England and Wales High Court (Commercial Court) Decisions

IN THE HIGH COURT OF JUSTICE
QUEENS BENCH DIVISION
COMMERCIAL COURT

		Royal Courts of Justice Strand, London WC2A 2LL
		6 December 2002

MR JUSTICE CRESSWELL:

INTRODUCTION

1. At all material times the first and second claimants operated liner services offering, among other services, the combined transport of containerised cargo. The defendant was at all material times a Swiss registered company offering, among other services, transport agency services through representative offices and/or subsidiaries.
2. The defendant was the claimants' ("P&O Nedlloyd's") general agent in Georgia for the provision of a comprehensive combined transport agency service under an Agreement dated 1 July 1998.
3. In March 1999, the New Zealand Dairy Board ("NZDB") shipped a cargo of butter on the 'MV Marseilles' from Auckland, New Zealand, to Poti, Georgia under a P&O Nedlloyd Bill of Lading No. 1149577, with transhipment to local feeder vessel(s) to be effected at Piraeus, Greece ("the first shipment").
4. The goods were discharged at Piraeus and thirteen of the fourteen containers the subject of this dispute were transferred to the 'Epos' for on-carriage from Piraeus to Poti under a service or memo bill of lading. The fourteenth container was subsequently on-carried in the 'Simin' in like circumstances.
5. The NZDB had sold the goods to Cie Financiere Du Grand Chene S.A. ("Grand Chene Switzerland") who had sold them on to Evroma Ltd ("Evroma"). Evroma had on-sold the goods to Georgian and Armenian interests. In Georgia the on-buyer was Mr Avtandil Lipartia, who appointed Liga Invalidov as his receiver; in Armenia the on-buyer was Norarm Ltd (the relevant director being Mr Gagik Suflyan).
6. The goods were consigned to Grand Chene S.A. (CFS) ("Grand Chene Bulgaria"), Grand Chene Switzerland's Bulgarian subsidiary, under the bill of lading.
7. The defendant did not hand over the goods to Grand Chene against delivery of an original bill of lading. The goods were instead handed by the defendant to Liga Invalidov and Norarm Ltd. Thus the goods reached the intended recipients at the end of the contractual chain (and not some third party).
8. Grand Chene Switzerland did not complete paying NZDB for the goods until 17 June 1999. For reasons which are unexplained NZDB did not forward the original documents in respect of the goods in question (including the original bill of lading) to Grand Chene Bulgaria until 26 August 1999. The reason for this delay of about 70 days is unexplained.
9. Under the terms of Grand Chene Switzerland's contract with Evroma delivery was CIF port of Poti, the goods delivered to be accompanied by a copy bill of lading, certificate of origin, veterinary certificate and quality certificate. The originals of the bill of lading and the copies of the certificate of origin, the veterinary certificate and the quality certificate were to be sent immediately after the arrival of the goods in the port of unloading via an air courier to the address of Evroma. Evroma was obliged to pay the whole amount owed on the goods within 30 days of the arrival of the goods in the port of Poti. Thus there was no question of the originals of the bill of lading being used by Grand Chene Switzerland as security for payment by Evroma of the price of the goods.
10. It is necessary to mention a second shipment ("the second shipment"). In March 1999 NZDB shipped a second cargo of butter (three containers of 250g packets of butter) on the same voyage. In this case the Bill of Lading number was 11495785. The contractual chain was the same as in the case of the first shipment. Again the defendant did not hand over the goods to Grand Chene against delivery of an original bill of lading. The goods were instead handed by the defendant to Liga Invalidov and Norarm Ltd. Grand Chene Switzerland was paid the price of the second shipment, but was not apparently paid the price of the first shipment.
11. Against the above background NZDB claimed against cargo underwriters, the Royal and Sun Alliance, in respect of the first shipment. Underwriters paid out US$420,000 under the insurance policy. Lloyd's Claims Office then pursued a claim against the claimants on behalf of underwriters and NZDB. The claimants, believing (wrongly) that NZDB had not been paid by Grand Chene Switzerland, settled the claim advanced on behalf of underwriters for US$400,000. In this action the claimants seek to recover against the defendant the sum paid in settlement of the underwriters' claim. The claimants' claim for breach of the Agency Agreement dated 1 July 1998 in releasing thirteen containers the subject of the first consignment without presentation of the original bill of lading, alternatively for an indemnity under the Agency Agreement. The defendant has admitted liability to the extent set out below.
12. The claimants say that they entered into a reasonable settlement in respect of the subrogated claim made by cargo underwriters. Further the claimants say that it is not necessary for them to show that they settled the right claim on the right basis, if the settlement figure was a reasonable amount to pay in respect of the claim which could/would have been advanced in the absence of payment by the claimants.
13. The defendants say that the cause of the settlement loss was the claimants' unreasonable decision to settle the claim without first obtaining confirmation from underwriters or NZDB, that NZDB had not been paid for the first shipment. Had the claimants discovered, prior to settling the claim, that NZDB had been paid, the claimants would (and should) have transferred the claims file to a more senior and more experienced claims handler and sought legal advice from a shipping law firm. The claimants would then (or should then) have appreciated that NZDB had no claim, as it had not suffered a loss. The claimants would (or should) have rejected the claim and explained to underwriters why they were doing so. Underwriters would probably have not pursued the claim but sought to recover the insurance monies they paid out on a false basis. Had underwriters pursued the claim, they would have had to have pursued the claim either in the name of the shipper (based on a liability to Grand Chene Switzerland) or in the name of Grand Chene Bulgaria on behalf of Grand Chene Switzerland or (possibly) in the name of Grand Chene Switzerland (as an undisclosed principal). On receipt of such a claim, the claimants would (and should) have required underwriters and/or Grand Chene Bulgaria or Grand Chene Switzerland (a) to provide them with a copy of Grand Chene Switzerland's sale contract with its sub-buyers and (b) to explain how the claim worked. Had underwriters refused to provide such information or provided it, the claimants would have appreciated or would have been advised that the claim had to be defended. The claim would have been successfully defended. Thus, had NZDB's specious claim been properly investigated, the claimants would not have suffered a loss. The claimants are therefore only entitled to nominal damages.
14. The basis of (1) NZDB's claim against underwriters and (2) underwriters' subrogated claim against the claimants requires careful analysis and I will return to this below.

THE CONTRACTUAL CHAIN

15. The following summary of the contractual chain is agreed.

(1) NZDB sold to Grand Chene Switzerland

There was never a formal written contract. The contractual relations were contained and/or evidenced in communications passing between NZMP (UK) or NZMP Moscow on the one hand and Grand Chene Bulgaria on the other. The only contractual document before the court is a fax dated 30 November 1998 (see below).

The identity of NZDB as the seller is evidenced by an invoice bearing the date 11 March 1999; a NZDB credit note dated 16 August 1999; the payment records showing the money received into the NZDB Trade Collections a/c; and a Swift Form made out to the NZDB. NZDB was also the shipper.

(2) Grand Chene Switzerland sold to Evroma. The terms of the contracts are referred to below.

(3) Evroma Ltd sold to:

Mr Avtandil Lipartia – Georgia

Norarm Ltd – Armenia

No copies of the sale contracts are available.

The fact of the sales is evidenced by the contemporary correspondence and the witness statements.

(4) Lipartia and Norarm may have on-sold to persons unknown.

THE AGENCY AGREEMENT

16. By a written contract dated 1 July 1998 ("the Agency Agreement"), between the claimants and the defendant, the defendant agreed to supply agency services to P&O Nedlloyd in the former Soviet Republic of Georgia.
17. The agency agreement, provided inter alia as follows:–

Clause 1.1 The Agent shall be P&O Nedlloyd's general agent in Georgia (the "Area") and provide a comprehensive combined transport agency service to P&O Nedlloyd's satisfaction.

Clause 1.2 Without limiting the generality of sub-clause 1.1 above, the Agent shall … arrange for and supervise efficient ... cargo handling ... exercise proper care and control of property in the ownership or control of P&O Nedlloyd or its associates whilst in the Area …

Clause 1.5 The agent shall indemnify P&O Nedlloyd against any loss, damage or expense caused by any act or omission of the agent, its staff or sub-agents.

Clause 5 P&O Nedlloyd's sales, customer services, procurement, financial and operational departments will instruct the agent on the way in which certain activities under this agreement should be carried out, Such instructions shall be part of this agreement. The agent hereby acknowledges receipt of all such instructions to date ...

18. By clause 5 of the Agency Agreement, P&O Nedlloyd's International Documentation Manual ("the Manual"), which was handed to Paata Kacharava on behalf of the defendant on 4 November 1998, was incorporated into the Agency Agreement. The claimants rely in particular on chapters 12 and 14 of the manual regarding the procedure in accordance with which cargo was to be delivered.

FAX DATED 30 NOVEMBER 1998

19. In a fax from Mr Goranov (of Grand Chene Bulgaria) to Mr Kourbanov (of NZMP Moscow) dated 30 November 1998 re deliveries of milk products from New Zealand to Armenia and Georgia during 1999 the results of a meeting in Sofia were set out as follows.

"1. Re: Anchor butter 250g. …

2. Bulk Deliveries

In order to have the distribution (agency) rights for the bulk, as per your request we increased the quantities for both destinations, namely, for Armenia – from 82 to 95 containers and for Georgia – from 80 to 86 containers. Or, altogether the increase is 19 containers.

Please note the schedules (arrivals) for both destinations:

ARMENIA	GEORGIA
January –2 containers	January – 2 containers
February – 6 containers	February – 6 containers
March – 6 containers	March – 8 containers
April – 6 containers	April – 6 containers
May – 7 containers	May – 7 containers

Altogether bulk – 181 containers.

Altogether + patted butter – 219 containers = 4205 tonnes.

The rights for the bulk to be re-confirmed in each 3 months and the prices to be negotiated at the same period.

PAYMENTS: cash against documents upon arrival of the containers in the port of destination.

Please note that the quantities shown are the minimum ones and we reserve the right to ask for more if the market demand permits. ..."

THE TERMS OF THE CONTRACTS BETWEEN GRAND CHENE SWITZERLAND AND EVROMA LTD

20. There are 4 agreements before the court all dated 1 January 1999 as follows:-

• Agreement No. 1 for sale by Grand Chene Switzerland to Evroma of about 230 mt butter for Georgia.

• Agreement No. 2 for sale by Grand Chene Switzerland to Evroma of about 1574 mt butter for Georgia.

• Agreement No. 3 for sale by Grand Chene Switzerland to Evroma of about 1,536 mt butter for Georgia.

• Agreement No. 4 for sale by Grand Chene Switzerland to Evroma of about 460 mt butter for Georgia.

21. It is common ground that the goods in question were sold by Grand Chene Switzerland to Evroma on the terms set out in these 4 agreements. The agreements provided:-

"5.1 CONDITIONS FOR DELIVERY: CIF the Port of Poti

The goods delivered should be accompanied by the following DOCUMENTS:

• The Bill of Lading – copy;

• Certificate of Origin;

• Veterinary Certificate;

• Quality Certificate.

The goods should not be accompanied by a commercial invoice.

The date on the Bill of Lading should be considered as the date of loading.

The originals of the Bill of Lading and the copies of the Certificate of Origin, the Veterinary Certificate, and the Quality Certificate should be sent immediately after the arrival of the goods in the port of unloading via an air courier to the address of the Buyer. …

7.1 PAYMENTS: The Buyer should pay the whole amount owed on the goods within 30 days of the arrival of the goods in the Port of Poti – the relevant document for establishing the date of arrival shall be the confirmation by fax, sent by P&O in the Port of Pireus. …

2. OTHER CONDITIONS

2.1 Transferring the ownership on the goods and all the risks stemming from its acquirement are passed on from the Seller to the Buyer when the original documents are handed over to the Buyer and the vessel is set for unloading in the Port of Poti. ..."

22. There was provision for ICC Arbitration.

THE BILL OF LADING CONTRACT

23. By a contract of carriage contained in or evidenced by a straight bill of lading, number 11495777 and dated 6 March 1999 the claimants as carrier agreed with NZDB as shipper for the carriage of 14 containers of unsalted creamery butter ("the containers") on board the vessel "Marseilles" voyage 9503 from Auckland, New Zealand to Piraeus, Greece, for transhipment and on-carriage to final destination of Poti, Georgia. The containers were consigned to Grand Chene Bulgaria. The notify party was Grand Chene Switzerland. (A Bill of Lading No, 11495785 of the same date related to the carriage of the second shipment of 3 containers of 250g packets of butter on the same voyage).

CHRONOLOGY

24. I set out below a chronology of certain important events. The history and background is complicated and requires careful analysis.
25. An invoice from NZDB to Grand Chene Switzerland for 13 of the 14 containers (first consignment Bill of Lading No. 11495777) in the sum of $381,888 bears the date 11 March 1999. This document was plainly backdated.
26. There are two versions of an Institute of London Underwriters Certificate of Insurance bearing the date 11 March 1999 in respect of 9984 cartons (i.e. 13 containers). Both versions are backdated. They bear different signatures on behalf of NZDB. The first version is marked copy. The certificate states "Not valid in respect of insurances attaching after 31 May 2000". There is no second page bearing an endorsement. The second version is marked original. The certificate states "Not valid in respect of insurances attaching after 31 May 1999". The second page does bear an endorsement. Both certificates were plainly backdated. In a letter dated 18 October 2002 Holman Fenwick & Willan (the claimants' solicitors) provided an account of the circumstances in which the two versions came into the possession of the claimants, The position in relation to the two versions of the certificates of insurance is profoundly unsatisfactory in many respects. By way of example it is not possible to tell when the endorsement on the version marked original (back dated to 11 March 1999) took place. Further it is unclear whether (a) NZDB had authority to back date certificates of insurance and (b) whether the fact that the relevant certificate had been backdated was disclosed to insurers. It would appear that a certificate was sent by Grand Chene Bulgaria to NZDB on 29 September 1999. No version of the certificate of insurance was forwarded to the claimants by Lloyd's Claims Office with their letter dated 19 October 1999.
27. On 10 April 1999 the 14 containers (the subject of the first shipment) were discharged at Piraeus. There was a problem with one reefer container which was as a result delayed at Piraeus.
28. The CMN bills of lading in respect of both shipments Piraeus/Poti were dated 13 April 1999.
29. On 14 April Mr Russano of Inchcapes (the claimants' agent in Piraeus) sent a shipped on board telex to the defendant (copy Grand Chene Bulgaria). 16 containers (13 first consignment, 3 second consignment) were shipped on board the 'Epos'. One container (first shipment) was short shipped due to reefer equipment failure. The telex said that Mr Russano would "revert with details of manifests and to whom containers would have to be released."
30. On 15 April Evroma notified Mr Russano of the scheme for distributing the containers between Liga Invalidov and Norarm Ltd. Evroma wrote "Please note that the distribution of the Full Container Loads having in mind their numbers, could be made as per your kind choice." On the same day Evroma faxed Mr Russano again "The copy of B/L we shall send to you tomorrow morning."
31. On 16 April Mr Goranov of Grand Chene Bulgaria faxed Mr Russano of Inchcapes "Please find attached [copies of] bills of lading and the lists of the containers ... kindly proceed with the instructions sent to you by [Evroma]". (The CMN bill of lading in respect of the container left behind at Piraeus is dated 16 April. The vessel was the 'Simin').
32. It is convenient to pause and analyse the position at this point in time.

(1) As between the claimants and the defendant Chapter 12 of the Manual provided "One original bill of lading, duly endorsed, must be surrendered by the merchant to the carrier in exchange for the goods or a delivery order." Chapter 14 of the Manual provided that release could be allowed without a bill of lading in return for a letter of indemnity including a suitable endorsed bank guarantee, plus written approval from the shipper.

(2) As between NZDB and Grand Chene Switzerland, Grand Chene was contractually obliged to pay cash against documents but was not in a financial position to do so. In the event Grand Chene Switzerland did not pay for the goods the subject of the first consignment until 17 June 1999. Grand Chene could not expect to receive the original bills of lading until it paid NZDB for the goods.

(3) As between Grand Chene Switzerland/Bulgaria and Evroma, Grand Chene's commercial viewpoint is clear from the fax dated 16 April. Grand Chene Bulgaria knew that Grand Chene Switzerland was not in a position to pay NZDB for the goods the subject of the two consignments for some time. It was not in Grand Chene Switzerland's interest that the goods should be held up at or near Poti. "Kindly proceed with the instructions sent to you by Evroma" did not contemplate any delay at Poti. It is important to emphasise that there was no mis-delivery to a stranger. The goods were delivered to the intended sub-buyers.

33. On 17 April Inchcapes telexed the defendant to pass on the instructions received from Evroma as to the distribution of the 16 containers ex 'Epos' to Liga Invalidov (Georgia) and Norarm Ltd (Armenia).
34. On 18 April the 13 containers (the subject of the first shipment) were discharged at Poti ex 'Epos'.
35. On 22 April Inchcapes sent to the defendant a shipped on board telex in respect of the remaining container, shipped on the 'Simin'. The consignee was stated to be Norarm Ltd. The fourteenth container was discharged at Poti ex 'Simin'.
36. On about 24 April the defendant released the 13 containers to the sub-buyers. The fourteenth container was released to the sub-buyer on about 28 April.
37. A fax from NZMP Moscow to NZDB dated 12 May 1999 referred to a conversation with the defendant, who had advised that the containers were de-vanned and the product released to the consignee. The defendant had mentioned an order from P&O Piraeus to release the product. The fax stated "Grand Chene didn't show any original ship documents to P&O Piraeus because we keep them here."
38. A fax from NZDB to the claimants dated 13 May complained about containers released at Poti without original bills of lading. "16 ... reefers have been released to the consignee without the consignee having any original documents … our people ... were holding the original documents due to the consignee not having paid for the product. We now discover that not only were the containers released, they have since been de-vanned and the empties returned."
39. On 18 May the defendant e-mailed the claimants in relation to the complaint from NZDB, referring to the instructions received from Inchcapes on 17 April. The claimants replied pointing out that the instructions from Inchcapes made no mention of surrender of original bills of lading. On the same day Inchcapes informed the claimants by e-mail that Mr Goranov of Grand Chene Bulgaria had advised that the bills of lading were due to be sent by NZMP Moscow to Sofia at the end of the month. [This would of course only happen if Grand Chene Switzerland paid the amount due in respect of the two consignments, and it was not in a position to do so]. Again on 18 May the claimants e-mailed the defendant referring to a serious breakdown in the commercial procedures adding "As NZDB have not been paid matter is doubly serious".
40. On 19 May the defendant e-mailed the claimants "... our experience of last several months ... we always received instructions from Piraeus to whom release containers in Poti. The same was done last time, but in the instruction wasn't mentioned that we had not to release the cargo to consignee. Our mistake is that we hadn't asked whether we had to do it without presentation of original ocean B/L or not".
41. On the same day the claimants replied that rule number one for a shipping agent was "Never release cargo without receiving the original bill of lading". It was pointed out that NZDB had not yet been paid for the cargo. The claim over against the defendant was reserved in case "any trouble might occur in that respect".
42. In an internal e-mail of 30 May Mr Gavin Miller (of the claimants) informed Mr Neale that he understood that "the money [due from Grand Chene Switzerland to NZDB] is forthcoming in part amounts." NZDB were looking at a pro-forma claim.
43. Thus the position at the end of May 1999 was that NZDB was intimating a claim because NZDB had not been paid by Grand Chene Switzerland. There was no complaint by Grand Chene Switzerland at this date. The goods had reached the sub-buyers as Grand Chene Switzerland/Bulgaria intended. Grand Chene Switzerland had not yet paid NZDB the full amount due in respect of the goods. They were therefore not in a position to obtain the original bills of lading. Further the contract between Grand Chene Switzerland and Evroma was such that there was no question of the original bills of lading being used as security for payment for the goods.
44. By 17 June 1999 Grand Chene Switzerland had completed payments due to NZDB in respect of the first consignment (subject to a minor point in respect of deduction of bank charges). On the same day Grand Chene Bulgaria informed NZMP Moscow that the final payment due in respect of the total amount of $526,464 had been paid and asked NZMP Moscow to mail the original set of documents (including the original bills of lading) in respect of both shipments. This was followed on 21 June by a similar request addressed by Grand Chene Bulgaria to NZMP (UK). Two invoices (in respect of the first and second consignments) were referred to totalling $526,464. A series of payments between 25 May and 17 June were set out totalling that sum. NZMP (UK) was asked to send the original sets of documents for the two consignments (14 containers and 3 containers). The request for the original sets of documents was repeated on 24 June ("we have to arrange several matters with our customers after the containers from the last lot were removed from Poti without our knowledge"). I do not accept that the removal from Poti was "without [Grand Chene's] knowledge." On the contrary I find that Grand Chene (a) knowing that they were not in a financial position to pay for the goods (and therefore not in a position to obtain the original bills of lading); (b) not wanting the containers to sit at Poti for a month or two incurring demurrage and other charges; (c) instructed Mr Russano of Inchcapes on 16 April 1999 "proceed with the instructions sent to you [Evroma]"; (d) in the hope or expectation that, and with the intention that, Evroma/Liga Invalidov and Norarm Ltd would be allowed to collect the goods as soon as practicable after arrival at Poti.
45. On 2 July 1999 Mr Goranov of Grand Chene Bulgaria wrote to Evroma about performance of agreements for selling/buying butter and sugar for the Republic of Georgia. It is important to note that there were a number of transactions between Grand Chene and Evroma in relation to both butter and sugar. Disputes in relation to payment for sugar complicated the position in relation to payments for butter. Mr Goranov referred to conversations about the 14 containers (the subject of Bill of Lading No. 11495777) – "you assured us that 14 containers ... have been released from the Port without submitting the original bill of lading, in order to avoid demurrage payments. You also confirmed that your company will make the payment for them to us." Thus there is reference to Evroma accepting liability to pay in respect of the 14 containers. Mr Goranov mentioned receipt of payments from A. Lipartia. Evroma was informed that Grand Chene would send the original bill of lading after receipt of the same from NZDB.
46. By letter dated 18 August 1999 the claimants terminated the Agency Agreement with the defendant effective 1 November 1999. The letter referred to the containers being released to the consignee without an original bill of lading being surrendered, although the payment for the cargo to NZDB was still outstanding. The letter continued "... however, luckily we can advise you that the NZDB after all received payment for their cargo." Thus by 18 August Mr de Jonge director of the claimants' Mediterranean Business Area had received information that NZDB had been paid by Grand Chene Switzerland (as in fact was the case).
47. On 24 August Grand Chene Switzerland wrote to NZMP Moscow referring to the two consignments of butter paid for in instalments up to 17 June. The letter said, "in fact we pre-paid the goods". This is difficult to understand. The letter continued:-

"You are aware of the fact that the containers were removed from the Port of Poti without any authorisation from our side and, respectively, the value of the merchandise was not refunded to us. We have sent many requests to you to send us the original documentation in order to claim before the insurance company. We received all the documents but the bills of lading and the insurance certificates. This prevented us from exercising our rights on time and practically we lost the opportunity to present our claim before the insurance company or transport agent. The nature of the missing documents suggests that after the fact of the removal of the containers became available to you, you presented the documents before the insurance company. In fact it was your obligation to act as the owner of the merchandise thus protecting the interests of ... both companies. If this is the case, we must become the beneficiary of the claim collected from the underwriters, which we presume will come at the original value ... $491,904."

Mr Goranov was unable to explain how this inflated figure came to be included in the letter. The letter continued "If the documents are not sent to us on time by negligence or due to any other reason, we will claim the value of the missing merchandise from your company." Grand Chene had made repeated requests for the original documents, and NZDB had failed to provide these from about 17 June. Grand Chene Switzerland appear to have been under the misapprehension that NZDB had made a claim against cargo underwriters by this date.

48. On 25 August Grand Chene Bulgaria wrote to Evroma in respect of payments due in relation to the goods the subject of Bill of Lading No. 11495777 (the first consignment). The letter referred to "a serious dispute" with NZDB concerning the original bill of lading, which was still in NZDB's possession for unknown reasons. The letter continued "Although at the moment we are not able to forward the original bill of lading to you, that does not release you from the obligation to pay for the goods, since de facto, you have received the goods and you are not denying that fact. Please advise us when you are going to start making the payments ..."
49. It would appear that Grand Chene Bulgaria eventually received the original documents from NZMP Moscow on 26 August.
50. On 27 August Grand Chene Bulgaria wrote to NZMP (UK) and Moscow referring to mutual claims, the second (Grand Chene against NZDB) "for the amount of $411,264 representing the value of the missing containers in Poti never recovered to us, but paid to you in a good faith from our side." The containers were not "missing". Evroma had acknowledged their liability to pay for the goods (see the letter of 2 July).
51. On 1 September 1999 NZDB faxed the claimants about a pro-forma claim – "In our capacity as cargo owners, we must hold you, as carriers, formally responsible for losses sustained by the above consignment." The reason for the claim was release of containers without presentation of original bill of lading. Although NZDB described themselves as "cargo owners", they had been paid for the goods in question by 17 June.
52. On 7 September Grand Chene Bulgaria wrote to NZMP Moscow proposing a meeting to find a solution regarding outstanding matters including "the amount of $411,264 we have lost and which we are not able to claim before the insurance company and the carrier, because of the late receipt of the original documents."
53. By internal e-mail dated 7 September Mr Gavin Miller (of the claimants) wrote to Mr Neale "Last we heard from NZDB was that it was all in hand. Obviously NZDB have been unable to recover all the monies owing on this shipment and thus have notified us of a possible valued claim to come."
54. On 10 September NZMP (UK) faxed Grand Chene Bulgaria in relation to the first consignment, saying that this was an issue between Grand Chene Bulgaria and the claimants. The fax pointed out that Grand Chene did not pay as per agreed terms of cash against documents. Final payment was not received until approximately 50 days after the consignment arrived in Poti, therefore any claim Grand Chene had was against the claimants.
55. On 14 September Grand Chene Bulgaria wrote to NZMP (UK) and Moscow to reassert that there were mutual claims. Grand Chene did not dispute that it owed $154,224 to NZMP (UK). Grand Chene advanced a cross claim against NZMP in respect of $411,264. The letter stated:-

"Until the unauthorised delivery of the butter in Poti from P&O to an unknown user, NZMP was the owner of the merchandise and as such you alone are responsible for it. After the fact of the unauthorised removal of the butter became known to you, you had to take immediately the necessary actions ... before ... P&O and the underwriters in order to prevent or minimise the eventual losses for Grand Chene ... especially after it was fully paid by the latter. In fact Grand Chene ... paid for a non-existing (non-delivered) merchandise ... Additionally, the possibilities for recovering the claimed amount for Grand Chene ... became nil, because NZMP sent the original bill of lading for the consignment with a delay of 71 days after the latter was fully paid from our side ... .the problem is not between Grand Chene ... and ... P&O, but between Grand Chene ... and NZMP." (emphasis added)

56. The words "unknown user" and "non-existing (non-delivered) merchandise" were misleading. This was not a case of the goods in question being delivered to some stranger. Further the goods did exist and were delivered to the intended recipients (as Grand Chene Bulgaria well knew). Further Evroma had acknowledged their liability to pay for the goods.
57. On 24 September Grand Chene Bulgaria wrote to Evroma about agreements for delivering butter and sugar for the Republic of Georgia. As to butter despite all of Evroma's assurances, Grand Chene had not received any payment for the delivery of the goods per Bill of Lading No. 11495777 (the first consignment). Evroma was urged to make payment to avoid the need to go to court. Grand Chene referred to having already suffered heavy losses "as we cancelled the planned deliveries from New Zealand, as a result of which, [NZDP] declared our exclusive contract null and void ..."
58. On 29 September Grand Chene Bulgaria apparently sent NZDB the original documents in respect of the first consignment (which they had received on 26 August) including three original bills of lading and one certificate of insurance. The documents were sent to enable a claim to be raised against the insurance company "as per NZMP Moscow's request".
59. On 5 October 1999 Mr Vermeer for the claimants sent an e-mail to the defendant. Contrary to what had been said in the letter of 18 August "... luckily ... NZDB ... received payment"), the e-mail said "NZDB has not yet been able to recover all the money owing to the shipment ... where cargo was released ... without an original B/L being surrendered," In fact of course NZDB had recovered all the money owing by Grand Chene Switzerland by 17 June.
60. On 7 October Mr Smith of Willis Corroon Ltd Wellington (NZDB's insurance brokers) wrote to Grand Chene Bulgaria to say that he had forwarded the original shipping documentation to the London underwriters for their consideration.
61. On 19 October Lloyd's Claims Office faxed the claimants. LCO had recently been instructed by the insurers of NZDB to protect their interest in respect of a claim for the mis-delivery and temperature damage to 14 containers of butter. The fax said, "It is clearly apparent that 13 containers were released by your agents without the presentation of the original documentation ... and it is therefore this office's opinion that your full liability is involved". Certain documentation was attached.
62. On 21 October Lloyd's Claims Office faxed the claimants to confirm that the matter had yet to be settled by underwriters. Lloyd's Claims Office was at that date acting on behalf of underwriters and on behalf of NZDB. On the same day LCO informed the claimants by fax that there was no claim for the container damaged at Piraeus and that underwriters had just agreed settlement for the sum of US$420,077 for the total loss of 13 containers released in Tbilisi without the original documentation. The reference to the "total loss" of 13 containers was misleading.
63. A number of e-mails internal to the claimants followed:-

On 28 October Mr Neale (to Mr de Jonge copy to Mr Miller) "Originally we thought NZDB had received part payment, is this correct or not?" On 29 October Mr Miller in New Zealand (to Mr Neale and others) "Initial indications from NZDB was that they were getting a partial payment on this cargo from the consignee. However we have heard nothing since and we did not receive anything in writing from NZDB confirming any part payment". On 8 November Mr Vermeer (to Mr Neale) "As far as I understood from you some time ago, the goods were supposed to be paid by Grand Chene Bulgaria, although cargo was shipped to/delivered at Georgia. Do you know, whether the goods have meanwhile been paid, entirely or partly? Can you check this with NZDB prior taking possible action through the claims department." On 8 November Mr Neale (to Mr Vermeer copy to Mr Miller) "As we have now received the claim presume that NZDB have been paid by their insurers and that payment by Grand Chene has not and will not happen. Gavin [reading in copy] – has anybody checked with NZDB if they did receive any partial payment for these goods?" On 10 November Mr Miller in Wellington, (to Mr Hurrell in Wellington, copy to Mr Neale) "Have NZDB mentioned whether they received part payment in any previous dialogue with you?"

64. On 15 November the claimants informed the defendant that they had received a claim from the "shipper" for the loss in the amount of US$420,077.
65. On 17 November NZMP Moscow faxed Grand Chene Bulgaria to advise that underwriters had agreed to settle the claim for US$411,264. The fax suggested that NZDB should transfer to Grand Chene US$411,264 less US$154,224, which was outstanding to NZMP (UK).
66. According to the defendant, a letter was sent by the defendant to Mr Vermeer of the claimants on 21 November 1999. The claimants dispute receiving this letter. An e-mail to Mr Vermeer of 21 December 1999 set the (disputed) letter out. It included the following:–

"It was surprise for us that you received a claim from the shipper for the loss in the amount of US$420,077. As we were officially informed by Mr de Jonge ... (letter dated 18 August ...) 'NZDB after all received payment for their cargo' which you luckily could advise us. To our opinion the above mentioned claim must be seriously investigated by all involved … and the short exchange of e-mails during May 1999 is not enough ... We hope that you'll check once again the situation with NZDB and their representatives in Moscow ... and by mutual efforts everything will be cleared."

67. On 1 December 1999 Lloyd's Claims Office sent the claimants the completed subrogation form (which showed the Insured as NZDB).
68. On 10 December Mr Blowes on behalf of the claimants agreed a settlement with Lloyd's Claims Office at $400,000.
69. On 29 December Mr Vermeer of the claimants e-mailed the defendant – "It is correct, that we confirmed in our letter of 18 August that NZDB received payment for mentioned containers. At a later stage however we were advised, that the message on the payment was incorrect and mixed apparently with other settlements. We are still investigating whether meanwhile payments on these shipments to the NZDB have been done".
70. On 16 February 2000 the defendant in a fax to the claimants said the claim was unfounded because payment for the cargo had been made by the receiver to the seller. In an e-mail internal to the claimants dated 24 February 2000 (disclosed on the third morning of the trial) from Mr Hurrell in Wellington to Mr Neale, Mr Hurrell said that NZDB were in the process of finding out what the state of play was. He asked whether Mr Neale was suggesting that after the claimants had paid the claim, the consignee actually got round to paying the Board? In fact Grand Chene Switzerland had completed paying NZDB on 17 June 1999. This was confirmed by an e-mail from NZDB dated 25 February 2000 which read "There was a mix-up in the instructions between P&O Piraeus and P&O Poti. The FCLs were released to Grand Chene's customers who subsequently never paid Grand Chene. Grand Chene paid NZDB the full amount of the consignments. Subsequent to this NZDB lodged a claim on Grand Chene's behalf ...". This e-mail was not disclosed by the claimants until after the start of the trial.

WITNESSES

Witnesses called by the Claimants.

Mr Rolando Russano

71. At the material time Mr Russano was the Transhipment Manager for Inchcapes, the P&O Nedlloyd agents in Piraeus. Mr Russano reported to Mr Kostas Lagos. Mr Russano arranged the transhipment of the containers with CMN and they were shipped on board the 'Epos' on 13 April 1999 under two service bills of lading. There was initially a problem with one of the containers. There was no cargo damage and this container followed on 16 April 1999 on the 'Simin' (another CMN vessel and under another service bill of lading).
72. On 14 April 1999 Mr Russano sent the "shipped on board" e-mail to the defendant notifying that the two shipments on the 'Epos' had left Piraeus on 13 April 1999. Mr Russano said that he would revert with details of the manifests and to whom the containers would have to be released. By that expression he meant to whom the containers would have to be released, once the original bills of lading had been surrendered. On 17 April Mr Russano sent a manifest details e-mail to the defendant in which he apportioned the containers between Liga Invalidov and Norarm Ltd. This was intended to enable the defendant to advise these end-receivers that the containers would be arriving shortly.
73. Mr Russano said that he did not agree, on behalf of the claimants, to the delivery of the 14 containers to Liga Invalidov and Norarm Ltd without the surrender of an original bill of lading being required.

Mr Hans Vermeer

74. Mr Vermeer was at the material time the Regional Sales Manager in Rotterdam for the claimants "East Med Cluster". The letter to the defendant dated 18 August 1999 signed by Mr J. J. de Jonge [but drafted by Mr Vermeer] stated:-

"... early May [13] reefer-containers ex NZDB ...were released to the consignee, without an original B/L being surrendered, whereas the payment for the cargo to the "NZDB" was still outstanding. P&O Nedlloyd was extremely embarrassed by your office's offence ... Your Tbilisi office was already held responsible for all possible damages, however luckily we can advise you that NZDB after all received payment for their cargo."

75. On 5 October 1999 Mr Vermeer sent an e-mail to the defendants:–

"Contrary to what we mentioned in this letter [dated 18 August], we understand, that NZDB has not yet been able to recover all the money owing to the shipment of the [13] reefers, where cargo was released by M&M Tbilisi, without an original B/L being surrendered."

75. In a further e-mail dated 29 December 1999 to the defendants Mr Vermeer stated:-

"It is correct, that we confirmed in our letter of 18 August that NZDB received payment for mentioned containers. At a later stage however we were advised that the message on the payment was incorrect and mixed apparently with other settlements. We are still investigating whether meanwhile payments on these shipments to the NZDB have been done."

76. There was a conflict between the evidence of Mr Vermeer and of Mr Neale (see below).

Mr Gary Alan Blowes

77. The claimants disclosed on the Friday following the third day of the trial an e-mail dated 2 December 1999 from Mr C Connor to Mr R Basnett which referred to the claim in question from NZDB and said "... The reason for Gary [Blowes] having this one under his wing was that he said he had previously dealt with these types of matters when presented to him in one of his previous lives at one Club or another ... the claims are complicated to say the least and they do not necessarily touch on "cargo" damages or loss matters, rather being of a commercial or documentational nature. I do not want to inflict them on the claims handlers. Hence I will be re-taking this particular one back from [Gary Blowes] soon." In fact Mr Blowes had not previously dealt with this type of matter in a previous employment. Further Mr Connor did not take this particular claim back from Mr Blowes.
78. At the time of his involvement in this matter, between October and December 1999, Mr Blowes was a Cargo Claims Adjuster with the claimants. This was the first claim of this type that Mr Blowes had handled. He did not seek any legal advice in respect of the claim He did not see Mr Neale's operations file which was kept in another building. Mr Blowes made no enquiries of Lloyd's Claims Office save seeking confirmation as to the split between the damage claim and the claim in respect of release without production of an original bill of lading, and asking for the subrogation form. Mr Blowes made limited enquiries of people within the claimants. He was quite happy that a loss had been sustained by NZDB. Mr Blowes did not know who Evroma was, nor did he know who Liga Invalidov and Norarm Ltd were.
79. Mr Blowes at the time thought that the claim was a straightforward claim by the shipper (and that therefore he did not need to look into the merits of any claim by the consignee). I accept that he thought that the claim was by NZDB and that when he paid the claim he thought that NZDB had not been paid. If he had been told that they had been paid, he would have wanted to know why Lloyd's were claiming on their behalf.
80. Mr Blowes said that Mr Neale did not tell him that he (Mr Neale) had information that in actual fact the full amount of NZDB's price had been paid.
81. Mr Blowes agreed that a letter dated 29 September 1999 signed by Mr Goranov suggested that Grand Chene did have the original bills of lading. With hindsight maybe he should have appreciated that NZDB had been paid.
82. Mr Blowes said he thought that NZDB had suffered a loss because their security interest was impaired and therefore they did not get paid by their buyers. Mr Blowes said that if he had discovered that NZDB had been paid he would have taken more internal advice and would probably have talked to somebody internally who could provide legal advice. If the claim had been a claim from the consignee, he would probably have made investigations as to whether the goods were delivered to the consignee, or to the consignee's nominated receiver, or to an impostor.
83. Mr Blowes was asked about a letter from Mr Connor to the defendant dated 19 January 2002 which included the words "We have been required to settle the claim from the bill of lading consignees at US$400,000 ..." Mr Blowes said that on his understanding it was not correct to say that the claim was from the bill of lading consignees.
84. Mr Blowes agreed that maybe the extra US$19,000 paid was excessive.
85. In my opinion Mr Blowes did not have the knowledge or experience to handle the claim in question. He was not an impressive witness. Certain evidence in his witness statements went beyond his expertise. He should not have been allowed to handle the claim.

Mr John Neale

86. Between August 1998 and the end of 1999 Mr Neale was the Operations Officer of the claimants' ANZ Europe Trade Division Northbound. Mr Neale said that he was not an expert in the niceties of cargo documentation and relied on the Insurance and Claims Department to tell his department where the claimants stood in relation to this claim.
87. Mr Neale said that he did not know from his investigations in May whether the goods had been released to Liga and Norarm or to an unknown third party. He just knew that they had been released without the surrender of original bills of lading.
88. The letter from the claimants to the defendant dated 18 August 1999 referred to the goods being released to the consignee without an original bill of lading being surrendered, whereas payment for the goods to NZDB was still outstanding. The letter continued "... luckily we can advise you that the NZDB after all received payment for their cargo." Mr Vermeer said he got this information from Mr Neale. Mr Neale said he did not recall telling Mr Vermeer that NZDB had been paid. An e-mail from Mr Vermeer to Mr Neale dated 8 November 1999 on balance tends to support Mr Vermeer's account.
89. I accept that Mr Neale thought that the claim was brought on behalf of NZDB. He believed that NZDB had not been paid.
90. Mr Neale accepted that paragraph 53 of his first witness statement confused matters, because it was an area outside his expertise.
91. In paragraph 17 of his third witness statement Mr Neale referred to "arguments ... based on documentation that has been uncovered over the last three years." He accepted that it did not take the claimants three years to discover that NZDB had in fact been paid. In paragraph 18 of the same witness statement Mr Neale said "I did not have, and do not see how I could have obtained this sort of information in December 1999, nor would it have been reasonable for me to insist on delay in settling this claim, exposing P&O Nedlloyd to potentially greater liabilities, while such matters were being investigated." Mr Neale said that this paragraph was based on his belief and what he was told by the Insurance Claims Department.
92. As to whether NZDB had in fact been paid, Mr Neale said that he kept asking for a certain period of time. He asked the claimants' people in Wellington to ask NZDB. He said "I just took the view that, if I keep asking and I do not get an answer, I presume the answer was that they had not been paid."
93. Mr Neale's evidence was unsatisfactory in a number of respects. At times his witness statements included matters that went beyond his expertise. His evidence was in conflict with Mr Vermeer's evidence in respect of certain important matters.
94. It is difficult to determine what enquiries were made by the claimants of NZDB from time to time as to whether NZDB had been paid for the goods in question, and what answers NZDB gave. No relevant documents from Wellington are available. In my view Mr Blowes and Mr Neale did not pursue elementary and necessary enquiries. Had they done so (assuming NZDB provided proper answers) the suggestion in the letter dated 18 August that NZDB had been paid for the goods in question would have been confirmed.

Mr Alexander Goranov

95. Mr Goranov is now Managing Director of Grand Chene, Bulgaria.
96. The reference in Mr Goranov's letter to NZMP (UK) dated 10 September 1999 "... delivery of the butter in Poti from the P&O to an unknown user" was seriously mis-leading. Grand Chene Switzerland and Grand Chene Bulgaria knew that the goods had been delivered to the intended end users.
97. The letter dated 24 August 1999 from Grand Chene Switzerland to NZMP Moscow stated "We must become the beneficiary of the claim collected from the underwriters, which we presume will come at the original value of the Appendix No. 5, respectively Invoice No. 210104 from March 11 1999 for $491,904". Mr Goranov was unable to explain how this inflated figure came to be included in the letter (which itself included a reference to a value of $411,264).
98. Mr Goranov explained that the reason why the agreements between Grand Chene Switzerland and Evroma provided that the goods should not be accompanied by a commercial invoice, was because the buyer, Evronia, did not want to reveal the real price to the authorities, probably for tax purposes.
99. Mr Goranov confirmed that Grand Chene Switzerland was not using bills of lading to secure payment of the price by Evroma. Once Grand Chene Switzerland had paid for the goods and obtained the bills of lading, the latter would be forwarded to Evroma before payment had been made.
100. Mr Goranov said that in April 1999 the end-receivers were about 4 months behind with payments due. By April 1999 the 1998 shipments were fully paid, but there was still an outstanding balance in respect of shipments which had taken place in 1999.
101. Mr Goranov said that NZDB broke the delivery schedule and that this gave rise to one of the explanations from Grand Chene Switzerland's buyers to the effect that they were doing everything possible but the goods were being supplied not on time, but earlier.
102. Mr Goranov confirmed that Mr Russano was instructed to proceed with Evroma's scheme for distributing the containers. So far as Grand Chene Switzerland and its receivers were concerned, the last thing Grand Chene would have wanted was for the containers to sit at Poti for a month or two months accumulating demurrage.
103. Grand Chene Switzerland did not pay NZDB until 17 June 1999. For reasons which are unexplained NZDB did not forward the original bills of lading to Grand Chene Switzerland until 26 August 1999. Mr Goranov said that Evroma started to argue in July or August. "After we were not able to present to them the original of the bill of lading which was kept by NZDB for unknown reasons for more than 71 days ... Our buyers started to argue that if we [did] not give them the original bill of lading ... they [were] not the owner legally of this merchandise so they should not pay." Mr Goranov said that the final payment which entitled Grand Chene Switzerland to the bills occurred on 17 June. Had NZDB forwarded the bills of lading on 17 June as they should have done (and not about 71 days later) Evroma would have had a 30 day grace period from the 17 June in which to pay. The sub-buyers used the absence of the original bill of lading as an excuse – it did not provide them with a genuine reason for not paying. Mr Goranov said that the sub-buyers may have thought "you can claim off insurers and therefore do not bother us". Evroma were not saying as at 17 June that the absence of the bill of lading was a reason why they should not pay – that came later. Mr Goranov said that if NZDB had not sat on the bills for 71 days and done what they should have done (i.e. forward the bills to Grand Chene in mid-June), Grand Chene would in turn have forwarded the bills to Evroma, and the complaint about the absence of the original bills of lading would never have been made. The buyers took the point for the first time in August. Mr Goranov added that Norarm and Liga Invalidov were prepared to pay for the containers shipped under bill of lading 785 (the second consignment) before they received the original bill of lading. A letter from Mr Goranov to Evroma dated 2 July 1999 recorded that Evroma Ltd had confirmed that they would make payment in respect of the 14 containers.
104. Mr Goranov accepted that he saw the release of the goods without a bill of lading as a golden opportunity to reduce the outstanding debt owed by the sub-buyers to Grand Chene Switzerland. It was because of his concern that the credit risk Grand Chene was running was going to backfire (in the sense that Grand Chene was not going to get paid), that he thought it was a good opportunity to try and recoup some of that loss from the insurance company.
105. Grand Chene Bulgaria did not receive the original documents from NZMP Moscow until 26 August 1999. It is to be noted that Grand Chene Bulgaria did not thereafter forward the original documents (including the bills of lading) to Evroma. At one point Mr Goranov said that if NZDB had forwarded the bills of lading promptly (and not about 70 days late) it was difficult to say whether there would have been a problem or not. I find that had NZMP Moscow forwarded the original documents to Grand Chene Bulgaria on about 17 June, there would probably not have been a claim against the underwriters. This finding accords with Mr Goranov's earlier concession that if NZDB had not sat on the bills for 71 days and done what they should have done (i.e. forward the bills to Grand Chene in mid-June), Grand Chene would in turn have forwarded the bills to Evroma, and the complaint about the absence of the original bills of lading would never have been made.
106. Having carefully listened to Mr Goranov's evidence I conclude that Grand Chene Switzerland (who were facing difficulties in recovering the sums due from Evroma/the end-receivers in respect of butter and sugar), saw an opportunity to make a claim, when in truth and in fact (as they well knew) there was no basis for doing so. The defendant's failure to call for the original bills of lading was used by Mr Goranov as a pretext for making an unjustified claim.
107. As at the end of May 1999 there was no complaint from Grand Chene Switzerland. Mr Goranov's letter of 24 August 1999 to NZMP Moscow contained an inflated figure. This letter provides an insight into Mr Goranov's thinking. Grand Chene Bulgaria had not by this date received the original documents from NZMP Moscow. Mr Goranov thought (wrongly) that NZDB had withheld the documents in order to make a claim against underwriters. Mr Goranov wanted to benefit from the claim (he wrongly assumed) NZDB had collected from underwriters. The expression "missing containers" in Mr Goranov's letter of 27 August was misleading. By mid-September Mr Goranov was seeking to use a purported cross-claim in respect of the first consignment, against a debt admittedly owed to NZMP (UK). The words in his letter dated 14 September "unknown user" and "non-existing (non-delivered) merchandise" were again misleading. The claim by Grand Chene Switzerland was at best a "try-on" which should not have succeeded.

AGREED STATEMENTS

108. The witness statements of Mr Casper Harms and Mr Kostas Lagos were agreed.

STATEMENTS ADMITTED UNDER THE CIVIL EVIDENCE ACT

109. The witness statements of Mr Glenn Kane, Mr Rodney Smith and Mr Arkady Tchorbadjisky were admitted under the Civil Evidence Act.

THE DEFENDANT'S EVIDENCE

110. The witness statements of Mr Paata Kacharava were admitted under the Civil Evidence Act.

LIABILITY

111. The defendant has conceded liability. The basis of the concession is that the defendant was in breach of clause 5 of the Agency Agreement as alleged in para 10(iv) of the Particulars of Claim. In particular, the defendant does not concede that its release of the goods without surrender of an original bill of lading was in any way negligent.
112. In the light of the concession on liability, it is not necessary to determine whether or not the defendant was also in breach for other alleged reasons. It is not suggested by either party that there is any significance in the fact that the admitted breach by the defendant is of one character rather than another.
113. The claimants contend that it is germane to consider the indefensibility of releasing goods without surrender of an original bill of lading when considering (a) the reasonableness of the settlement on the basis of the facts known to the claimants at the time of settlement and (b) whether or not the claimants could reasonably have obtained further information. The more serious the apparent dereliction of duty by the carrier, the more difficult the position in which the carrier is placed by the breach when it comes to investigating a claim.
114. The defendant's position is that it is important to keep separate the defensibility or otherwise of the defendant's actions (when considered in the context of duties under the Agency Agreement) and the defensibility or otherwise of the defendant's actions (when considered in the context of the claimants' duties under the contract of carriage). The fact that the defendant's actions rendered it in breach of the Agency Agreement does not mean that it rendered the claimants in breach of the carriage contract. Thus the defendant's liability to the claimants (or its character) does not bear directly on the ability of the claimants to defend a claim based on the contract of carriage.

THE CLAIMANTS' SUBMISSIONS

115. Mr Duncan Matthews QC for the claimants submitted as follows.
116. The chain of events caused by the defendant's breach of the Agency Agreement started with a complaint by NZDB against the claimants dated 13 May 1999. That complaint culminated in the claimants paying out US$400,000 to cargo interests. The question for decision is whether the settlement was reasonable. The reasonableness of the settlement must be assessed by reference to all the circumstances in which the claimants were dealing with the third party and the facts then available to them. Given that the purpose of the investigation is to ascertain whether the settlement loss was caused by the breach or by the settling party's decision to enter into the settlement, the relevant facts must be those upon which he could be expected to base his decision to settle, rather than facts which later came to light; it is the facts available at the time by reference to which the question of causation has to be determined (The 'Krapan J' [1999] 1 Lloyd's Rep 688 Colman J). The claimants' conduct in settling the claim was reasonable. As to the defendant's submissions based on the fact that the bill of lading was a straight bill, the straight bill of lading point was not worth a significant discount and in any event the point was without substance. It does not matter that NZDB had been paid between the time of the defendant's breach and the time when the claimants paid cargo interests. Even if the claimants should have investigated further than they actually did, a good claim could have been brought in respect of Grand Chene Switzerland's loss by some party through some route, and if Grand Chene Switzerland had not been paid, as appears to have been the case, then the only matter which the defendant can now use to throw doubt on the settlement is the argument that the mis-delivery did not cause Grand Chene Switzerland's loss. If contrary to the claimants' arguments, the claimants either need to show that they were actually liable, or if the court is of the view that the claimants should have discovered all the facts underlying the causation point, the claimants had a good case that Grand Chene's loss was caused by the mis-delivery. It is not necessary for the claimants to show that they settled the right claim on the right basis, if the amount paid was a reasonable amount to pay in respect of the claim which could/would have been advanced in the absence of payment. The claimants are entitled to recover US$400,000 or such lesser sum as the court thinks appropriate, incurred in reasonable settlement of cargo claims brought against it by reason of the defendant's breach of the Agency Agreement.
117. Mr Matthews provided Appendices to his closing submissions on Title to Sue and Straight Bills.

THE DEFENDANT'S SUBMISSIONS

118. Mr Waller for the defendant submitted as follows.
119. The claimants should never have settled the specious claim by NZDB's underwriters. The claim as presented should have been rejected. The claimants now seek to justify the settlement by reference to other claims which might have been pursued by underwriters had the specious claim not been settled. The claimants are asking the court to speculate as to what might have happened had they investigated the claim properly and resisted the initial claim. The defendant's primary case is that the claimants are not in a position to satisfy the court that even if they had investigated the claim properly, they would have settled for a sum in the like amount (or indeed for any sum). If the court is prepared to engage in this hypothetical inquiry, the starting point is that a reasonable investigation would have resulted in the rejection of the initial claim. The claimants must then satisfy the court that had this happened, underwriters would have re-considered the basis of the claim and re-presented it. One of the evidential lacunas in this case relates to what the underwriters knew about the claim. The claimants have not adduced sufficient evidence to allow the court to infer, with appropriate confidence, that underwriters would have re-presented the claim. In any event, if underwriters had re-presented a claim in the name of the consignee Grand Chene Bulgaria and/or in the name of Grand Chene Switzerland, such a claim would have had to have been fully investigated. Upon a proper investigation it would have become apparent to all involved that Grand Chene Bulgaria and/or Grand Chene Switzerland had no claim. The probability is that underwriters would not have tried to pursue such a hopeless claim but instead would have focused their energies on recovering the insurance monies. Had the underwriters brought such a claim, it should have been defended because it would have been patently flawed. The loss suffered by the claimants in this case was caused by their own unreasonable decision to settle a specious claim by the shipper.
120. Thus the defendant's primary case is as follows. The cause of the settlement loss was the claimants' unreasonable decision to settle the claim without first obtaining confirmation from underwriters or NZDB that NZDB had not been paid. Had the claimants discovered, prior to settling the claim, that NZDB had been paid, the claimants would (and should) have (a) transferred the claims file to a more senior and more experienced claims handler and (b) sought legal advice from a shipping law firm. The claimants would (or should) have appreciated, either themselves or on the basis of legal advice received, that NZDB had no claim, as it had not suffered a loss. The claimants would (or should) have rejected the claim and explained to underwriters why they were doing so. Underwriters would probably have not pursued the claim, but sought to recover the insurance monies they paid out on a false basis. Had underwriters pursued the claim, they would have had to pursue the claim either in the name of the shipper (based on a liability to Grand Chene Switzerland) or in the name of Grand Chene Bulgaria on behalf of Grand Chene Switzerland or (possibly) in the name of Grand Chene Switzerland (as an undisclosed principal). On receipt of such a claim, the claimants would (and should) have required underwriters and/or Grand Chene Bulgaria or Switzerland (a) to provide them with a copy of Grand Chene Switzerland's sale contract with its sub-buyers and (b) to explain how the claim worked. Had underwriters refused to provide such information or provided it, the claimants would have appreciated or been advised that the claim had to be defended. The claim would have been successfully defended. Thus, had NZDB's specious claim been properly investigated, the claimants would not have suffered a loss. The claimants are therefore only entitled to nominal damages.
121. The defendant's secondary case is as follows. The cause of the settlement loss was Grand Chene Switzerland's or Bulgaria's unreasonable conduct in procuring NZDB to make a claim on the insurance in circumstances where it knew that it had no valid claim.
122. The defendant's tertiary case is as follows. In order to recover damages in the amount of a settlement, it is necessary, as a matter of law, for the claimants to prove that the settlement was reasonable. This means that the claimants must prove that the amount they paid out in settlement was broadly in line with the amount they would probably have been found liable to pay had the matter proceeded to litigation.
123. The claimants appear to be claiming that had the matter proceeded to litigation, the underwriters would have brought the claim in the name of Grand Chene Bulgaria (despite the fact that underwriters were not subrogated to Grand Chene Bulgaria's rights) and Grand Chene Switzerland as well as NZDB. They therefore argue that it is relevant to consider the merits of Grand Chene Bulgaria's and Switzerland's claims. The flaw in this reasoning is that underwriters were not subrogated to Grand Chene Bulgaria's rights against the claimants and probably not to Grand Chene Switzerland's rights. The claim would therefore never have been brought.
124. The claimants would not have been found liable (or at least not liable for anything other than nominal damages) had the matter proceeded to litigation. In these circumstances, the settlement was unreasonable and the claimants are only entitled to recover nominal damages.

THE CLAIMANTS' SUBMISSIONS IN REPLY

125. In reply Mr Matthews submitted as follows. If it had been discovered that NZDB had been paid, the claim would not have been rejected; any title to sue aspects would have been resolved. The claimants would have reasonably thought that Grand Chene Switzerland had not been paid. The only matter that could have stopped the claimants settling this claim for a large sum would have been if the claimants had thought that there was a genuine causation problem. But (i) the causation argument was bad; (ii) there was nothing to alert the claimants to it. Even if the causation argument had been discovered, the claimants would only not have settled this argument for a substantial sum if it could have been rejected out of hand; investigation would have been long and difficult; litigation would have commenced and the claimants' exposure would have mounted without any certainty of a defence.
126. I am grateful to Mr Matthews and Mr Waller for the excellent and detailed written and oral arguments presented to the court. Any summary of their respective submissions cannot do justice to the comprehensive written submissions.

THE RELEVANT LEGAL PRINCIPLES

127. The relevant legal principles in a settlement case and where an indemnity is relied on are as follows:-

1. The law encourages reasonable settlements, particularly where strict proof would be a very expensive matter. If reasonable a settlement should be taken as the measure. Biggin & Co Ltd v Permanite Ltd and Others [1951] 2KB 314 at 321, Somervell LJ.

2. As to what evidence is necessary to establish reasonableness, it is relevant to prove that a settlement was made under legal advice. Biggin & Co Ltd v Permanite Ltd and Others [1951] 2KB 314 at 321, Somervell LJ.

3. In a settlement case the claimant must establish that the amount for which he settled was reasonable. If he does, he is entitled to recover that sum from the defendant, provided that the loss is not too remote to be recoverable. If the claimant overlooked a point which he ought to have taken, the amount of the settlement will not be regarded as the correct measure of damages in a subsequent action. Clarke J in the Sargasso [1994] 1 Lloyd's Rep 412 at 423. See further Colman J in General Feeds Inc Panama v Slobodna Plovidba Yugoslavia [1999] 1 Lloyd's Rep 688 at 691 et seq.

4. Where an indemnity against loss suffered in consequence of claims is relied on, a loss will be sustained in consequence of a claim if it arises from a reasonable settlement of a claim which had some prospect or a significant chance of success. Comyn Ching & Co (London) Ltd v Oriental Tube Co Ltd 17 BLR 56 at 92, Brandon LJ.

128. It is convenient to consider the issues that arise under the following headings:-

The commercial background;

Was the claimants' settlement with cargo underwriters reasonable in all the circumstances?

What was the scope of the claim that was settled?

What would have happened if a reasonable investigation had been carried out?

Did the defendant's breach of its contract with the claimants cause the settlement loss?

Did any breach by the claimants of the contract of carriage cause Grand Chene Switzerland not to be paid?

129. It is necessary at all times to distinguish between:

(1) the position as between the claimants and the defendant under the Agency Agreement;

(2) the position between NZDB and Grand Chene Switzerland under the sale contracts in respect of the two consignments;

(3) the position between Grand Chene Switzerland and Evroma under the contracts for the sub-sale of the two consignments;

(4) the position between the claimants and NZDB, Grand Chene Switzerland and Grand Chene Bulgaria under the contracts of carriage.

(5) the position under the contract of insurance with cargo underwriters.

THE COMMERCIAL BACKGROUND

130. Grand Chene Switzerland was contractually obliged to pay NZDB for the first and second consignments cash against documents, but it was not in a financial position to do so in April 1999. Grand Chene Switzerland could not, of course, expect to obtain the original bills of lading until it paid in full (in the event not until mid June). I accept Mr Goranov's evidence that trading in Georgia and Armenia was, by its nature, very high risk. Evroma and the Georgian and Armenian end-receivers required the goods in order sell the same to fund their later payments to Grand Chene Switzerland; there were no letters of credit. This explains why the agreement between Grand Chene Switzerland and Evroma provided that the latter should pay the amount due in respect of the goods within 30 days of the arrival of the goods in the port of Poti. Grand Chene Switzerland was not using the (straight) bills of lading to secure payment of the price by Evroma. Once Grand Chene Switzerland had paid for the goods and obtained the bills of lading, the latter would be forwarded to Evroma before payment was made by Evroma. When giving evidence Mr Goranov accepted that had the original bills of lading been forwarded by NZDB to Grand Chene on about 17 June 1999 and had the same been passed on to Evroma, Evroma would have had a 30 day grace period in which to pay. So far as Grand Chene Switzerland and its receivers were concerned, the last thing Grand Chene wanted was for the containers to sit at Poti for a month or two months incurring demurrage and other charges.
131. Thus Grand Chene (a) knowing that they were not in a financial position to pay for the goods (and therefore not in a position to obtain the original bills of lading); (b) not wanting the containers to sit at Poti for a month or two incurring demurrage and other charges; (c) instructed Mr Russano of Inchcapes on 16 April 1999 "proceed with the instructions sent to you [Evroma]"; (d) in the hope or expectation that, and with the intention that, Evroma/Liga Invalidov and Norarm Ltd would be allowed to collect the goods as soon as practicable after arrival at Poti. It would appear (as Mr Goranov pointed out) that NZDB shipped goods in advance of the delivery schedule. This may well have encouraged Grand Chene Switzerland in the hope or expectation that Evroma/Liga Invalidov and Norarm Ltd would be allowed to collect the goods in advance of payment by Grand Chene. There was an "exclusive contract" between NZDB and Grand Chene Switzerland (see the reference in Grand Chene Bulgaria's letter of 24.9.99) and the probability is that NZDB knew that Evroma and the Georgian and Armenian end-receivers required the goods in order sell the same to fund their later payments to Grand Chene Switzerland.

WAS THE CLAIMANTS' SETTLEMENT WITH CARGO UNDERWRITERS REASONABLE IN ALL THE CIRCUMSTANCES?

132. I answer this question in the negative for (among others) the following reasons.

(1) The settlement was not made under legal advice.

(2) Mr Blowes did not have the knowledge or experience to handle the claim in question. I refer to the highly illuminating e-mail dated 2 December 1999 disclosed by the claimants on the Friday following the third day of the trial.

(3) Mr Blowes overlooked points that ought to have been taken.

(4) Mr Blowes failed to make enquiries which he ought to have made. The questions he put to Lloyd's Claims Office were inadequate. He did not call for the file kept by Mr Neale in the ANZ-Europe Trade Division.

(5) The claimants (unreasonably) proceeded to settle the claim without first obtaining confirmation from underwriters or NZDB that NZDB had not been paid.

(6) After making appropriate allowance for the fact that the claimants were operating from several different commercial centres, the communications between Mr Blowes (London), Mr Neale (London), Mr Vermeer (Rotterdam), Mr Miller (Wellington) and Mr Hurrell (Wellington) on a critical issue – had NZDB been paid by Grand Chene Switzerland?, were inconsistent, inconclusive and contradictory. It would have been a simple matter to send NZDB and Lloyd's Claims Office a letter asking for an answer to this critical question.

(7) The very limited extent of the materials in the claims file maintained by Mr Blowes evidences how narrow his investigation of the claim was.

(8) Mr Blowes' analysis and evaluation of the claim was limited to a few hours.

(9) The superficial nature of Mr Blowes' evaluation of the claim resulted in a number of important omissions being made by him. By way of example in his contemporary note he wrote "Has the original consignee ... been in contact regarding their cargo?" It was material to ascertain whether the cargo had been released to a stranger or to the intended recipients. These and other relevant questions were not raised.

133. I would have preferred to have decided the question – Was the claimants' settlement with cargo underwriters reasonable in all the circumstances? as a preliminary issue, but neither side asked me to take this course. It seems to me that the claimants' solicitors took proper steps in an attempt to ensure that the claimants complied with their disclosure obligations. Despite this, important documents were disclosed for the first time in the course of the trial. Further I record that I have had to proceed to decide the following issues in this case without sight of critical documents including Mr Smith's file (see below) and any relevant documents (beyond those before the court) on underwriters' file and Lloyd's Claims Office's file.

WHAT WAS THE SCOPE OF THE CLAIM THAT WAS SETTLED?

134. I analyse the position as follows.

(1) I refer to the chronology set out above.

(2) In a letter dated 6 September 2002 Mr Clarke (formerly of Lloyd's Claims Office) described the claim as a straightforward "mis-delivery" claim for cargo underwriters. I emphasise the use of the word "mis-delivery". If underwriters had been told one or more of the following matters that: (a) the goods had reached the sub-buyers as Grand Chene Switzerland/Bulgaria intended; (b) Grand Chene Switzerland was not in a position to obtain the original bills of lading until 17 June 1999; (c) there was no question of the original bills of lading being used by Grand Chene Switzerland as security for payment for the goods; (d) Grand Chene Switzerland had been paid in respect of the second consignment; and (e) that Grand Chene Switzerland had paid NZDB in respect of both consignments, the claim could not have been described as a straightforward "mis-delivery" claim.

(3) The letters sent and some of the documents forwarded by Mr Clarke of Lloyd's Claims Office to Mr Blowes of the claimants suggest a loss by NZDB (see for example:- NZDB's letter of 1 September 1999 to the claimants "In our capacity as cargo owners, we must hold you as carriers formally responsible"; the letter of 19 October 1999 "This office has recently been instructed by the insurers of NZDB"; the letter of 21 October 1999 "We are acting on [underwriters'] behalf as well as NZDB's"). It is reasonable to assume that Mr Clarke forwarded all relevant documents and reflected in the letters he wrote his understanding of the nature of the claim.

(4) The reference in Mr Clarke's second letter of 21 October 1999 to "the total loss" of the 13 containers is some indication of a claim based on mis-delivery to a stranger.

(5) Underwriters obtained a subrogation form from NZDB as the insured person, not from Grand Chene Switzerland.

(6) I consider it safer to found on the contemporary documents (to the extent that these are available) as opposed to the evidence of Mr Smith and Mr Kane (the subject of Civil Evidence Act notices), which has not been tested in cross-examination. Mr Smith did not review his old file when providing witness statements nor did he exhibit relevant documents from his file to his witness statements. This is regrettable.

(7) It is unsatisfactory that the court should be asked to reach conclusions as to the scope of the claim settled without sight of Mr Smith's file and any relevant documents (beyond those before the court) on underwriters' file and Lloyd's Claims Office's file. I confine myself to the following:-

(a) Mr Blowes thought that the claim was a straightforward claim by the shipper (NZDB) and that NZDB had not been paid for the goods.

(b) As to Mr Clarke and underwriters I repeat (2), (3), (4) and (5) above. It seems to me extremely unlikely that underwriters would have paid, let alone have paid as quickly as they did, if they had been informed of some or all of the matters set out in (2) (a) to (e) above.

WHAT WOULD HAVE HAPPENED IF A REASONABLE INVESTIGATION HAD BEEN CARRIED OUT?

135. Had the claim been competently handled, the claimants would have discovered that NZDB had been paid. Mr Blowes and Mr Neale did not pursue elementary and necessary enquiries. Had they done so (assuming NZDB provided proper answers) the suggestion in the letter dated 18 August that NZDB had been paid for the goods in question would have been confirmed. Internal legal advice (and if necessary external legal advice from specialist shipping solicitors) would then have been obtained and the claim would have been competently tested. The question – did the goods reach the intended sub-buyers?, would have been asked. The relevant underlying commercial documentation including (without limitation) the sale contract between Grand Chene Switzerland and Evroma would have been called for and provided. The question – what happened in relation to the second consignment?, would have been asked and it would have emerged that Grand Chene Switzerland had been paid for the second consignment (although the defendant was equally in breach of its contract with the claimants in relation to the delivery of the second consignment). When the sale contract between Grand Chene Switzerland and Evroma had been obtained, the fact that Grand Chene Switzerland was not using the (straight) bills of lading to secure payment of the price by Evroma would have been highlighted. The reason why NZDB delayed forwarding the bills of lading for about 71 days would have been investigated. Thus the following further matters (or some of them) would probably have become known to the claimants and their legal advisers that:-

(a) the goods had reached the sub-buyers as Grand Chene Switzerland/Bulgaria intended;

(b) Grand Chene Switzerland was not in a position to obtain the original bills of lading until 17 June 1999;

(c) there was no question of the original bills of lading being used by Grand Chene Switzerland as security for payment for the goods;

(d) Grand Chene Switzerland had been paid in respect of the second consignment.

136. Once the claimants had discovered these facts (or some of them), the defendant says that the claim would not have been pursued; the claimants say that the claim would have been re-presented on a revised basis.
137. In my view once the claimants had discovered these facts (or some of them), the claim against the claimants would probably not have been pursued (on any basis) for among others the following reasons:-

(1) If (as I consider likely) the claimants had discovered that NZDB had been paid and the other matters (a) to (d) above (or some of them) before underwriters had made payment to/to the order of NZDB, underwriters would have been prompted to carry out further investigations and to question whether there was any basis for a claim against them under the contract of insurance. The probability is that the claim would not have been paid by underwriters. Grand Chene Switzerland would almost certainly not have pursued, let alone sued, underwriters (or the claimants). Grand Chene Switzerland knew that at best the claim was a "try-on".

(2) If the claimants had discovered that NZDB had been paid and the other matters (a) to (d) above (or some of them) after underwriters had made payment to/to the order of NZDB, underwriters would have been prompted to carry out further investigations and would have had to consider (a) whether the claim had been presented to them on a true basis and (b) whether there was in fact any basis for passing it on. I doubt whether any claim would have been pursued by underwriters against the claimants in these circumstances.

(3) I find that had NZMP Moscow forwarded the original documents to Grand Chene Bulgaria on about 17 June, there would probably not have been a claim against the underwriters.

138. Grand Chene Switzerland at a late stage put forward a claim, when in truth and in fact (as they well knew) there was no basis for doing so. As at the end of May 1999 there was no complaint from Grand Chene Switzerland. By 24.8.99 Grand Chene Bulgaria had not received the original documents from NZMP Moscow. Mr Goranov thought (wrongly) that NZDB had withheld the documents in order to make a claim against underwriters. Mr Goranov wanted to benefit from the claim (he wrongly assumed) NZDB had collected from underwriters. The expression "missing containers" in Mr Goranov's letter of 27 August was misleading. By mid-September Mr Goranov was seeking to use a purported cross-claim in respect of the first consignment, against a debt admittedly owed to NZMP (UK). The words in his letter dated 14 September "unknown user" and "non-existing (non-delivered) merchandise" were again misleading. Any claim by Grand Chene Switzerland was at best a "try-on", which should not have succeeded.

DID THE DEFENDANT'S BREACH OF ITS CONTRACT WITH THE CLAIMANTS CAUSE THE SETTLEMENT LOSS?

DID ANY BREACH BY THE CLAIMANTS OF THE CONTRACT OF CARRIAGE CAUSE GRAND CHENE SWITZERLAND NOT TO BE PAID?

139. In case I am wrong in my view that on balance a claim against the claimants would probably not have been pursued if a reasonable investigation had been carried out, I turn to consider what would probably have happened if after an investigation a claim had been pursued by Grand Chene Switzerland against underwriters or by underwriters against the claimants. Internal legal advice (and if necessary external legal advice from specialist shipping solicitors) would have been obtained by the claimants and the claim would have been competently tested. All the questions and other matters referred to in paragraph 136 would have been investigated (if they had not already been investigated). Thus the following matters would probably have become known to the claimants and their legal advisers (if they had not already become known to them) that:-

(a) the goods had reached the sub-buyers as Grand Chene Switzerland/Bulgaria intended;

(b) Grand Chene Switzerland was not in a position to obtain the original bills of lading until 17 June 1999;

(c) there was no question of the original bills of lading being used by Grand Chene Switzerland as security for payment for the goods;

(d) Grand Chene Switzerland had been paid in respect of the second consignment.

For these and other reasons it would have become clear that the defendant's breach of its contract with the claimants did not cause the settlement loss (or any loss).

140. Further it would have become clear that Grand Chene Switzerland did not have any valid claim against underwriters or the claimants. Any breach by the claimants of the contract of carriage did not cause Grand Chene Switzerland not to be paid by Evroma. The claimants had been instructed by Grand Chene "... kindly proceed with the instructions sent to you by [Evroma]" (see the fax of 16.4.99).
141. In his second witness statement Mr Goranov said

"... the mis-delivery led directly to the non-payment by Evroma, That company has little, if any, assets. The payment shortfall on previous shipments was minor. With this merchandise, it was total. I believe that, but for the mis-delivery, I would have been paid for this merchandise. The fact that the bills of lading were not given to Evroma and the sub-buyers in April 1999, which would not have happened but for the mis-delivery, was the main cause, or at least one of the main causes, why they behaved as they did."

142. This was inaccurate and at best contrived. Mr Goranov had to concede that the reference to April was wrong. The original bills of lading would not have been forwarded by Grand Chene to Evroma until mid June. There was no question of the original bills of lading being used by Grand Chene Switzerland as security for payment for the goods by Evroma. The fact that NZDB delayed forwarding the bills of lading to Grand Chene for about 71 days was nothing to do with the claimants. Evroma had accepted liability to pay in respect of the 14 containers (see Grand Chene Bulgaria's letter of 2 July 1999). Evroma paid for the second consignment. Grand Chene did not forward the original documents (including bills of lading) to Evroma when eventually Grand Chene received the same. As at the end of May 1999 there was no complaint from Grand Chene Switzerland. On the contrary what happened at Poti (delivery in accordance with Evroma's instructions) was precisely what Grand Chene wanted to happen. Mr Goranov's letter of 24 August 1999 provides an insight into Mr Goranov's thinking. Grand Chene Bulgaria had not by this date received the original documents from NZMP Moscow. Mr Goranov thought (wrongly) that NZDB had withheld the documents in order to make a claim against underwriters. Mr Goranov wanted to benefit from the claim (he wrongly assumed) NZDB had collected from underwriters. The expression "missing containers" in Mr Goranov's letter of 27 August was misleading. By mid-September Mr Goranov was seeking to use a purported cross-claim in respect of the first consignment, against a debt admittedly owed to NZMP (UK). The words in his letter dated 14 September "unknown user" and "non-existing (non-delivered) merchandise" were again misleading. The claim by Grand Chene Switzerland was at best a "try-on" which should not have succeeded. Instead of pursuing Evroma for payment, Grand Chene advanced a claim knowing that the delivery to Liga Invalidov and Norarm Ltd (in accordance with Grand Chene's instructions) had not caused Grand Chene any loss (because the original bills were not to be used by Grand Chene as security for payment and because of the other matters referred to above). Grand Chene should have pursued Evroma for payment.
143. Further I find that had NZMP Moscow forwarded the original documents to Grand Chene Bulgaria on about 17 June, there would probably not have been a claim against the underwriters.

CONCLUSION

144. It follows that the claimants are entitled to nominal damages only.