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Cite as: [2005] CSIH 8, [2005] ScotCS CSIH_8

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Shetland Seafarms Ltd & Anor v. International Oil Pollution Compensation Fund & Ors [2005] ScotCS CSIH_8 (19 January 2005)

EXTRA DIVISION, INNER HOUSE, COURT OF SESSION

Lord Marnoch

Lord Macfadyen

Lord Johnston

[2005CSIH8]

XA72/03

OPINION OF THE COURT

delivered by LORD MARNOCH

RECLAIMING MOTION

at the instance of

SHETLAND SEAFARMS LIMITED

Claimant No. 71;

In the Multiplepoinding raised by

ASSURANCEFORENINGEN SKULD

Pursuers;

against

INTERNATIONAL OIL POLLUTION COMPENSATION FUND AND OTHERS

Defenders;

with Notes of Objection by

ALEXANDER EUNSON

First Objector;

THE INTERNATIONAL OIL POLLUTION COMPENSATION FUND

Second Objectors;

and

JAMES LEIPER ROSE ROBB AND BRIAN ROBB

Third Objectors:

_______

Act: Wylie, Q.C., Bowie; Harper McLeod (Claimants)

Alt: Scott, Q.C., Howie, Q.C.; Henderson Boyd Jackson, W.S., Morton Fraser (First and Second Objectors)

19 January 2005

[1] The present reclaiming motion forms part of a series of litigations arising out of the grounding of the oiltanker, Braer, which occurred at Garths Ness, Shetland on 5 January 1993. It is sufficient to say that the only issue now raised in the reclaiming motion is whether the Lord Ordinary was entitled, in terms of his interlocutor of 28 May 2003, to allow to parties, inter alia:

"a Proof before Answer on quantum quoad those parts of the claimants (sic) condescendences (sic) and claim and the objections thereto that relate to alleged loss of profits, ... ".

[2] Whether or not the Lord Ordinary was so entitled depends on whether he was correct in his view that the pleadings enabled the claimants to pursue a claim for alleged loss of profits independently of the earlier formation of a forward contract for the sale to the claimants by Terregles of consignments of smolt to be delivered in January and March 1993. On the evidence led before him in the restricted Proof on liability, the Lord Ordinary held that the alleged forward contract was not established. The position of the claimants, who originally marked but later abandoned the reclaiming motion, is that he was so entitled. The first and second objectors, on the other hand, in taking advantage of the reclaiming motion, submit that, as a matter of pleading, the only claim for loss of profit open to the claimants is a claim which presupposes the existence of the forward contract and that, accordingly, it cannot survive the Lord Ordinary's rejection of that relationship.

[3] The averments on which the claimants found as supporting an independent claim for loss of profit follow on from the averments in Condescendence 8(vii) in which they claim to have suffered substantial "shortfalls" between what they say was the cost of smolt which they were contractually obliged to take from Terregles but could not accommodate due to the oil spillage resulting from the casualty, on the one hand, and, on the other hand, the sums which they were able to realise by selling on the smolt elsewhere. In setting out their claim for those shortfalls, the claimants aver inter alia that:

(i) "[in] or about August 1992 Mr. Baxter [the principal of all of the companies

involved] determined on behalf of Terregles and the claimants that all smolt produced by Terregles ... 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";

(ii) "[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 4000,000 smolt"; and

(iii) "[the] price to be paid to Terregles for the 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".

All of these averments, it seems to us, were primarily made in the context of setting out the claim for recovery of the shortfalls. The averments then continue as follows:

"In addition the claimants have suffered loss of profit which they would otherwise have made on said smolt. It is reasonably estimated that of the 566,659 smolt (400,000 and 166,659) a percentage would have died before harvest. For the purposes of the present claim the claimants have reasonably allowed for a mortality rate of 46.12% being the average mortality rate for all smolt from the hatcheries transported to Shetland in 1992. But for said oil contamination the remaining 305,316 fish (53.88% of 566,659) would have been harvested between March 1994 and October 1994. It is reasonably assumed that the number of fish to be harvested would have been evenly distributed during that period. It is further reasonably estimated that the weight of each of said fish harvested would have averaged 3.4kgs during the months of March and April and thereafter 3.5kgs, 3.6kgs, 3.7kgs, 3.8kgs, 3.9kgs and 4.0kgs during the months of May, June, July, August. September and October respectively, thus giving a total harvest weight of 1,118,219.4kgs. The profit per tonne on salmon during the months of March, April, May, June, July, August, September and October of 1994 was about £653, £1,028, £1,249, £1,056, £945, £767, £908 and £730 respectively. On the basis that the sale of the said total number of fish to be harvested would have been evenly distributed throughout the said months, the total figure representing the claimants' loss of profit is accordingly estimated to be £1,021,376.22."

The only other immediately relevant passage occurs at p. 30C of the closed record where, in reference to the first objector's answers, there appears the following averment:

"Further and in any event esto the claimants are not entitled to claim the shortfall between the price which they paid for said smolt and the sums realised on sale (which is denied) they are still entitled to said loss of profit which they would otherwise have made on said smolt. The claimants previous averments are referred to for their terms".

The answers to which these averments refer are diffuse but inter alia attack the existence of the contractual relationship referred to above.

[4] In the end, the Lord Ordinary concluded that the claim for loss of profits was not perilled upon the existence of the contractual relationship or any other form of enforceable obligation as between Terregles and the claimants. He does not elaborate much on the arguments advanced to him in that connection. Nor, indeed, does he explain his reasoning at any length. In particular, he does not appear to place any reliance on the "esto" averments referred to above. Despite everything said by counsel for the claimants, we find it difficult to see how the Lord Ordinary reached the conclusion he did without reliance on these "esto" averments. Without these averments, there is in our view no hint that the averments about the destination, numbers and price or value of the Terregles smolt were intended to support a case for loss of profit independent of the forward contract. However, in our opinion, the esto averments, while they might have been better expressed, do make clear an intention on the part of the claimants to advance a loss of profit claim independently of the contractual relationship. The employment of the phrases "the shortfall", "said loss of profit" and "said smolt" and the reference back to the claimants' previous averments, although understandably relied on by counsel for the objectors, do not, in our view, preclude that construction. This is particularly so in the context of a claim under section 1 of the Merchant Shipping (Oil Pollution) Act 1971 where the form in which a claimant's loss is incurred or established is in general unimportant. Nor, in our opinion, is it reasonable to construe these "esto" averments, as we were invited to do by counsel for the objectors, as referring to an argument which was canvassed at an earlier stage of this litigation to the effect that the two claims for wasted expenditure and loss of profit in some way involved "double counting" and were thus inimical. There is nothing about that in the answers to which these "esto" averments bear to be a response. Furthermore, those averments were introduced by amendment after that issue had ostensibly been resolved at debate in favour of the claimants.

[5] Lest it be thought that the matter has been overlooked we note, for the record, that, in the course of their submissions to us, counsel for the objectors placed considerable reliance on certain dicta of the Lord Ordinary (Lord Gill) when considering the pleadings now before us in the quite different context of prescription. Lord Gill's Opinion is reported in 2000 S.L.T. at p. 1348 sub nom Assuranceforeningen Skuld v. International Oil Pollution Compensation Fund (No. 2). The question before Lord Gill was whether a modification of the claimants' averments regarding the circumstances giving rise to the contractual relationship between themselves and Terregles amounted to a "new claim" which had prescribed by virtue of section 9 of the Merchant Shipping (Oil Pollution) Act 1971. In that context, at page 1351 of the Report, Lord Gill notes an argument advanced by counsel for the claimants that

"If prescription had any application in this case it could apply at most to the claim for wasted expenditure. The claim for loss of profits was a separate claim unaffected by the question regarding the circumstances in which the contracts were concluded."

In reference to that argument Lord Gill, at p. 1352, says this:

"The claim made in the action for compensation was a claim under section 1 of the 1971 Act in respect of damage caused by contamination resulting from the discharge or escape of oil. The damage alleged in that action, and in the original version of the present claim, consisted of wasted expenditure and loss of profit resulting from the claimant's inability to fulfil contractual obligations to take delivery of smolt in January and March 1993. That remained the basis of the claim and the claim remains calculated, by reference to quantities and price, in exactly the same way ...

If I had held that the claim for wasted expenditure had prescribed, I would have held that the claim for loss of profit had prescribed too. In my view, the latter claim is not a free-standing claim. It is integral with the wasted expenditure claim and relates back to the contractual obligation said to have been owed by the claimant to Terregles."

[6] On the argument as presented to Lord Gill, what he says in these passages may well have appeared correct. In our opinion, however, the dicta in question are clearly obiter and they were pronounced without the benefit of the very different, and perhaps more detailed, argument enjoyed by this court. There is, for instance, no reference anywhere in the Report to the "esto" averments to which we, for our part, attach considerable significance. In these circumstances, but with all due respect to their author, we are not, for present purposes, disposed to follow the dicta in question.

[7] Counsel for the objectors advanced a separate ground of appeal to the effect that, even if a "free-standing" claim for loss of profits had been averred, it was a claim which was essentially lacking in specification. In our opinion, however, the very phrases to which counsel for the objectors drew attention, viz the references to "said loss of profit" and "said smolt" make clear that the claimants are perilling this "free-standing" claim on proof of exactly the same numerical components as had earlier been averred in relation to the case which presupposed a contractual background. In this connection, it is important to note that in the earlier averments it was narrated that the price agreed in relation to the forward contracts "reflected" what was at that time also the "market value" of the smolt.

[8] Lastly, counsel for the objectors submitted that, if we were to hold, as we have done, that a "free-standing" claim for loss of profits was introduced by the "esto" averments, then, nonetheless, since these averments had been added by amendment more than 6 years after the casualty, the claim had now prescribed by the operation of section 9 of the 1971 Act.

[9] The first problem about this argument is that there is no plea in law to support it. Plea in law 7 for the first objector, which was relied on by counsel for the objectors, was, in our opinion, clearly directed to the quite separate matter which was adjudicated on by Lord Gill in the Opinion to which we have already referred.

[10] In any event, however, we are of opinion that the argument is in substance unfounded. In the course of his Opinion Lord Gill, at the behest, it seems, of both parties, adopted as the relevant test that of whether the "new claim" had been "so altered in character as to be presented on a fundamentally different legal basis". At a later point he refers to the "nature" of the section 1 claim having not been materially altered by the change in the averments. Counsel for the objectors relied on this analysis. They argued that a claim for loss of profit suffered independently, without an antecedent contract for the smolt, was fundamentally different from the claim for loss of profit which was based on antecedent contract. Counsel for the claimants, on the other hand, submitted that any claim under section 1 of the 1991 Act of necessity proceeded on the same legal basis and that, having regard to the wording of Article VIII of the International Convention on Civil Liberty for Oil Pollution Damage 1969, which section 9 was designed to implement, the reference in section 9 to a "claim" meant no more than an assertion of a right to compensation under section I. Lord Gill had accordingly erred in the general approach which he had taken to the matter.

[11] In the circumstances, we find it unnecessary to decide the question - perhaps interesting question - focused in the preceding paragraph. Because, even on the assumption that the test or tests adumbrated by Lord Gill fall to be applied, we are clearly of opinion that the "free-standing" claim introduced by the "esto" averments did not differ either in its "legal basis" or "nature" from the claim for loss of profits which was always on record. Although the quantum of that claim was calculated by reference to what was said to have been the purchase price of smolt under an earlier contract, the claim for loss of profits was, as such, always distinct from that contract and related, quite simply, to the inability of the claimants to use their fish farm in a profitable manner. The new "free-standing" claim is of precisely the same nature and proceeds on exactly the same basis.

[12] For all the foregoing reasons we shall refuse the reclaiming motion as insisted in by the first and second objectors, adhere to the Lord Ordinary's interlocutor of 28 May 2003 and remit back to the Lord Ordinary to proceed as accords.