Scottish Court of Session Decisions

Pursuer: Clark QC, Lindsay; Biggart Baillie LLP

Defender: Wolffe QC, Gill; DLA Piper LLP

31 May 2011

[1] In this action the pursuer ("Marine Harvest") seeks payment of over £3,000,000 under a policy of insurance which it took out with the defender ("NEMI"), a Norwegian insurance company, in May 2007. The policy cover started on 1 June 2007. Within days, staff at Marine Harvest's fish farm at Loch Boisdale, South Uist, became aware of large scale mortality among its fish stocks and on about 7 June 2007 asked its brokers to intimate a claim under the insurance policy to NEMI.

[2] Marine Harvest intimated to NEMI that the cause of the deaths was pancreas disease ("PD"), which is a condition resulting from the exposure of salmon to the salmonid alphavirus ("SAV"). SAV causes pathology in the pancreas, heart and skeletal tissue of the fish and can be detected by testing serum of fish for the virus and antibodies, by the histological examination of tissue for identifiable pathology, and by the identification of a genetic marker of the virus in serum or tissue in a process known as reverse transcription polymerase chain reaction ("RTPCR").

[3] Before the high level mortalities occurred in June 2007 and afterwards, Marine Harvest employees had suspected the presence of PD in the Lochboisdale site in January 2007 and discovered the presence of SAV in a sample of blood taken from a fish on 20 February 2007. They implemented a PD action plan in March 2007 by altering their methods of husbandry to minimise the impact of SAV on their fish stock and monitored the stock by taking samples of blood for viral culture and serology and by taking histological samples. Some samples gave negative results. Other samples gave evidence of sero-conversion, which caused the staff at the site to attribute most of the relatively low levels of mortality on the site between March and May 2007 to suspected PD. After the occurrence of high levels of mortality in early June 2007, the staff at Lochboisdale recorded the cause of the deaths in their daily records as PD.

[4] In the discussions between Marine Harvest staff and representatives of NEMI in the summer and autumn of 2007 it was assumed that the cause of the mortalities was PD. That was the belief at that time of Mr David Cockerill, who was Marine Harvest's veterinary surgeon with responsibility for sites including Lochboisdale. In August 2007 Mr John McCluskie, a loss adjuster appointed to report to NEMI, visited the site and spoke with Marine Harvest staff. Marine Harvest provided NEMI with almost all the reports of their sampling of the fish stock. In terms of the insurance policy NEMI had the right itself to take samples of the stock. In late October 2007 employees of Marine Harvest had a meeting with NEMI employees and on 9 November 2007 Mr Kenneth MacIntosh of Marine Harvest sent NEMI a letter with detailed reports of the sampling of the stock. He contended that the outbreak of high mortalities due to PD on the site occurred only after the insurance policy commenced on 1 June 2007 and that Marine Harvest had had no reason to suspect before then that the low level presence of PD on the site would cause high mortalities.

[5] Once the fish began to die in large numbers, Marine Harvest staff concentrated their efforts on crisis management and took relatively few samples of the fish stock. Marine Harvest took samples periodically in the first half of 2007 including twelve samples on 30 May, shortly before the high levels of mortality manifested a major problem or problems on the site. Sampling thereafter was intermittent and on a modest scale. Two samples were taken on 26 June, four or six samples on 4 July, five samples on 25 October, two samples on 20 November and five samples on 28 November. NEMI took no samples. In February 2008 the surviving stock was harvested; the opportunity for further sampling was removed.

[6] In April 2008 Professor Ferguson of the Institute of Aquaculture at the University of Stirling called into question the differential diagnosis of PD. Professor Randolph Richards of the Institute of Aquaculture also advised Marine Harvest. Neither supported the differential diagnosis of PD. They suggested that cardiomyopathy syndrome ("CMS")] or heart and skeletal muscle inflammation ("HSMI") and environmental factors might have contributed to the deaths. Thereafter, Marine Harvest suggested to NEMI that the cause of the mortalities was a disease other than PD.

[7] The insurance policy, in paragraph 1 of the special conditions, provided cover against "the sudden or unexpected death of the insurance object during the insurance period if caused by disease." In paragraph 4 of the special conditions the policy gave extended coverage which included "the sudden and unexpected death of the insurance object during the insurance period."

[8] In the summons in this action, which was served on 14 November 2008, Marine Harvest asserted that the cause of the death of the fish was an unspecified disease and pursued its claim under paragraph 1 of the special conditions of the insurance policy. After receiving further scientific advice on the cause of the death of the fish, Marine Harvest adjusted its pleadings on 10 February 2010 to claim under paragraph 4 of the special conditions and asserted that the pattern of the mortalities was inconsistent with deaths having been caused by disease.

[9] In the months immediately preceding the commencement of the proof, RTPCR tests were carried out on preserved tissue from samples taken from the Lochboisdale stock in 2007. NEMI amended its pleadings in an extensive minute of amendment. In that amendment NEMI asserted that the pattern, scale and timing of the mortalities at Lochboisdale were consistent with a PD outbreak and were not typical of other diseases.

[10] Between 20 April and 12 May 2011 I heard about twelve days of evidence interspersed by public holidays for, among other occasions, Easter and the Royal Wedding. On Friday 13 May counsel for NEMI presented a minute of amendment which sought to add the following averments:

"If the pursuers had intimated a claim on the basis that the deaths were sudden and unexpected instead of (as was the case) deaths caused by PD the defenders would have requested that sampling be undertaken to determine the cause of death at that time. The pursuers' change of position occurred after the opportunity to take further samples had been lost. In the circumstances the pursuers are barred from asserting that the deaths were not caused by PD."

NEMI's submission

[11] Mr Wolffe QC for NEMI invited me to allow the minute of amendment to be received and to appoint Marine Harvest to lodge answers to it. He founded on the famous dictum of Lord Birkenhead in Gatty v MacLaine 1921 SC (HL) 1, at p.7 in which he encapsulated the principle underlying personal bar in these terms:

"Where A has by his words or conduct justified B in believing that a certain state of facts exists, and B has acted upon such belief to his prejudice, A is not permitted to affirm against B that a different state of facts existed at the same time."

Mr Wolffe submitted that Marine Harvest had changed its position on two occasions. First, having claimed the deaths were caused by PD, it altered its position in June 2008 when it asserted that the cause was some other disease. Secondly, in February 2010 it switched its claim from paragraph 1 to paragraph 4 of the special conditions of the insurance contract and ceased to assert that the deaths were caused by disease. While the loss adjuster for NEMI, Mr McCluskie, had had the right to take samples of the fish from Lochboisdale, he had seen no need to do so as he accepted Marine Harvest's assertion that the cause was PD. Mr Cockerill in cross-examination had expressed regret that he had not obtained more samples during the period in which the Lochboisdale fish farm had suffered high mortalities. The issue between Marine Harvest and NEMI in 2007 and early 2008, when the fish remained on the farm, was whether the PD outbreak had commenced before NEMI's cover insurance began and not what was the cause of the deaths. By the time Marine Harvest changed its position, it was too late to obtain samples of fish to ascertain conclusively the cause of the deaths. As a result NEMI had been prejudiced. If Marine Harvest in 2007 or early 2008 had presented its insurance claim on the basis of sudden and unexpected deaths of unknown causation, NEMI would have instructed the taking of samples to narrow down the causes of the mortalities.

[12] Mr Wolffe accepted that the minute of amendment could have been tendered much earlier and that it was "very late." He submitted that the ultimate test was the interests of justice and pointed out that there was due to be a three-month gap before the second and final instalment of the proof. That time would allow Marine Harvest to undertake any investigations which it needed; had NEMI proffered the minute of amendment three or four months before the proof began it was likely that the court would have granted it. The gap before the next diet in the case gave a similar opportunity.

Discussion

[13] I refused NEMI's motion and undertook to give my reasons in writing. I set out my reasons in this opinion.

[14] I am satisfied that it is not fair or in the interests of justice to allow receipt of the minute of amendment first and principally because it comes much too late. NEMI could have raised the issue in its defences at any time after the action began. If there is substance in the assertion of prejudice, it is surprising that NEMI did not raise the issue when Marine Harvest introduced its claim under paragraph 4 of the special conditions in February 2010. Mr Clark QC for Marine Harvest submitted it was likely that he would have to recall several of the witnesses whom he had already led. He would have to investigate precisely who said what to NEMI and its loss adjuster. The employees of Marine Harvest, who had spoken with Mr McCluskie when he visited Lochboisdale and who dealt with him and NEMI in the pursuit of the claim, and also Marine Harvest's brokers would have to be interviewed and several would probably have to be recalled. There was a real prospect of extending the proof by several days. He submitted that he would also have to investigate the practice of aquaculture insurers in relation to the taking of samples and also take advice on Norwegian law, which governed the contract. There was a prospect of having to call additional witnesses.

[15] It was not disputed that the interests of justice included the efficient conduct of litigation. As Mr Clark submitted, one of the factors which the court takes into account in the exercise of its discretion is whether the facts which a party seeks to introduce by amendment have been known or were ascertainable from the outset or in any event much earlier than the date on which the amendment is proposed: Thomson v Corporation of Glasgow 1962 SC (HL) 36, Lord Mackintosh at p. 57, Chapman v James Dickie & Co (Drop Forgings) Ltd 1985 SLT 380, Lord Justice-Clerk Wheatley at p.381, and my decision in Reynard v Exquisite Quisine Ltd [2005] CSOH 146, at paragraph 103.

[16] Secondly, it appears to me that the rather bland amendment, which NEMI proposes, is of dubious relevancy. In this regard I have in mind both the nature of the representation and the implicit assertion of prejudice. It is correct that Marine Harvest claimed under the insurance policy on the basis of deaths caused by PD. But it also provided NEMI and its loss adjuster with the reports of the sampling of the fish which showed both that PD was only a differential diagnosis and that there were results which were inconclusive or which pointed away from that diagnosis. It was therefore open to NEMI to explore the cause of the mortalities if it had so wished. Further, Mr Wolffe accepted that Marine Harvest was not barred from pursuing a claim under paragraph 4 of the special conditions simply because it had initially claimed under paragraph 1. Thus in the second half of 2007 and early 2008, when the fish were dying but stocks remained at Lochboisdale, NEMI must be taken to have known that Marine Harvest could pursue a claim under paragraph 4 of the special conditions, if it changed its view of the cause of the deaths. Faced with a differential diagnosis of PD, the insurer could, if it wished, have instructed further sampling. In my opinion it is important to view in the round what is said to have been the representation.

[17] This is significant because, as Lord MacFadyen stated in delivering the opinion of an Extra Division in Ben Cleuch Estates Ltd v Scottish Enterprise 2008 SC 252, at pp.274-5, the most important word in Lord Birkenhead's dictum in Gatty v Maclaine is "justified." That Marine Harvest believed at the time that it was dealing with a PD outbreak is clear. That it told NEMI of that belief when it submitted its claim is undisputed. But it provided NEMI with the evidence from the sampling which had led to that belief and it did nothing to justify NEMI in the belief that it would not claim under paragraph 4 of the special conditions if it were later to change its differential diagnosis.

[18] Mr Wolffe submitted that it was not necessary to induce a belief that a right would not be asserted for personal bar to operate. He pointed out that Lord Birkenhead spoke of a belief that a certain state of facts existed: Marine Harvest caused NEMI to believe that the deaths were caused by PD and, by so claiming, invited the insurers to pay out on that basis. Later it advanced an inconsistent explanation of the deaths. That inconsistency as to fact, he submitted, was sufficient for bar to operate. In my opinion, A's inconsistency as to fact may be sufficient to ground a plea of bar where A makes a representation of fact on which B has justifiably acted or abstained from acting and thereafter A seeks to make a different state of affairs the basis of the assertion of a right against B, thereby making B's act or abstinence a source of prejudice: see William Grant & Sons Ltd v Glen Catrine Bonded Warehouse Ltd 2001 SC 901, the Lord President (Rodger) at paragraph 42. But the inconsistency on A's part will only give rise to bar if it would be unfair for A thereafter to exercise his right against B. As Reid and Blackie state in "Personal Bar" at paragraph 2.01, "the two elements of bar are ... inconsistency and unfairness."

[19] For unfairness to exist there must be a causal link between A's inconsistent conduct and the prejudice which B suffers through the assertion by A of his right. But that alone is not sufficient. In addition, the manner in which A has occasioned or induced B's belief, in other words A's culpability, is relevant: Grundt v Great Boulder Pty Gold Mines Ltd (1937) 59 CLR 641, Dixon J at p.675. So also is the proportionality of B's behaviour as a result of the induced belief. I acknowledge that the Extra Division stated in Ben Cleuch Estates Ltd at paragraph [89] that it was an error to separate the question of whether a representation justified belief in its truth from the question of the purposes for which a reasonable man might rely on it. I do not doubt, and am in any event bound by, that statement as a generalisation. In that paragraph the court also stated:

"That proposition may perhaps be subject to exception where, for example, the representation is so qualified in its terms as to convey to the reasonable man that it is not to be relied on for certain purposes, or where the circumstances of reliance are utterly remote from the circumstances with reference to which the representation was made; but the generalisation is in our opinion sound, and applicable in the present case. Where the unqualified representation is that a particular party is the present landlord under a lease, the tenant who is justified in believing that representation is, in our opinion, entitled to rely on it for all purposes of the lease."

It seems to me that the generalisation may also not apply where the contractual arrangements between A and B are such that B must be taken to know that A is entitled to make a claim under one provision of a contract, change his mind and then make an inconsistent claim under another provision.

[20] In submitting a claim under paragraph 1 of the special conditions of the insurance policy and evidence to support that claim, Marine Harvest must be taken to have intended NEMI to act on its assertions and accept that claim. But where NEMI knew that an insured could claim under paragraph 1 and then change its mind and claim for the same loss under paragraph 4, and where the evidence of the cause of the deaths which Marine Harvest proffered was no more than a differential diagnosis, it is hard to see that Marine Harvest's initial basis of claim justified NEMI in abstaining from investigating the cause of the deaths. Marine Harvest's change of position did not involve a denial of the sample results on which it had relied in making its paragraph 1 claim but amounted to a re-interpretation of their meaning in the light of further expert advice. I cannot view that as in any sense blameworthy.

[21] Turning to the nature of the prejudice, Mr Wolffe candidly admitted that it was possible that, if further samples had been taken, they would have supported Marine Harvest's explanation of the deaths rather than NEMI's view that PD was the cause. The prejudice, which NEMI allegedly suffered, therefore was the loss of the opportunity to obtain further evidence which might or might not have supported its case. Further, as I have stated in paragraph [5] above, some samples were taken after the numbers of deaths increased exponentially in early June 2007. Like the earlier samples, they were not on a scale which could give statistically significant results. But they add to the picture which the earlier samples provided and with other evidence appear to have allowed the experts whom the parties have instructed to express views on the likely causes of the deaths. While further sampling would probably have enabled parties to have greater certainty as to the cause or causes of the deaths, it was not suggested that the court could not reach a conclusion as to the cause or causes on the balance of probability. What the parties have lost by the absence of further sampling is better evidence on that issue.

[22] A further factor, to which Reid and Blackie draw attention at paragraphs 2.59 - 2.61 of their book, is the proportionality between the value of the right which would be barred and the unfairness which resulted from the inconsistent conduct. In my view it would be disproportionate to exclude Marine Harvest's substantial claim on the basis that NEMI had lost the opportunity to obtain better evidence, when there is evidence available which has allowed experts to express views as to causation.

[23] Accordingly I consider the proposed amendment to be of dubious relevancy.

Conclusion

[24] Being satisfied that it was not in the interests of justice to receive the proposed amendment (a) because it came too late and would disrupt the orderly progress of the proof to the prejudice of Marine Harvest and (b) because it was in any event of doubtful relevancy, I refused to receive the minute of amendment and awarded Marine Harvest the expenses occasioned by the motion.