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You are here: BAILII >> Databases >> Scottish Court of Session Decisions >> Shetland Sea Farms Ltd & Ors v Assuranceforeningen Skuld [2001] ScotCS 178 (4 July 2001)
URL: http://www.bailii.org/scot/cases/ScotCS/2001/178.html
Cite as: 2004 SLT 30, [2001] ScotCS 178, 2004 SL 30
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OUTER HOUSE, COURT OF SESSION |
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A229/9/95
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OPINION OF LORD GILL in the claim at the instance of SHETLAND SEA FARMS LIMITED (Claim No. 71) Claimant; against ASSURANCEFORENINGEN SKULD Pursuer; and THE INTERNATIONAL OIL POLLUTION COMPENSATION FUND and OTHERS Defenders; and objections by THE INTERNATIONAL OIL POLLUTION COMPENSATION FUND; JAMES L. R. ROBB and BRIAN ROBB (Claim No 90) and ALEXANDER EUNSON (Claim No 27) Objectors: ________________ |
Claimant: Wylie, Q.C., Bowie; Brodies, W.S. (for Harper Macleod, Solicitors, Glasgow)
Objectors: C. M. Campbell, Q.C., I. G. Armstrong, Q.C.; Morton Fraser, W.S. (for IOPCF, James L R Robb and Brian Robb) and
Scott, Q.C., Howie, Q.C.; Henderson Boyd Jackson, W.S. (for Alexander Eunson)
4 July 2001
I Procedure to Date
1. This is one of the largest of the Braer claims. The claimant has been paid about £2.78 million in compensation. The present claim relates to one specific item of claim that the Braer Claims Office refused to accept.
2. The case began as one of the many actions raised against The Braer Corporation, the owner of the Braer, and Assuranceforeningen Skuld (Skuld), the insurer, in December 1995. In the action the claimant sued Skuld for compensation under section 1 of the Merchant Shipping (Oil Pollution) Act 1971 (the 1971 Act) in the sum of £2,018,303. The Braer Corporation and Skuld defended the action. The International Oil Pollution Compensation Fund (IOPCF) entered the process as minuter and lodged a full defence.
3. The action was brought under three heads. The first was a claim for £1,937,712 for wasted expenditure and loss of profits. This was based on an averment that at the date of the Braer mishap, the claimant had entered into contracts in October and November 1992 with Terregles Salmon Company Limited (Terregles) for the purchase of smolts with delivery in January and March 1993 respectively, and that in consequence of the designation of the Exclusion Zone, the claimant was unable to take delivery of the smolts and to grow them into harvestable fish. The second head of the claim was for £60,000 for damage to salmon cages caused by oil contamination. The third was for legal fees incurred by the claimant to Harper Macleod, solicitors, Glasgow. This was based on a block fee note for £20,591 submitted to the claimant by Harper Macleod.
4. In my Opinion dated 10 September 1998 I dealt with questions of relevancy arising from the first and third heads of the claim (cf Shetland Sea Farms Ltd v The Braer Corporation, 1999 SLT 1189).
5. After the 1995 actions were raised Skuld raised limitation proceedings under the 1971 Act. It paid its limitation fund into court and was exonered and discharged. I then made an order for claims on the fund. The Practice Note of 15 May 1999 directed that all procedure in the existing actions should cease and that the claims for compensation made in those actions should be pursued thereafter by means of claims on the limitation fund.
6. The claimant then renewed the claim made in the 1995 action. Skuld had no interest to object to the claim, but objections to it were lodged by the present objectors in September and October 1999. These were adjusted soon after by the addition of an objection that the claim was fraudulent.
7. This new objection was to the general effect that the claim in its original form had been based on fabricated documents purporting to record the making of contracts between the claimant and Terregles and that one of the claimant's directors, Mr William Baxter, and the claimant's financial controller, Mr Basil Baird, were implicated in the fraud. I shall refer to the pleadings in detail later.
8. On 19 October 1999, on the motion of the claimant, I discharged the diet of proof that had been fixed for 16 November 1999. My principal reasons were that the claimant should have a proper opportunity to prepare its response to this new and serious allegation and that those parties mentioned in connection with the alleged fraud, and their legal advisers, should have a proper opportunity to consider whether any conflict of interest existed and to take whatever action was appropriate (cf Assuranceforeningen Skuld v IOPCF, 1999 GWD 35-1662).
9. After the diet was discharged, the claimant deleted the claims for damage to cages and for the amount of Harper Macleod's fee note, and restricted the major claim, for wasted expenditure and loss of profits, to £1,428,891.12. The claimant pled this claim on a new basis. It no longer averred that it entered into contracts with Terregles in October and November 1992. Instead, it now averred that in or about August 1992 Mr Baxter, who was a director of both the claimant and Terregles, determined on behalf of both companies that all smolts produced by Terregles in January and March 1993, the numbers of which were specified, would go to the claimant's sites in Shetland and would be paid for at a specified price. The claimant averred that it had subsequently paid for the smolts on that basis.
10. The objectors then argued that because the claimant had fundamentally revised the basis of the claim, the claim had prescribed. On 2 June 2000 I repelled that plea (cf Assuranceforeningen Skuld v IOPCF, 2000 GWD 21-839).
11. After this significant change had been made to the claimant's case, the objectors persisted in their plea.
II The preliminary proof
12. Since counsel for the objectors argued that the plea of fraud could be fatal to the claim and since it appeared that the evidence on that issue could be separated from the evidence on the other questions in the case without undue difficulty, I appointed a preliminary proof on 9 June 2000 on the following questions:
"(a) whether a responsible officer, or responsible officers, of the claimant knowingly presented to the Court false documents, namely numbers 12/3 and 12/4 of process, in support of its claim for compensation, and (b) if so, whether as a result the claim should be refused without further procedure."
This was the agreed formulation of the questions put forward by counsel for the parties.
13 Since the submissions of counsel for the objectors have strayed beyond the narrow scope of question (a), I should point out that in my consideration of that question I am not concerned to decide whether Mr Baxter made the determination on behalf of both Terregles and the claimant to which I have referred, or, if he did, whether that determination had contractual effect.
14. I agree with senior counsel for the claimant that the scope of this proof is such that there can be no enquiry at this stage into the merits of the claimant's revised case, nor into the calculation of the claim, nor into questions of mitigation of loss: but I do not accept his submission that it is beyond the scope of the proof to look at the relationships between the companies in the group of which the claimant and Terregles were members and to the administrative arrangements governing their transactions with one another. In my view these matters have a significant bearing upon the question whether Mr Baxter and Mr Baird acted honestly when they presented the claim in its original form.
15. The first question in the preliminary proof turns to a great extent on the evidence of Mr Baxter and Mr Baird, and their former colleagues Mr Robert Gardiner and Dr J A K Elliott. Dr Elliott left the employment of Terregles in acrimonious circumstances in December 1994. He is now engaged in fish farming in New Brunswick, Canada. On the motion of the objector Mr Eunson, I appointed that Dr Elliott's evidence should be taken on open commission at St. Andrews, New Brunswick. In view of the importance of his evidence, and at the suggestion of counsel, I conducted the commission myself.
III The Ettrick Trout Group
The Ettrick Trout Company Limited and the group structure
16. At the relevant dates in this case the claimant was one of a group of companies of which the parent company was Ettrick Trout Company Limited (Ettrick). Mr Baxter owned 7999 of the 8000 issued shares in Ettrick. Ettrick controlled the subsidiaries.
17. The operations of the companies were vertically integrated. Terregles was one of the group. Terregles bought salmon ova and grew them on at two sites in Dumfriesshire, at Terregles and at Holywood. At the Terregles site, the ova were taken to the fry or parr stage. They were then transferred to the Holywood site and grown to smolts. The smolts were then transferred to seawater cages at Shetland and at Achiltibuie.
18. The Shetland cages were operated by the claimant at five sites on the west side of the south mainland. The Achiltibuie cages were operated by Summer Isles Salmon Company Limited (Summer Isles). The claimant and Summer Isles were members of the group.
19. When the fish were harvested, they were marketed by Scotfish Supplies Limited (Scotfish), another member of the group, whose office was at Bellshill.
20. The administration of the companies within the group was carried out from the Bellshill office.
21. Mr Baxter was the dominant, and in my view domineering, figure in the affairs of the group. His was the controlling mind of the parent company and of each of the subsidiaries. The group had no chief executive. When giving evidence Mr Baxter could not remember whether he was managing director of Ettrick or a director of Scotfish. His forgetfulness on such technicalities indicates how he regarded the group as a one-man business, which for all practical purposes it was. Mr Baxter's was a "hands-on" management style. He took all decisions of any significance. His colleagues had little or no discretion. On every issue, he had the final say. Mr Baxter was not a satisfactory witness. I did not regard him as credible on any of the crucial issues of fact.
22. Mr Basil Baird, B Acc, CA, was the financial controller and company secretary of Ettrick and of each of the subsidiaries. He was a salaried employee of Ettrick. His remuneration was not profit-related. He was one of the directors of Ettrick, the other being Mr Baxter. He was based at the Bellshill office. Mr Baird joined the group in 1991 when he was about 27 years old. By the date of the Braer incident, he had been with Ettrick for about 13 months. When Mr Baird arrived, the group was in difficulties. Borrowings had risen from £300,000 to £1.5 million. There was no proper system of management accounting. Mr Baird seems to have introduced effective accounting systems and financial controls. He was at the centre of the administration system of the group. He prepared management accounts for each of the companies. He also prepared invoices recording inter-company sales of smolt. He was familiar with the documents that routinely recorded inter-company transactions and would have recognised if any such document was unusual or irregular. When it came to decision-making, however, Mr Baird was a cipher. He described Mr Baxter as a "secretive" person who told him only what he wanted him to know. He referred to Mr Baxter as "the boss" and agreed that there had never been an occasion or an issue on which his will had prevailed over Mr Baxter's. Mr Baird was not a satisfactory witness. There were important parts of his evidence that I did not believe.
23. Mr Roderick McKenzie, a partner in the firm of Harper Macleod, was solicitor to the companies in the group. In relation to the companies' legal affairs he dealt directly with Mr Baxter. Mr McKenzie advised Mr Baxter in relation to the claim and in relation to a litigation by Terregles against the claimant that I shall mention later.
24. At the time of the Braer mishap, the financial position of the Ettrick group was still insecure. The group had recently changed from contract rearing to the production of its own fish. This made heavy financial demands on the group and caused concern to its bank.
Terregles Salmon Company Limited
25. In 1992-1993 there were two directors of Terregles, namely Mr Baxter and Dr Elliott. Mr Baxter was chairman. Dr Elliott was managing director. Dr Elliott had about 15% of the shares in the company. The rest were held by Ettrick.
26. Dr Elliott's principal responsibilities were to supervise the rearing of the smolts; to prepare them for transfer to the seawater sites; to arrange their transportation with the managers at those sites; to keep routine records of feeding, mortalities and stock movements and to keep the stock inventories up to date.
27. Certain records were sent to Mr Baird each month for stock insurance purposes and for the preparation of management accounts. Mr Baird and Dr Elliott communicated with one another by telephone and by fax; but they met only once, at what Mr Baird described as the one and only managers' meeting that Mr Baxter ever held.
28. Despite his status as managing director of Terregles, Dr Elliott had no authority to enter into contracts on behalf of Terregles for the sale of smolts. He was not involved in fixing the prices or any of the other terms on which sales by Terregles to the claimant or Summer Isles were effected. Mr Baxter made important decisions without reference to him. Mr Baxter's decision that Terregles would be paid for the smolts to which this case relates and that the claim would be pursued in the name of the claimant was conveyed to Dr Elliott as a fait accompli.
29. In natural conditions, parr smoltify around April and May in reaction to the increasing daylight. They then migrate to the sea. Terregles produced smolts outside this period by using an artificial lighting process known as photo-period manipulation and by keeping the fish at a constant temperature in water drawn from boreholes. By these means Terregles could deliver smolts to the sea cages between October and March.
30. After about 1990 Terregles sent all of its smolt production to the claimant and to Summer Isles. Mr Baxter planned Terregles' production. After discussion with Dr Elliott he decided on the production targets and had orders placed for the ova. Mr Baxter monitored the inventories at the hatcheries and at the seawater sites in order to match the expected smolt output with the expected capacity in the sea cages. While the ova were being grown to smolts he decided, after discussion with Dr Elliott, when and in what numbers the smolts would be sent to the seawater sites. Deliveries were planned months in advance. They were subject to many contingencies. Even after Mr Baxter had decided to send a certain quantity of smolts to the claimant or to Summer Isles, he could change his mind and send it to the other if it had space available.
31. The only formal record of these transactions, other than subsequent invoices, were handwritten delivery notes kept in a triplicate book by Terregles. One copy of each delivery note went to the Bellshill office, one went to the seawater site along with the smolts and one was retained by Terregles.
Shetland Sea Farms Limited and Summer Isles Salmon Company Limited
32. The claimant and Summer Isles were wholly owned by Ettrick. Mr Baxter was the sole director of both.
33. Smolts were transported to Summer Isles by road. They were transported to the claimant by road to Cairnryan and from there by wellboat or fishing vessel to Shetland. There were invariably mortalities after the smolts were put into the sea cages. The rate was high when the smolts went into seawater outwith their natural season. The Terregles smolts were particularly vulnerable because they were produced by the photo-period method and because they were smaller than normal. The Terregles consignments often contained a high proportion of parr, which could not survive in seawater.
34. After about 1990 Mr Robert Gardiner was the manager of the claimant's sites. Mr Gardiner was not involved in decisions as to the numbers of smolts that would be sent to Shetland. Mr Baxter notified him of the quantities that he would be receiving. Mr Gardiner kept in touch with Mr Ronnie Graham, the manager of Terregles' Holywood site, and to a lesser extent with Dr Elliott, on practical matters in connection with transfers of smolts to Shetland. Mr Gardiner prepared the nets for each delivery. He did not discuss with Mr Graham or Dr Elliott the amounts of stock that would be transferred from Terregles to the claimant's sites or the price at which such transfers would be made.
35. Before the Braer incident Mr Gardiner had never entered into any contract with Terregles on behalf of the claimant. He had no authority to order smolts from Terregles, or to negotiate the terms of any contract between the two companies.
Inter-company sales of smolt
36. Before the Braer incident there was no written contract governing any sale by Terregles to the claimant or to Summer Isles.
37. The price in such transactions was not set in open market conditions. It was decided by Mr Baxter. The general price level was reviewed from time to time by reference to open market sales; but in each case Mr Baxter made the final decision as to the price at or after the date of delivery when Mr Baird could assess the production cost with reasonable accuracy. In fixing the price Mr Baxter would check that the production cost was not out of line with the market value. But even after he had fixed the price, he could change his mind.
38. In every case the price payable by the recipient company was assessed on the number of fish that survived for 28 days after delivery.
39. Mr Baird or his book-keeper made out invoices for these transactions, but all invoicing was subject to Mr Baxter's approval. The invoices were not seen by the management at Terregles or at either of the seawater sites. All invoicing was done at least 28 days after delivery when the number of mortalities had been ascertained.
40. Payment was effected by transfer of the price at a time decided by Mr Baird. Mr Baird took into account cashflow considerations affecting the individual companies with a view to minimising the group's overall interest burden.
IV The planning of the 1993 production
41. Although it is beyond the scope of this proof for me to decide whether Mr Baxter concluded an agreement between Terregles and the claimant in or about August 1992, his evidence on the point has a bearing on the question whether he had dishonest intent when he was involved in the submission of the claim on its original basis. For that limited purpose, the evidence is relevant to the first question in the preliminary proof. I shall therefore summarise Mr Baxter's evidence on the point.
42. According to Mr Baxter, by 1992 the Summer Isles site had been in continuous production for about ten years. It was experiencing problems of parasitic disease, poor growth and mortalities. In about July-August 1992 Mr Baxter decided to fallow the site. Smolts that would have gone to Summer Isles therefore had to go to the claimant. In the latter half of 1992 he made a plan that in January and in March 1993 Terregles would make deliveries to the claimant of 200,000 and 400,000 smolts respectively at a price of £1.40/smolt. He decided on these numbers after a discussion with Dr Elliott around October 1992. He contemplated that the claimant would not have to pay for mortalities occurring within 28 days after delivery. The price would be finalised at the time of delivery in the light of the known production costs and the open market price. Payment would be effected on dates to be decided by Mr Baird. The whole plan was subject to Terregles' having smolts in such numbers at the delivery dates and to the overriding qualification that Mr Baxter could change his mind on any point at any time.
43. Whether or not this account is consistent with the revised version of the claimant's pleadings, which I shall quote later, is not a question that has to be decided at this stage.
V The grounding of the Braer and its aftermath
44. The Braer grounded on 5 January 1993. On 8 January 1993, and with effect from that date, the Food Protection (Emergency Prohibitions) (Oil and Chemical Pollution of Fish) Order 1993 (S I No 17) prohibited inter alia fishing and the taking of fish in, and the movement of fish out of, a designated area of water round southern Shetland known as the Exclusion Zone. This Order disrupted the claimant's business. On 27 January 1993, and with effect from that date, the Order was revoked and superseded by the Food Protection (Emergency Prohibitions) (Oil and Chemical Pollution of Fish) (No 2) Order 1993 (S I No 143) which extended the Exclusion Zone. This Order remained in force, so far as it applied to farmed salmon which smolted in 1993, until 8 December 1993 (Food Protection (Emergency Prohibitions) (Oil and Chemical Pollution of Fish) (No 2) (Partial Revocation No 2) Order 1993 (S I No 3058)).
45. The Shetland oil spill put Terregles in a difficult position. It was holding a large stock of smolts that had been expected to go to the sea cages at Shetland but could not now be sent there. Terregles' hatcheries were overstocked, with consequent effects on the health of the stock. The smolts could not be kept in fresh water much longer. Unless other outlets were found, they would have to be slaughtered. Terregles had little prospect of finding a buyer on the open market for any of the smolts at short notice. Mr Baxter and Mr Baird at once appreciated that the financial position of the group was imperilled by the mishap.
46. At the date of the incident, no document existed vouching any contract between Terregles and the claimant for the sale of smolts in January or in March 1993.
47. Immediately after the grounding Mr Baxter telephoned Dr Elliott and told him that he was taking legal advice and would be making a claim. He instructed Dr Elliott to carry out a full stock-taking at both of the Terregles sites. He instructed Mr Gardiner to keep a diary of events. He gave Mr Baird responsibility for collating the documentation that would vouch the claim. At this stage it was open to Mr Baxter to support the claim by drawing up a minute recording the plan that he said that he made in the latter half of 1992. He said that this possibility did not occur to him. Instead, according to his own evidence, he thought that it would be better to get Dr Elliott to produce a full account of the numbers of smolts that would have been available, since he had all the documentation.
48. Soon after the grounding, The Braer Corporation, Skuld and IOPCF opened the Braer Claims Office in Lerwick to deal with claims for compensation. IOPCF took the lead in handling the claims. Claims were made on standard forms issued by the Office.
49. The oil reached the claimant's sites around 11-12 January. Mr Baxter then had several meetings with representatives of the Office in Shetland, in Bellshill and in London. Mr Gardiner was in regular touch with Mr Baxter and with the Office at this time. On 17 January 1993, at a meeting in Shetland attended by Dr Frank O'Brien, a consultant to the Office, Mr Gardiner exaggerated the extent of the deliveries that had been expected from Terregles. He told Dr O'Brien that the claimant expected two consignments of 150,000 smolts each in January, with a further 200,000 planned for March. He said that the plan was to put in 600,000 to 700,000 smolts during 1993. In giving Dr O'Brien these figures Mr Gardiner was repeating what Mr Baxter was telling him. He had to take the same line. As he put it, he was doing his job. If he had not done so, he would have been "out the door."
50. Deliveries had not been made to the claimant in such numbers before. Mr Gardiner had been led to expect a delivery of one wellboat, that is to say 100,000 smolts, in January and two wellboats of 100,000 each in March. When the oil reached the sites he already had nets in place to receive a January delivery of 100,000 smolts. Whether any delivery could have been made at all in January in view of the extreme weather conditions is another question.
51. During January 1993 Mr Baxter had a series of meetings with Mr McKenzie. Mr Baird was present at some of these meetings. At at least one of the meetings Mr McKenzie gave Mr Baxter advice about the January and March smolts. He suggested that any documents relating to them should be preserved. Mr Baird said that he had no such documents. One of the topics under discussion was the question whether a contract existed between Terregles and the claimant. Mr Baird knew of no document vouching such a contract. At about this time Mr Baxter gave an instruction that Dr Elliott should send on paperwork relating to the numbers and destination of the Terregles smolts.
52. On 20 January 1993 the Braer Claims Office issued a claim form to the claimant. The claim form required that the claim should be submitted with "original vouchers for all items purchased/costs incurred for which claim is made (p. 5)." On the following day Dr Elliott faxed the first of two letters to the Bellshill office. He faxed the second a week later. These letters appeared to vouch the making of contracts between Terregles and the claimant in October and November 1992.
VI The fabrication of the letters
53. The letters faxed by Dr Elliott to Bellshill were drawn up and back-dated on the instruction of Mr Baird. Mr Baird wished to have written evidence of an agreement between the claimant and Terregles. Dr Elliott asked Mr Baird for confirmation of what they were about to do and was assured by him that "in terms of making a written record of a verbal agreement it would not be a problem." There was a serious conflict of evidence between Dr Elliott and Mr Baird on the question whether Mr Baird gave any such instruction or assurance. I prefer the evidence of Dr Elliott.
54. On the morning of 21 January 1993, Dr Elliott drew up and signed a letter on the letterhead of Terregles in the following terms:
"FAO R Gardiner,
Shetland Sea Farms,
Castle Street
Scalloway
Shetland" 17th October 1992
REFERENCE : SMOLT DELIVERIES JANUARY 1993
Dear Robert,
With reference to our recent telephone conversations regarding the availability of smolts for January 1993 and your order stating Shetland Sea Farms requirements, I am writing to confirm your order for 200,000 Photoperiod Advanced S1 smolts for delivery in mid-January.
TERMS
Nos: - 200,000 Atlantic Salmon S1 smolts (Ex McConnell).
Delivery : - By Wellboat on mutually agreed date.
Price : - £1.40 per smolt delivered.
Payment : - Payment in full in 30 days from date of invoice.
I will be in touch with you nearer the delivery date to let you know how things are progressing.
Best regards,
Yours sincerely,
(sgd) Andrew Elliott
Dr J. A. K. Elliott."
55. Dr Elliott then faxed the letter to the Bellshill office. The fax had the following header:
"21-JAN-1993 09:55 TERREGLES SALMON CO 0387 721244"
56. No such letter had ever been sent from Terregles to the claimant before. The letter gives the impression that Terregles and the claimant have entered into a forward contract at arms' length on fixed terms as to quantity and price. It is written by a director of Terregles who had no authority to enter into contracts with the claimant and had never before been involved in the making of such contracts. It is addressed to an employee of the claimant who had no authority to place an order with Terregles and had never before attempted to do so. It bears to acknowledge an order from the claimant to Terregles; but the placing of an order, or the acknowledgement of one, had never before occurred in any of the transactions between the two companies. The letter makes no mention of the person whose decision on all of these matters was final, namely Mr Baxter. The letter does not protect the seller against the possibility that it may be unable to deliver smolts in the stated quantity on the due date, for example because of some production calamity. Such a provision would be normal in an arms' length transaction and had been stipulated by Terregles in an earlier contract with a third party. Moreover, the letter does not allow credit to the purchaser for mortalities occurring within 28 days after delivery, as was the standard arrangement for such transactions and as would have occurred if a sale between the companies had gone ahead in the normal way.
57. The letter itself bears a false date. The first sentence is untrue. At that date, Dr Elliott and Mr Gardiner had had no conversations of the kind referred to. Mr Gardiner had not ordered smolts in October 1992 or at any other date. Dr Elliott and Mr Gardiner had never discussed price or terms of payment.
58. If one leaves aside the disputed question whether £1.40/smolt was a realistic price, there remains the undisputed fact that the making of any contract between the two companies at a price fixed in advance of delivery, with payment in full 30 days from the date of the invoice, was contrary to all previous practice. Dr Elliott could not have drawn the letter up without advice on the price and terms of payment.
59. On the night of 28 January 1993 Dr Elliott drew up and signed a second letter in the following terms:
"FAO R Gardiner,
Shetland Sea Farms,
Castle Street,
Scalloway,
Scotland (sic) 4th November 1992
REFERENCE : DELIVERY OF SMOLTS MARCH 1993
Dear Robert,
With reference to our recent telephone conversations regarding the availability of smolts for mid/late March 1993 and your order stating Shetland Sea Farms requirements, I am writing to confirm your order for 400,000 Advanced smolts for delivery when available in mid March.
TERMS.
Nos : - Approx 300,000 Atlantic Salmon S1 smolts (Ex McConnell)
100,000 Atlantic Salmon S2 smolts (Mixed Stock).
Delivery : - By wellboat on mutually agreed dates - expect will require 3 trips.
Price : - £1.40 per smolt delivered.
Payment : - Payment in full in 30 days from date of invoice.
Yours Sincerely,
(sgd) Andrew Elliott
J. A. K. Elliott.
Rob,
I'll be in touch nearer the time as regards ratios S1's/S2's when things are clearer as regards smolting / Regards Jake."
The postscript is in Dr Elliott's handwriting. Dr Elliott faxed it to the Bellshill office on the following morning. The fax had the following header:
"29-JAN-1993 10:03 TERREGLES SALMON CO 0387 721244"
60. The general comments that I have made about the first letter apply also to this one; but the postscript adds a further circumstantial detail that would lead the unsuspecting reader to believe that it was sent on the date that it bears. Dr Elliott admitted that this postscript was clearly misleading. He said that he could not recall adding it to the letter and could not understand why he did it. I do not believe his evidence on this point. The purpose of his adding the postscript is obvious. He also said that he could not remember whether he added the postscript on his own initiative or at the suggestion of someone else. I had the impression that Dr Elliott was telling less than he knew.
61. The originals of these letters were not posted. They were put in a file at Terregles' office and remained there until 1999.
62. Mr Baird showed the faxes to Mr Baxter soon after they were received. Mr Baxter evinced no surprise. The two faxed letters were in turn faxed from the Bellshill office to Mr Gardiner in late January 1993. They came to him out of the blue. On receiving them, he was surprised. He thought that Dr Elliott would have been above doing what he had done. He took no action. As he said in evidence, he just kept his mouth shut.
63. Mr Baird telephoned Mr Gardiner at about this time and said that he had been instructed by Mr Baxter to ask him to write backdated replies to these letters in order to create the impression that the correspondence had taken place in October and November 1992. Mr Baird was embarrassed at having to ask Mr Gardiner to do this. Mr Gardiner was not willing to do so. He said in his evidence, "I might be stupid, but I'm not that stupid." This line of evidence was the subject of an objection to which I shall refer later.
64. Mr Gardiner kept a desk diary during 1993. He later produced it at a commission. Before doing so, he made certain deletions and tore out certain pages because he did not wish to be implicated in the claim. He considered that the claim was exaggerated. One of the pages torn out is the page for 2 and 3 February. It contains the words, with reference to the Terregles smolts, "contract written already with our supplier." Mr Gardiner admitted in evidence that he knew of no such contract. Why he came to make that entry in the first place was not explained at the proof.
65. At a meeting between Mr Baxter, Mr Baird and Mr McKenzie held at the end of January a decision was taken to base the claim on the faxed letters and to have the claimant invoiced by Terregles on the same basis.
VII The creation of two special invoices
66. Sales between the two companies were normally recorded by invoices entered in the duplicate invoice book kept at Bellshill; but that did not happen in this case. Two invoices were specially drawn up by Mr Baird on Terregles letterheads and given the numbers of the next two blank invoices in the duplicate invoice book, namely numbers 48 and 49. These invoices were then stapled into the invoice book. This had never been done before.
67. Mr Baird prepared the invoices after a meeting with Mr Baxter and Mr McKenzie at which the matter was discussed. He would not have done something like this without their approval.
68. The first invoice, number 48, was dated 31 January 1993. It related to the January smolts. It charged the claimant for 166,659 smolts at a price of £1.40 each, namely £233,322.60. The reduced number represented the number that, according to Mr Baxter and Mr Baird, was found to have been deliverable by Terregles in January 1993. This invoice was paid by the claimant on 19 March 1993.
69. The second invoice, number 49, was dated 19 April 1993. It related to the March smolts. It was for 400,000 smolts at a price of £1.40 each, namely £560,000. It was paid by the claimant on 26 November 1993. Whether £1.40 was a genuine price is a disputed question.
70. I need not consider whether the claimant had a legal obligation to pay for the undelivered smolts, notwithstanding the designation of the Exclusion Zone and the pollution of its sites. It is sufficient for me to record that the sums claimed and paid on these invoices were far more than could conceivably have been due if the deliveries had been made. Even if Terregles had had smolts available for delivery in such numbers; even if the whole output had been sent to the claimant's sea cages, and even if £1.40/smolt was the price that would have been fixed, the claimant would not have had to pay for mortalities occurring within 28 days after delivery. Mortalities were inevitable on any delivery. In the case of the Terregles smolts, for the reasons that I have given, the rate of mortalities would have been high.
71. The decision to invoice the claimant and have the claimant pay on the invoices was taken by Mr Baxter. He decided, in his own words, that "Terregles should not take the loss on the smolts." This evidence was corroborated by Dr Elliott. Mr Baxter's decision may raise a question of causation affecting the whole claim; but it is not a question with which this proof is concerned. In my view, Mr Baxter's evidence on the point was uncandid. The decision that he made was not merely a decision that Terregles would not take the loss. It was a decision that Terregles should receive from the claimant substantially more than it would have received if the smolts had been delivered, even in the numbers referred to in the invoices. It also confirmed the position of the present claimant as a party that had a claim for loss. Mr Baird must have realised this when he prepared the invoices.
VIII The submission of the claim to the Braer Claims Office
72. On 22 January 1993 there was a meeting of the claimant's board. Those present were Mr Baxter, as sole director, and Mr Baird, as company secretary. The meeting authorised Mr Baird, whom failing Mr Baxter, "to sign all necessary claim forms in connection with the Braer disaster."
73. The claim form was then completed. It was accompanied by appendices containing documents and copy documents. The claim was for a total of £4,703,764. Mr Baxter checked over the form and the documentation. He approved them before they were submitted. Mr Baird signed the claim form on behalf of the claimant on 1 February 1993, the day after the issuing of invoice 48 to the claimant. Mr Baxter and Mr Baird were not in agreement as to why Mr Baird signed the form. Mr Baxter said that Mr Baird signed it because he, Mr Baxter, was going on holiday on 1 February. Mr Baird said that it was convenient for him to sign it because Mr Baxter lived in Dumfries whereas he was available at Bellshill where the claim was being prepared.
74. The claim was then sent to Mr McKenzie who checked it and sent it on with a covering letter to the Braer Claims Office.
75. The declaration on the form stated inter alia that it was "a complete and accurate account of the loss suffered [and anticipated to be suffered] and costs incurred [and subject to the provisions in the accompanying letter from Harper Macleod solicitors]." The words in brackets were added in manuscript.
76. Appendix 10 bears to contain "Copy of contracts with Terregles Salmon Co Ltd for supply of smolts in January 1993 and March 1993." The copy contracts referred to were the Elliott/Gardiner letters. The copies submitted were photocopies of the faxes received at Bellshill, but the photocopies did not show the fax headers.
77. The claim was made expressly on the basis that at the date of the Braer grounding the claimant had entered into arms' length forward contracts with Terregles for the purchase of the smolts on the terms and conditions set out in the letters and that the letters were evidence of the contracts. The claim represented inter alia that the claimant had a contractual commitment to take delivery of 200,000 smolts in January, contrary to the terms of invoice 48 prepared on the previous day. Neither Mr Baxter nor Mr Baird explained this discrepancy. Neither of them can have had any honest belief that the figure of 200,000 smolts was genuine.
78. In cross-examination Mr Baird said that it was only at a later date that it was ascertained that a delivery of 166,659 was the maximum that would have been achievable. When I pointed out to him that on the day before he signed the claim, he had prepared invoice 48 charging the present claimant for the lower number, he said that that invoice must have been prepared later. It must have been backdated by accident. I do not believe this explanation. Mr Baird specially prepared invoice 48 in the context of the claim that he was co-ordinating. I do not accept that in preparing it he gave it the wrong date.
79. The claim form and the supporting documents made no reference to Mr Baxter's having made any plan on behalf of both companies relating to the January and March smolts. Although certain of the claim documents had been faxed from Scotfish and although the Terregles letterhead showed that Mr Baxter was a director of the company, the claim itself gave the impression that the claimant was an independent company. The claim made no reference to the structure of the Ettrick group, or to its constituent companies, or to Mr Baxter's decisive role in the affairs of the group.
IX The sale of smolts to Summer Isles
80. Some of the January smolts, the number of which has not been proved, were sent to Summer Isles. That transaction was put through at a price of 70p/smolt. On 22 February 1993 Terregles faxed a letter to a number of producers, signed by Mr Baxter and wrongly dated 22 February 1992, in which Terregles offered to sell 400,000 smolts with delivery in March 1993. Summer Isles was one of the recipients. In the letter Mr Baxter said that Terregles was looking for alternative customers on behalf of the present claimant. This was a strange course of action. If the claimant had an obligation to pay for the smolts, it was of no concern to Terregles whether the smolts were resold or not. That was the claimant's problem. Moreover, since Mr Baxter had the power to decide, as he did, that Summer Isles would buy some of the smolts, it was meaningless for Terregles to invite Summer Isles to offer for them. The faxed offer was unnecessary; but it maintained the appearance of arm's length dealings. This has an adverse bearing on the question of Mr Baxter's honesty.
81. In due course a substantial number of the March smolts were sent to Summer Isles and this transaction too was put through at a price of 70p/smolt. Whether that was a realistic price is again a disputed question that I need not resolve at this stage. When these smolts were harvested as salmon they were marketed by Scotfish.
X The addendum to the claim
82. On 29 April 1993 an addendum was made to the claim in the form of production AA/3A. This too was checked by Mr Baxter and Mr McKenzie. It was faxed by Mr Baird to Miss Broadley and Mr Jacobsson, who were claims officers of IOPCF. The fax was sent in advance of a meeting that was to be held with them in London on 5 May 1993. In this fax Mr Baird proposed an agenda for the meeting and submitted certain further information. This information was uncandid about the group structure. It disclosed that the claimant and Scotfish were linked (item 1, letter dated 26 April 1993); but there was no mention of the other group companies or of the relationship between Terregles, Summer Isles and the claimant.
83. Among the new documents submitted with this fax, there was a document entitled "Commentary on the inability to introduce smolts." This was drafted by Mr Baird, and revised and altered by Mr Baxter. It begins with the statement "Shetland Sea Farms Limited had contracted to purchase 200,000 smolts in January 1993 and 400,000 smolts in March 1993 from Terregles Salmon Co Limited (copies of the contract are contained in Appendix 1)." These were the Elliott/Gardiner letters. The calculation of loss set out at the end of this document was based on the purchase of 166,659 January smolts and 400,000 March smolts.
84. This claim is based on the statement that "As Shetland Sea Farms Limited had contracted to purchase the smolts the company was legally bound to purchase and pay for them (p. 2)." This therefore continued the representation that the claimant owed a contractual obligation to Terregles to purchase and pay for the smolts in terms of the Elliott/Gardiner letters. Mr McKenzie said that he did not know how this statement found its way into the commentary. The commentary also gives the impression, in my view, that the claimant had resold some of the smolts to Shetland Isles at 70p/smolt in an arms' length transaction.
XI The 1995 action by the claimant
85. In December 1995, the claimant raised the action against The Braer Corporation and Skuld to which I have already referred. The major loss sued for was described as a loss caused by "inability to introduce smolt into the Exclusion Zone." The averments in the Summons on this point were as follows:
"In or about October 1992 the pursuers contracted with the Terregles Salmon Company Limited to purchase a batch of 166,659 smolt at a price of £1.40 per smolt for delivery in January 1993. The total price of said batch was £233,322.60. In or about November 1992 the pursuers contracted with the Terregles Salmon Company Limited to purchase a batch of 400,000 smolt at a price of £1.40 per smolt for delivery in March 1993. The total price of said batch was £560,000. As a result of said oil contamination the pursuers were unable to introduce smolt into the area of the exclusion zone. They were unable to introduce either of the said batches. The pursuers attempted to sell the said smolt to other salt water salmon farming operations. In relation to said January batch they were able to sell 121,659 smolt to the Summer Isles Salmon Company Limited at a price of £0.70 per smolt. They were unable to sell the remainder of the January batch and the remaining smolt died. The shortfall between the cost of the January batch and the sum realised on sale was about £148,161.30. In relation to the March batch the pursuers were able to sell 304,712 smolt at a price of £0.70 per smolt. They were unable to sell the remainder of the March batch. In the circumstances the pursuers gave 28,169 of the said smolts to the Thames Water Authority and the remainder died. The shortfall between the cost of the March batch and the sum realised on sale was about £346,701.60. The total loss in respect of said shortfalls is about £494,862.90 (£148,161.30 plus £346,701.60). In addition the pursuers have suffered loss of profit which they would otherwise have made on said smolt. Said loss of profit is reasonably estimated at about £1,442,849.10. The smolt would have been harvested during the period from about March 1994 until about October 1994. The total loss in respect of inability to introduce smolt into the exclusion zone is reasonably estimated at about £1,937,712.00 (£494,862.90 plus £1,442,849.10) (Cond. 7)."
The defences for Skuld and the minute for IOPCF raised the question of the links between the three companies and the control exercised by Ettrick. In the Closed Record the claimant made the following averments in reply:
"Explained further that the sale of said smolt by the pursuers to Summer Isles was conducted at arms length ... Further explained and averred that the pursuers (Shetland Sea Farms Limited), Terregles Salmon Company Limited (Terregles) and Summer Isles Salmon Company Limited (Summer Isles) are separate companies. They are separate persona (sic). At the material time they each traded independently. They operated from different locations with different employees. Each company had its own Manager. They negotiated with each other at arms length (Cond 7)."
86. In the light of the evidence of Mr Baxter and Mr Baird, I consider that the first and last of these averments, no doubt made on instructions, were insupportable.
87. The claimant's pleadings said nothing of Mr Baxter's having formed any plan on behalf of Terregles and the claimant for the January and March 1993 smolts.
XII The sheriff court action by Terregles against the claimant
88. On 15 December 1997 Terregles sued the claimant in Glasgow Sheriff Court for £729,008. In the Initial Writ Terregles averred that it had contracted with the claimant verbally and in writing. With the writ Terregles produced photocopies of the Elliott/Gardiner faxes, again without the fax headers shown, and the invoices from Terregles to the claimant dated 31 January and 19 April 1993. These were described as the "contract correspondence." In this action Terregles sued for damages for losses sustained by it in consequence of the claimant's failure to take delivery of the smolts.
89. Mr McKenzie advised Mr Baxter that if Terregles had a good ground of action against the claimant, the claimant might perhaps in turn make a claim for that loss. He advised him that an action should be raised against the claimant by Terregles but that it should be raised on behalf of Terregles by another firm of solicitors. The action was raised on its behalf by Messrs MacMillans, Solicitors, Rutherglen. Mr McKenzie intended that the action should be defended by the claimant and that he would act for the claimant in defending the action. The action was raised to preserve the possibility of a claim in the face of an impending time bar. The Initial Writ said nothing about the links between the two parties. The action was dropped on counsel's advice.
90. Mr Baxter said that he had simply instructed the action on Mr McKenzie's advice. He could not remember if the action had been defended. He could not remember what happened next. He did not know what the present state of the action was. He did not know who MacMillans were. He could not remember if he had instructed MacMillans. He did not know why Harper Macleod were not involved in the raising of the action. I did not believe Mr Baxter in this part of his evidence.
91. The questions surrounding this action are not entirely a side issue, because in due course the claimant lodged the Initial Writ and Appendices in the action as a production in its action against The Braer Corporation and Skuld, and for a time incorporated them in its pleadings by reference, thereby, in my view, confirming the misrepresentation as to the Elliott/Gardiner letters.
XIII The discovery of the faxes and its consequences
92. In 1997 in response to a specification of documents (No. 11 of Process), Mr Baird produced two copy letters to vouch the making of the contracts of sale. These were photocopies of the faxes of the Elliott/Gardiner letters. The fax headers were missing from both. The solicitors for IOPCF lodged these photocopies. They are Nos. 12/3 and 12/4 of Process.
93. On 26 August 1999, in response to a further specification of documents (No 28. of Process), Mr Baird handed over eight boxes of documents and a further loose bundle, the contents of which were not sorted or catalogued. Mr Robert Wightman WS of the firm of Morton Fraser WS, solicitors for IOPCF and Messrs Robb, later catalogued the recoveries. He found among the bundle of documents photocopies of the Elliott/Gardiner letters. He thought it significant that there were no other similar letters among the recoveries.
94. On the same day, a commission was held at which Mr Baird was cited as the haver. Mr Baird was asked if at any time he had had the principal of the first letter (No 12/3) in his possession. He said no. He said that No 12/3 was a fax sent to him that he had copied. When it was pointed out to him that No 12/3 did not show a transmission date and time, he undertook to produce the original fax if he could find it. He said that the position was similar in relation to the second letter (No 12/4). He undertook to produce the original fax. Mr Baird was not completely candid in his evidence at the commission. He was asked about the copy of the fax of the second Elliott/Gardiner letter (No 12/4). In answer to the question "This was a letter then which was received personally by you, by fax?" he replied "I received a copy. It was addressed to Robert Gardiner of Shetland Sea Farms, Castle Street in Shetland. My office is in Bellshill so I received a copy of this at Bellshill (Report of Commission, p. 12)." This answer was strictly true; but it left a great deal unsaid and gave a misleading impression. On 3 September 1999 Messrs Brodies WS, the claimant's Edinburgh solicitors sent to IOPCF's solicitors the original faxes received at the Bellshill office. They bore the fax headers to which I have referred. They are numbers Y/2 and Y/3 of Process.
95. At about this time, at Mr McKenzie's request, Mr Baxter searched for the originals at the office of Terregles. He said that among other documents that he found in a filing cabinet "out popped the originals" of the faxed letters. He found no other similar documents. The originals were included in two further boxes of documents that the claimant's solicitors handed over in about April - May 2000. They are numbers Y/4 and Y/5 of Process.
96. By September 1999, when the original faxes were produced to IOPCF's solicitors, the claimant's action against The Braer Corporation and Skuld had been overtaken by its claim in the limitation process. On discovery of the original faxes, the objectors adjusted their pleadings. They now alleged that the claim had been presented fraudulently and should be refused on that account. The fraud was alleged to have consisted in the fabrication of the Elliott/Gardiner letters and the misrepresentation based on those letters that the claimant made in the Claim Form and in the ensuing action and claim. Responsibility for the fraud was imputed to Mr Baxter and Mr Baird.
XIV The new version of the claimant's case
97. When the allegation of fraud was made, the claimant at once rewrote its case. It deleted the averments that the sale by the claimant to Summer Isles was conducted at arms' length; that the companies within the group negotiated with each other at arms' length, and that the contracts were made in October and November 1992. Instead, the claimant now averred that the obligation to pay Terregles for the smolt arose from a decision taken by Mr Baxter in August 1992.
98. The material averments in this new account were as follows:
" ... Mr Baxter was a Director of Shetland Seafarms Ltd. He was also a Director of Terregles. Mr Baxter took an active role in determining intra-group transactions such as the transfer of smolt and the price to be paid therefor. In or about August 1992 Mr Baxter determined on behalf of Terregles and the claimants that all smolt produced by Terregles (at their hatcheries at Terregles and Holywood) in January 1993 and March 1993 would be delivered to (and accepted by) the claimants at their sites in Shetland and paid for by the claimants. He so advised Dr Elliot who was a Director and Manager of Terregles. Mr Baxter also communicated this to the claimants manager. The batch of smolt for delivery to the claimants in January 1993 comprised 166,659 smolt. The batch of smolt for delivery to the claimants in March 1993 comprised 400,000 smolt. The price to be paid to Terregles for said January and March batches reflected the market value of the smolt at the material time and was determined prior to the grounding of the Braer by Mr Baxter at £1.40 per smolt as hereinafter averred. The claimants subsequently paid Terregles for said smolt as hereinafter condescended upon. As a result of said oil contamination the claimants were unable to take delivery of said smolt as pre-arranged and introduce them into the area of the exclusion zone ... Admitted that the price at which smolt were sold to the claimants was determined by Mr Baxter subject to the explanation that prices for intra-group transactions were fixed at a reasonable commercial level by Mr Baxter after discussion with Mr Basil Baird the Group Financial Director. Admitted that the level of autonomy afforded to Mr Gardiner was limited and did not extent to negotiating supply contracts with Terregles Salmon Company Limited subject to the explanation that the managers of companies within the group had considerable responsibility ... Prices for intra-group transactions were fixed at a reasonable commercial level by Mr Baxter after discussion with Mr Basil Baird the Group Financial Director. Dr Elliot (then at Terregles) and Mr Gardiner (then at Shetland Sea Farms) would arrange the transportation details and documentation between themselves ... "
Although the Elliott/Gardiner letters had been effaced from the revised version of the claim, the claimant could not avoid having to explain those letters in the light of the objectors' allegations. The following was the explanation.
" ... With reference to the averments in answer concerning the letters of 17 October 1992 and 4 November 1992 (in which Dr J A K Elliot of Terregles refers to telephone conversations with Mr Gardiner regarding orders for smolt) it is admitted subject to the explanations herein (a) that Mr Gardiner was not party to said conversations (b) that Mr Gardiner did not place those orders (c) that Mr Gardiner maintains that he first became aware of said letters following the Braer incident and (d) that Mr Gardiner maintains he did not reply to said letters. Copies of said letters were faxed from Terregles to the group administration office in about January 1993 after the Braer casualty ... Explained and further averred that following the Braer disaster Mr Baxter took advice on the matter of making a claim. He was advised by his legal advisor, Mr McKenzie of Harper Macleod Solicitors, inter alia that he should immediately take steps to preserve all documentation relating to the intended transfer of smolt from Terregles to Shetland Sea Farms Ltd. In the normal course the documentation of sales of smolt between Shetland Sea Farms and Terregles was left to Dr Elliot and Mr Gardiner. Mr Baxter first saw the letters (dated 17 October 1992 and 4 November 1992) when he was showed faxed copies of the same which had been sent to the group administration office in Bellshill in January 1993 after the Braer disaster. Mr Baxter saw the originals when he was carrying out a search in September or October of 1999 of the Terregles records relating to the transfer of smolt by Terregles to Shetland Seafarms. He had been advised to carry out a search of the same by the said Mr McKenzie. When Mr Baxter first saw the faxed copies of the said letters he took them at face value believing them to be genuine. He assumed that they were sent when dated. The fax copies of the letters were submitted on behalf of Claimants in good faith under an apprehension that they were genuine. They were neither deliberately backdated nor fraudulently adduced on behalf of the claimants. Dr Elliot was the author of said letters. He signed both letters. Dr Elliot thinks that he faxed the second letter to Mr Gardiner. Dr Elliot's financial position to some extent depended on the Terregles results. He was a director and shareholder of Terregles. He left in 1994. At the material time, Mr Gardiner was on a bonus of about 5% of the net profit of Shetland Sea Farms Limited. Mr Baird was salaried. He did not request or instruct Dr Elliot to write said letters. He did not discuss the letter with Dr Elliot. He did not see any draft letters. He first saw said letters when after they arrived by fax at Bellshill in January 1993. In any event Mr Baird would not have suggested 4 weeks credit terms. At the material time Terregles were invoicing per smolt delivered and surviving after 28 days. The style and content of said faxes were not those of Mr Baird. Furthermore, notwithstanding the position in relation to the origin of the said letters, they correctly reflect the times, quantities and prices of smolt to have been delivered to Shetland Sea Farms by Terregles. The underlying transactions reflected in the letters were intended to take place. The decisions to transfer said numbers of smolt to the claimants had been taken prior to the Braer running aground as previously condescended upon ... "
XV Question (a)
99. The first question is whether a responsible officer, or responsible officers, of the claimant knowingly presented to the court false documents, namely numbers 12/3 and 12/4 of process, in support of its claim for compensation. The parties are agreed that the question falls to be decided on a balance of probabilities (Mullan v Anderson, 1993 SLT 835).
Were the documents false?
100. It is now agreed on all sides that the Elliott/Gardiner letters were fabricated, that they were false in their terms and that they were drawn up after the Braer incident. It is agreed too that the telephone conversations to which they refer never took place.
Were the documents presented to the Court by responsible officers of the claimant in support of the claim?
101. It is not disputed that Mr Baxter and Mr Baird were responsible for the submission of these letters to the court in support of the claim for compensation. Both of them were responsible officers of the claimant in this matter.
102. The letters had been the foundation of the claim submitted to the Braer Claims Office and rejected by it in 1993. Mr Baird prepared the claim and signed the claim declaration. Mr Baxter checked the claim and authorised the submission of it to the Braer Claims Office. The same claim was thereafter renewed judicially in 1995 on the same basis by means of the action for compensation raised against The Braer Corporation and Skuld, and in due course by means of the present claim on the Skuld limitation fund. Mr Baxter, I infer, instructed the raising of the 1995 action and the making of the present claim. When IOPCF sought to recover under a specification documents bearing on the proof of the alleged contracts, Mr Baird produced copies of the two letters (Nos. 12/3 and 12/4) which IOPCF then lodged.
103. It is the merest technicality that the two letters happen to have been lodged in process by IOPCF. Counsel for the claimant took no point about that. He accepted that in all the circumstances of the history Mr Baxter and Mr Baird were responsible for the submission of the documents to the court.
Did Mr Baxter or Mr Baird or both of them present the documents to the court knowing them to be false?
104. The contentious point is therefore whether either Mr Baxter or Mr Baird or both of them presented the false documents knowingly.
105. When a representation is made that is untrue, the maker of the representation acts fraudulently if he makes it knowingly or without belief in its truth or recklessly, careless whether it be true or false (Derry v Peek (1889) 14 App Cas 337, Lord Chancellor Herschell at p. 374: Robinson v National Bank 1916 SC (HL) 154). In this case I confine my consideration of the evidence to the question whether the false documents were presented knowingly. That is in line with the formulation of question (a) and is, I think, the appropriate question on this part of the evidence.
106. As counsel were agreed, the answer to question (a) depends almost entirely on the credibility and reliability of Mr Baxter, Mr Baird, Dr Elliott and Mr Gardiner. In his detailed submissions on the facts, the essential points made by counsel for the claimant were that the fabrication of the letters reflected adversely on Dr Elliott, but not on Mr Baxter or Mr Baird; that neither Dr Elliott nor Mr Gardiner was a credible witness on the crucial points; and that Mr Baxter and Mr Baird had relied on the letters in all innocence.
107. I do not accept these submissions. I found Mr Baxter to be neither credible nor reliable on any of the crucial questions. His demeanour in the witness box and his specious explanations of his actings convinced me that his evidence on these questions was untruthful.
108. Nor did I find Mr Baird to be a satisfactory or credible witness on the crucial questions of fact. His demeanour was unconvincing. It seemed to me that at times he offered his explanations with no great conviction. Like Mr Baxter, he was unable to offer any coherent explanation on vital questions such as the discrepancies between the letters and the invoices; the lack of allowance for mortalities; or the fact that he faxed to Mr Gardiner a letter that he believed that Mr Gardiner had already received. I concluded that he was untruthful. In my view, Mr Baird assisted Mr Baxter in carrying out the fraudulent scheme from the outset.
109. It is certainly established that Dr Elliott was dishonest in fabricating the letters. It must have been obvious to him, whatever reassurance Mr Baird had to offer, that the letters were to be used for a serious purpose in connection with a substantial claim. He was clearly worried when giving evidence. When first asked about the letters he invoked his privilege against self-incrimination; but later he admitted that the letters were false. His justification was that the letters merely set out the substance of contracts that had been entered into before the incident and that Terregles could have supplied smolts in the numbers specified. He also suggested that he wrote the letters without any intention to deceive anyone. I did not believe that suggestion. In my view, his complicity in the deception is obvious.
110. However, when the faxes were transmitted to the Bellshill office, Dr Elliott's part in the deception was at an end. It was then that Mr Baxter and Mr Baird put the scheme into effect by submitting photocopies of the faxes to the Braer Claims Office as genuine and in due course by submitting them to the objectors and, indirectly, to this court. In my view Dr Elliott was not entirely candid in his evidence; but I believed him on the essential points regarding Mr Baxter's dominant role in the affairs of the group; his own lack of knowledge and authority on the contractual terms, and Mr Baird's part in instructing him to prepare the letters. It was my clear impression that when giving evidence he had decided to tell the truth as to why and for what purpose he prepared the letters.
111. It is also established that Mr Gardiner was untruthful in his dealing with the Braer Claims Office and that he tampered with an important production. I am satisfied however that he had no part in the preparation of the fake letters and that when the falsehood was detected he was not prepared to lie on behalf of Mr Baxter or Mr Baird. Although Mr Gardiner was not on good terms with Mr Baxter, he had no enmity towards Mr Baird and no apparent motive to lie about Mr Baird's part in the affair. Unlike Mr Baird, he impressed me as a credible and reliable witness who had decided that, whatever dishonesty he had been involved in at an earlier stage, the best course at the proof was to tell the truth.
Mr Baxter's state of knowledge
112. When one considers the deception that was perpetrated on the Braer Claims Office, on the objectors and on this court, the first noticeable feature is that Mr Baxter appears to have left little trace of his own direct involvement in it. It was Dr Elliott who fabricated the letters. It was Mr Gardiner who misrepresented the expected numbers of the smolt deliveries at the meeting with Dr O'Brien. It was Mr Baird who asked Dr Elliott and Mr Gardiner to fabricate the correspondence; prepared the false invoices and had them paid by the claimant, and signed the claim form.
113. Nevertheless, I am satisfied, for several reasons, that Mr Baxter was the author of the fraudulent scheme in which Mr Baird and Dr Elliott played their parts. First, there is the improbability that any employee of any company in the group would have dared to draw up contractual documents without Mr Baxter's knowledge and permission. Employees of the companies, even those at a senior level, had no discretion to take such action or to make decisions of any importance. Second, the timing is significant. Dr Elliott fabricated the letters soon after Mr Baxter had been advised by Mr McKenzie that any documentary evidence to support the claim should be preserved. It is inconceivable that when the making of the claim for compensation, like all other matters of importance, was in the hands of Mr Baxter, employees of Ettrick, Terregles or the claimant should spontaneously have decided to take independent action to promote a false claim and that Dr Elliott or Mr Baird, in particular, should have decided on his own initiative to have the letters fabricated. Third, Mr Baxter had an urgent motive to have the false letters drawn up. The group was in financial difficulties before the incident. The incident made its difficulties more acute. To all intents and purposes Mr Baxter owned the group. He stood to lose heavily if the claim were to fail. Without written evidence of pre-existing contracts, there was a doubt, to put it no higher, as to the claimant's prospects of recovering any compensation for the Terregles smolts. Dr Elliott's financial interest as a minority shareholder in Terregles was trivial by comparison. Fourth, the claim form required the claimant to submit vouchers and at the date on which the claim form was issued there were none. Fifth, there is Mr Baxter's reaction when Mr Baird showed the faxes to him. He showed no surprise and he did not remonstrate with Dr Elliott or Mr Gardiner about them. This reaction supports the inference that he was expecting the letters and knew that they were false.
114. For these reasons, I conclude that Mr Baxter procured the fabrication, and in due course the uttering, of the Elliott/Gardiner letters in pursuance of a fraudulent scheme the purpose of which was to further the claimant's claim for compensation.
115. However, even if one assumes that Mr Baxter knew nothing of the fabrication of the letters, there can be no possibility of his having had an innocent state of mind once the faxes arrived at Bellshill. He saw the faxes soon after. It must then have been obvious to him that they were false in all of the respects that I have described. He nevertheless relied on them from then on as the basis of the claim.
116. In cross-examination Mr Baxter claimed that when he first saw the faxed letters he regarded them as merely confirming a contract that he himself had set up in the second half of 1992 on behalf of both companies. He accepted that the letters gave the impression that contracts had been made by Dr Elliott and Mr Gardiner. He said that they had not given him that impression at the time. Later in his evidence he said that he knew in January 1993 that Dr Elliott and Mr Gardiner had not entered into those contracts. He said that he thought that the letters were part of the normal documentation. Mr Baxter was unable to give any coherent explanation as to why he had the letters submitted as the basis of the claim. He knew at that stage that Dr Elliot and Mr Gardiner had not entered into a contract on the lines suggested by the letters. He claimed that at that stage he did not know what documentation had passed between Dr Elliott and Mr Gardiner in relation to transfers of smolts; that he assumed that documentation of this kind was normal between them, and that, since these were the numbers and dates that he had discussed with Dr Elliott, he had no reason to think that anything was out of order. He thought that these letters contained the terminology used by Dr Elliott to convert a verbal order into a written order confirming the order that he, Mr Baxter, had arranged; that he did not study the letters, and that he "had a lot to read" and a heavy workload. He thought that Dr Elliott, having been asked by Mr Baird to produce a written record, had created these documents "off his own bat."
117. I do not believe this evidence. On his own admission Mr Baxter knew that neither Dr Elliott nor Mr Gardiner was authorised to make contracts of any significance on behalf of the company that employed him and that neither had done so. Mr Baxter had never before seen any such documents pass between them. He admitted in cross-examination that the letters gave the wrong impression on the material points on mortalities, terms of payment, and so on. The making of contracts by Dr Elliott and Mr Gardiner in October and November 1992 was inconsistent with Mr Baxter's having formed his own plan on behalf of both companies regarding the January and March 1993 smolts. The terms of payment were not those on which transactions between Terregles and the claimant were made. Contracts on fixed terms such as these were inconsistent with Mr Baxter's power to change his plans before delivery. Even on a cursory reading it would have been obvious to Mr Baxter that the letters were fakes.
118. But Mr Baxter's explanation breaks down completely when one considers his evidence on the terms of payment. He alleged that Dr Elliott would know of the price of £1.40/smolt in October-November 1992 because he had discussed it with him. I do not believe him. The price was determined in such cases at or after the date of delivery, because that was when the cost of production could be accurately assessed and compared with the current market price. Moreover, Mr Baxter is contradicted by Dr Elliott, whose evidence on the point I believe. Dr Elliott said that when drawing up the letters he would have had no knowledge of the price and terms of payment without advice.
119. Such was Mr Baxter's incuriosity about the letters that he did not speak to either Dr Elliott or Mr Gardiner about the discrepancies between his alleged plan and the terms of payment set out in the letters. He said that he had failed to notice that the letters failed to allow for mortalities occurring within 28 days after delivery. He said that the requirement of payment in full within 30 days from the date of the invoice was neither here nor there as far as he was concerned because he knew that Mr Baird would in due course deal with payment, credit, mortality discounts and so on in the normal way. This explanation evades the point. The fabricated letters were sent to Bellshill for submission to the Braer Claims Office with the intention that they would be taken at face value. Mr Baxter knew that in this way the officials of the Braer Claims Office would be led to believe that there were enforceable contracts between the two companies governed by these fictitious terms and to pay compensation to the claimant on that basis. His dishonesty is confirmed by the lack of candour in both the claim and its addendum as to the Ettrick group structure and the relationship between its constituent companies.
120. Whatever conclusions are correct as to Mr Baxter's state of knowledge up to that stage, one can draw a line at the critical date when the claim was formally submitted. By then Mr Baxter had had further opportunities to peruse the letters and to discuss them with Dr Elliott. He had had the benefit of meetings with Mr McKenzie at which the letters were discussed. He had instructed that the claimant should be invoiced for the smolts and should pay Terregles in terms of the special invoices. He had checked the claim documentation and had authorised its being submitted. The claim form and appendices did not mention his having made a contract or formed a plan on behalf of both companies. Mr Baxter said at one point that he did not regard the letters as setting out contractual terms. Yet the claim explicitly founded on the Elliott/Gardiner letters as vouching the making of concluded contracts before the date of the incident. In my opinion, Mr Baxter could have had no serious belief at that stage that either letter was genuine. Mr Baxter admitted that an uninformed reader would take the letters at face value as evidence of the purported contracts. In my view, they were submitted to the Braer Claims Office with that purpose.
121. Mr Baxter's dishonest state of mind is confirmed by the fact that he induced Mr Gardiner to misrepresent to Dr O'Brien at the 17 January 1993 meeting the amounts of the deliveries that the claimant had expected from Terregles in 1993. It is further confirmed by the fact that by 31 January 1993 Mr Baxter knew that Terregles could not have supplied 200,000 smolts in January and had had the claimant invoiced for the lesser amount of 166,659.
122. In due course Mr Baxter had the same dishonest purpose when the 1995 action and the present claim were pursued on the basis of the alleged contracts that the fabricated letters appeared to record.
123. Since it is quite obvious that he knew that the letters were false at the latest when the action was raised, it is significant that he allowed the claimant's case to rest on these letters until the truth about them came to light.
124. Mr Baxter repeatedly evaded the point by asserting that the Terregles smolts were bound to go to the claimant and that the numbers on which the claim is based were achievable; but even if that is the case, his actings cannot be justified by the misfortune that at the time of the mishap there was no written evidence of any contract between Terregles and the claimant regarding the January or March smolts.
125. Mr Baxter accused both Dr Elliott and Mr Gardiner of having been dishonest in their evidence. He suggested that Dr Elliott was a dishonest person and he mentioned an example of this, concerning an allegedly untruthful report, that was not put to Dr Elliott. I was not impressed by this evidence. He also suggested that Dr Elliott and Mr Gardiner had a financial motive to lie about the letters. In my view, that theory is far-fetched; but even if Dr Elliott or Mr Gardiner had any such motive, Mr Baxter had a much greater financial motive to submit the faked documents and to lie about them in his evidence.
Mr Baird's state of knowledge
126. The burden of Mr Baird's evidence was that he knew nothing of any scheme to fabricate contractual documents or to pursue a false claim. He did not know what passed between the managers of the sites. He merely carried out Mr Baxter's instructions. He did not speak to Dr Elliott about the faxes. The faxes had arrived at Bellshill unannounced. He had given them only a cursory glance when they arrived. The tops of the faxes must have been cut off accidentally when the faxes were in the photocopier. Such documents could curl up. They may not have been placed properly on the glass in the photocopier. Moreover, the invoice dated 31 January 1993 must have been accidentally given the wrong date. I do not believe Mr Baird's evidence on these points.
127. I believe Dr Elliott's evidence that Mr Baird instructed him to create the letters. It seemed to me that Dr Elliott had decided to tell the truth on this crucial point. Moreover, his evidence is consistent with the role that Mr Baird had been given to collate the documentation to support the claim. Mr Baird was aware of Mr McKenzie's advice, given in his presence, that it was important to preserve any documentary evidence of a contract between Terregles and the claimant. Moreover, Dr Elliott's evidence on the point is confirmed by the fact that Mr Baird did not take any steps to check the authenticity of the letters. He did not speak to Dr Elliott about the faxes after they arrived. I conclude that Mr Baird requested Dr Elliott to prepare the two letters in order to provide the claimant with the necessary documentary evidence.
128. Even if Mr Baird did not request Dr Elliott to prepare the faxes, he can have had no serious belief in their authenticity once he saw them. Mr Baird was familiar with the documentation that was created in inter-company transactions. It would have been obvious to him, even on the most cursory glance, that the faxes were unprecedented and that the terms of the letters, and fact that they had been written at all, called for an explanation. The existence of the letters and the terms that they set out were incompatible with his own functions as financial controller. Mr Baird agreed that the first fax was "astonishing", but only in hindsight. He agreed that there was an air of unreality about both faxes. He realised, but only with hindsight, that the letters were for fixed numbers of smolts and did not deal with mortalities, and that the provision for payment in full within 30 days of invoicing was incorrect. This explanation is not credible. In my view, Mr Baird must have appreciated these points as soon as he saw the letters.
129. Even if Mr Baird did not appreciate these points when he saw the letters, he must certainly have realised that the letters were fakes at the latest on 1 February 1993 when he signed the claim form. By then Mr Baird had prepared the claim and had even typed some of it. By then the basis and the quantification of the claim had been thoroughly discussed with Mr Baxter and with Mr McKenzie. Mr Baird attempted to get round this difficulty by saying that the authenticity of the letters was not a matter for him. It was Mr Baxter's responsibility. But that is beside the point. So long as Mr Baird had reason to doubt the authenticity of the documents, as was certainly the case, he could not in good conscience sign the declaration on the claim form (cf Lees v Tod (1882) 9 R 807, Lord President Inglis at p. 854). In my view, however, Mr Baird knew that the letters were false and he was a party to the submission of copies of them, with fax headers cut off, as the basis of the claim.
130. On this view of the evidence, Mr Baird was directly implicated in the attempted fraud and it is unnecessary to consider whether he solicited the fabrication of a reply to the letters. But if I have correctly admitted the evidence on that question, my conclusion is that that is further evidence of dishonesty on his part and on Mr Baxter's. The question of the admissibility of this line of evidence arose in the following way. Mr Gardiner was led as a witness for IOPCF and Messrs Robb. He spoke to having received the faxes of the Elliott/Gardiner letters from Bellshill. He said that he was reasonably sure that Mr Baird had phoned him about these faxes and had said that Mr Baxter had asked him to ask Mr Gardiner to write a reply to them. Counsel for the claimant objected to this line of evidence on the ground of no record. I repelled the objection. While it is true that there is no specific averment that Mr Gardiner was asked to draft a reply to the letters, I considered that there was no need for the objectors to plead evidence of this kind, which was directly relevant to the objectors' averments that both Mr Baxter and Mr Baird knew that the letters were false and that they were intended to assist in the claim.
131. Having allowed the line of evidence, I found that Mr Baird asked Mr Gardiner to prepare and submit a reply to these letters and that he did so at Mr Baxter's behest. Mr Gardiner's evidence on the point, so far as it relates to Mr Baxter, is double hearsay. Such evidence must be examined with particular care. In this case I believe it because it is entirely consistent with the view that I have formed on the other evidence that Mr Baxter was the author of the fraudulent scheme and that Mr Baird implemented it on his instructions.
132. Mr Baird denied having had this conversation with Mr Gardiner, but I do not believe him. For the reasons that I have given, I prefer the evidence of Mr Gardiner. But on this point Mr Gardiner's evidence is confirmed by other facts and circumstances, namely that shortly before the submission of the claim Mr Baird faxed to him copies of both of the letters that Dr Elliott had faxed to Bellshill. Since Mr Gardiner was not involved in fixing quantities or prices, or in making payment for smolts received, and since the deliveries were not going to take place anyhow, there was no reason why Mr Baird should have faxed copies of Dr Elliott's letters to him at that stage, unless it was to have him prepare a reply. Moreover, if Mr Baird was telling the truth when he said that he did not doubt the authenticity of the letters, then he must have believed that Mr Gardiner already had the letters since they bore to have been sent to him. So, if that were true, Mr Baird would have even less reason to fax copies of them to him.
133. There is also, I think, a corroborative pattern in the evidence of Dr Elliott and Mr Gardiner that indicates that each is to be believed in his evidence that Mr Baird requested him to provide false correspondence. In both cases there are similarities in time and circumstances. Dr Elliott and Mr Gardiner were the responsible officials at the sites where the smolt would be respectively despatched and received. Each spoke to having received a telephone call from Mr Baird at about the same time in January 1993, related to the making of the claim, in which he was asked to fabricate correspondence, one by the purported seller, the other by the purported buyer, the effect of which would be to establish the existence of binding contracts.
134. In my view, one of the most telling considerations against Mr Baird is his acceptance in cross-examination that although the claim was based on the letters and on the payment by the claimant on the special invoices, he knew all along that the smolts would have gone to the claimant on a quite different basis. I consider that the conclusion is inescapable that Mr Baird prepared the two special invoices in the knowledge that the Elliott/Gardiner letters did not reflect the true situation and that he raised the invoices for sums of money that the claimant could not conceivably have been required to pay if the deliveries had gone ahead. This confirms his dishonest state of mind.
135. On the whole matter, I conclude that Mr Baird was fully implicated in the scheme to submit a false claim for compensation. Moreover he, like Mr Baxter, must have known that the letters were false after the action was raised; yet he took no steps to correct the false impression until the objectors found out the truth. He had the opportunity to do so when he was cited to the Commission to which I have referred.
Conclusion on question (a)
135. Both Mr Baxter and Mr Baird, as responsible officers of the claimant knowingly presented copies of the fake Elliott/Gardiner letters in support of its claim for compensation. They did so in the knowledge that the claimant had no documentary evidence to vouch the existence of a contractual commitment on the claimant's part, entered into before the Braer incident, to take and pay for the smolts. They uttered these documents with intent to deceive the Braer Claims Office into believing that the claimant's alleged contractual commitments were vouched by contemporary correspondence setting out the terms of the contracts. They did so as part of a scheme to further a substantial claim for compensation. When that part of the claim was rejected by the Braer Claims Office, they persisted in it, and on the same false basis, by raising an action in this court against The Braer Corporation and Skuld, in which IOPCF compeared as minuters, and in due course by renewing it in the present claim in the Skuld limitation process.
136. Mr Baxter's dishonesty is, I think, simply explained. He regarded the companies in the group as one single enterprise. The Braer incident had caused a substantial loss. The legal niceties as to where the loss had fallen were not his immediate concern. He saw the loss as a loss to the overall enterprise. In his determination to gain compensation for it he sought to present the present claim on the strongest basis that he could find. Having been advised of the significance of there being documentary evidence relating to the January and March smolts, he had the necessary evidence created.
137. Mr Baird's complicity is less easily explained because he had nothing to gain from the deception and much to lose. It was my impression that he was a quiet and hard-working person who had been caught up in a deception that may have seemed rather venial to him at the outset. He regarded Mr Baxter's word as law and was accustomed to doing as he was told. I think that he acted under pressure from Mr Baxter that he was unable to resist.
XVI Question (b)
138. Since I have decided that both Mr Baxter and Mr Baird, as responsible officers of the claimant, had false documents presented to this court in support of the claimant's claim for compensation, the second question then arises, namely whether as a result the claim should be refused without further procedure.
The argument for the objectors
139. The objector Mr Eunson pleads that by reason of the fraud, it is contrary to public policy for the court to adjudicate upon the claim (plea 7). IOPCF and Messrs Robb plead that since the claimant has used the court process to further an unlawful purpose the claim should be refused in limine (plea 6).
140. Counsel for the objectors argued that the court had an inherent power to prevent misuse of its procedure where, for example, such misuse would be manifestly unfair to the other party or would otherwise bring the administration of justice into disrepute among right-thinking people (Hunter v Chief Constable of West Midlands Police [1982] AC 529, Lord Diplock at p 536C-D). This principle had been applied in Scotland (Levison v Jewish Chronicle Limited 1924 SLT 755). The power had been exercised recently in England where a remedy had been sought on the basis of a false case (Arrow Nominees Inc v Blackledge [2000] 2 BCLC 167). It was particularly appropriate that the power should be exercised by the court in this case. There had been a deliberate attempt to deceive the court. Those responsible had falsely denied their complicity in it. Moreover, if the court allowed the claim to go ahead, it would, in consequence of Mr Baxter's evidence at the preliminary proof, be bound to fail. Mr Baxter's evidence as to the true account of the formation of the contracts with Terregles was at odds with the revised case pled on record. His evidence at its highest amounted to no more than the suggestion that the necessary contractual formalities would be entered into at a later date and that his plan could be changed at any time. On that account of the matter, there could not have existed on the part of either company an intent to engage in a contractual relationship at August 1992, or at any other date before the Braer mishap (cf. Stair, I.x.13; Bell, Princs, para 10).
The argument for the claimant
141. Counsel for the claimant argued that the refusal of the claim at this preliminary stage of the proceedings would unfairly penalise the claimant. It would amount to confiscation of a valuable right of property, namely the claimant's right to statutory compensation. Such an outcome would be out of all proportion to the alleged impropriety and would be inflicted upon the claimant for reasons that were unrelated to the question whether or not the claimant had a genuine claim. The forfeiture of the claim would render the limitation fund immune from a genuine claim. The value forfeited would become undeservedly available for distribution among the other claimants. The correct approach was for the court to allow the claimant to have a full hearing on the merits of the claim and, if need be, to bring sanctions to bear on the claimant in respect of any impropriety in the prosecution of it. In this way the merits of the claim and the question of fraud would be dealt with properly as separate issues. If the court were minded at some stage to impose a penalty, it could do so at a time when it could assess the claimants' ability to pay.
142. The claimant also founded on the Human Rights Act 1998 as providing an explicit warrant for this approach. Section 6(1) of the Act, which was in force at the date of the preliminary proof, provides that it is unlawful for a public authority to act in a way that is incompatible with a convention right. This court is a public authority (s. 6(3)). Article 6(1) of the European Convention on Human Rights provides that in the determination of his civil rights and obligations every person is entitled to a fair and public hearing. Article 6 applies to procedural rather than to substantive limitations (Fayed v United Kingdom (1994) 18 EHRR 393 at p. 429; Lester and Pannick, Human Rights Law and Practice, para 4.6.6). The material documents in this case did not found a substantive right but were merely evidence of it. The proof was therefore concerned with the procedural means by which the right was enforced rather than with the right itself. The forfeiture of the claim by reason of such fraud was a procedural matter. The objectors in effect sought a procedural bar to the claim. Osman v United Kingdom ((1998) 29 EHRR 245) was on all fours with the present case. In that case the court struck out a claim in interlocutory proceedings, thereby denying the applicants a full trial on the merits (ibid at p. 315). It was held in that case that Article 6 had been violated. Article 6 does not provide a litigant with an absolute right of access to the court but a limitation of that right was incompatible with Article 6 if it did not pursue a legitimate aim or if there was not a reasonable relationship of proportionality between the means employed and the aim sought be achieved (cf Fayed v United Kingdom, supra, at p. 430; Lester and Pannick, op cit, at para 3.09). If the objectors sought to uphold the dignity and authority of the court, the outright refusal of the claim was out of all proportion to that end. The claimant undertook to prove its claim without reference to the false letters. The claim was of a significant amount. There was no need for the court to go to such lengths to uphold its authority. There were other sanctions available to the court (cf also Zumbotel v Austria (1993) 17 EHRR 116).
Conclusion on question (b)
143. This court has an inherent power to dismiss a claim where the party pursuing it has been guilty of an abuse of process. In doing so it protects the integrity of its procedures by preventing one party from putting the other at an unfair disadvantage and compromising the just and proper conduct of the proceedings (cf. Jacob, "The Inherent Jurisdiction of the Court" in The Reform of Civil Procedural Law, 221ff). But this is a drastic power. The court should exercise the power sparingly, because it may involve the denial of a well-founded claim (cf J A Jolowicz, Abuse of the Process of the Court : Handle With Care, (1990) 43 CLP 77). In considering whether to exercise the power the court must keep in mind the general right of every litigant to pursue his case to judgment, however unpromising his case may seem to the court.
144. There are many diverse ways in which a litigant can abuse the process of the court; for example, by pursuing a claim or presenting a defence in bad faith and with no genuine belief in its merits (eg Lonrho plc v Fayed (No 2), [1992] 1 WLR 1); or by fraudulent means (Levison v Jewish Chronicle Ltd, supra; Arrow Nominees v Blackledge, supra); or for an improper ulterior motive, such as that of publicly denouncing the other party (Lonrho plc v Fayed (No 2), supra, Millett J at 7G-H). Hunter v Chief Constable of West Midlands Police ([1982] AC 529) supports the existence of the court's inherent power in such cases, but the facts of that case are so far removed from those in the present case that I need not consider it further.
145. To found a claim on a false narrative of fact supported by fabricated documents is clearly an abuse of process. The claimant has attempted by this means to obtain compensation of over £1.9 million, a sum that has since been restricted to one of over £1.4 million. The attempt has been aggravated by the fact that those primarily responsible have been untruthful in denying their responsibility. The claimant by these means has misused the time and resources of the court; has put the objectors to expense and inconvenience; and has delayed the progress of these proceedings, and of the Braer proceedings overall.
146. The question is therefore whether this is a case in which the court's inherent power may properly be exercised. In order to decide the point, I need not attempt to formulate a comprehensive statement of principle. It is sufficient for me to consider only those cases where a litigant has been guilty of dishonesty in the prosecution of his case. In such cases, in my opinion, the court's disposal of the matter must depend on the question whether the dishonesty has made a fair trial of the issue impossible (Arrow Nominees Inc v Blackledge, supra, Chadwick LJ at pp 193g - 194h). If it has, the court has a duty to stop the proceedings in order to protect the innocent party from an injustice. But if the dishonesty is found out and desisted from and if, in consequence, a fair trial of the essential claim remains possible, the court ought not to stop the proceedings. To do so in such circumstances would simply be judicial retaliation for the affront to the court.
147. Levison v Jewish Chronicle Ltd (supra) is the only Scottish authority to which I have been referred. It is an example of a case of the first type. In that case the pursuer lodged certain documents which the defenders, after investigation, alleged to be false and fabricated. The pursuer through his agent then borrowed some of the documents from the process and failed to return them. He alleged that they had been lost. The Lord Ordinary did not accept the pursuer's explanation and concluded that the granting of absolvitor would not only be just to the defenders but would sufficiently punish the pursuer for his unjustifiable and improper interference with the ordinary course of justice to the serious prejudice of the defenders. In short, that was a case where the pursuer had made a fair trial impossible.
148. Arrow Nominees Inc v Blackledge (supra) began as an example of the second type of case and ended as an example of the first. In that case in the course of discovery the controlling shareholder in the petitioner handed over documents which he had forged. When the forgery was detected, he at once admitted his guilt. On that basis the trial judge permitted the case to proceed. At a later stage it became clear that the controlling shareholder was persisting in his attempts to deceive the court and therefore to compromise the fairness of the trial. The Court of Appeal held that in those circumstances the trial judge should have brought the proceedings to an end.
149. In my view, the present case falls within the second category that I have described. The deception practised by the responsible officers of the claimant was detected in the course of 2000 and was thereafter desisted from. The claimant no longer founds on the false letters. While there seem to be issues of credibility in the revised version of the claim, there is no suggestion that it is being pursued by fraudulent means, such as the production of false evidence or the suppression of material evidence. All that now remains to be decided is whether the claimant can prove the essential facts of its revised case and, if so, whether the revised case entitles it to compensation.
150. In these circumstances to deprive the claimant of the opportunity to prosecute this claim, which may in its revised version be well founded, would be an excessive and unnecessary disposal of the case. It would amount to a mere punishment of the claimant for its past impropriety.
151. Counsel for Mr Eunson submitted that I should refuse the claim here and now because, in the light of Mr Baxter's evidence, it is a lost cause. I am not prepared to reach a view on that point. Mr Baxter's evidence at the preliminary proof may have created difficulties of fact and law for the revised case; for example, on the question whether a binding contract was entered into by Mr Baxter on behalf of the claimant and Terregles and on questions as to the causation of the claimant's alleged loss. But these are matters that are beyond the restricted remit of the preliminary proof.
152. For these reasons, I have attempted to comment on the evidence of Mr Baxter and Mr Baird on the revised version of the claim only to the extent that it has a bearing on the credibility of their denials of dishonest involvement in the fabrication and uttering of the letters. The questions raised on behalf of Mr Eunson can be decided only after a proof on the merits and only after the claimant has had a proper opportunity to make submissions on those questions and on others that may arise.
153. On the view that I have taken, it is unnecessary for me to decide the human rights point.
154. I shall therefore answer question (b) in the negative.
XVII Interlocutor
155. I shall pronounce an interlocutor answering question (a) in the affirmative; and question (b) in the negative. I shall put the case out by order so that I can hear counsel's proposals as to future procedure and the disposal of pleas.