point fails in my judgment on the facts. The in rem claim form (claiming salvage remuneration in respect of services to both ship and cargo) was served in November 2001 on the shipowner (the only named defendant). The defendant owners filed an acknowledgement of service on 13 December 2001 indicating an intention to defend.
23. The parties then entered into a standstill agreement which was not terminated until March 2003. Meanwhile during 2001 the claimants had sought a response from underwriters on the salvage claim. This culminated in Messrs. Richards Butler's letter on behalf of underwriters dated the 30^th January 2002:-

" You have asked us when you clients can expect a meaningful response from Underwriters. The services provided by your client were provided to the Selby Paradigm and your contract was with the owners of the vessel. Therefore the Underwriters have no obligation to respond to your clients."

24. The standstill agreement was thereafter terminated and Particulars of Claim were served by the claimants on the first defendant owners on 24 March 2003. A copy was forwarded to the underwriters' solicitors on 2 April. Having taken instructions, Messrs. Richards Butler responded on 11 June to DLA as follows: -

"We would preface our response with a statement that everything we say is without prejudice to our client's position under the policy including their right to avoid the policy on the grounds of inter alia, of non-disclosure.

We have passed the Particulars of Claim to our clients for their comments. However we note that there appear to be a number of serious defects in the way in which the case is pleaded. It appears that the claim is for salvage. The demand therefore for payment of the "invoice" or for damages must be misconceived. No sound values are pleaded and no claim has apparently been advanced against cargo, although services to cargo are described as a benefit (para 14).

So far as concerned, our clients would expect yours to defend the claim on more appropriate grounds."

25. There was no response to this letter from the first defendant let alone to the effect that the claim would not be so defended. In fact the default judgment had already been obtained on 23 May 2003 together with an order for sale of the vessel. (It is notable that the claimants had also sought and obtained priority for their claim on the basis that it was supported by a maritime lien.)
26. The first that the underwriters learned of the default judgment was on 14 July 2003. It will be necessary in due course to consider what happened thereafter in the context of the claimants' allegation of undue delay. But I reject the contention, if it be made, that the underwriters are precluded from seeking to join the proceedings as defendants on the basis that in some way they elected not to run the defences now put forward or nailed their colours to the mast of some defence which had been abandoned or which was wholly unarguable.

The grounds for setting aside

27. I thus must turn to the question of whether there is in fact an arguable defence. Even here there is a threshold issue. The claimants say that since judgment was obtained under CPR Part 61 and not under CPR Part 12, the burden that is needed to discharge the judgment is in some respects a heavier one than that provided by CPR Part 13.
28. Part 61 Rule 9 provides for judgments in default in an action in rem. This requires "evidence proving a claim to the satisfaction of the court". Thus it was contended that the burden on the claimants in obtaining judgment was akin to that imposed by part 24. Thus, so the argument ran, the judgment could not be set aside merely because a real prospect of a successful defence could be demonstrated: (see e.g. CPR Part 13).
29. It is true that, although the Court is given power under the rules to set aside both at Part 24 and a Part 61 summary judgment, the rules do not prescribe the criteria. However it is clear from the overriding objective that the discretion to do so arises when the justice of the matter so requires. Subject to such matters of delay and prejudice, the threshold would be for the applicant to clearly establish that, by reason of the absence of any representations on the part of the defendants, there was in fact a real prospect of success in defending the claim. The burden on the party that is seeking to set aside the judgment is not akin, as I understand the claimants would seek to contend, to that imposed on an appellant.
30. In fact it is notable that the material furnished in support of the Part 61 judgment did not in fact address the merits of the claim in any detail. It merely asserted a claim for salvage services to the vessel and the cargo pursuant to a contract in the sum £102,106 (or alternatively a claim for salvage award in the like sum) by reference to the Particulars of Claim. Even the invoice now relied upon was not exhibited to the supporting statement, let alone the contemporary correspondence.

Arguable defence

31. On the day of the casualty (3 August) the underwriters instructed surveyors in their interest (Messrs. Broderick, Wright & Strong) and made it clear to both the owners and the port authority (ABP) that they would reimburse their assured for all salvage expenses "when approved as being fair and reasonable" by their surveyors. On 8 August, following the raising of the barge, the claimants presented an invoice "for the salvage" to the underwriter's surveyors. Their covering letter threatened "action against the vessel" in the event that it was not immediately paid. The attached invoice claimed charges for the salvage services at substantial rates (e.g. £15,000 per day for a crane barge, tugs at £140 per hour, a salvage master at £100 per hour). The total claim was £102,086.
32. On 9 August, the surveyors replied, asking for "any published information concerning your charging rates". The surveyors also made it clear that it was essential that the owners should be invoiced in the first instance. The claimants replied by return. They conceded that there was no tariff. The claim has been costed on a "commercial basis". On 13 August the surveyors told the claimants that they had completed their review of the invoice and had sent their comments to underwriters.
33. When the claimants thereafter chased the matter up, the surveyors replied that the underwriters were in discussion with the cargo interests bearing in mind that it was a salvage claim. There matters rested until late in October when the claimants raised an invoice (No. 11347) for the entire claim against the owners. This was apparently also sent to underwriters' surveyors. In their letter of the 11^th November, they said: -

"With reference to your invoice No. 11347 dated 30^th October 2001 forwarded to us by our Grimsby office and in the sum of 102166 (slightly more than the cost cited and commented on previously by us in August 2001) as you are aware your instructions to carry out the salvage recovery operations emanated directly ABP Hull. In view of your decision not to invoice the vessel's Owners in a manner suggested in our fax dated 9^th August 2001 we would consider that for the sake of good order your invoice should be made out to ABP for settlement purposes."

34. In fact the owners only received the invoice in December (although apparently dated 31 August). Their comment was: -

"We would advice you that Humber & Hull River Lighterage did not instruct your company – or agree at any time to its engagement – to undertake this work.

We are given to understand that you were contracted by Associated British Ports Hull to remove the sunken motor vessel "Selby Paradigm" from No 7 berth King George V. Hull as they required to have that berth clear for the expected arrival of the motor tanker "British Shield" due to discharge to one of the adjacent shore installations. All this took place without consultation with the registered Owners of the aforesaid motor barge."

35. By now, of course, the claim form had been issued claiming remuneration "for salvage services for both the vessel and her cargo". As already described the claim was not taken further until service of the Particulars of Claim in March 2003. When forwarded to underwriters, it was pointed out in June 2003 that the claim in respect of salvage was misconceived both on the basis that it was based on an invoice and on the basis that it included a claim in respect of cargo's proportion of any award.
36. The final development, relevant to the merits of the claim, was an interview of the Master by the underwriter's solicitors in December 2003 to the effect that he understood that ABP had engaged the claimants. He himself claimed that he had no discussions with Mr Raithby in relation to the engagement of the claimants, let alone by reference to the claimants' standard rate.
37. Against this background, I conclude that the Underwriters have clearly demonstrated a real prospect of success in defending the claim. It is sufficient to refer to only two matters:

i) The claim is advanced as one for salvage. Indeed the fact that the proceedings are in rem confirms that together with a purported claim to priority over the proceeds of sale of the barge. Whether a contractual claim or not, it is advanced in respect of ship and cargo. Yet ship's proportion of any salvage award must be very modest given the sale of the vessel, after repair costs of £31,000, at £36,000. This demonstrates at best a modest salved scrap value. In contrast the salved value of the cargo is said to have been in the region of £165,000.

ii) The contractual claim is exposed to further hurdles:

(a) There is contemporary reference to the fact that the claimants were retained by ABP and not by the shipowners, a proposition supported by the master in his recent statement.

(b) In any event the contractual claim was said to be on the basis of a standard tariff. Yet it appears to be accepted that no such tariff existed.

Delay

38. Lastly I must turn to the issue of delay. The judgment in default was entered on 23 May 2003. The underwriters became aware of the judgment on 14 July but their application to set aside the judgment was not made until 23 March, 2004.
39. In their letter of 14 July 2003, the claimants solicitors stated that the judgment in default was obtained "as a necessary precursor to direct action against the Underwriters under the Third Parties (Rights against Insurers) Act 1930". They invited Underwriters' proposals. On 28 July 2003, the underwriters' solicitors wrote in response that, in order to advise underwriters properly, they needed to see "copies of the application for default judgment and of the witness statement served in support of that application".
40. On 29 July 2003, the claimants responded by saying that underwriters could not "re-open that judgment" and therefore they refused to provide the requested documents. The request for documentation was repeated on 12 August 2003 but was rejected again on 1 September 2003 on the grounds that "your clients can do nothing to re-open this judgment which stands".
41. The reply dated 26 September 2003 indicated that the underwriters intended to intervene in the action and to apply to set aside the judgment in default. For that purpose underwriters threatened to make an application for the documents, the costs to be for the claimants' account. This prompted a further refusal to provide the documentation on 29 September 2003 and a further such threat on 29 September 2003. On 9 October 2003, instead of providing copies of the application and witness statement relied upon at the default judgment hearing, the claimants simply provided copies of their invoices.
42. Finally, on 13 October 2003 the claimants provided copies of, inter alia, the following documentation:

i) The application for judgment in default dated 7 May 2003;

ii) Mr Habergham's witness statement of 6 May 2003;

iii) Mr Habergham's witness statement of 21 May 2003.

43. In the light of the above documentation, the underwriters' solicitors recommended that a statement be obtained from the Master of the barge. Instructions from underwriters in this regard were not received until the end of November 2003. In this regard it was explained that Richards Butler were instructed by Dutch lawyers Smallegange Van Dam & Van Der Stelt who themselves have to obtain instructions from the two insurers. This process was somewhat cumbersome and slow.
44. On 1 December 2003, the underwriters' solicitors wrote to the first defendants seeking their assistance to contact the Master and interview him. No response was received from the first defendants but assistance was received from the first defendants' brokers and the Master was interviewed on 11 December 2003. His statement was signed shortly thereafter.
45. Having received the evidence of the Master the underwriters were advised on the prospects of setting aside the default judgment. However, with the usual delays over the Christmas period, instructions to make the application were not given until 9 February 2004.
46. In my judgment, these delays do not preclude the underwriters from being granted the relief they seek:

a) The delay until 13^h October 2003 was by reason of the obstructive stance of the claimants in regard to the provision of documentation. This was all the more unhelpful given the claimants' insistence on the strength of a judgment obtained under Part 61.

b) There were delays in obtaining instructions from underwriters and indeed in preparing the application. There is no prejudice suggested on that account.

47. In short the merits of the defence far outweigh any impact of the delay.