Ariela, The Owners of the Ship v Kamal XXVI, The Owners And/or Demise Charterers of the Dredger [2009] EWHC 3256 (Comm)

[2009] EWHC 3256 (Comm)Case No 2009 Folio 669 and 2006 Folio 375
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Venue Royal Courts of Justice, Strand, London, WC2A 2LLDate 10 December 2009
Before
MR JUSTICE BURTON
Between
THE OWNERS OF THE SHIP ARIELAClaimantTHE OWNERS AND/OR DEMISE CHARTERERS OF THE DREDGER KAMAL XXVI AND THE BARGE KAMAL XXIVDefendant
Timothy Hill QC and Jeremy Lightfoot (instructed by Russell Ridley & Co) for Claimant for The Defendant did not appear and was not representedHearing Hearing dates: 2 December 2009
Judgment
[1]This has been the hearing of the claim by the Claimants, the owners of the ship Ariela (whom I shall call “Ariela”), against the owners and/or demise charterers of the dredger Kamal XXVI and the barge Kamal XXIV (whom I shall call “Kamal”). Ariela were previously defendants to a claim brought by Kamal, arising out of a collision between the vessel Ariela and the barge Kamal XXIV, said to have caused the barge itself to collide with the dredger Kamal XXVI, with the alleged result of causing substantial damage to both barge and dredger, leading on to very considerable consequential loss. A claim was made by Kamal for US$1,296,583 (consisting of US$681,423 repair costs, and US$484,584 for loss of use, in respect of the dredger and US$65,139 repair costs and US$62,600 towage and loss of use in respect of the barge) plus 1% ‘business disruption’ or ‘agency’, plus interest and costs. Kamal obtained judgment, in the event, after a quantum hearing lasting eight days before me between 20 and 30 January 2009, in the total sum of US$6,245, a recovery of less than 0.05% of their purported claim. I refer to my judgment, dated 10 February 2009 [2009] EWHC 177 (Comm) for the full history and picture: I do not intend to repeat all of what I said, and found, in that judgment, but I treat it as effectively incorporated into this judgment: suffice it to say that I referred, in paragraph 4 of the judgment, to a “startling picture of wholesale jettisoning of the vast majority of the claim, which was so substantially overblown”.[2]The collision occurred on 30 April 2004. A demand for security was made in a sum of more than US$1.3m in May 2004, which was subsequently provided by way of a collision undertaking. Proceedings were not issued until 24 April 2006 and, as is usual in the Commercial Court, there were split hearings as to liability and quantum. After a two-day hearing before David Steel J, he concluded that Ariela was 100% at fault in respect of the collision, giving judgment in Kamal’s favour, and, by an agreed order, sealed on 31 October 2007 (“the Liability Costs Order”), Ariela were to pay Kamal their costs of the action to date, to be subject to a detailed assessment on the standard basis if not agreed, with an order for an interim payment on account by Ariela to Kamal in the sum of £65,000, payable within 14 days, which sum Ariela duly paid. In the light of the evidence as it came out, prior to and during the quantum hearing, although I gave judgment for Kamal in the sum referred to of US$6,245, I ordered Kamal on 10 February 2009 to pay Ariela’s costs of the quantum hearing, to be assessed, on the indemnity basis, and made an interim order for payment on account by Kamal to Ariela of the sum of US$325,000, payable within 28 days. None of that sum has been paid by Kamal.[3]As presaged by Mr Hill QC, who appeared then, and before me now, on behalf of Ariela, in his closing submissions (see paragraph 4 of my judgment), Ariela have subsequently sought to set aside the Liability Costs Order as obtained by fraud. They issued an application in the original proceedings, and subsequently also issued separate proceedings by way of an action to set aside the Order, insofar as such might be necessary in the light of such authorities as Flower v Lloyd [1877] LR 6 Ch. D. 297 (CA) and Kuwait Airways Corporation (The Iraqi Airways Co and Another (No 2)) [2001] 1 WLR 429; and the application and the separate proceedings have been consolidated, such that the amended statement of case stands in the consolidated proceedings.[4]As I set out above, Kamal have not complied with the order of 10 February 2009. They issued an application on 17 March 2009 to strike out Ariela’s fraud claims, and, by order dated 29 April 2009, I directed (on Ariela’s application) that Kamal should not be permitted to proceed with any such application unless and until they had complied with that[5]Ariela’s primary claim is to set aside the Liability Costs Order made by David Steel J and for me to substitute an order that Kamal pay Ariela’s costs of the entirety of the original action on the indemnity basis, with an interim order providing for payment on account of such costs. Ariela’s alternative basis of claim is for damages for Derry v Peek ([1889] 14 App Cas 337) fraud; such damages would be their costs of defending Kamal’s fraudulent claim, and the sum that they were required to pay, by way of interim payment on account, in respect of David Steel J’s order, and there would be, consequential upon the finding of fraud, the setting aside of the balance of that order, so that they would no longer be under any continuing liability to make payment.[6]The fraud alleged by Ariela, on which both alternative claims are based, is a very straightforward one. What occurred on 30 April 2004 was, as indeed I described in my earlier judgment, hardly worth dignifying with the definition of ‘collision’. The vessel Ariela rubbed along the side of the barge, which had the knock-on effect of causing the barge to collide with the dredger. As I found, and as Ariela allege Kamal well knew, virtually no damage was caused by that collision (none at all to the barge and almost none to the dredger). Ariela allege that, fraudulently, Kamal asserted that massive damage had been done to both barge and to dredger, with massive alleged economic consequences, when they knew that such was not the case. What they did was to take the opportunity to allege that all kinds of costs (insofar as incurred at all) and losses ensued from that minimal collision, which they knew not to be the case, and in particular: i) In respect of the dredger, this was in poor condition: as set out in paragraph 5 of my judgment, it had not been in dry dock for some years, and was imminently due for its 5-year class inspection (for which a final 3-month extension to 2 September 2004 had only just been given, pursuant to a request by Mr Vishan Kewalramani (“Mr Kewalramani”) on 18 April, only 12 days prior to the collision). This was a ‘heaven-sent’ opportunity to get all and any necessary repairs done at the expense of Ariela. ii) In particular, substantial damage had been done to the dredger on or about 1 March 2004, which Kamal had been alleging was the responsibility of Mormugao Port Trust (see in part paragraph 26 of my judgment), but which now was to be alleged to have been the responsibility of Ariela. iii) The barge itself was (it became common ground by the time of the quantum hearing – see paragraph 40 of my judgment) in very poor condition prior to the incident, such that, as I concluded, it was simply a heavily-used working barge (paragraph 16 of my judgment), the restoration of which Kamal took the opportunity to seek to charge up to Ariela.[7]This, Ariela submits, was not simply opportunism. Kamal’s representation, both in order to obtain the security and then consistently thereafter, in particular by reference to a purported estimate from Colombo Dockyard Ltd for works allegedly to be carried out to the dredger, and by false assertions as to loss of use, loss of hire, towage and bunkers, led to the proceedings, with a Claim Form, and subsequently Particulars of Claim, supported by statements of truth. This was followed up by witness statements, in particular by Mr Kewalramani, which I found (see paragraphs 7 to 13 of my judgment) lacking in credibility and inconsistent with the known facts. This consistent representation, that loss of more than US$1m was suffered by them as a result of the collision, was made by Kamal with knowledge of its falsity and in the absence of any genuine belief in its truth.[8]I shall address in due course the precise legal basis for the two alternative claims, but suffice it to say that, so far as relates to the Derry v Peek claim, given that Ariela’s claim is in respect of all its costs incurred in respect of defending the proceedings, the false representations must be established prior to commencement of those proceedings (even though that fraud may be further evidenced by what continued thereafter), while their case that the Liability Costs Order was procured by fraud is obviously not so limited. The issue in that regard, as most succinctly expressed by Bracewell J in S v S [2003] LR Fam 1 at paragraph 6, is that “the Court … would not have made the order if the true state had been known”.

The Context

[9]The background to my findings as to fraud, set out below, is as follows: i) There was a very substantial absence of disclosure by Kamal in the earlier (quantum) proceedings. This, coupled with the fact that disclosure as to quantum is ordinarily not relevant while liability is resolved, in the case of a split trial, enabled Kamal to hold off until the very last minute (despite Unless Orders) and in any event even then to fail to give at any time, disclosure of documents which would reveal the fraud. I pointed out the material non-disclosure in my judgment, inter alia at paragraphs 5, 13 and 16. The failure, in breach of Unless Orders, was, and has remained, particularly significant in relation to: a) the condition of the dredger (and its maintenance, or lack of it) prior to 30 April 2004, and correspondence with Class, over and above the minimal and belated disclosure given just prior to the quantum hearing, which itself revealed the fact that (contrary to what Kamal had previously said, e.g. to Captain Pang on behalf of the NHC in July 2004), the dredger was overdue for dry docking, and had reluctantly been given by Class a final extension to 2 September 2004. b) the repairs that were carried out to the dredger (referred to in paragraphs 13 and 16 of my judgment) and again any correspondence with Class in that regard. c) the damage caused to the dredger in March 2004 in Mormugao Port (paragraphs 36-37 of the judgment) which does appear, from such minimal information as Ariela has been able to find out through the services of their investigator Captain Ogg, to have borne a striking similarity to the damage said to have been caused by the collision some seven weeks later. In the absence of disclosure of any such documentation in the original proceedings, which inevitably gave rise to provisional conclusions as to the reason for the withholding of such documentation, and as to what would be likely to have been revealed by its production, made it the more important for there to be such disclosure in these fraud proceedings. However, after a consent order dated 29 June 2009 agreeing an extension of time for disclosure of documents by Kamal, Kamal’s solicitors Ince & Co withdrew on 7 July 2009, and then, notwithstanding the unless order of 21 September 2009, no such disclosure has been given. ii) There are so many unanswered questions with regard to the evidence of Mr Kewalramani. I refer to my very considerable concerns about his evidence, set out in paragraphs 5 to 13 of my judgment. By the time of the quantum hearing, the belated partial disclosure of a number of documents apparently devastating to Kamal’s case and the fact that Kamal’s own expert was not able to support the vast majority of the purported claims made Mr Kewalramani’s evidence the more crucial if there were to be any justification or explanation of Kamal’s surviving case. However, he did not attend to give evidence on “proportionality grounds”, as described in paragraph 6 of my judgment. It is however one thing not to attend to seek to justify and explain apparently incredible and inconsistent accounts given, if the only consequence was for his company to fail in its claims. It is another not to attend and give those explanations where the allegation is one of fraud, in which his part in such fraud, as fully set out in Ariela’s statement of case, is central. No positive case was pleaded in Kamal’s Defence to the fraud claim, the subject of a statement of truth by Mr Kewalramani, and then, after the failure of an attempt to pursue a strike-out, which would have avoided the need for any oral evidence by Kamal if successful, Kamal has failed to comply with any orders, disinstructed their solicitors, and taken no part by way of challenging, countering or explaining the serious allegations of fraud with which I now have to deal. I had effectively reserved judgment in relation to Mr Kewalramani’s role when I delivered my judgment in the quantum proceedings, because, notwithstanding what I called a “powerful indictment”, Mr Kewalramani had not attended, and, in any event, the fraud allegations were then not expressly up for decision, albeit that my rejection of the massively overblown claim carried with it that inevitable inference. Now, however, Kamal and Mr Kewalramani should have been determined to have their day in court to resist my reaching of my final conclusions, which is now my task. No such opportunity has been taken, and no such explanation has been given. iii) Perhaps the strangest and most striking context relates to the identity of the owner of the dredger, and thus to the issue of whether any loss of use claim (pursued up to the quantum trial in the amount of US$484,584, and abandoned in its entirety in the course of the hearing), could ever have been honestly pursued. The owner of both vessels was asserted by Mr Kewalramani at all times, including in terms in three witness statements, his first, fourth and fifth, to be Jaisu Shipping Co Ltd (“Jaisu”). Such documents as were disclosed by Kamal, particularly those belatedly disclosed just prior to the quantum hearing, cast very considerable doubt upon this (and thus upon the existence of any loss of use claim by Jaisu), it appearing that Miller Dredging Co Inc was the owner. For that, and other reasons (to which I shall refer below, when I refer to false claims in respect of the reasons for dry docking in Singapore rather than Colombo), the loss of use claim was entirely abandoned during the course of the hearing. It is now, in paragraph 4 of the Defence served in these fraud proceedings, admitted that Miller Dredging Co Inc was the owner. The numerous inconsistent documents remain unexplained.

Findings as to fraud

[10]Against the background of this absence of explanation, aggravated by the inadequacy of the disclosure and the inconsistency of the explanations or accounts given, I am satisfied as to the following matters, and draw express conclusions or inferences accordingly.[11]Mr Kewalramani asserts in the witness statements served in the original proceedings that he personally, as technical director of Jaisu, inspected the dredger. He therefore knew, as I am satisfied, and have found in my judgment, was the case, that there was no or no material damage to the dredger caused by the collision, and certainly not the massive damage for which he, on behalf of Kamal, subsequently claimed, and which he has sought to support. In particular: i) He knew that there were no leakages of water into the tank caused by the collision (see paragraph 8 of my judgment). ii) He knew that there was no loss of grease in the lower drum caused by the collision (paragraphs 9 and 10 of my judgment). I am satisfied, as set out in paragraph 10(iii) of my judgment, that someone, on behalf of Kamal, falsified the handwritten entry to the log, in a misguided attempt to support an allegation that there was exacerbated loss of grease after, and thus resulting from, the collision, when such was not the case.[12]Notwithstanding the alleged extensive damage, but rather, as I conclude, being indicative of its absence, the dredger was working less than 24 hours after the collision, and continued to do so for another month.[13]I am satisfied that the dredger had been working in a damaged condition prior to the collision, not least due to the pre-existing damage caused by dredging operations in the Mormugao Port, but also due to the fact that it had been involved for 5 years in heavy dredging operations, and was overdue her dry docking survey and 5-yearly Class renewal survey. I am satisfied that Kamal saw the collision as an opportunity to recover substantial repair and maintenance costs from Ariela which were not, and which Kamal knew were not, Ariela’s responsibility, and, what is more, recover for loss of use while such repairs were carried out, which would otherwise have been to their own account. In this context: i) Kamal put forward, in order to substantiate its claim and, in particular, its claim security, an estimate from Colombo Dockyard Ltd for repairs, said to be collision damage repairs, which in fact was a quotation for repairs to pre-existing damage and condition. It was dated 24 May 2004, and purported to provide a detailed breakdown of works required, but, such works not only did not correspond to the alleged collision damage, but, even if they did, could not have been known of until after removal of the dredger’s lower tumbler drum, which had not yet occurred. Notwithstanding unless orders for disclosure, Kamal has failed to disclose the correspondence/requests to Colombo Dockyard which generated such quotation. ii) Kamal constantly inhibited inspection and examination of the dredger. Mr Gupte, instructed as NHC’s surveyor, was refused access on 2, 3 and 5 May 2004, and only eventually allowed access on 8 May: a Mr Colaco, as surveyor instructed by the Ariela’s P and I Club, was denied access on 2 May. As will appear, the dredger was, in the event, taken off, not to Colombo, but to Singapore where, after substantial works had already been carried out, Mr Kewalramani was totally unco-operative with Captain Pang when he attended as Ariela’s surveyor, and then manipulated Mr Gorain, the Salvage Association surveyor. As I describe in paragraph 14 of my judgment, Mr Gorain was procured to provide a report which purported to present or corroborate a case that Mr Gorain had been in attendance from the beginning of the works, and was expressing his own view both that damage was the result of the collision and that repairs to that damage had been carried out, when in fact all he did was sign a list as presented to him. Mr Kewalramani knew that Mr Gorain could not support what was put forward in his documents, and was simply repeating what he had told him.[14]Kamal gave a deliberately false explanation as to why the dredger proceeded to Singapore, rather than to Colombo, for repairs to be carried out. This is referred to in paragraphs 11 and 12 of my judgment. The reality is that, once Kamal learned that there was no availability for dry docking in Colombo until the middle to end of August 2004, it became clear to them that they would not be able to be sure to complete dry docking of the vessel prior to the final extension granted by the Croation Register of Shipping. It was, I am satisfied, for that reason, and not because of any lack of availability of suitable cranes, that the vessel was diverted to Singapore at an alleged cost, both in respect of loss of use, and steaming time of 25 days to and from Singapore. This meant a substantial increase of the loss of use claim against Ariela, and a considerable and fraudulent bonus to Kamal, who had thus been able to carry on using the dredger (after the collision as above), miss the dry dock time in Colombo and yet charge all that up, at a profit, to Ariela (quite apart from charging up the repairs themselves).[15]There was a similar fabrication in relation to the barge. I am satisfied that (as indeed was conceded by the time of the quantum hearing (see paragraph 40 of my judgment)) the barge was unseaworthy prior to the collision. This again was, I am satisfied, known to Mr Kewalramani, and to Kamal. As explained in paragraphs 38 to 50 of my judgment, I was satisfied that there was no damage to the barge which could be ascribed to the collision. Mr Kewalramani alleged that two of the barge’s tanks had flooded by reason of the collision, but this suggestion was rejected even by Kamal’s own expert, Mr Boorman. Kamal put forward a report by UK (Marine) India Surveyors, which purported to support its case, but again those surveyors were accompanied throughout by Mr Kewalramani, the report clairvoyantly concluded that the “repairs costs [were] to be borne by the owners of the MV Ariela”, and in the event Mr Buckingham, Counsel for Kamal, specifically disavowed, in the course of his opening, any reliance on such report (there is a typographical error in paragraph 3(ii) of my judgment, where the reference to Mr Hill should be to Mr Buckingham).[16]There was another extraordinary and, in my judgment, incredible picture put forward in respect of the barge, in an attempt to seek to recover US$65,139 repair costs and US$52,600 towage and loss of use. The account given by Mr Kewalramani in his first witness statement was that, although Kandla was the nearest suitable dry dock, the barge was towed to Cochin, since the monsoon weather meant that it could not be towed to Kandla. No repairs were however for some reason carried out at Cochin, and it was then subsequently towed to Kandla, where it is said that repairs were then carried out. An invoice is produced for alleged works to the barge in Kandla headed up “Rainbow Engineering Works” and dated 3 December 2004. That invoice was said to support the claim for repairs to the barge purportedly arising as a result of the collision. Then an invoice was relied upon, but never explained, by Kamal, also dated 3 December 2004, in a sum of US$31,600. This purported to be rendered by Jaisu itself to the Master and Owners of MV/MT Topaz at Kandla for “charter hire 8 days Goa-Kandla-Goa” at US$1200 per day plus fuel consumption passage for 8 days.[17]As to these two invoices, and the claim in general: i) The works set out in the invoice in my judgment had no relevance to any damage arising out of the collision. ii) I am not satisfied that any work was done by any third party, if such it is suggested Rainbow Engineering Works to have been, to the barge. In any event. Jaisu has and had its own repair yard at Kandla. iii) It is plain to me that the explanation given for why the barge was taken to Cochin, and then only on to Kandla later, is false. The probability is that Jaisu, which regularly operated its vessels at Cochin, as Mr Kewalramani said in his fifth witness statement, was using the barge gainfully in Cochin, and chose to take it there and continue to use it until subsequently taking it to Kandla. iv) The invoice from Jaisu to the owners of Topaz is plainly completely bogus. No tow took place from Goa to Kandla to Goa, whether for 8 days, or at the alleged rate, or otherwise, even on Kamal’s case. A garbled attempt is made to explain away this document in paragraph 8.23 of its Defence.[18]I have set out in my judgment at paragraphs 38 to 50 how it was, in fact, the case that no damage was caused to the barge in the collision. The massive claim that was put forward in respect of repairs, not to speak of the wholly invented claim put forward in respect of loss of use, is, in my judgment, as fraudulent as the claim put forward in respect of the dredger. It is noteworthy that Kamal put forward a claim within six days of the collision which was almost identical in amount to the claim eventually put forward in 2007, notwithstanding that the repairs had not been carried out and the dredger had not been inspected in dry dock.[19]The false claim was maintained, and attempts made to find ever new ways of justifying it, until the quantum trial when, with some damaging disclosure recently made, but in particular with the searchlight finally on the reality of the claim, it collapsed as unsupportable.

Relief sought by Ariela

[20]As set out in paragraph 5 above, Ariela’s primary claim is to set aside the Liability Costs Order. I am satisfied that, provided there are the grounds to do so, such order can be set aside, whether it is a true consent order (viz Huddersfield Building Co Ltd v Henry Lister & Son Ltd [1895] 2 Ch 273 and Qayoumi v Qayoumi (Chancery Division 20 December 2002)) or simply an order made by the Court on the basis of no objection being made to it (Siebe Gorman & Co Ltd v Pneupac Ltd [1982] 1 WLR 185 CA esp per Lord Denning MR at 189). In the one case, the Court will interfere in order to set aside the equivalent of a contract if there are grounds to do so, and in the other the Court will exercise its own discretion similarly. The issue is whether, as in Flower v Lloyd (supra), there has been fraudulent concealment from the Court, or, as in S v S (supra), “the Court and the parties [or one of them] have been misled as to existing circumstances, and would not have made the order if the true state had been known”.[21]In his skeleton argument to the Court of Appeal in support of Kamal’s unsuccessful application for permission to appeal referred to in paragraph 4 above, Mr Foxton QC, briefly instructed at that stage on behalf of Kamal, suggested that it was a “remarkable feature” that Ariela did not allege that any evidence placed before David Steel J for the purposes of the liability hearing was dishonest evidence, nor that any evidence relevant to the issue which David Steel J had had to decide was fraudulently suppressed. It seems to me that this is irrelevant. The picture is entirely clear that, whereas, in reality, Kamal had a claim for US$6,245 or thereabouts, it put forward a wholly fraudulent claim, a wholly fraudulent valuation of its loss, of more than 200 times that amount. The fact that, as pleaded in paragraph 11.1 of Kamal’s Defence to the fraud claim, none of the evidence before David Steel J was fraudulent, is not to the point: it was all adduced to present a fraudulent claim. I am entirely persuaded by Ariela’s evidence before me that, had a non-fraudulent claim been put forward of a minimal amount, consistent with what actually occurred on 30 April 2004, they would have paid up in full at the earliest occasion. That is not only obvious common sense, given the commercial realities, but it is also consistent with what they did by way of making Part 36 offers, to which I will refer below.[22]In the circumstances of a claim pursued (and, indeed, pursued notwithstanding such offers), in such a substantial amount, and particularly given that Ariela had advice that there was a prospect of reducing liability below 100% (and, given the enormous size of the claim, even a 20% reduction would be a substantial amount), I am satisfied that they had no alternative but to defend the claim, or, at any rate, that it was entirely reasonable for them to do so. I am equally satisfied that, had the Court known, as I now know, that the claim being pursued by the ordinary Commercial Court procedure of liability first followed by quantum, was one that was fraudulently exaggerated in the way that I have found, it would not have made the order that it did. The order that was made, by way of a stopping point along the way towards attempted recovery of US$1.2m - rather than, as there should have been, either no claim, at all (because, as I am satisfied, it would have been paid up in full), or a claim which I described in paragraph 2 of my judgment as “well within the jurisdiction of the Shoreditch County Court” - was procured by fraud. It resulted from fraudulent statements as to the extent of the claim and the loss, and fraudulent concealment of the true nature of the claim.[23]There are two other aspects of the matter which were raised by Mr Foxton QC and with which, notwithstanding the fact that Kamal is debarred from defending, Mr Hill QC needed to deal in order to prove his case. Both related to whether, on the assumption, as I find, that there is jurisdiction to set aside the Liability Costs Order, on the facts of this case, it should be so set aside. The first related to whether Ariela ought to have agreed to the Liability Costs Order, or whether they had some other alternative course which they could have taken, such that it could have been said that the order was not induced by fraud, but by their own mistake. The suggestion made by Mr Foxton was that it was always open to a party who has been unsuccessful on the issue of liability to ask the judge to defer making a costs order at that stage (as pleaded in paragraph 11.3 of Kamal’s Defence to the fraud claim). The only circumstance in which this would ordinarily arise would be if there had been a payment into court or Part 36 offer made during that period of proceedings when liability only was being disputed, upon which a defendant would wish to rely at a later stage, notwithstanding losing on liability, i.e. if, once the quantum were established, it became clear that it was less than the amount of the payment into court, or the Part 36 offer, made at an early stage. In such circumstances it would or could be appropriate to disclose the existence of such payment into court or Part 36 offer to the judge deciding the issue of costs on the liability hearing, thereby of course rendering it impossible for such judge to deal later with the quantum hearing, but in order to persuade such judge that he or she should reserve or adjourn the issue of costs, notwithstanding that the party has lost on liability.[24]The history of Part 36 offers in this case is as follows: i) Clyde and Co, the then solicitors for Ariela, wrote two “Without Prejudice Save as to Costs” letters on 1 March 2005, long before proceedings were issued in April 2006. In the first letter, they made an offer to pay to Kamal the sum of US$40,000 plus interest and costs in full and final settlement of their claim, with a statement that Ariela were prepared, in accordance with Part 36 Rule 10, to make payment into court within 14 days of the service of any proceedings (although they clearly did not in the event do so). By the other letter, also without prejudice save as to costs, Ariela offered to accept 70% of the liability for the collision. ii) Once proceedings were commenced, two without prejudice save as to costs letters were again sent by Mr Ridley, now at Russell Ridley & Co, both on 6 September 2006. The first offered to settle liability in the percentages 80/20 in favour of Kamal, together with costs in accordance with that percentage. The second letter offered “tosettle quantum as follows. [Ariela] will pay their liability percentage of [Kamal’s] loss and damage, based on a global award of damages in the sum of US$250,000 excluding interest and costs. The liability percentage is [Ariela’s] percentage of fault for the collision either agreed between the parties or assessed by the court … This offer supersedes our pre-action Part 36 offer … which remains in place until this offer becomes effective”.[25]It can be seen therefore that the only effective Part 36 offer which remained in place at the date of the Liability Costs Order was one which was expressly predicated upon there either being a trial of the liability issue, or an agreement of an 80%:20% split. It is clear that this would not have been of any assistance to Ariela in persuading the judge not to make the ordinary order in respect of the liability costs. They had not made an unconditional Part 36 offer or payment in in respect of US$250,000, or even US$200,000 (being 80% of US$250,000). It had been necessary, and justified, on the face of it, for Kamal to continue on to resolve, and win, the issue as to liability.[26]I am accordingly satisfied that, even had Ariela turned its mind to such a possibility, and there is no evidence it did, it would have availed them nothing. If there were some suggestion (none being made) that in some way Ariela ought to have made an unconditional Part 36 offer which might have protected them, that would, in my judgment, not amount in any way to an answer. Contributory negligence (if such it could be) is no defence to a fraud claim (Edgington v Fitzmaurice [1895] 29 Ch D 459 at 481, 483 and Clerk and Lindsellon Torts (19th Ed 2006 para 18.34). The fact is that there was no such offer, and Ariela entered into the Liability Costs Order believing that it had no alternative.[27]The other argument that was raised on Kamal’s behalf is set out in paragraphs 11.4 and 12.2 of its Defence, which again I consider because it is proper to do so, albeit that Kamal has been debarred from defending. The point is expanded in Mr Foxton’s skeleton before the Court of Appeal at paragraph 5(4) as follows:
“Ariela … jointly proposed the form of costs order made, and did so in the following circumstances (as confirmed by Ariela’s Counsel to Mr Justice Burton during submissions on 10 February 2009, when explaining why Mr Justice Steel was not asked to reserve the costs): (a) at the end of the day, we well had in mind this application [the fraud claim] at that time … (b) Ariela decided not to ask Mr Justice Steel to reserve costs because if such a request was made Ariela’s Counsel was “going to have to say because this was a fraudulent claim” … (c) Ariela stated that, if asked by Mr Justice Steel why costs should be reserved, Ariela’s Counsel “would then have to say, well, it is not because – it is not on the basis of our previous Part 36, it is on the basis of fraud …””
[28]This is indeed an accurate, though slightly garbled, account, taken from the transcript of part of the discussion when I ordered indemnity costs in favour of Ariela after the quantum hearing, of what Mr Hill then said. Mr Ridley gave evidence before me in relation to this, and I have heard submissions from Mr Hill QC. The position is entirely clear, and is consistent with those extracts, albeit that they were extempore comments. Mr Hill QC and Mr Ridley accept that the only way, in which it might have been possible, given the unavailability of any Part 36 argument, to persuade David Steel J to reserve or adjourn the costs, would be if Ariela had been able to submit, and had, at that stage, submitted, that the claim (in respect of which they had already made, and would obviously have had to reveal in such circumstances, an offer of at least US$200,000) was fraudulent. Although it is plain that, from the very first time that Mr Ridley (then at Clyde & Co) was instructed, he had his suspicions about the claim – and he has disclosed his letter to NHC dated 27 October 2004, referring to what he described as “this over-exaggeration of the claim … in biblical proportions”, neither he nor Mr Hill QC were in a position to suggest fraud in open court at that stage. It would plainly not have been proper to do so. Not least because of the total lack of disclosure at that stage in respect of quantum, and because investigation as to quantum was inevitably, by virtue of the split trial, at a very early stage, I accept that Mr Hill QC could not have said then what he professionally felt able to say by the time of the quantum hearing itself, as the experts instructed on behalf of Kamal hastened to distance themselves. This is just the very difficulty in which a defendant is put by the making of a fraudulent claim.[29]The reality of the plea in paragraphs 11.4 and 12.2 of Kamal’s Defence, and in the paragraph I have cited from Mr Foxton QC’s skeleton argument, is the implied assertion that, at the time of the making of the Liability Costs Order, Ariela knew of, or knew sufficient of and/or waived, the fraud. I am satisfied that is not the case. The transcript passage is plainly explicable by reference to the fact that Ariela at that stage only had suspicions, and were in their own mind reserving the right to sue to recover back what they were having to pay out, if fraud could ever be proved.[30]Accordingly, in respect of Ariela’s primary remedy, I conclude that it is appropriate and necessary to set aside the Liability Costs Order. I have no doubt whatever that the proper course is to replace it with a similar indemnity costs order in favour of Ariela as I made after the quantum hearing. I am satisfied that this was a fraudulent claim from the outset, and is properly marked by indemnity costs, and that, had the court known on 31 October 2007 what I now know, that is the order which it would have made.[31]Such costs, on an indemnity basis, should be the subject of a detailed assessment if not agreed. I am asked to make an interim payment. An early draft of Ariela’s bill of costs for the liability trial came out at a figure of US$324,794.08. Mr Ridley’s law costs draughtswoman has now produced the final bill of costs, as being not the sum which Ariela has paid to Clyde and Co and/or Russell Ridley (solicitor/own client basis), but the lesser sum which the costs draughtswoman concludes is reasonably recoverable. That sum is US$341,695.94.[32]The sum that was payable, and paid, by Ariela to Kamal by way of interim payment in respect of Kamal’s liability costs, was £65,000, which, according to paragraph 21(b) of the Amended Statement of Case, is the equivalent of US$135,656. I see no reason, however, why, given what I have seen as the final bill in relation to Ariela’s costs, I should not make what, in some circles, has become a conventional order, of 50% of Ariela’s bill of costs by way of interim payment on account.[33]Accordingly, I set aside David Steel J’s order, I substitute the order for costs which I have mentioned above, together with an interim payment of US$170,000, and I give judgment for the return by Kamal to Ariela of the sum of £65,000 paid over on 14 November 2007, together with interest since that date. In the light of the considerable doubt raised as to the identity of the Claimant, I give judgment against Jaisu, which was the company which at all times represented itself as the Claimant and owner of both the dredger and the barge, and against the Claimant as per the title of the original action, namely “The Owners and/or Demise Charterers of the Dredger Kamal XXVI and the Barge Kamal XXIV”.

Derry v Peek

[34]I turn to the alternative remedy sought by Ariela. This is, as described in paragraph 5 above, a claim for Derry v Peek damages. In Mr Foxton QC’s CA skeleton he presented an argument by reference to Grainger v Hill [1838] 4 Bing. N. C. 212, as addressed by the Court of Appeal in Metall und Rohstoff AG v Donaldson, Lufkin & Jenrette Inc [1990] 1 QB 391 at 471 per Slade LJ:
“Relief in tort under the principle of Grainger v Hill is not, in our judgment, available against a party who, however dishonestly, presents a false case for the purpose of advancing or sustaining his claim or defence in civil proceedings.”
[35]Mr Hill QC does not challenge this proposition, but Mr Foxton QC appears not to have appreciated, or perhaps to have discounted, the fact that the claim here is one in deceit. He predicates his reference to Grainger v Hill with the statement “it does not appear to be any part of Ariela’s case that it acted in reliance on the truth of any representation allegedly made by Kamal as to the value of its claim”, referring to the transcript passage which I have discussed in paragraph 27 above. For the reasons I then set out, this is misconceived. In my judgment, this is a straightforward Derry v Peek claim. Just as Kamal intended, Ariela was driven to take the biblical loss seriously, and resist it, at very considerable cost.[36]The reality is again quite simple, in my judgment. If a non-fraudulent claim had been put forward, it would have been paid in full. Because there was a fraudulent statement as to the value of the claim and loss, and induced by that deceit, Ariela were driven to lay out very substantial sums by way of costs to defend the liability claim, and to submit to the Liability Costs Order. All those losses were directly caused by the fraudulent mis-statement as to the quantum of the claim. As the Editors of Clerk and Lindsell (loc. cit) state, at 18-34:
“It is no answer to an action for deceit that the claimant might have discovered the falsity by the exercise of ordinary care: it does not lie in the mouth of a liar to argue that the claimant was foolish to take him at his word.”
The loss sought flows directly from Ariela’s reliance upon Kamal’s statement that the sum claimed was a bona fide valuation of the loss caused by the collision. But for the deceit, Kamal would have presented a claim which would have been paid.[37]There is no room in deceit either for the concept of contributory negligence or of a failure adequately to mitigate (Clerk and Lindsell (loc. cit) at 18-42), but in fact, even if there were, it is difficult to see what else Ariela and its advisers could have done. They constantly sought disclosure of documents, which were fraudulently concealed from them, and even the offer of what turns out to have been in some 40 or 50 times the real value of the claim was contemptuously rejected without counter offer.[38]The loss and damage flowing from the deceit would be the interim payment made pursuant to the Liability Costs Order of £65,000, plus the costs incurred by Ariela referred to above (and there would need to be the consequential setting aside of the Liability Costs Order, so that it could not be suggested that there is any continuing liability thereunder). There would then need to be consideration of whether there would be any offset against that sum of damages. I am satisfied, as I have found, that, had an honest claim been put forward by Kamal, Ariela would have paid it. That does not necessarily mean that all Kamal would ever have put forward was the sum of US$6,245, which alone I found justified. Because they have been debarred from defending, Kamal are not here to put forward a case as to what they might have been able properly to put forward, had they not created a fraudulent claim, as they did. One possible answer might be that they could properly and non-fraudulently have put forward those claims which they did not abandon as unarguable during the course of the quantum hearing, totalling (including the US$6,245) US$26,030 (see paragraph 2 of my judgment). I am satisfied that, had a proper sum been claimed at the outset, it would have been paid up on the usual commercial basis without any interest or legal costs, because no lawyers would have become involved, but there might have been some small professional costs on top.[39]Accordingly, if I were to have given judgment by reference to the Derry v Peek claim, which I would have done, but for my making the orders I have in respect of Ariela’s primary claim, then I would or might have offset some US$30,000 from the total cost inclusive of the costs bill. As it is, I have dealt with the Derry v Peek claim only by way of completeness, and my judgment is as set out in paragraph 33 above.

order

permission to appeal my order of 29 April 2009 was refused by Aikens LJ on 18 June 2009. Subsequently, Kamal failed to serve an amended Defence, or to give any disclosure, notwithstanding Orders on 12 May and then 29 June and, finally, an Unless Order, made on 21 September 2009, and, on 5 October 2009, were debarred from defending the claims as set out in the amended Statement of Case. The case was listed for hearing on 2 December 2009, and, notwithstanding notice of the hearing to Kamal, Kamal did not attend by Counsel or otherwise, nor has there been any attempt to appeal or set aside the order of 21 September 2009, or to comply with it, nor have any of four outstanding costs orders in favour of Ariela (for £2500 on 18 December 2008, US$325,000 on 10 February 2009, £9000 on 29 April and £12,000 on 21 September 2009) been complied with. I heard oral evidence on 2 December 2009 from two witnesses in respect of whom witness statements had been served, Mr Russell Ridley, Ariela’s solicitor, and Captain Gunnar Falck, the Senior Claims Handler and Adjuster for the Norwegian Hull Club (“NHC”), which provided the security, and has been substantially responsible for the proceedings arising out of the 30 April 2004 collision; and I heard submissions from Mr Hill QC, whose skeleton opening was also served upon Kamal: and I have considered, or reconsidered, a considerable number of documents in the substantial bundles put before me, as well as carefully re-reading my earlier judgment.

Cited in 3 later judgments