England and Wales High Court (Commercial Court) Decisions

IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
IN THE MATTER OF THE ARBITRATION ACT 1950 - 1979
AND
IN THE MATTER OF AN ARBITRATION

		28 May 1999

INTRODUCTION

Total Liban S.A. ("Total") appeals, by leave of an Order of Timothy Walker, J. dated 31st March, 1999, from an Interim Award of Mr. Mark Hamsher dated 19th February, 1999 ("the award" and "the arbitrator" respectively), in which he determined a preliminary issue in favour of Vitol Energy S.A. ("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 the 4th - 6th 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 the 7th May, 1999, stating:

(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 (I)")

(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 (II)")

These are the reasons for my decision.

THE FACTUAL BACKGROUND

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 11th October, 1991. Under an earlier contract dated 4th 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 the 27th 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.

Issue (I):

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 (I) may be noted. First, it is to be underlined that, for the purposes of this preliminary issue only, it is to be assumed (i) that Vitol was in breach of its contractual obligations towards Mackay and (ii) that damages claimed by Mackay against Vitol in respect of Mackay's liabilities under its sub-sale to Total were not irrecoverable by reason of being too remote. For all other purposes, these matters are not accepted by Vitol and remain in dispute.

Secondly, it will be appreciated that, although the claim has been pursued in the name of Total because of the assignment, this issue may principally be analysed by considering Mackay's position; the assignment cannot, of course, put Total in any better position than Mackay would have been in.


Thirdly, the assignment only impinges on this issue, insofar as it (i) sheds any light on the reality and continued existence of Mackay's liability to Total and (ii) assists in a consideration of the issues of principle or policy to which this issue gives rise.

Issue (II):

Again as foreshadowed, this issue required consideration of the Vitol submission that the assignment was void on the ground of champerty.


Before turning to the arbitrator's essential reasoning on Issues (I) and (II), it is convenient to set out the terms of the assignment, so far as relevant to this appeal.

THE ASSIGNMENT

The terms of the assignment which follow are taken from the arbitrator's Reasons:

"WHEREAS:-

A. .... It was an express term of the Total/Mackay contract that the Cargo must comply with Lebanese specifications for gasoline quality.

B. ....The specifications for the quality of the Cargo under the Vitol/Mackay contract were in substance the same as those under the Mackay/Total contract.

D. .....The Mackay/Total contract and the Vitol/Mackay contract both provide for disputes to be resolved by arbitration in London....

E. .....Under English and procedure Total as buyer/final receiver of the Cargo cannot bring direct proceedings against Vitol as the ultimate supplier because there is no direct contractual relationship between them ... In accordance with English law and procedure Total has brought a claim in arbitration against Mackay under the contract between them, and Mackay have commenced proceedings for various claims (including an indemnity for Total's claim) in a separate arbitration reference against Vitol under the contract between them.

F. Mackay does not have the financial resources to pursue an arbitration in London against Vitol. In addition Mackay's primary claim against Vitol is to recover such sums as it may be ordered to pay Total. For these reasons and to ensure that the conduct of the arbitration is as efficient as possible, Total and Mackay have agreed that Mackay will assign to Total its claim against Vitol on the terms set out in this Agreement.

IN CONSIDERATION of the following the parties hereby agree:-

1. Mackay hereby assigns absolutely to Total all its rights title and interest under the Mackay/Vitol contract including the right to pursue claims thereunder in respect of the Cargo in consideration of the promises by Total in this Agreement.

2. In consideration of this Assignment:-

2.1 Total shall pay to Mackay ... 7.5% of such sums in respect of principal and interest in excess of $100,000 as Total ultimately may recover from Vitol in respect of the rights assigned under this Agreement....

3.1 It is expressly agreed that this Agreement and these payments are not a compromise of Total's claims against Mackay, which are to be determined in the Arbitration.

5. Total shall pursue the assigned claim in the Mackay/Vitol reference as legal assignee using Total's name and giving notice to Vitol in accordance with the provisions of Section 136 Law of Property Act 1925 ...

7. ..... both references shall be heard together but the Arbitrator shall be requested to publish an award first in the Mackay/Vitol reference and only if Vitol is liable in that reference shall he be requested to publish an award in the Total/Mackay reference.

10. Total shall not enforce any award obtained against Mackay .... until all reasonable steps to enforce against Vitol have been exhausted."

For completeness, it may be noted that, as recorded by the arbitrator, on the 17th October, 1995, Total gave notice to Vitol of the assignment and served Points of Claim in which it (Total) was named as Claimant. As further recorded by the arbitrator, it was not suggested that the formal requirements of s.136 of the Law of Property Act 1925 had not been satisfied.

THE ESSENTIAL REASONING OF THE ARBITRATOR

Taking Issue (I) first and as already set out, the arbitrator found in favour of Vitol and held that Total was not entitled to the relief it claimed. The arbitrator noted that Mackay's claim for damages consisted solely of its liability to Total; there was no claim for any independent loss suffered by Mackay itself. Having considered the lines of authority relied on by the parties (which, I interpose, appear very much the same as those cited to me), the arbitrator concluded that the balance of authority favoured Vitol. Moreover, Vitol's submission that liability without payment did not constitute a recoverable loss was also supported by:

"... the fundamental principle that damages are intended to be compensatory."

The mere fact that the arbitrator was the sole arbitrator in both references:

"... did not alter the fact that if Total were right in arguing that they were entitled to recover substantial damages simply by liability being established without confirmation of the fact and extent of payment, there clearly would be an opportunity for a windfall profit by a claimant buyer."

Having once rejected Total's claim for substantial damages, the arbitrator was of the view that Total could not overcome the difficulties it faced by way of declaratory relief.

As to Issue (II) and also as noted, the arbitrator rejected the Vitol submission that the assignment was void for champerty. The arbitrator recorded that he had cited to him the "standard" authorities on champerty. The essence of the arbitrator's conclusion was stated in succinct terms:

"It is clearly established that if the assignee can show a genuine and sufficient interest in the right assigned, the assignment will not be void as being contrary to public policy.... Total clearly did have a genuine and sufficient interest in the outcome of Mackay's claim ... [against Vitol]... to make the assignment valid....the assignment was not one that was void on the grounds of champerty."

I now come to the Appeal; I deal with Issues (I) and (II) in turn.

THE APPEAL - ISSUE (I)

The rival arguments:

I begin with an outline of the rival arguments. For Total, Mr. Richard Jacobs QC argued that there was no general rule of English Law that liability without payment did not constitute a recoverable loss. To the contrary, he said that successful claims for substantial damages in respect of third party liabilities, or equivalent declaratory relief, were everyday events, without any requirement for discharging such liabilities by prior payment. The decision in Randall v Raper (1858) E.B. & E. 84 (and as more fully reported in (1858) 27 LJQB 266) was authority to just such effect. It was binding on me, as was Hydrocarbons Great Britain v Cammell Laird Shipbuilders 53 BLR 84 (CA), in which Randall v Raper was expressly approved by one member of the Court. A variety of other authorities supported the same conclusion and emphasised the desirability of sensible commercial arrangements, to achieve such an outcome. These were irreconcilable with any prior payment rule which itself had the singular disadvantage that a wrongdoer might escape liability altogether if an intermediate contracting party was impecunious and so not in a position to make a prior payment. As to the arbitrator's concerns about a recovery of a "windfall", this was not a windfall problem at all but one of certainty in assessing the amount of damages payable. When the problem of certainty arose, which it did not in the present case, the law had available a variety of techniques for addressing it; these included making the best possible assessment of damages payable, granting appropriate declaratory relief and deferring the consideration of damages. None of these solutions required a prior payment; all were difficult to reconcile with the existence of any such rule.

Mr. Andrew Popplewell QC, for Vitol, countered by submitting that there was a general rule of English Law that liability without payment did not constitute a recoverable loss. The arbitrator was right. The rule was to be found in what may be termed the Collinge v Heywood (1839) 9 Ad. & E. 633 line of cases and was recently given authoritative expression in The Fanti [1991] 2 AC 1. Although it might be said that these were indemnity cases, the rule they stated was a rule of the common law of general application. In the context of indemnities, equity might step in to alleviate the consequences but outside of the indemnity context and in the present case, equity could not be invoked to dispense with the requirement of prior payment. As to the position in standard third party situations involving sales chains, Mr. Popplewell argued that nothing could be inferred from cases where the point had been allowed to go by default; on a true analysis, the appropriate relief in such situations was declaratory relief in a carefully confined form. Mr. Popplewell had in mind an order limited to declaring that B, upon payment of its liability to C, would be entitled to recover substantial damages from A; as to this form of order, see Littlewood v George Wimpey [1953] 2 QB 501. If declaratory relief was limited in this way, then the problem of "windfall" to which the arbitrator had alluded was avoided; such declaratory relief did not, however, assist Total in the present case, as, again, the arbitrator had held. As to Randall v Raper, it was not authority for the proposition that liability to third parties without prior payment founded a claim for substantial damages; if it was a seminal case as suggested by Mr. Jacobs, it is odd that it has only been cited twice in 150 or so years; its true ratio was instead to be found in the observations in the judgments as to the diminution in value of the goods (in other words an uncontroversial decision under what is now s.53 of the Sale of Goods Act) indeed it is for this aspect of the decision that it has been referred to in the textbooks. Such observations as there were in Hydrocarbons Great Britain v Cammell Laird Shipbuilders as to Randall v Raper were obiter and not binding on me. In any event, Randall v Raper could not stand with the Collinge v Heywood line of cases including The Fanti and must be regarded as no longer good law. All the other authorities relied on by Mr. Jacobs could be distinguished and did not stand in the way of Mr. Popplewell's argument.


To all this, the response of Mr. Jacobs was that claims for indemnities were different; that Collinge v Heywood and similar cases, including The Fanti, were all authorities on indemnities and gave no support to the existence of any general common law rule of prior payment on which Mr. Popplewell's submissions depended. If, however, the indemnity rule was, in Mr. Jacob's expression, to be "transplanted", then the whole of the rule should be transplanted including that part of it by which equity alleviated the common law consequences of any prior payment requirement.

I was understandably grateful to Mr. Jacobs and Mr. Popplewell for their most helpful submissions. If I may say so with respect to the quality of Mr. Popplewell's submissions, I came to the clear conclusion that those of Mr. Jacobs were to be preferred and that the appeal on this Issue must be allowed. I do not think there is any general common law rule in English law that liability without payment does not constitute a recoverable loss. Nor, if it were open to me, do I think that there ought to be any such rule. I must now say why I have come to these conclusions; it is convenient to do so under the following headings:

(1) Principle;

(2) The authority of Randall v Raper;

(3) The indemnity cases;

(4) Other authorities;

(5) Techniques to prevent "windfall" recoveries;

(6) Conclusions.

1. Principle:

It may be helpful to begin by considering the matter in principle and free from any authority. Approached in this way, the attraction of the suggested prior payment rule is not at all apparent. If once there is a breach of contract and a proven liability, satisfying the usual tests of causation and remoteness, then it is difficult to see why prior payment by B to C (going back to the question as formulated) should be a requirement of the law. As it seems to me, any such rule of law is open to objection on grounds of injustice, inconvenience and being at odds with everyday practice. I take these in turn.

As to injustice, cases of the present type may be taken as an example. Were there a prior payment rule, if B is impecunious and no funding arrangement or assignment is possible, the upshot is that A will escape the consequences of its breach of contract and C will have no effective remedy. There is nothing, to my mind, to commend such an outcome, at least absent contractual terms which provide for it. Conversely, the ability to pass liabilities up (or down) a chain, appears to me to do practical justice - without in any sense doing violence to the rules on privity of contract. The true objections to A being liable to B in respect of B's liability to C would seem to lie in the fields of remoteness and causation; if, ex hypothesi, those objections do not arise or are overcome, why should the law erect more? For my part, I do not think it should. For completeness I would add that it is nothing to the point that the present problem may only arise in a limited category of cases (a combination of impecuniosity and a claim which can properly be based on liability arising under sub-contracts); while of course the problem must be kept in perspective, that is no reason for not addressing it appropriately when it does arise.

As to convenience, leaving aside questions of champerty and fraudulent preference (which the law in any event addresses when they arise), there is much to be said for encouraging sensible commercial agreements which preserve proper claims, involve the principal protagonists and minimise unnecessary legal proceedings involving intermediaries in the chain. In short, such arrangements, properly drawn up, make good practical sense. However, all such arrangements would be at risk, to put it no higher, of being ineffective if the rule was that a contractual liability without discharge by payment does not constitute recoverable loss. The rule, if rule there be, is accordingly conducive of inconvenience. The present assignment may be taken as an example; assuming that it is not champertous, there would seem much to be said in terms of convenience for encouraging an agreement containing recital F and proceeding on the basis of clauses 3.1 and 10. If, however, Vitol is right, then the present assignment would not succeed in achieving its purpose.

Turning to everyday practice, it seems plain that the suggested prior payment rule runs counter to everyday practice in "standard" third party cases, where a single judgment may well be given, or, if they are separate the two judgments are likely to be given simultaneously. It is an unpromising start for a suggested rule of law that it does run counter to the everyday settled practice in the Courts. To my mind, it tells against the desirability in principle of there being any such rule.

In reality, as became clear during the argument, the only justification for the existence of a rule as postulated by Mr. Popplewell, was avoiding the risk of "windfall" damages. Spelling it out, the concern is that (in our example) A should not be ordered to pay damages to B in respect of an alleged liability on the part of B to C when (i) the existence of B's liability to C is or may be uncertain (ii) when the extent of B's liability to C is or may be uncertain and (iii) when some other court (perhaps in another jurisdiction) or arbitration tribunal may be seised of the dispute between B and C. These are legitimate concerns, whether they are best described as avoiding "windfall" damages or whether they represent no more than examples of the uncertainty from time to time encountered when dealing with the assessment of damages.

Acknowledging the force of this point does not, however, lead to the need for a rule of law that liability without payment does not constitute a recoverable loss. Instead, the legitimate concerns of a party in the position of Vitol are most appropriately addressed by care in the assessment damages, utilising the techniques already available to the courts (and arbitration tribunals). So, for instance, a court or tribunal not persuaded that B was under any liability to C (in a case where such liability was a condition precedent to B recovering damages from A), would simply dismiss the claim. In other cases, declaratory relief - not restricted to the terms advocated by Mr. Popplewell - may be appropriate. In still further cases, questions of damages might need to be deferred or adjourned. Finally, in an appropriate case, there would be no rule of law preventing the court from simply ordering the payment of substantial damages. In principle, any of these techniques could be employed and, for the reasons already suggested, are preferable to seeking to construct a rule of law as to liability not constituting loss without payment.

If right so far then it follows that the award should only be upheld if I am bound by authority to hold that there is a rule of law for which Vitol contends. Before coming to the line of cases on which Mr. Popplewell relies, I must consider the authority at the forefront of Mr. Jacob's case.

2. The authority of Randall v Raper:

In Randall v Raper (supra), the Defendant (A) sold to the Plaintiff (B) seed barley, warranting it to be of a particular quality but delivered seed barley of an inferior quality. Relying on the warranty, B had on-sold the seed barley with a similar warranty to sub-buyers (C). In the event, C claimed from B compensation for the damage which C had suffered; B accepted that it was liable to C but had not paid C and, indeed, the amount of the compensation had not been ascertained. B now claimed from A damages in the amount of B's liability to C. The case came before the Court of Queen's Bench, sitting en banc.

The Court first disposed of an argument that the damages claimed were too remote, referring, inter alia, to the (then relatively recent) authority of Hadley v Baxendale. The remaining issue concerned A's argument that B, not having paid C, could not recover damages from A in respect of B's liability to C. A's argument was rejected by Lord Campbell C.J., Erle J. and Crompton J.; Wightman J., delivered a concurring judgment, albeit dubitante.

The key observations are brief and may conveniently be taken from the (shorter) E.B. & E. report. Lord Campbell, C.J., said this (at p.89):

"... it is contended, secondly, that, even if the damages could be recovered in the event of actual payment, they cannot be recovered upon a mere liability. I think we cannot lay down a rule that the mere liability cannot be the foundation of damages; if it can, the amount may be estimated by a jury. The demand is made, and is a just one: and, though it is not yet satisfied, yet the jury may find to what extent the plaintiffs are damnified by their having become liable to it."

Wightman, J., expressed his judgment in the following terms (ibid):

"I have no doubt, on general principles, that the plaintiffs, if they had paid these damages to their vendees, might have recovered them in the present action. But the doubt which I entertain arises from this. At present, all that has been done is that the subvendees have made a claim for damages; and as these damages are unliquidated, more or less than what is claimed may be given. Now, on a contract of indemnity, it is only the actual loss that can be recovered. Here eventually no loss may be suffered. I do no more than mention this doubt."

The judgment of Erle, J. (at p.90) went directly to the point:

"But then it is said that here the plaintiffs have made no actual payment; so that if they recovered such damages in this action, they might put them into their own pockets without paying the sub-vendees. But I think that the true rule is, that a liability to loss is sufficient to give the party liable a title to recover."

The views of Crompton, J. were to like effect (at pp.90-1):

"......It is said, however, that the plaintiffs have here only incurred a liability, and have made no payment. But I entirely deny that payment is necessary to entitle a party to recover. Liability alone is sufficient. It has always been customary to state, in the allegation of special damage, "whereby the plaintiff became liable to pay:" I recollect a discussion once arising, whether an allegation "whereby the plaintiff paid" was sufficient without an allegation "whereby the plaintiff became liable to pay;" but I do not recollect a discussion whether the latter allegation was sufficient without the former. In actions for bodily injuries, the liability to pay the surgeon's bill is always allowed as an item in the damages. It is quite clear to me that in this case the liability of the plaintiffs to pay their sub-vendees would be a proper item in estimating the damages. In an action for breach of contract you can recover only once; and the action accrues at the moment when the breach occurs. A liability to payment, which has been incurred by a plaintiff in consequence of the breach of a defendant's contract, may well form a part of the damages, though it may be difficult to estimate them."

To my mind, the judgments in Randall v Raper speak for themselves and do not require elaboration. On reading them, the impression which I formed was that Randall v Raper is an authority directly in point; the argument advanced here by Vitol (liability without payment does not found a claim for substantial damages) was advanced there and rejected; in terms of ratio and not merely dicta, Randall v Raper supports the Total case on the appeal; by contrast, the arbitrator's reasons and the Vitol case cannot be reconciled with it. It remains to deal with the submissions advanced by Vitol to the effect that these impressions are mistaken:

(1) The observations in the judgments that liability without payment is sufficient to entitle a party to recover, do not represent the ratio of the Court: I reject this submission. It cannot stand with the judgments of Lord Campbell, C.J., Erle, J. and Crompton, J. It may be, that as some of the textbook writings referred to by Mr. Popplewell suggest, the case can be explained as an uncontroversial decision under what is now s.53 of the Sale of Goods Act, based on the diminished value of the goods. If so (and I express no concluded view on this), it does not detract at all from the fact that, as the judgments make clear, at least a ratio of the Court was the rejection of the proposition fundamental to Vitol's case in these proceedings. In this context, it should perhaps be underlined that there are textbook citations supporting the view of the ratio of Randall v Raper, which I have suggested. So, in the 2nd edition of, Mayne on Damages (1872), the following statement is to be found (at p.65):

"Where the wrong complained of has involved the plaintiff in a legal liability to pay money to a third party, the amount of this liability may be included in the damages, though not yet paid by the plaintiff."

Amongst the authorities cited in support of this proposition, is Randall v Raper. Moving on to the current (16th) edition of MacGregor on Damages, it contains the following statement (at para. 368), citing, inter alia, Randall v Raper:

"If a particular expense has already been incurred but not yet paid by the plaintiff, the amount thereof may be included in the damages where the plaintiff is under a legal liability to pay the third party."

(2) The decision is not binding on me: the argument here is that a first instance Judge is not bound by a decision of the Court of Queen's Bench, not being the Court of Appeal or a precursor thereof. As to this, Mr. Popplewell may well be correct in theory. That said, I am satisfied that the right course would be to follow it even if (i) not strictly bound to do so and (ii) I entertained doubts as to its correctness (which I do not), unless it is contrary to or has been supplanted by other authority binding on me. So far as other authority is concerned, I shall come on to deal with the indemnity cases relied on by Mr. Popplewell, in due course.

(3) The decision is of doubtful authority, only having been cited twice in subsequent reported cases for the proposition here relevant in nearly 150 years, both such citations constituting obiter dicta rather than ratio: as far as it goes, this submission is correct as to the number of relevant citations in later authority. However, to my mind, if any inference can be drawn from the lack of citation in subsequent authority, it is because the principle - liability without payment is capable of constituting recoverable loss - has not been in doubt. Certainly, as already discussed, that principle is applied in practice everyday in standard third party situations. With regard to the citations in subsequent authority, I agree with Mr. Popplewell that the reference to Randall v Raper in Wednesbury Corporation v The Lodge Holes Colliery Company [1907] 1 KB 78, at p.92, does not take the matter further. The same, however, cannot be said of [1907] 1 KB 78, at p.92,does not take the matter further. The same, however, cannot be said of Hydrocarbons Great Britain v Cammell Laird Shipbuilders (supra); while I accept that the precise issue in Hydrocarbons was sufficiently distinct so that it is not an authority which is strictly binding in the present context, I am of the view that the observations in that case lend powerful persuasive support to the Total case on this appeal. I therefore turn next to consider Hydrocarbons, in a little more detail.

Hydrocarbons involved claims arising out of the construction of an accommodation vessel used in an offshore gas field. The first fourth party (Redman Broughton - "RB") sought to claim against the second and fourth fourth parties (respectively, Black-Clawson - "BC" and Lloyd's Register of Shipping - "Lloyd's") contribution in respect of RB's liability to the first third party ("APPH"). In what follows it should be kept in mind that RB had not paid APPH. In the event, APPH and RB entered into an agreement, against the background of concerns as to RB's financial position, limiting APPH's right to recover from RB to the amounts RB was entitled to recover from BC and Lloyd's; the agreement further provided for RB to assign the proceeds of its claims against BC and Lloyd's to APPH, in full and final satisfaction of RB's liability to APPH.

The nub of the dispute concerned the argument advanced by BC and Lloyd's to the effect that the APPH - RB agreement had produced, if I may put it that way, a spectacular "own goal"; far from preserving RB's claims against BC and Lloyd's for the benefit of APPH, the agreement had released RB from liability to APPH and had thereby destroyed RB's claims against BC and Lloyd's: a liability to indemnify against a liability which has no existence was a contradiction in terms. The decision of the Court of Appeal was that, rejecting the BC and Lloyd's submissions, on the true construction of the APPH - RB agreement, RB had not been released from its liability to APPH; instead, APPH had simply limited its claim against RB to that which it (RB) could recover from BC and Lloyd's. Accordingly, RB remained entitled to claim substantial damages from BC and Lloyd's.

For present purposes, the following are significant features of Hydrocarbons:

(1) The starting point for RB, was that its liability to APPH entitled it to claim substantial damages from B-C and Lloyd's. There was no question of RB having paid APPH. There is, however, no suggestion in the judgments that it is an obstacle to RB's claim that it had not already paid APPH.

(2) To the contrary, Dillon, LJ (at pp. 93-4), in analysing the position as it might have been without the APPH - RB agreement, expressly adverted to this feature of the RB claim. In doing so, Dillon, LJ cited Crompton J., in Randall v Raper with approval and concluded the relevant passage by posing the following question:

"The question here is whether the ... [ APPH - RB] ... agreement leaves .. [RB] ... with any liability to APPH."

(3) Both Dillon, LJ and more particularly Nicholls, LJ (as he then was) referred in favourable terms to the good sense underlying the APPH - RB agreement. Dillon, LJ said this (at p.92):

"It is the case of APPH and ... [RB] ... that the agreement achieves the sensible purpose that the claims of ... [RB] ... against ... [BC and Lloyd's] ... are preserved and can be pursued for the benefit of APPH by APPH using the name of ... [RB] ... with the consent of the latter. If that purpose is indeed achieved the agreement would seem to have been a prudent commercial agreement for both APPH and ... [RB] ... to have made in the circumstances."

Nicholls, LJ concluded his judgment with the following observation (at p. 102):

"... Whether the terms of this agreement amounted to a fraudulent preference of APPH by ... [RB] ... depends of facts on which we have no knowledge. Leaving that possibility on one side, I can see nothing inherently undesirable in the type of agreement entered into in this case. There was a chain of claims for damages for breach of contract. Because of the expense of the litigation, ... [RB] ... was not in a financial position to continue to defend APPH's claims or to prosecute its corresponding indemnity claims against ... [BC and Lloyd's] ...... Thus APPH and ... [RB] .... sought to achieve the result, in effect, that APPH should stand in ... [RB's] ... shoes. In practical terms, .... [RB]..... would drop out of the litigation and carry on with its business. APPH would prosecute .. [RB's] ... claims in .... [RB's] .... name, and APPH would recover for itself any sums forthcoming as a result. Thus APPH would not lose the benefit of ... [RB's] ... indemnity claims against solvent fourth parties by reason of the financial difficulties of ... [RB] ...., an intermediate link in the chain. I can see no underlying policy reason why such an apparently sensible form of agreement should be discouraged. Drafting such an agreement is a course beset with pitfalls, as this appeal has shown. But in my view this agreement has managed to avoid the pitfalls."

Faced with these observations, Mr. Popplewell, defending the arbitrator's reasoning, was driven to submit that (i) they were obiter (ii) those of Dillon, LJ could be explained on the basis that he was or thought he was dealing with a contract of indemnity rather than a claim in damages, alternatively (iii) those of Dillon, LJ were wrong. I am unable to accept these submissions. First, given that I have already accepted that Hydrocarbons is not strictly binding, I am content to assume further that these observations were (strictly) obiter even in the context of that decision itself. For my part, I nonetheless regard them as highly persuasive. Secondly, I do not think that Hydrocarbons was concerned with a contract of indemnity as distinct from a claim for damages in an amount which would give the claimant an indemnity against liability; nor, with respect to the submission, do I think that the judgment of Dillon, LJ proceeded under any such misapprehension. Thirdly, even if it is open to me to express a view, I do not think that the observations of Dillon, LJ were wrong, still less that they were made, in effect, per incuriam in that some general rule of law to the contrary had been overlooked.


In summary, the observations in Hydrocarbons lend powerful support to the standing of Randall v Raper as an authority and to the considerations of principle or policy which underpin it, to which I have already referred. The remarks of Nicholls, LJ are readily applicable to this case.

Notwithstanding the views expressed so far, I must next consider whether the indemnity cases reveal a rule of law which binds me to uphold the award and find in Vitol's favour.

3. The indemnity cases:

Central to Mr. Popplewell's argument is the decision in Collinge v Heywood (supra) and the line of cases which follow it. The facts and context of Collinge v Heywood may conveniently be summarised from the headnote:

"On a contract to indemnify a plaintiff against costs, which he is afterwards called upon to pay, the cause of action arises when he pays, not when the costs are incurred, or the attorney's bill delivered to such plaintiff. Therefore the Statute of Limitations runs from the time of payment."

The judgments are short, readily permitting the citation of the key passages. Lord Denman C.J. said this (at p. 639):

"....it is too clear in a case like this, no damage has arisen till the party to be indemnified is called upon to pay. The mere default of the surety after the debt has accrued is insufficient, because that default may be amended. Until the plaintiff was the sufferer, he had no right of action."

Littledale J., put the matter this way: (at p. 640):

"I am of the same opinion. Mr. Evans is obliged to contend that the right of action accrued at all events as soon as the attorney delivered a bill to the plaintiff. But I do not see how that can be maintained, on a contract of indemnity..... A plea of non damnificatus, in the present case, would not have been answered by shewing merely that the attorney had delivered a bill; though it would have been otherwise if the agreement had been, in terms, to indemnify when the bill should be delivered. This was a contract to indemnify merely; and the cause of action did not accrue till the plaintiff was damnified by paying."

The judgment of Williams J., (ibid), included the following observation:

"The defendant here was liable in a certain event, but not while the plaintiff was untouched..."

Finally, Coleridge J., expressed himself in succinct terms:

"The short answer to the plaintiff's demand is, that no cause of action arose till he was damnified, and that he was not damnified till he had paid the bill."

Founding himself on this authority, Mr. Popplewell argues that it stands for a general rule of the common law, not confined to indemnity cases; an undischarged liability does not amount to loss capable of supporting a claim for substantial damages; there is only such a loss when payment of the liability is made. Mr. Popplewell goes on to submit that his stance enjoys authoritative support from The Fanti (supra), to which I next turn.

In very broad terms and for present purposes, the issue in The Fanti, may be summarised as follows. A member of a Protection and Indemnity Club ("the Club") incurred liability to cargo interests. On the member failing to satisfy a judgment obtained by cargo interests, the member was wound up and cargo interests sought to proceed directly against the Club under the Third Parties (Rights against Insurers) Act 1930. The Club Rules provided, inter alia, that the Club would:

"Protect and indemnify members in respect of losses which they as owners of the entered vessel shall have become liable to pay and shall have in fact paid."

This Rule was referred to as the "pay to be paid provision". The Club argued that the pay to be paid provision meant what it said; payment by the member to the cargo interests was a condition precedent to payment by the Club to the member; in the circumstances, the member having no accrued right to be indemnified by the Club, cargo interests, in consequence of the statutory transfer of rights under the 1930 Act, could be in no better position than the member; accordingly, cargo interests' claim should fail. This argument of the Club was in due course upheld by the House of Lords.

The suggested importance of The Fanti to the present case, lies in the terms in which the House of Lords rejected cargo interests' purported reliance on what became known as "the equity point" to circumvent the pay to be paid provision. Confining citation to a minimum, reference must be made to the speeches of Lords Brandon, Goff and Jauncey.

Lord Brandon, with whom all their Lordships agreed, said this (at p. 28):

"There is no doubt that before the passing of the Supreme Court of Judicature Acts 1873 and 1875, there was a difference between the remedies available to enforce an ordinary contract of indemnity (by which I mean a contract of indemnity not containing any express "pay to be paid" provision) at law on the one hand and in equity on the other. At law the party to be indemnified had to discharge the liability himself first and then sue the indemnifier for damages for breach of contract. In equity an ordinary contract of indemnity could be directed to be specifically performed by ordering that the indemnifier should pay the amount concerned directly to the third party to whom the liability was owed or in some cases to the party to be indemnified..... There is further no doubt that since the passing of the Supreme Court of Judicature Acts 1873 and 1875 the equitable remedy has prevailed over the remedy at law.

The difficulty in the way of this argument for the third parties, however, lies in the express "pay to be paid" provisions in the relevant rules of the clubs. In principle it is difficult to see how equity could disregard or override those express provisions, and no authorities were cited... which supported the contention that it could. The Court of Appeal rejected this argument based on equitable principles put forward for the third parties for that reason and ... they were right to do so."

Lord Goff agreed; in his words (at pp. 35-6):

"....I am unable to accept... that a condition of prior payment is, at common law, implicit in a contract of indemnity. I accept that, at common law, a contract of indemnity gives rise to an action for unliquidated damages, arising from the failure of the indemnifier to prevent the indemnified person from suffering damage, for example, by having to pay a third party. I also accept that, at common law, the cause of action does not (unless the contract provides otherwise) arise until the indemnified person can show actual loss: ... Collinge v Heywood.... This is....because a promise of indemnity is simply a promise to hold the indemnified person harmless against a specified loss or expense. On this basis, no debt can arise before the loss is suffered or the expense incurred; however, once the loss is suffered or the expense incurred, the indemnifier is in breach of contract for having failed to hold the indemnified person harmless against the relevant loss or expense. There is no condition of prior payment; but the remedies available at law (assumpsit for damages, or possibly in certain circumstances the common count for money paid) were not efficacious to give full effect to the contract of indemnity. It is for this reason that equity felt that it could, and should, intervene. If there had been a clear implied condition of prior payment, operable in the relevant circumstances, equity would not have intervened to enforce the contract in a manner inconsistent with that term. Equity does not men men's bargains; but it may grant specific performance of a contract, consistently with its terms, where the remedies at law are inadequate. This is what has happened in the case of contracts of indemnity. As a general rule, "Indemnity requires that the party to be indemnified shall never be called upon to pay" (... In Re Richardson [1911] 2 KB 705, 716, per Buckley L.J.); and it is to give effect to that underlying purpose of the contract that equity intervenes, the common law remedies being incapable of achieving that result."

Lord Jauncey likewise agreed. Referring to Collinge v Heywood, Lord Jauncey said this (at p.40):

"...The result was hardly surprising in view of the fact that the basis for an action of assumpsit was that the defendant was in breach of some undertaking. Heywood would not have been in breach until he failed to keep Collinge "harmless and indemnified", a failure which would only occur when Collinge had had to make payment. The fact that Heywood would be in breach of contract as soon as Collinge paid imports, of necessity, that he was contractually bound to act before Collinge paid, albeit at common law Collinge could not enforce this obligation. In my view Collinge v Heywood was a procedural decision and it laid down no rules as to the common law rights of parties under a contract of indemnity."

Returning to Mr. Popplewell's argument, the submission is that the House of Lords in The Fanti approved Collinge v Heywood; loss and payment are to be equated, in the sense that payment is a condition precedent to loss; this is a general rule of law; Randall v Raper, which did not cite Collinge v Heywood, is inconsistent with this rule of law and cannot stand; further, outside of the field of indemnities, equity could not intervene to ameliorate the common law rule; the arbitrator was right.

I am unable to accept this argument, for the following principal reasons:

(1) The correct starting point is important. The task of the Court in the express indemnity cases is to construe the contract in question. As Neill J. (as he then was) put it in The Caroline P [1984] 2 Lloyd's Rep. 466, at p.474:

"In such a case the extent of the indemnity and the time at which the cause of action arises will depend on the construction of the contract."

(2) That the Courts in cases such as Collinge v Heywood and The Fanti were engaged in the process of construction of the contracts in question, is to my mind apparent from the judgments and speeches already cited, together with the arguments (which are unnecessary to site). This consideration makes any suggestion of a general rule even within the category of indemnity cases one of some difficulty; see, for instance, Charter v Fagan [1997] AC 313. The emphasis on procedural matters, apparent in the speeches in The Fanti, especially that of Lord Jauncey, serves only to reinforce the need for caution in seeking to deduce any general rule of substantive law from such cases. Even if, however, it can be said that the equation of loss and payment became as a matter of common law an incident of the construction of contracts of indemnity without "pay to be paid" (or similar) provisions, there is a considerable leap yet to be made in order to establish the existence of a general rule of law applicable to cases such as the present.

(3) In my judgment, that leap should not be made. First, as a matter of analysis, cases on the construction of express indemnities are to be distinguished from cases such as the present. While the measure of loss in the present case may well amount to an indemnity from A in respect of B's liability to C, the claim is one for damages for breach of contract; it is not a claim on an express contractual promise. This distinction was tersely expressed by Bowen LJ, in Birmingham and District Land Company v London and North West Railway Company (1886) 34 Ch. D. 261, at pp. 274-5, as follows:

"...a right to damages..is not a right to indemnity as such. It is the converse of such a right. A right to indemnity as such is given by the original bargain between the parties. The right to damages is given in consequence of the breach of the original contract between the parties. It is an incident which the law attaches to the breach of a contract, and is not a provision of the contract itself."

(See too, Neill J., in The Caroline P (ibid).)

(4) Secondly, as Mr. Jacobs, if I may say so, rather neatly put it, "loss" is a term or concept sensitive to context. Considerations of context, lead to considerations of principle and policy, already discussed. Such matters, in my view, lend no support to a "transplant" of the suggested rule in indemnity cases.

(5) Finally, I can find nothing in the language of Collinge v Heywood or The Fanti, which obliges me as a matter of authority to treat any rule there discussed as governing cases such as the present. Those authorities simply do not say that an undischarged liability will, outside of the indemnity context and generally, be insufficient to found a claim for substantial damages. They make no express reference to any over-arching general rule of the common law. Nor do I think that any such suggestions are implicit and must be read in.

(6) It follows that there is neither need nor basis for holding that Randall v Raper is no longer good law. It is not irreconcilable with the indemnity cases; nor has it been implicitly overruled by them.

Having reached these conclusions on the indemnity cases themselves, for completeness, some brief observations are called for on a number of related points, none of which (with respect) appeared to advance the respective party's case.

First, as to the authorities such as Post Office v Norwich Union [1967] 2 QB 363 and Bradley v Eagle Star [1989] AC 957, categorised by Mr. Popplewell as the liability insurance cases, these were presented as examples of express contracts of indemnity; accordingly, the conclusions to which I have already come with regard to the indemnity cases are equally applicable here. Further, these cases suggest that liability is ascertained by judgment, award or agreement rather than needing to await payment; if so, then, as it seems to me, it is open to Mr. Jacobs to rely on such ascertainment in the alternative to his primary case as in any event telling against the existence of any general rule of law as contended for by Vitol.

Secondly, cases relied on by Vitol dealing with contribution, such as M'Gillivray v Hope [1935] AC 1 and Littlewood v George Wimpey & Co. Ltd. (supra), appeared to me to turn on the construction of the statutory provision in question rather than to evidence the existence of any general rule capable of extrapolation to cases such as the present.


Thirdly and turning to the Total case, if Mr. Jacobs had otherwise been wrong in resisting the "transplant" of the suggested rule in the indemnity cases, I do not think that he would have succeeded in his alternative submission that the equitable rules alleviating the common law prior payment rule should likewise be transplanted. It seemed to me that this submission fell foul of the procedural explanation as to the operation of equitable remedies, contained in The Fanti (supra). In the event of course, having found for Mr. Jacobs on his principal submission as to the inapplicability of the indemnity cases, this further complexity did not arise.

Pausing here, my conclusions so far are sufficient to determine that the Total appeal must be allowed. Randall v Raper stands as an authority against the existence of any rule of law that liability without payment does not constitute recoverable loss. There is nothing in the indemnity cases which requires me to hold otherwise.

I now come on to some further examples of authority or lines of authority which, in my view, reinforce these conclusions. I hope I will be forgiven if I keep these examples to a minimum; I shall not refer to a number of authorities and writings relied on by the parties which did not seem to me to take the matter further forward. Specifically, it did not seem profitable to explore (whether in the textbooks or the authorities) the use of any particular form of wording when the present issue was not before the Court or, one suspects, in the mind of the author.

4. Other authorities:

I being with Harlow & Jones Ltd. v Panex (International) Ltd. [1967] 2 Lloyd's Rep. 509. For present purposes, the relevant facts may be shortly summarised. Sellers under an FOB contract claimed damages for non-acceptance by the buyers.

The sellers included in their claim storage charges incurred by their suppliers. There was an agreement between the sellers and their suppliers that the suppliers would only claim against the sellers if the sellers could recover those charges from the buyers. The buyers argued that an arrangement of that kind prevented the sellers from recovering. Roskill J. (as he then was) rejected the buyers' argument, in the following terms (at p. 531):

"Mr. Dunn argued that an arrangement of that kind barred the plaintiffs recovering in this action ... I am unable to see why. The plaintiffs have ... apart from any agreement with the Russian sellers, a perfectly good claim for these storage charges. Why the plaintiffs should not make an arrangement with their own sellers, "We will claim these and hand the proceeds over to you if we recover provided you let us off if we do not ", I am unable to see. Nor do I see why the existence of such an arrangement should afford the defendants a defence which they would not otherwise possess. It seems to me an eminently sensible commercial arrangement."

Mr. Popplewell argued that Harlow & Jones was not in point; the sellers had a good claim for the storage charges; the only question in issue was whether the sellers' agreement with their Russian suppliers had destroyed their claim. I am unable to accept that submission. The relevance of Harlow & Jones lies in the fact that the sellers could not have claimed anything in respect of the storage charges absent a liability to meet them. If, however, there was a general rule of English law that an undischarged liability could not found a claim for substantial damages, then the buyers would have had a complete answer to the claim: on any view, the sellers had not paid their suppliers for the storage. The buyers would not have needed to argue that the agreement between the sellers and their suppliers destroyed an otherwise good claim; there would not have been a good claim. Unless therefore it is to be supposed that Roskill J. and those involved simply overlooked the general rule for which Vitol contends - a supposition for which there is no warrant - the assumption in Harlow & Jones that liability without payment could constitute recoverable loss must tell in favour of the Total case here. Moreover, it is to be noted that Roskill J. spoke favourably of the good sense of the arrangement entered into. However, as with Hydrocarbons (supra), if Mr. Popplewell was right, such arrangements would be ineffective.

I come next to the Giles v Thompson litigation [1933] 3 All ER 321 (CA) and [1994] 1 AC 142 (HL). So far as here relevant, that case involved the provision of a hire car by a car hire company to a motorist, whose car was off the road because of an accident not involving fault on the motorist's part. Under the agreement between the motorist and the car hire company, the motorist was liable for the car hire charges; however, the car hire company would reimburse itself out damages recovered by the motorist for loss of use of his car; until then the motorist had the use of the hire car on credit and was under no obligation to pay the hire charges. When the motorist sought to recover the hire charges from the defendant, recoverability was denied on the ground that the motorist had not suffered any loss; it was said that the motorist had in effect been provided with a replacement vehicle by the car hire company free of charge.

The defence of no loss failed. In the Court of Appeal, Sir Thomas Bingham MR (as he then was) dealt with it in this way (at p.349):

"The third major issue was whether the plaintiffs ... had suffered any loss. Since the plaintiffs had actually paid nothing to the car hire companies, and would never become liable to pay them unless judgment were obtained against the defendants, it was argued by the insurance companies that the plaintiffs had suffered no loss which could be recovered in the actions.

As a general principle it is of course true that a plaintiff's claim for special damage can only succeed to the extent of losses he has actually sustained and liabilities he has actually incurred. But the rule is not absolute: .... Nor ... does it relieve the defendant of liability if the plaintiff's liability to pay charges to a third party is contingent on his recovery against the defendant: .... Harlow & Jones v Panex ... I regard the insurance companies' submission on this point as unsound."

When the case came before the House of Lords, Lord Mustill said this (at p. 166):

"The liability for the car hire, although suspended as regards enforcement, rests upon the motorist throughout. It is a real liability, the incurring of which constitutes a real loss to the motorist ..."

As it seems to me, the Vitol case is quite incompatible with these statements from Sir Thomas Bingham MR and Lord Mustill. Liability here, without payment, is expressly equated to loss. Insofar as a passage in the award (para. 31 of the Reasons) suggests that Giles v Thompson could be distinguished, I regret that it is wrong and cannot be sustained.


Finally, under this heading, what may be termed the Forster v Outred [1982] 1 WLR 86 line of tort cases must be considered. In these cases it has been consistently held that loss may be suffered and the cause of action will then be complete, when a liability has been incurred - even though the liability had not yet matured into a financial loss. While these decisions do require actual damage they hold that an increase in a party's obligations (by incurring a liability) may constitute actual damage; this is so, even though no payment has yet been made consequent upon the incurring of the liability. It follows that if Vitol was right, then in contract liability may not be equated with loss whereas in tort it may be. Such a further distinction between contract and tort, would be most unattractive. I do not think it can be justified. These authorities are, instead, an additional pointer to the Vitol contention being in error.

5. Techniques to prevent "windfall" recoveries:

I have already indicated that the concern expressed by Mr. Popplewell as to the award of "windfall" damages is legitimate; further, that such concern does not, in principle, lead to the need for a rule of law that an undischarged liability cannot found a claim for substantial damages. Having expressed the view that in principle the answer lay in the careful assessment of damages by the use of techniques already available to courts and tribunals, it is now appropriate to make brief reference to the authorities which show such techniques in use. When doing so, it becomes apparent, in accordance with the Total submission, that the technique to be adopted in a given case depends on the confidence with which the Court feels able, on the available evidence, to assess (i) the existence and (ii) the extent of the liability in question.

Randall v Raper itself serves as an example where the Court was in a position to leave the jury to estimate and assess damages without more ado.

In Biggin v Permanite [1951] 2 KB 314, the amount of the settlement between the plaintiff (B) and the third party (C), if reasonable, was to be taken as the measure of damages. I do not think that the reference in that case to the settlement being an "upper limit" means more than that, whether as a matter of mitigation or causation, there could be no question of B recovering an amount in excess of the settlement; it does not mean that the Court was duty bound to inquire further whether payment had in fact been made under the settlement, leaving aside, of course, cases where the genuineness of the settlement was in question.

Household Machines v Cosmos Exporters [1947] 1 KB 217 is an example of the Court granting declaratory relief in respect of the liability (in our example) of B to C; there was no requirement that B should have paid C. That caution is required in the grant of such declaratory relief - so that, for instance, A is not precluded from raising objections based on differences between the terms of the relevant contracts or on a failure to mitigate - is apparent from Trans Trust v Danubian Trading [1952] 2 QB 297 (CA). There the solution favoured was to reserve the head of damages in question. In Deeny v Gooda Walker [1995] 1 WLR 1206, Phillips J., as he then was, adopted a similar course and reserved for future determination a head of damages on the ground, inter alia, of the difficulty of assessing future loss.


I should perhaps add that while inclined to the view that these cases may themselves support Mr. Jacob's argument as to the absence of any rule of law as contended for by Vitol, other than in respect of Randall v Raper itself, I would not wish to rest my judgment on that ground; suffice to say that these cases show how practical justice is and can be done without any such rule of law.

While I have thought it right to address this issue in general terms not restricted to the facts of the present case, it must be recorded that Mr. Jacobs was correct in submitting that, here, there was no particular problem of windfall damages or uncertainty. As he put it in his skeleton argument:

"There is no problem of uncertainty or windfall in the present case, where the existence and extent of Total's liability to Mackay is before the arbitrator in the two references (Total/Mackay and Total/Vitol), and the arbitrator will therefore decide the existence and extent of that liability. The arbitrator is therefore in exactly the same position as a judge who is deciding a case involving plaintiff, defendant and third party."

6. Conclusions:

It may be convenient to pull the threads together on Issue (I).

(1) In English Law, the cause of action for breach of contract is complete on breach; in contract, unlike tort, loss or damage is not an ingredient of the cause of action.

(2) The question in contract of whether loss has been suffered, arises in the context of determining whether substantial damages may be claimed.

(3) A legal liability owned by B to C, consequent upon and not too remote from A's breach of its contract with B, is capable of constituting recoverable loss entitling B to substantial damages from A. There is no rule of law, requiring B first to have paid C. Randall v Raper so holds and is good law. For completeness, I confine myself to legal liability because that is what arises here; different considerations may arise in other situations (eg. Donnelly v Joyce [1974] 1 QB 454).

(4) I am satisfied of the correctness, justice and convenience of the conclusion in (3), whether or not I am strictly bound by Randall v Raper or Hydrocarbons to reach it. Additionally, it enjoys powerful support from the observations expressed by Judges of great eminence, as may be seen from a consideration of Harlow & Jones and Giles v Thompson; likewise, it avoids an unwarranted, unnecessary and further distinction between contract and tort: the Forster v Outred line of cases.

(5) The Collinge v Heywood line of indemnity cases, the liability insurance and other like cases, properly considered, do not preclude this conclusion nor do they point to a different conclusion. Put the other way, this conclusion does not call those decisions into question, provided only that they are understood in their proper context.

(6) Difficulties in assessing damages should not be confused with rules governing recoverability; those difficulties, when they arise, which they do not here, are appropriately addressed by the techniques and range of options readily available to courts and tribunals.

(7) There is nothing in any of this which does violence to the principle that damages are compensatory.

It follows that the Total appeal must be allowed.

THE APPEAL - ISSUE (II)

Introduction:

This is the champerty point. It was argued before me but, as Mr. Popplewell made clear, he does not pursue it if wrong on Issue (I). In these circumstances, in the light of my decision on Issue (I), I shall take it very briefly indeed while thinking it right to express a view upon it. Further and given the view I take of the matter, I propose to consider it, de bene esse, before alluding to Mr. Jacob's procedural objection to the point being taken at all.

The reason this issue arise had Vitol succeeded on Issue (I), is as follows. In those circumstances, Total would wish to introduce an amendment into their claim in the arbitration, confined to the limited declaratory relief which would then be available. The proposed amendment has been shown to me and is in the following terms:

"A declaration that in the event that MacKay discharges its liability or any part thereof to the Claimants [Total], the Claimants as legal assignees of MacKay are entitled to damages and/or an indemnity from the Respondents in the like amount(s)."

Vitol would wish to resist this amendment on the ground of the assignment being champertous but apprehends that it would be unable to do so without challenging the arbitrator's decision on this point, to which I have already referred.

The merits of the champerty point:

In a nutshell, the essence of Mr. Popplewell's argument is this. On the applicable hypothesis (as contemplated by Total's proposed amendment), it is a condition precedent of B obtaining any relief that it has first paid C. Accordingly, if C is then placed by the assignment in B's shoes, the necessary consequence of the assignment is that C (if successful in pursuing B's claim against A) will obtain double recovery. C will have been paid first by B and, thereafter, when C stands in B's shoes, by A. There can be no legitimate commercial interest in double recovery. The assignment is champertous and void. The consequences may not be entirely straightforward but they are not for me (and indeed I say no more about them).

As it seems to me, the answer to this argument can be stated with almost equal brevity. The law approaches questions of alleged champerty with an eye to the practical realities of the matter, not by way of theory: Brownton Ltd. v Edward Moore Inbucon Ltd. [1985] 3 All ER 499. As a practical matter, I see no realistic likelihood of Total (C) achieving double recovery. The only way in which Mackay (B) on the available facts could pay C, would be by way of some funding arrangement, one suspects with a bank or other lending institution. The overwhelming likelihood is that on C (in B's shoes) recovering damages from A, those proceeds will go to the bank, to repay the loan which made it possible for B to pay C in the first place.


Beyond this, it is, I think unnecessary to add anything to the arbitrator's conclusion on this issue; the Vitol attack on the assignment fails.

The procedural point:

The argument here was as to whether it was permissible for Vitol to raise the champerty point by way of Respondent's Notice under RSC O.73, r.27. I should make it clear that this was, in the event, a point left open from the hearing dealing with Total's leave to appeal. For completeness, I should note that there was some comment as to the form which the Respondent's Notice took but no useful purpose would be served by saying more about that.

In summary, Mr. Jacobs submitted that Vitol should have but had not sought leave to appeal; that there was important policy reasons in the arbitration area for requiring parties to go through the "hoops" of obtaining leave where not in a purely defensive position; that Vitol were not in a purely defensive position here, the champerty point being advanced only if Vitol had already succeeded on Issue (I).

Mr. Popplewell countered by contending that the point was properly raised by way of Respondent's Notice; as a matter of commonsense, it was not for Vitol, having succeeded before the arbitrator on Issue (I) to appeal his decision; that there were likewise sound policy reasons for not taking too technical or pedantic an approach to such procedural points, it being in general more important to uphold awards where possible on (in effect) alternative grounds.

I confess to finding the arguments finely balanced. As it is unnecessary for me to reach a decision on this point, it is, I think, in all the circumstances wiser not to do so.