Scottish Court of Session Decisions

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Cite as: [1999] ScotCS 251

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OUTER HOUSE, COURT OF SESSION

A229/9/95

OPINION OF LORD GILL

in the claim at the instance of

SHETLAND SEA FARMS LTD (Claim No 71)

Claimant;

in the cause

ASSURANCEFORENINGEN SKULD

Pursuer;

against

THE INTERNATIONAL OIL POLLUTION COMPENSATION FUND and OTHERS

Defenders;

and objections by

THE INTERNATIONAL OIL POLLUTION COMPENSATION FUND; JAMES L R ROBB, BRIAN ROBB (Claim No 90) and

ALEXANDER EUNSON (Claim No 27)

Objectors:

________________

Claimant : Wylie QC; Brodies WS

Objectors : C M Campbell QC, Armstrong; Morton Fraser Commercial (for IOPCF and James L R Robb and Brian Robb) and

Scott QC, Howie; Henderson Boyd Jackson WS (for Alexander Eunson)

19 October 1999

Shetland Sea Farms Limited (the claimant) has enrolled the following motion:

"to dispense with the provisions of Rule 23.3 and in respect of the adjustments intimated to the claimants by the objectors to discharge the diet of proof fixed for 16 November 1999 and successive days."

The motion is opposed, so far as it seeks discharge of the diet of proof, by the International Oil Pollution Compensation Fund (IOPCF), James L R Robb and Brian Robb (Claim no. 90) and Alexander Eunson (Claim no. 27).

The main issues in the claimant's action against the owners and the insurers of the Braer, in which IOPCF is the minuter, are set out in my Opinion dated 10 September 1998. The sum concluded for in that action is now the subject of a claim on the insurers' limitation fund.

The proof in this case was fixed in January 1999. There is urgency in the disposal of the claims on the insurers' fund; but the Court must try to ensure that parties are not prejudiced by reason of this urgency in their preparation for the proofs.

The present objectors lodged objections to the claim in September and October 1999. Thereafter they added extensive adjustments to their objections. The adjustments were intimated for IOPCF on 24 September, for Mr Robb on 4 October and for Mr Eunson on 8 October, the last date for adjustment. In these adjustments the objectors give detailed technical reasons why they contend that the claim for loss of profits is overstated. They also set out detailed objections to the quantification of the claim and to the methodology used in the calculation.

The adjustments to the objections come late in the day. Today is the last date for the lodging of productions and witness lists. The objectors have agreed with the claimant's agents that this date should be prorogated to 26 October. That is an extension of only a week.

But the main difficulty that the adjustments have caused to the claimant is that they introduce a new line of objection, namely that the claim is fraudulent.

Part of the claim is for expenditure wasted by the claimant on the purchase of smolt which, by reason of the Exclusion Zone Order, could not be delivered. This head of the claim is calculated at £494,862.90. It is based on averments that in October 1992 and November 1992, before the Braer mishap, the claimant had entered into two contracts with Terregles Salmon Company for the purchase of the smolt at a total cost of £793,322.60 (cf. my Opinion dated 10 September 1998, supra).

It appears that in 1997, in response to a Specification of Documents, the claimant produced two letters to vouch the making of the contracts of sale. The letters bear to be dated 17 October 1992 (12/3 of Pro) and 14 November 1992 (12/4 of Pro). They are addressed by Dr J A K Elliot, managing director of Terregles Salmon Company Ltd to Mr Robert Gardiner, managing director of the claimant. The letters refer to recent telephone conversations and bear to set out the terms of the contracts.

The most outspoken allegation of fraud is in the adjustments intimated on behalf of Mr Eunson. It is in the following terms:

"Further explained and averred that the alleged contracts for the supply of smolts which the letters bearing the dates 17 October and 11 November (sic) purport to evidence were not genuine contracts negotiated at arms' length on the terms which said letters would bear to suggest. Given the common control of Ettrick, the Claimant, Terregles and Holywood, it was not the practice for contracts for the supply of smolts to the Claimant to be negotiated or entered into on an arms' length basis. Fish were simply dispatched according to availability from time to time from Terregles or Holywood to Summer Isles or the Claimant as the Managing Director of the Salmon Co. Ltd (sic), Mr Elliot or the ultimate owner of the group of companies, Mr W Baxter, thought fit. Written orders for smolt were not made. They were transferred under delivery notes. Prices at which smolt were transferred were not discussed - far less negotiated - with those managing Terregles salmon farms at Holywood and Terregles. Numbers of smolts to be transferred (and, it is believed, the price at which they were to be transferred) were determined by those having control of Ettrick - and in especial, Mr Baxter - shortly before transfer. The high mortality rates experienced at Terregles and Holywood and the suddenness with which large numbers of deaths were prone to occur effectively precluded any other course being adopted. The level of autonomy afforded to Mr Gardiner (the alleged correspondent on behalf of the Claimant in said letters) was very limited and did not extend to negotiating supply contracts with Terregles or Holywood. In truth, Mr Gardiner was not party to any such correspondence at or about the time the said documents bear to have been written. They were first sent by Terregles to the Claimant in January 1993 after the Braer casualty. They were not seen by Mr Gardiner until February of that year. He did not reply to them. Neither the telephone conversations nor the agreement to which they bear to refer had in truth occurred, as each of the Claimant and Terregles must have known, then and at the time when said documents were adduced in support of the claim now advanced by the Claimant. Said documents are calculated to convey the impression that, as at the date of the Braer casualty the Claimant had a legally enforceable obligation to purchase large numbers of smolt at a previously agreed purchase price per smolt, which impression is, and was, as Ettrick and the Claimant must have known at said dates, false. In so adducing said documents, the Claimant acted in a manner calculated to deceive those having to consider the merits of the Claimant's assertions that it had suffered the loss of the sums of £560,000 and £233,322.60 condescended upon as a direct result of the Braer casualty (including the Braer Corporation's P & I Club, Assuranceforeningen Skuld, and the IOPCF) into receiving said impression and acting in the belief that such obligation had truly existed and that said sums had been lost as a direct result of the contamination by oil from the Braer when in truth they had not. By late January 1993, it was known to the Claimant that said Club was making payment to persons who had suffered loss through the effects upon them of the Braer casualty, and the Claimant had in train the making of a claim for such a payment itself. It had sought legal advice thereanent. It is believed and averred that the said letters were deliberately backdated and thereafter fraudulently adduced as aforesaid in order to support a claim for compensation under the Statute of 1971 to which - as it knew - the Claimant is not entitled, and which, if allowed, would thus prejudice this Objector. The price of £1.40 per smolt referred to in said letters was one which was artificially high for smolts having regard to the condition of the market at the time, and the low quality and mortality rate of the s

These averments are in substance repeated in the adjustments for the other objectors. They set out a grave allegation of fraud. That allegation, if proved, would be fatal to the claim; but it could also lead to a prosecution.

If the allegation had been made in a criminal libel, those accused of it would have been given a better opportunity to consider it and to prepare their defence than would be available in this case in the short time between now and the proof.

I understand from senior counsel for the claimant that its employee Mr Gardiner, the addressee of the letters in question, has been uncooperative with the claimant's agents and has indicated that he has certain relevant documents that he is not, at this stage, prepared to release. That may necessitate a further Specification of Documents.

It is obvious that on the question of fraud there could be conflicts of interest between the claimant, Terregles Salmon Company Ltd and the persons named by the objectors as having been involved in the relevant transactions. It is in the interests of justice that those parties mentioned in connection with the alleged fraud, and their legal advisers, should have the opportunity properly to consider whether any conflict of interest exists and to take whatever action is appropriate.

For these reasons I consider that the diet of proof, which is now only four weeks away, should be discharged. I shall therefore grant the motion.

Counsel for the objectors urged me to defer a decision on the question until nearer the proof. In my view that would not be expedient. If I were to do so, the parties would in the meantime have to make expensive preparations that might in the event be futile.

Quite apart from the allegation of fraud, I think that I would have been sympathetic to the motion in view of the short time available to the claimant to respond to the detailed objections now taken to the basis of the loss of profits claim, the quantification of it and the methodology employed.