L v A [2016] EWHC 1789 (Comm)

Case No CL-2015-000017[2016] EWHC 1789 (Comm)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Venue Royal Courts of Justice, Strand, London, WC2A 2LLDate 18/07/2016
Before
MR JUSTICE KNOWLES CBE
Between
LAppellantARespondent
Mr Luke Pearce (instructed by Holman Fenwick Willan LLP) for AppellantMr Brian Dye (instructed by Zaiwalla & Co LLP) for RespondentHearing Hearing dates: 7 April 2016
JudgmentMr Justice Knowles :Introduction
[1]Two LMAA arbitration awards, dated 17 February 2015 and 28 April 2015, were made in an arbitration between the parties, L and A.[2]On 16 November 2015 I dismissed, at a hearing, an application by A under section 68 of the Arbitration Act 1996 (“the 1996 Act”).[3]On 15 December 2015 I granted, after consideration on the papers, L’s application for permission to appeal under section 69 of the 1996 Act. Arrangements were made for the hearing of the substantive appeal and, in the event, that too came before me. This is the judgment on that substantive appeal.

Hearing the application for permission to appeal and the substantive appeal

[4]At the beginning of the hearing of the substantive appeal Mr Brian Dye, for A, requested an adjournment in order that the appeal be heard by another judge.[5]The ground advanced was that the judge who had determined an application for permission to appeal should not determine the substantive appeal. Mr Dye pointed out that, under the relevant provisions of section 69, in order to grant permission the judge will have formed a view (as I did) that the decision of the arbitral tribunal on a question of law was obviously wrong.[6]I respectfully declined Mr Dye’s request for an adjournment.[7]The statute requires a view to be formed at the permission stage. I formed a view at the permission stage but it was necessarily a provisional view. It was reached on the papers only. It involved consideration of written submissions on both sides rather than on one side alone. Like any judge, I approach the substantive appeal judicially and with an open mind, ready to have the further benefit of oral argument on both sides.[8]There is no requirement that an applicant persuade two judges before he can succeed on an appeal under section 69 of the 1996 Act, and yet that would be the consequence of Mr Dye’s argument. The permission to appeal stage should be understood as a stage in a continuum of assessment of an appeal or proposed appeal. There is no difficulty in that assessment being undertaken by one judge. Indeed sometimes it will be undertaken on one occasion (as where the judge directs that the question of permission should be considered at a hearing with the substantive appeal to follow on at that hearing if permission is given).

The facts

[9]L chartered a vessel (“the Vessel”) to A by a voyage charterparty (“the Charterparty”) dated 25 July 2003 in Gencon 1976 form, with amendments.[10]Clause 47 of the Charterparty provided as follows:
“In case of ‘clean on board’ Bills of Lading to be issued, Master has the right to reject damaged cargo which might clause the Bills of Lading and Charterers to replace same with sound cargo at Charterers’ time/risks/expenses.”
[11]As Charterers, A presented cargo to be loaded, but the Master rejected it relying on Clause 47. The Vessel’s departure from the port was delayed.[12]The operator of the port sued, in India, the managers of the Vessel for damages arising from the delay. On 30 March 2009 the Indian Court gave judgment holding the managers liable in the sum of Rupees 19,305,280.[13]There followed the arrest of another vessel managed by the managers, in execution of the judgment. To obtain the release of that other vessel security was provided by the managers’ P&I club and the managers provided counter-security to the P&I club.[14]An application to set aside the judgment was dismissed on 9 May 2011. An appeal before the Indian High Court stands adjourned. The point at which there may be any conclusion of the appeal is uncertain.

The arbitration

[15]L commenced arbitration against A. L claimed demurrage or damages for detention and an indemnity against(a) liabilities L might incur to cargo interests for loss of or damage to cargo and(b) liabilities L had incurred or might incur to third parties as a result of the stoppages which had occurred during the loading of the cargo at the port. For the purposes of the arbitration no distinction was made between L and the managers.[16]For the purposes of this appeal it is convenient to treat the two awards as one. The arbitral tribunal held that Clause 47 provided an express right of indemnity which could be relied on by L. It held that A had promised to “hold [L] harmless against any risks which might be involved in ensuring that the Master was in a position to issue clean bills of lading.”[17]On this foundation, the tribunal stated that it was satisfied that L was entitled “to an award in a monetary sum indemnifying them in respect of the costs incurred to date in providing the security and the legal fees incurred to date in the proceedings”. It also stated that it was satisfied that L was entitled “to [a] declaration … that [A was] liable to indemnify them in respect of the costs of maintaining the security and any further legal costs up to the completion of the Indian proceedings.”[18]The tribunal then continued: “However, since the Indian proceedings arising out of the claim by [the port operator] had not been finally resolved, it seemed to us that [L] … were not in a position to ask for an award of an indemnity in a specific monetary sum”.[19]The tribunal added:
“Since … the appeal to the Indian High Court had simply been adjourned … and all the indications were that [L] intended to pursue the appeal to a conclusion, we concluded … that [L] were not in a position to ask for an Award for an indemnity in a specific sum. … [W]e could not see how it was appropriate to grant the relief sought by way of an indemnity when the possibility of a successful appeal on liability remained open.”

The point at issue

[20]Mr Luke Pearce, for L, argues that the cause of action under the indemnity accrues when L’s liability is established and ascertained by a judgment of a court of competent jurisdiction. That is the point at which there is loss for the purpose of the indemnity. The security has had to be provided as a result. The fact that the judgment may be the subject of an appeal is not relevant, he argues.[21]For A, Mr Dye argues that the approach taken by the tribunal was open to it. He argues that the tribunal was saying that L had not shown the tribunal that L was actually going to have to pay, at that point, the judgment sum under the Indian judgment.[22]Rather than treat a judgment as conclusive on the question of loss, it was open to the tribunal, Mr Dye argues, instead to make arrangements allowing L to return to the tribunal at a later date if it proved necessary to do so in light of the outcome of the appeal against the Indian judgment. Mr Dye argues that this approach also helps avoid a situation where a sum is paid under the indemnity at this stage, then the appeal against the Indian judgment is successful, but in the meantime L has become insolvent.

Determination on this appeal

[23]In the case of an express indemnity “the extent of the indemnity and the time at which the cause of action arises will depend on the construction of the contract”: The Fanti and the Padre Island (No 2) [1989] 1 Lloyd’s Rep 239 at 255 per Bingham LJ, agreeing with Neill J in Telfair Shipping Corporation v Inersea Carriers SA (“The Caroline P”) [1984] 2 Lloyd's Rep 466 at 474; [1985] 1 WLR 553 at 566F. (The Fanti and the Padre Island (No 2) was to go on to the House of Lords but that is not material for present purposes).[24]In my judgement, the indemnity in the present case was a general indemnity, against consequences. The Indian judgment was a consequence suffered by L, as a result of a matter for which A had provided the indemnity. The judgment established and ascertained a liability of L to the port operator: see generally, and for example, The Caroline P (above) at 474-476, which was cited to the tribunal. There was here, as there, no suggestion that L failed to conduct the Indian proceedings properly. If payment is also required for the indemnity to be enforceable, the provision of security is no less a payment.[25]Does the fact that the judgment is that of an overseas court rather than a court of England and Wales affect the position? The answer is no. It is still a consequence suffered. It remains the case that the liability has been established and ascertained. L had become legally liable to pay, the amount of L’s loss was ascertained, and security was provided in that sum.[26]As for the fact that the Indian judgment is appealable or subject to appeal, unless and until an appellate court overturns the decision, the existing position is as just described.[27]If in due course the appeal against the Indian judgment reverses the Indian judgment, L will be liable to restore to A the sum paid by A under the indemnity. If L is unable through insolvency to restore that sum that is a consequence of the insolvency and not a reason to doubt the legal position.[28]This being the legal position, it was not, in my judgment, open to the tribunal to delay or deny to L, as the person to be indemnified, the consequences of that legal position.[29]For a number of reasons the tribunal was reluctant to make an order against A in terms that required the replacement of the security. An order in those terms was not in fact required. The sum to be indemnified was the judgment sum. An award could issue accordingly. It would then be for A to decide whether to offer to replace the security instead.[30]The tribunal said that it appeared that the appellate court “was by no means convinced that the court of first instance had reached the correct conclusion” but “was apparently reluctant to overturn its judgment”. That being so, said the tribunal, “it was by no means clear that an appeal would not succeed” and “it was difficult to see how it could be said that there was clear evidence that liability for the claim by [the port authority] would ultimately fall on [L]”. This is not the language of a tribunal that is saying that, in India, liability is established by an appellate decision and not a first instance decision (as in The Fanti and The Padre Island (No 2), above, at 256 per Bingham LJ, and at [1987] 2 Lloyd’s Rep 529 at 541 per Saville J at first instance). It is the language of a tribunal that was asking itself what the ultimate outcome would be after an appeal had been finally decided. That was not the question required by the indemnity.

Conclusion

[31]In the circumstances the appeal under section 69 must be allowed. I will hear argument on the form of relief that should follow.[32]I wish to add, in fairness to the arbitrators, that it does not appear that matters were put to them with the clarity would have been desirable. They observed as much and they were entitled to do so.