England and Wales High Court (Commercial Court) Decisions

IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT

		Royal Courts of Justice Strand, London, WC2A 2LL
		4th April 2012

Mrs Justice Gloster:

1. This is an application by defendant insurers, Aigaion Insurance Company SA ("insurers") for permission to re-amend their Defence and Counterclaim, and to adduce the witness statement of a Mr. Kardiakopoulos, which they describe as an expert's report, in support of insurers' new case.
2. The trial of this action is fixed for 14 May 2012, with an estimate of four to five days. The claim is not a large one (approximately €350,000 plus interest). All but three of the proposed re-amendments are objected to by the claimant, Elafonissos Fishing and Shipping Co ("the claimant"). That opposition is based principally on the grounds that the case sought to be pleaded has no realistic prospect of success, and/or is unsupported by the evidence. Objection is also taken to the statement of Mr. Kardiakopoulos on the basis that it is not relevant expert evidence. There was no time at the hearing before me on 23 March 2012 to deliver this judgment.
3. The claim is a claim under a policy of marine insurance ("the Policy"). The Policy provided:

"Warranted trading from 15/3/06 until 31/10/06 BDI in territorial waters of Madagascar; not north of Mahajanga, not south of Toulear.

Warranted laid up from 1/11/06 until 28/2/07 BDI in port of Mahajanga, but liberty to carry out one round trip to Diego Soares (during the lay up period) for drydocking."

4. The incident which gave rise to the claim occurred in December 2006, when the fishing vessel "Agios Spyridon" ("the Vessel") allegedly suffered loss whilst it was laid up at anchorage in Mahajanga, Madagascar. Proceedings were begun by the claimant in January 2011. Paragraphs 4 - 6 of the Particulars of Claim plead as follows:

"4. On the 25^th December 2006 the vessel was lying at anchor in a laid up condition at Mahajanga (Majunga), Madagascar. At about 1430 hours the cyclone 'Bondo' reached the port bringing with it rough seas and strong winds. At about 1515 hours, under the influence of the weather, the vessel started to drift from her anchorage inland towards Mahajanga. A second anchor was dropped and the master tried unsuccessfully to contact local authorities for assistance. The vessel continued to drift under the force of the weather until she hit the quayside at the port, initially with her bow and then with her port side. The vessel also repeatedly touched bottom.

5. At about 1630 hours, as a consequence of distress calls made by the master on the vessel's VHF, the vessel 'SAINT RAPHAEL' arrived and with the use of a heaving line device was able to tow the vessel away from the quay. At 1800 hours the vessel was safely moored.

6. As a result of the matters aforesaid the vessel suffered damage, her rudder became misaligned and her right anchor was lost and the Claimant was put to costs of €253,842.54 plus VAT OF €29,784.53."

5. In their initial Defence, insurers pleaded a breach of warranty, arguing that the Vessel was not "laid up in port". At the case management conference on 7 October 2011, Burton J allowed the Defence to be amended to include a defence of material non-disclosure, in that, amongst other things, the claimant had not disclosed to insurers that the vessel would be lying at anchor, as opposed to inside the confines of the port.
6. Insurers received the claimant's disclosure on 1 December 2011.
7. Mediation took place on 11 January 2012. Subsequent discussions took place between the parties to try and conclude a settlement. A settlement was not reached. Insurers served its expert reports, along with the proposed Re-Amended Defence and Counterclaim, on 7 March 2012.
8. In their initial Defence, insurers pleaded a breach of the "laid-up" warranty, contending saying that the Vessel was not laid up in port in "the customary meaning of the term". Burton J allowed them to amend that Defence to contend that, in accordance with the customary meaning of the term, "laid up" between certain dates required the vessel to be laid up inside a safe port, safely moored at a berth, and/or other laid-up vessels, with a watchman on board, and/or, according to Class, following: a) the making of an application for a lay-up to the Vessel's Classification Society; and b) a certificate of lay up being issued by the Vessel's Classification Society: see paragraph 5b of the Amended Defence.
9. By the proposed Re-amended Defence, insurers seeks to make various re-amendments which fall into four different categories. They were summarised by Mr. Michael Nolan, counsel for the claimant, as follows:

i) an allegation that, on its true construction, the expression "warranted laid up from 1/11/06 until 28/02/07 BDI in port of Mahajanga" was a warranty by the claimant that the Vessel would be "in hot lay up" (an expression said to have a customary meaning) during that period, and that there was a breach of that warranty because:

a) the Vessel was unmanned;

b) with at least her main engine and probably her auxiliary engine, inoperable;

c) there had been no notification of hot lay up to her Classification Society or Flag State;

ii) an allegation that the Vessel was not "laid up in port or at all" because she was not laid up according to Class in that no notification for lay up had been given to Class, and no lay up certificate or other evidence of agreement had been issued by Class permitting manning below the safe manning certificate limit: see paragraph 5c of the proposed Amended Defence;

iii) an allegation that, on its true construction, or by virtue of an implied term, the warranty that the Vessel would be "laid up in port of Mahajanga" was one that the Vessel would be laid up in accordance with the port regulations and that such regulations would be complied with and that the claimants were in breach of those regulations in various respects: see paragraphs 2Ba and 5d;

iv) an allegation that, on its true construction, or by virtue of an implied term, the warranty that the Vessel would be "laid up in port of Mahajanga" was one that the Vessel would be laid up in a seaworthy condition and that the Vessel was not seaworthy because her main engine was not working: see paragraphs 2Bb and 5e;

v) an allegation that, insofar as the salvors have claimed common law salvage that is not a charge, expense or sacrifice incurred by the claimant: see paragraph 12;

vi) an allegation that the Greek court would have awarded the salvors of the Vessel about €20-25,000: see paragraph 10;

vii) the deletion of the previous allegations as to:

a) the customary meaning of "laid up" as being laid up inside a safe port, etc, as previously pleaded in paragraph 5b; and

b) as to non-disclosure, neither of which cases is now pursued;

viii) the substitution of a counterclaim for damages for breach of an exclusive jurisdiction clause.

10. Mr. Nolan indicated that the claimant does not object to the salvage allegation, the deletions to the existing Defence, or the substitution of the counterclaim, so long as:

i) the claimant has permission to make consequential amendments within 14 days;

ii) the claimant has permission to adduce any further evidence in respect of the salvage allegation and the substituted Counterclaim within 28 days;

iii) the costs of and occasioned by the amendments be paid by insurers in any event;

iv) that any costs incurred in relation to the allegations as to the customary meaning of "laid up" and as to non-disclosure be the claimant's in any event.

11. The relevant principles governing the making of amendments were not in dispute. These can be summarised as follows:

i) Amendments in general ought to be allowed so that the real dispute between the parties can be adjudicated upon, provided that any prejudice to the other party caused by the amendment can be compensated for in costs, and the public interest in the administration of justice is not significantly harmed: per Peter Gibson LJ in Cobbold v Greenwich LBC (unreported) 9 August 1990 referred to in Supreme Court Practice at 17.3.15.

ii) However, an application for permission to amend will be refused if it is clear that the proposed amendment has no prospect of success: ibid at 17.3.6.

iii) Given the purpose of the statement of truth, a party will not be permitted to raise by amendment an allegation which is unsupported by evidence: ibid at 17.3.6 and Clarke v Marlborough Fine Art [2002] 1 WLR 1732 at [19] to [21].

iv) Any amendment should be sufficiently precise to enable the other party to know the case it has to meet, particularly where it is made close to trial.

12. Miss Liisa Lahti, on behalf of insurers, referred in addition to paragraph 158 of the speech of Lord Hobhouse of Woodborough in Three Rivers District Council v Governor and Company of the Bank of England [2001] UKHL 16, as to the meaning of "realistic prospect of success". She submitted that, on the evidence, the re-amendments arose out of information received by insurers as part of the claimant's disclosure, and the result of insurers themselves further concentrating on their expert evidence after the CMC. She submitted that, in circumstances where the claimant was not asserting that any prejudice would be suffered by it as a result of the proposed amendments, the balance lay in insurers' favour, and that accordingly leave to re-amend should be granted. She submitted that, if the re-amendment were not allowed, insurers would not be able to put forward their true defence and would not, in any real sense, have access to justice. Therefore, the prejudice to insurers if the amendment were not allowed was great. By contrast, she submitted that, if the re-amendment of the Defence and Counterclaim were allowed, the claimant would simply need to obtain limited additional factual evidence from its existing witnesses, and, if it considered it appropriate to do so, limited additional expert evidence.
13. I approach this late, albeit not extremely late, application for permission to amend on the basis that, if I consider that the amendments have a realistic prospect of success, I will allow them, and that, if not, I shall not do so. This is not a case where the claimant can point to any real prejudice if the amendments were to be allowed. However, given the relatively small amount at stake in this case, and the considerable costs which no doubt have been incurred to date, it seems to me that this is a case where the court should scrutinise the proposed re-amendments in some detail to establish that they do indeed satisfy the test of demonstrating a prospect of success.
14. I am not going to allow the proposed re-amendments as set out in paragraphs 1A, 2A, 2Bb and 5a, c and e of the proposed Re-Amended Defence and Counterclaim. I take the view that the new case alleged has no realistic prospect of success, is unsupported by evidence, and, in any event, is insufficiently precise.
15. The first component of the allegation is that the terms "hot lay-up" and "cold lay-up" had customary meanings. No evidence was adduced to establish that either of the parties, or those involved in the marine insurance industry, used either term in relation to this sort of insurance, notwithstanding that the terms "hot lay-up" and "cold lay-up" have an accepted, if imprecise and ill-defined meaning in the shipping industry. Secondly, the allegation that the terms "hot lay-up" and "cold lay-up" had the specific meanings as alleged in the Re-Amended Defence and Counterclaim, is simply not supported by the evidence, as Mr. Nolan pointed out. The evidence produced in the form of Mr. Kardiakopoulos's witness statement contained the following passage:

"I am attaching to this report, as examples, the 'Guidelines for the Lay-Up of Ships' issued by Det Norske Veritas ('DNV') and the China Classification Society ('CCS'), both members of IACS, … to which I will refer herein. I should mention that I was not able to find any similar guidelines issued by the HRS (which is not an IACS member) but believe that they would apply similar standards, which are industry wide."

16. Whilst it is clear from that evidence, and the exhibits to which Mr. Kardiakopoulos refers, that "hot lay-up" and "cold lay-up" have general meanings, it is impossible, from the material which he exhibits, to establish that "hot lay-up" or "cold lay-up" respectively have specific customary meanings, or that there is a single customary understanding as to their meaning. Both of the sets of guidelines attached to his report make it absolutely clear that they are only guidelines, and are not classification requirements. The CCS guidelines say they may be modified to suit the vessel concerned, or the lay-up area concerned, and the DNV guidelines say they may be displaced by the requirements of other authorities or equipment manufacturers. The sets of guidelines differ, depending on whether the lay-up is for less than one month, less than three months, or less than a year. In the present case, the warranted lay-up was for a period of four months. In such circumstances, according to the CCS guidelines, hot lay-up for up to twelve months was suitable for one week's reactivation time. Cold lay-up, on the other hand, where the machinery is taken out of service, and the vessel is kept "electrically dead", with the exception of emergency power, usually implied "three weeks reactivation time or more, depending on the level of preservation and maintenance during lay-up". The CCS guidelines go on to provide (paragraph 1.3.3) that

"… the level of preservation is mainly decided based on the age and value of the ship and the most likely reactivation scenario, ie ship returning to normal trade, ship sailing to repair yard or scrap yard."

17. In the DNV guidelines on lay-up, "hot lay-up" is defined:

"In this lay-up condition, the machinery is kept in operation for the sake of fast recommissioning, but measures may be taken to reduce various operational costs."

Hot lay-up for up to three months envisaged one week recommissioning time. Cold lay-up, was defined as follows:

"In cold lay-up condition, the machinery is taken out of service, and the vessel is kept electrically dead with the exception of emergency power. This condition usually implies three weeks commissioning time or more, depending on the level of preservation and maintenance during lay-up. The level of preservation is mainly decided based on the age and value of the ship and the most likely recommissioning scenario."

18. Thus it can be seen that the sets of guidelines differ. DNV has different guidelines depending on whether the lay-up is for less than a month, less than three months or less than a year, whereas CCS has different guidelines depending on whether the lay-up is for up to one month or up to 12 months. CCS says that the Flag State and/or CCS should be notified if a vessel is planned to be in hot lay-up for between one to 12 months; DNV says that notification should be given to Class and the Flag State, if the vessel is to be laid up for more than three months.
19. I conclude that insurers have no realistic prospect of establishing that "hot lay-up" has a customary meaning imposing customary requirements as to notification or as to engine recommissioning time. The evidence shows that its effect differs between Classification Societies. I cannot see that insurers have any realistic prospect of establishing that the term hot lay-up has a customary meaning and imposes customary requirements, on the basis of the evidence which Mr. Kardiakopoulos adduces, or the exhibits to which he refers.
20. More importantly, the third element of the allegation is that, on its true construction, the warranty that the Vessel would be "laid up from 1/11/06 until 28/02/07" was one which was subject to the implied term that the Vessel would be laid up in "hot lay-up" (whatever that term might mean). I can see no basis upon which insurers will succeed at trial in establishing that the warranty should be construed as being subject to such an implication. There is no commercial necessity to imply a term to the effect that the Vessel would be laid up in hot lay-up. Nor is such a term sufficiently certain to satisfy the requirements for implication. This conclusion is fatal to insurers' proposed re-amendments in relation to hot lay-up.
21. Likewise, the fourth element of the allegation, namely that the Vessel was not in hot lay-up because she was unmanned and her main engine inoperable, without there having been a notification of hot lay-up to the Vessel's Class or Flag State, is again impossible to support on the evidence before the court. The claim cannot succeed in the absence of evidence to support the allegation of a customary meaning of the term "hot lay-up", and the imposition of customary requirements for a vessel in hot lay-up.
22. The second type of allegation appears to be that proposed in paragraph 5c of the proposed Re-Amended Defence and Counterclaim, namely that the Vessel was not laid up according to Class, in that no notification for lay-up had been given by the claimant to the Vessel's Classification Society. It appears from Miss Lahti's argument at the hearing before me that paragraph 5c was dependent on the hot lay-up allegation. In such circumstances, I am not going to permit it to proceed by way of re-amendment. If, and so far as, it is a relic of the previous pleading at paragraph 5B, that the customary meaning of the term "laid up in port" was that the Vessel would be laid up according to Class following the making of an application for lay-up to the Vessel's Classification Society, and a certificate of lay-up being issued by Class, that allegation has now been deleted. It appeared from the argument that the allegation is either dependent upon the hot lay-up allegation, which I am not permitting to proceed, or on the already abandoned allegation in paragraph 5b. If, contrary to my understanding, the allegation is indeed intended to be a free-standing allegation, not dependent upon either of those two cases, then the proposed re-amendment will need to be reformulated in clear terms, and permission sought from the trial judge to re-amend.
23. The third series of proposed amendments is the allegation that the expression "laid up … in port of Mahajanga" was a warranty that the Vessel would be laid up in accordance with port regulations, and that all such regulations would be complied with. It is then alleged that there was a breach of that warranty in the respects listed in paragraph 5d. Mr. Nolan realistically accepted that it was arguable that the warranty implicitly amounted to one that the Vessel would be laid up in accordance with the regulations of the relevant port, but argued that the allegation that the warranty was one that "all such regulations [of the port] would be complied with", as pleaded in paragraph 2Ba went far too far. He submitted that, if such a wide term was to be implied, the effect would be that underwriters would be discharged from liability under the policy because of one minor breach by a crew-member of a port regulation as to say, littering, or the discharge of slops overboard. Accordingly, he submitted that the phrase in paragraph 2Ba and the phrase in paragraph 5d "and/or did not comply with such port regulations at all times" in paragraph 5D should not be allowed.
24. Whilst I see the force of this argument, given that the pleading as to a warranty that the Vessel would be laid up in accordance with the local port regulations is going to go forward to trial in any event, I have concluded that I should permit the allegation to be pleaded as it stands. Indeed, the pleading can be construed as referring not to all port regulations, but only to those regulations applying specifically to lay-up. In those circumstances, I propose to give leave to re-amend in the terms of paragraphs 2Ba and 5d.
25. I am also going to permit the remainder of the allegations made in paragraph 5d(i)-(iv). Mr. Nolan's complaints were the absence of evidence about certain aspects, but I am satisfied that these are matters which should properly be argued at trial.
26. The next proposed allegation is one that, in breach of the alleged implied warranty that the Vessel would be laid up in a seaworthy condition (see paragraph 2Bb of the proposed Re-Amended Defence and Counterclaim), the Vessel was not laid up in a seaworthy condition, as pleaded in sub-paragraph 5e. I consider that this proposed re-amendment has no realistic prospect of success. In fact, Ms. Lahti did not attempt to persuade me to the contrary. Section 39(5) of the Marine Insurance Act 1906 provides:

"In a time policy, there is no implied warranty that the ship shall be seaworthy at any stage of the adventure, but where with the privity of the assured the ship is sent to sea in an unseaworthy state, the insurer is not liable for any loss attributable to unseaworthiness."

27. The proviso does not apply here, since there is not an allegation that the Vessel was sent to sea in an unseaworthy condition, rather that is was not laid up in a seaworthy condition, because it is alleged that the main engine was not operational. Accordingly, I disallow this proposed re-amendment.
28. I am going to permit the amendment in relation to paragraph 12 of the Defence, as it really takes the matter no further.
29. I turn now to consider Mr. Kardiakopoulos's evidence. Much of Mr. Kardiakopoulos's evidence appears to be his summary of other factual material and evidence. Such evidence is not expert evidence. I am, however, going to allow insurers to use Mr. Kardiakopoulos' statement to adduce the evidence set out on page 27 of the bundle, that is to say, the passage beginning: "According to the documentation provided to me …" going over to the end of sub-paragraph i) on page 29 of the bundle. There Mr. Kardiakopoulos summarises certain evidence given in other proceedings which, for evidential reasons, rather than for expert reasons, insurers may wish to adduce in evidence.
30. I am not going to permit the witness to give evidence in relation to cold lay-up or hot lay-up. I will, despite certain unsatisfactory features to which Mr. Nolan has referred, permit insurers to refer to the evidence that Mr. Kardiakopoulos gives under question 2, namely "what are the requirements of the port regulations at the port of Mahajanga to be followed by vessels when they are laid up in port?".
31. Although I have serious doubts as to its admissibility at trial, and without prejudice to the trial judge's conclusion as to whether to admit such evidence, I am going to permit the insurers to adduce the evidence set out in response to Mr. Kardiakopoulos's questions 3 and 4, and his conclusions and summary, insofar as they apply to the issue as to what were the relevant requirements of the port regulations at the port in relation to lay-up and the extent to which they were breached. The problem is that at present they are interspersed with Mr. Kardiakopoulos's comments about other evidence and his views on that other evidence, which are not admissible. They are also mixed up with his conclusions based upon his analysis of hot lay-up as opposed to cold lay-up requirements. The judge at trial will have to sort out the extent to which such evidence is admissible, but for the time being, given the small amount involved in this claim, I am going to allow the evidence at least to be tendered.
32. Accordingly, I invite the parties to submit an order for my approval which reflects the above judgment. Insurers are to pay the costs of and incidental to this application to amend. They are also to pay the costs of and occasioned by the amendments, and any costs incurred in relation to the allegations as to the customary meaning of "laid up", and as to non-disclosure, being those allegations which have now been deleted from the proposed Re-Amended Defence and Counterclaim.