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England and Wales High Court (Commercial Court) Decisions |
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You are here: BAILII >> Databases >> England and Wales High Court (Commercial Court) Decisions >> Assuranceforeningen Gard Gjensidig v The International Oil Pollution Compensation Fund [2014] EWHC 3369 (Comm) (17 October 2014) URL: http://www.bailii.org/ew/cases/EWHC/Comm/2014/3369.html Cite as: [2014] EWHC 3369 (Comm) |
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QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Strand, London, WC2A 2LL |
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B e f o r e :
____________________
| Assuranceforeningen Gard Gjensidig |
Claimant |
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| - and - |
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| The International Oil Pollution Compensation Fund |
Defendant |
____________________
Jonathan Hirst QC, Professor Dan Sarooshi and Oliver Jones (instructed by Reed Smith LLP) for the Defendant
Hearing dates: 6, 7 and 9th October 2014
____________________
Crown Copyright ©
Mr Justice Hamblen:
Introduction
The General Background
The Conventions
The CLC
(1) Shipowners are made strictly liable in respect of oil pollution damage, with very limited exceptions (Art III).
(2) The amount of that liability is however limited to an amount calculated by reference to the tonnage of the vessel (Art V(1)).
(3) Shipowners may lose the right to rely on the limit of liability if the incident was due to their actual fault or privity (Art V(2)).
(4) Shipowners may avail themselves of the benefit of limitation by establishing a fund with the competent court for the limitation amount, and this may be constituted by means of a bank guarantee if acceptable to the court (Art V(3)).
(5) Shipowners or insurers who make payment for pollution damage acquire subrogation rights against the limitation fund (Art V(5)).
(6) If they have established a fund, and are entitled to limit liability, the court shall order the release of any ship or other property of the owner which has been arrested (Art VI(1)).
(7) The courts with exclusive jurisdiction in relation to Convention claims are the courts for the place in which the damage occurred (Art IX(1)).
(8) Shipowners are required to have insurance in respect of this liability (Art VII).
(9) Claimants have a right of direct action against the insurer (here Gard) (Art VII(8)).
(10) However, the insurer is entitled to rely on the limit of liability even where there is actual fault or privity on the part of the shipowner (Art VII(8)).
(11) Where the amount of the limit of liability is insufficient to meet all claims, then each claimant is only entitled to recover its prorated share of its claim (Art V(4)).
The Fund Convention
(1) The Fund is to provide compensation in respect of amounts which are irrecoverable under the CLC either because shipowners are not liable under the CLC, or because the amounts in question cannot be recovered from shipowners, or because the limit under the CLC is too little to provide adequate compensation (Art 4(1)).
(2) The Fund's liability is limited to an amount of SDR 60 million (Art 4(4)(a)).
(3) In addition to the compensation payable to third parties, the Fund Convention provides for the payment to shipowners of the top slice of the CLC liability (Art 5(1)).
(4) The Courts with exclusive jurisdiction in relation to Fund Convention claims are the courts for the place in which the damage occurred (Art 7).
(5) Where claims are made against the shipowner or its guarantor, then either party to the relevant proceedings may notify the Fund of those proceedings and if the Fund has had the opportunity to intervene, the Fund is bound by the facts and findings in that judgment even if the Fund has not in fact intervened (Art 7(5) and (6)).
(6) Where the amount of the limit of liability is insufficient to meet all claims, then each claimant is only entitled to recover its prorated share of its claim (Art 4(5)).
The incident and the resulting claims
(1) There is no finding of actual fault or privity on the part of the Owners (nor was this even alleged).
(2) There is in fact no consideration of whether the Owners are entitled to limit liability under the terms of the CLC.
(3) There is no consideration of why the insurers should not be entitled to limit liability, irrespective of fault or privity, and indeed no finding that they cannot.
The winding up of the Fund
"1. If this Convention ceases to be in force, the Fund shall nevertheless
(a) meet its obligations in respect of any incident occurring before the Convention ceased to be in force;
(b) be entitled to exercise its rights to contributions to the extent that these contributions are necessary to meet the obligations under sub-paragraph (a), including expenses for the administration of the Fund necessary for this purpose.
2. The Assembly shall take all appropriate measures to complete the winding up of the Fund, including the distribution in an equitable manner of any remaining assets among those persons who have contributed to the Fund.
3. For the purposes of this Article the Fund shall remain a legal person."
"... that the 1971 Fund should not reimburse the Club of any payment made as a consequence of the Supreme Court judgment (Criminal Section) in respect of the claim by the [Republic]" [i.e. the Supreme Court's judgment upholding the Maracaibo judgment];
"... that the 1971 Fund should be wound up as soon as possible" and
"... to instruct the Director to study the legal and procedural issues relating to the winding up of the 1971 Fund further in consultation with the Legal Affairs and External Relations Division of IMO."
The Issues
(a) "Whether [Gard] can establish that there is an exception to the [Fund's] immunity from suit and legal process pursuant to [Article] 6(1)(c) of the International Oil Pollution Compensation Fund (Immunities and Privileges) Order 1979; and, as such,(b) Whether there exists a contract between [Gard] and [the Fund] on the terms alleged in paragraphs 9 to 13 of the Particulars of Claim and, if so whether such contract falls within the scope of the exception to the [Fund's] immunity".
(1) Was there a contract between Gard and the Fund and, if so, what were its terms?(2) Is that contract one which falls within the exception from immunity from suit and legal process in Article 6(1)(c) of the 1979 Order, namely a contract of loan or for the provision of finance?
(1) Ms Sara Burgess, a Senior Vice President at Gard and one of the individuals who is said by Gard to have entered into a binding agreement with the Fund on its behalf.(2) Mr Colin de la Rue, a solicitor formerly of Ince & Co who advised Gard and other P&I Clubs in their dealings with the Fund.
(3) Mr Jonathan Hare, Senior Vice President and General Counsel of Assuranceforeningen Skuld ("Skuld"), a P&I Club who also had dealings with the Fund.
(4) Mr Grantley Berkeley, the Chairman of the IG, of which Gard is and was at all material times, a member.
Gard's case
"the funding by the club concerned of the agreed interim payments and joint costs up to an amount equivalent to the CLC Limit, on the basis that the Defendant [i.e. the Fund] was to fund any further payments needed thereafter (subject to the 1971 Fund Convention limit)".
Particular background and the parties' dealings
"11.3 Payment of Compensation Before the Establishment of the Limitation Fund
…
11.3.4 In recent years, the IOPC Fund has also in some non-Japanese cases (such as the BRAER and the KEUMDONG No. 5) started paying compensation before the limitation proceedings have been commenced, in order to ensure the prompt payment of compensation to victims. In these cases, the ship was entered with a P&I Club which is a member of the International Group. The Club has paid claims up to an aggregate amount corresponding approximately to the limitation amount and the IOPC Fund has paid over and above that amount.
11.3.5 It should be noted that in many cases the P & I Club pays compensation to victims before the limitation fund has been constituted, and continues to make such payments after the establishment of the limitation fund. In such cases the P & I Club acquires by subrogation the right of the person paid against the limitation fund and the IOPC Fund".
"….Måns Jacobsson was not agreeable to entering into some sort of agreement that if we were found to have complete defence to the spill the Fund would reimburse us for claims paid on the basis that we had paid them out on their behalf. His first reaction was that we would be subrogated to the rights of any claimant. The disadvantage with this is that if the claims exceeded the limitation amounts then our reimbursement would be pro rated down in the same way as all other claims."
"The Executive Committee 'may wish to consider whether it is prepared to authorise the Director to make final settlements on behalf of the 1971 Fund of all claims arising out of this incident, to the extent that the claims do not give rise to questions of principle which have not previously been decided by the Committee'.
"3.6 The question also arises of whether and, if so, to what extent the Executive Committee is prepared to authorise the Director to make payments. As stated in paragraphs 4.2 and 4.3 of document 71FUND/EXC.53/7, it is not possible at this stage to make an accurate estimate of the total amount of claims which may be submitted. In that document the Director stated that he believed, nevertheless, that the total amount of the claims would not approach the total amount available under the [CLC] and the [Fund Convention] (60 million SDR, corresponding to approximately £51 million). However, the claim presented by the State of Venezuela has changed the situation. It should be noted that payments will first have to be made by the shipowner and the Gard Club up to the limit applicable to the Nissos Amorgos, ie approximately 5.2 million SDR (£4.5 million). The Committee may wish to consider, therefore, whether it is premature to take a decision at this session authorising the Director to make payments."
"… The meaning of this decision is that the Fund actually has authority to agree that claims we propose to pay are claims which are acceptable to them and which will therefore be used to build up the shipowner's limitation sum. The Fund however has not been authorised to actually make any payments to claimants for claims in excess of the shipowner's limit. However it does mean that if we pay out claims in excess of the shipowner's limit we should have no difficulty claiming the sums back from the Fund unless the total sum of claims accepted exceeds the Fund limit when of course all claims have to be prorated down."
"… Gard is in principle willing to pay claims without invoking the potential exoneration against the claimants, but before making any payments it would be glad to discuss the precise arrangements governing a potential reimbursement claim against the Fund, in subrogation to the rights of the claimants."
"In the meantime we understand you agree that it would be unsatisfactory if we were to decline to pay established claims in reliance on exoneration under Art III.2(c). By virtue of Art 4.1(a) of the Fund Convention 1971 the issue should not affect the claimants, or the total amount of compensation available to them. Its only relevance should be to determine how the burden of claims is to be apportioned between the Club and the 1971 Fund.
We therefore suggest that this is an issue on which the Club and the 1971 Fund should examine ways of co-operating with each other in a joint effort to ensure that the system of compensation established by the Civil Liability and Fund Conventions operates smoothly, and without undue delay in payment of approved claims.
With this in mind we are prepared to pay such civil claims without invoking against the claimants any defence under Art III.2(c), provided it is understood that we may invoke it against the 1971 Fund and, if the defence is established, recover the sums we have paid. We recognise that such a claim on our part would be subject to the Fund's limit of liability under Art 4.4 of the 1971 Convention and would be subject to abatement under Art 4.5 if the aggregate of admissible claims exceeds that limit. However we would like to be sure that the Fund in principle has no objection to this procedure.
We consider that once we have made payments to claimants we should be entitled to take over by subrogation the rights which they would have had against the 1971 Fund if such payments had not been made. In our view such rights would include a right to recover compensation from the 1971 Fund in the event it is shown that there is no liability on the shipowner under CLC by reason of CLC Art III.2(c). However a right of subrogation is not expressly conferred by either of the two conventions.
It would therefore assist us in making such payments if you would please confirm that the 1971 Fund has no objection to this procedure and does not dispute the right of the Club or the shipowner to make a claim by subrogation as described in this letter."
"However, you will recall that we said we would not agree to payments until we had received an advice from Colin de la Rue advising us that we should pay claims in case this issue should arise later. You will recall that if the total amount of claims exceed the limit under the Fund we will not be able to recoup all the money we anticipate spending now on claims settlements. Colin mentioned this again last night and I emphasised to him that this advice could be very short but that obviously it would be appropriate to have this prior to agreeing to pay the claims. I anticipate that he must be working on this now."
"If the [Fund Convention] limit is not exceeded there should be no difficulty in making appropriate financial adjustments at a later date between yourselves and the IOPC Fund, to ensure that each of you bears in the end the correct proportion of the total claims. However, if the limit is exceeded, any claim you may have against the Fund for such an adjustment may be subject to pro-rata reduction in the same way as all other claims against the Fund.
There is also a prospect that owners may a [sic.] later date be able to demonstrate that they are exonerated from any liability at all under CLC, by virtue of Art III.2(c) of the Convention. Given the course which this matter has taken to date there must be grave doubts as to the chances of such a defence being upheld by the Venezuelan courts. If it is established to the satisfaction of the IOPC Fund then there should not be any difficulty in recovering your payments from the Fund, provided that the aggregate of admissible claims is within 60 million SDR. Again, however, there is a risk of a reduced recovery if the limit is exceeded".
"I refer to our previous discussion concerning payments of claims arising out of the Nissos Amorgos incident.
As you are aware, the Executive Committee of the 1971 Fund decided, at its 53rd session, to authorise the Director to make final settlements of all claims arising out of this incident, to the extent that the claims did not give rise to questions of principle which had not previously been decided by the Committee. The Committee further decided that in view of the uncertainty as to whether the total amount of the claims might exceed the total amount available under the 1969 Civil Liability Convention and the 1971 Fund Convention (60 million SDR), the Director was not authorised to make any payments. At its 54th session the Executive Committee decided that it was premature to take any decision authorising the Director to make payments.
Although the 1971 Fund cannot at present make any payments, the Fund has no objection to the shipowner/Gard Club paying claims for the amounts assessed and approved by the Gard Club and the Fund. The shipowner or the Gard Club will subrogate the claims paid against the owner's limitation fund and the 1971 Fund. It should be noted, however, that in the event that the established claims arising out of this incident were to exceed the maximum amount available under the 1969 Civil Liability Convention and the 1971 fund Convention, ie 60 million SDR, the payment of claims would have to be pro-rated. The shipowner/Club would in the situation only be credited by subrogation for the pro-rated amounts.
As for the Gard Club's right of subrogation in respect of any amount paid by it in compensation, in the event that the shipowner were to be exonerated from liability under Article III.2(c) of the 1969 Civil Liability Convention, I refer to the position taken by the Executive Committee at its 54th session, which reads:
The Executive Committee shared the Director's view that the shipowner and the Gard Club would be entitled to subrogation with regard to the shipowner's limitation fund and the 1971 Fund in respect of any payment made to a claimant, if it were established by a final judgment that the shipowner was exonerated from his liability under Article III.2(c) of the 1969 Civil Liability Convention. The Committee also considered that, as a result of such subrogation, the shipowner/Gard Club would have the same rights against the 1971 Fund as the claimants whom the shipowner/Club had paid would have had if the payments to them by the shipowner/Club had not been made. The Committee agreed with the Director that this would mean that, if the total amount of the established claims were to exceed the maximum amount available under the 1969 Civil Liability Convention and the 1971 Fund Convention, and consequently all claims were reduced pro rata, the subrogated claims by the shipowner/Gard Club would be reduced correspondingly."
"No objection to Gard's paying the approved amount. As for subrogation and pro-rating reference is made to the 1971 Fund's letter of 24 June 1997."
The oral evidence
Issue (1) Was there a contract between Gard and the Fund and, if so, what were its terms?
Principles of contract formation
"The general principles are not in doubt. Whether there is a binding contract between the parties and, if so, upon what terms depends upon what they have agreed. It depends not upon their subjective state of mind, but upon a consideration of what was communicated between them by words or conduct, and whether that leads objectively to a conclusion that they intended to create legal relations and had agreed upon all the terms which they regarded or the law requires as essential for the formation of legally binding relations. Even if certain terms of economic or other significance to the parties have not been finalised, an objective appraisal of their words and conduct may lead to the conclusion that they did not intend agreement of such terms to be a precondition to a concluded and legally binding agreement."
"I readily accept that contracts are not to be lightly implied. Having examined what the parties said and did, the court must be able to conclude with confidence both that the parties intended to create contractual relations and that the agreement was to the effect contended for. It must also, in most cases, be able to answer the question posed by Mustill L.J. in Hispanica de Petroleos S.A. v. Vencedora Oceanica Navegacion S.A. (No. 2) (Note) [1987] 2 Lloyd's Rep. 321, 331: "What was the mechanism for offer and acceptance?"
Application to the facts
(1) The MOU and the practice of co-operation in claims handling between the IG Clubs and the Fund in dealing with major pollution incidents;
(2) The fact that a "consecutive payment arrangement" had been adopted in relation to all those incidents;
(3) The limited subrogation rights granted under the CLC Convention and the fact that it was understood that there were potential difficulties in the recognition and/or enforcement of subrogation rights in respect of claims payments made.
(4) The Fund's express acknowledgment, as set out in the Director's Note of 5 April 1994, that where the Club makes payment of claims it "acquires by subrogation the right of the person paid against the limitation fund and the IOPC Fund".
(5) The issue of proceedings making a subrogated claim by the Club in relation to The Sea Empress incident in order to protect time limits.
(6) The making of claims in relation to The Braer which potentially exceeded the Fund limit and the recognition that that could lead to the Club only recovering a pro-rated proportion of claims it had paid.
"In order to ensure that proper claims are paid as promptly as possible it has been commonplace for P&I Clubs to pay their full amount until the shipowner's liability limit is reached, and for the IOPC Fund concerned to take over the payment of claims thereafter. This procedure has been facilitated by the fact that, in practice, the Funds have accepted that if necessary the shipowner could pursue rights of subrogation under the applicable Fund Convention…."
"As you are aware the Nissos Amorgos incident was considered by the Executive Committee at its 53rd session held last week.
The Executive Committee authorised the Director to make final settlements of all claims arising out of this incident, to the extent that the claims did not give rise to questions of principle which had not previously been decided by the Committee.
As regards the question of payments by the 1971 Fund at this stage, the Executive Committee took the following decision:
As for the question of whether and, if so, to what extent the Director should be authorised to make payments, the Executive Committee noted that it was not yet possible to make an accurate estimate of the total amount of claims which might be submitted, in particular due to the claim presented by the State of Venezuela and its request for security to be provided by the shipowner. The Committee considered it necessary, therefore, for the 1971 Fund to exercise caution in the payment of claims. It was noted that the 1971 Fund was liable to pay compensation only when the total amount of the payments made by the shipowner exceeded the limitation amount applicable to the vessel, in this case approximately £4.5 million. In view of the uncertainty as to whether the total amount of the claims might exceed the total amount available under the 1969 Civil Liability Convention and the 1971 Fund Convention (60 million SDR, corresponding to approximately £51 million), the Committee decided that the Director was not authorised to make any payments for the time being.
A copy of the relevant pages of the Record of Decisions is enclosed.
The consequence of the decision taken by the Executive Committee is that the 1971 fund cannot at present make any payments. I have on the other hand been authorised to make final settlements in respect of any claim subject to the proviso referred to above.
I presume that the Gard Club wants to start making payments as soon as possible. The 1971 fund certainly has no objection to the Club making payments to claimants, provided that the claim has been approved by the Fund for a particular amount. The Gard Club would then acquire by subrogation the right of the claimant against the shipowner's limitation fund and the 1971 Fund. However, if the total amount of the established claims were to exceed the maximum amount available under the 1969 Civil Liability Convention and the 1971 Fund Convention, ie 60 million SDR, the Club would only be reimbursed for a certain percentage of these payments, as all claims will have to be pro-rated."
"The 1971 Fund has examined the claim documents submitted by the Claims Agency in respect of the claims covered by your telefax of 4 June 1997. The 1971 Fund approves claims 70, 72, 74, 76, 78 and 81 for the amounts set out in the assessments.
Although the 1971 Fund cannot at present make any payments, the Fund has no objection to the shipowner/Gard Club paying these claims for the amounts assessed. The shipowner or the Gard Club will subrogate the claims paid against the owner's limitation fund and the 1971 Fund. It should be noted, however, that in the event that the established claims arising out of this incident were to exceed the maximum amount available under the 1969 Civil Liability Convention and the 1971 Fund Convention, ie 60 million SDR, the payment of claims would have to be pro-rated. The shipowner/Club would in that situation only be credited by subrogation for the pro-rated amounts.
Payments may be made only after detailed instructions concerning the procedure for signing receipts and releases and the procedure for payment have been given by the Gard Club and the 1971 Fund. These instructions will be given soon."
(1) The alleged contract is vague and uncertain. It is said to be a contract to apply "practices and procedures" which had developed through co-operation between the IG Clubs and the Fund. Although some of these are identified in the pleading, the plea is that all "relevant" practices and procedures were contractually agreed to apply. It is unclear exactly what this would cover. Nor is it likely that the parties would intend to be bound contractually to apply all of them regardless of the circumstances of the particular incident in question.(2) Even if one focuses on the "consecutive payments arrangement", there are obvious difficulties in treating it as involving a contract. For example: is Gard obliged to pay claims up to the CLC limit or is that a matter of choice? Do claims have to be paid up to the limit before the Fund becomes obliged to pay or may there be circumstances where it becomes so obliged before that stage is reached (as happened in some instances)? Are joint costs to be taken into account in relation to the payment of claims up to the CLC limit (as Gard's pleading asserts)? Are there any circumstances in which the Fund is not obliged to pay claims, or is relieved from that obligation? What happens if the claims are not approved or agreed? Does the Fund have to take over the handling of claims as well as paying them? What if the parties are unable to agree the reconciliation? Is the time of payment (or interest) to be taken into account? Where and how should any disputes between the parties be resolved? If commercial parties wished to enter into a contract for "consecutive payment" these are the types of issues which would be expected to be addressed, but none of them are. Gard's case involves it, at its election, being able to impose a wholly unconditional obligation of payment of claims on the Fund. As the facts of the present case illustrate, there may well be circumstances in which the Fund would wish to question whether there is any obligation of payment. To give up any right to do so would be an improvident and implausible bargain which would require clear and unequivocal agreement.
(3) Gard's case as to when and how the contract was made has shifted and changed. The first clear assertion of such a contract was made in June 2013 and that relied on a contract allegedly made by the parties' correspondence between 2007 and 2011. The pleading relied on discussions, faxes and conduct over the period from March 1997 to May 2011. The Further Information relied on exchanges in 1997 only, culminating in the Executive Committee's decision at its 16-17 June 1997 meeting. Gard's skeleton at trial relied on the completed offer made on 4 June 1997 being accepted by payment of claims. Further, its pleaded case asserts an obligation on Gard to pay claims; its case at trial was that this was a matter of choice. If the circumstances in which an agreement was entered into, and its terms, cannot be stated clearly then this suggests that no such agreement existed.
(4) It is clear from the parties' exchanges in March to June 1997 that Gard was seeking a formal statement of the Fund's position. What was being sought was clearly stated in Gard's fax of 4 June 1997, namely confirmation that the Fund had no objection to Gard making payments and that it did not dispute the right of Gard to make a claim by subrogation. This is what it received in the Fund's 4 June 1997 fax. The Fund did indeed state that it had "no objection" to Gard making payments on the basis proposed and that it accepted its right of subrogation. There was no response that this was insufficient or incorrect. Where parties go to the trouble of formally setting out their position in this way it is reasonable to presume that it sets out the full extent of that position.
(5) Ms Burgess accepted in evidence that if she had asked Mr Jacobsson to include within the 4 June 1997 fax a statement that an agreement existed along the lines alleged by Gard, she could not say that he would have included it: "I really cannot comment on what he would not, would or would not have done"; "I cannot say of course he would agree it. We can see that we had various discussions with the director".
(6) The parties' exchanges show that the Fund was reluctant to commit itself beyond a statement of position. For example, as reflected in Ms Burgess' note of 6 March 1997, Mr Jacobsson was not prepared to enter into an agreement on the exoneration issue. At the 30 May 1997 meeting he was not prepared to agree to arbitration of the exoneration issue or an exchange of letters confirming that the Fund would pay. The most he was prepared to do was to make a statement with which the Executive Committee could agree. This is what then occurred. As anticipated, it was no more than a statement of position.
(7) There is no contemporaneous documentary evidence of the alleged agreement. None of the documentary exchanges record it. None of the meeting notes record it. The oral evidence goes no further than I have found.
(8) The contemporaneous evidence reflects an expectation that the "consecutive payment arrangement" would be followed and that there "should be no problem"; not that that there would be no problem because it was contractually agreed. Thus on 15 April 1997 Ms Burgess reported that Gard "should have no difficulty" in claiming sums back. Importantly, on 5 June 1997, the day after the alleged confirmed offer, Mr de la Rue said that there "should be no difficulty" if the Fund limit is not exceeded and a financial adjustment is made. This reflected the language used by Mr Jacobsson at the previous day's meeting. It is the language of expectation, not obligation.
(9) Although the Fund did not formally take any point on authority, the "offer" faxes relied upon make it clear that Mr Jacobsson had no authority to make payments. In such circumstances, it is difficult to see how the faxes could reasonably be understood as providing an unconditional contractual undertaking to make payments. If he had no authority to make payments he would surely be understood to have no authority to promise to make such payments – yet that is the contractual undertaking alleged. Further, the reason given, concern that the Fund limit might be exceeded, applied not just to the making of payments, but also to any promises to make such payments. Contrary to Gard's submission, in the light of the Executive Committee's expressly stated position in relation to the payment of claims for this incident, I do not consider that its earlier general approval of the Director's "pragmatic approach" to claims handling covered the matter.
(10) If, as I have held to be the case, the confirmation given by the Fund of subrogation rights was of general application and applied to all claims, the giving of that confirmation is inconsistent with a contractual commitment to make consecutive payment. If the Fund had contractually agreed to pay all claims above the CLC limit there would be little point in confirming that Gard had subrogation rights against it.
(11) When Mr de la Rue wrote to Mr Jacobsson on 5 March 1998, seeking a new approach to interim payments, he did not refer to a contract or binding agreement. He stated that: "It has always been possible, so far as we know, for any necessary financial adjustments to be made at the end of the case to the satisfaction of the Fund and the Club". This is not the language one would expect an experienced solicitor to use if there was a contract governing these matters.
(12) No reference to the alleged contract or binding agreement was made when Gard started to assert its claims against the Fund in 2011 and 2012. As Ms Burgess accepted in evidence neither her letter to Mr Maura of 20 May 2011 or her follow up letter of 28 March 2012 made any reference to an agreement. No clear assertion of any such agreement was made until June 2013, sixteen years after the binding agreement was allegedly made.
(1) There was no disapplication of the prior "consecutive payment arrangement".(2) The Fund's case acknowledges that it was making a legally binding commitment and it would make little sense for that to be limited to subrogation.
(3) There is a presumption that commercial parties intend their agreements to create legal relations.
(4) Events after 1997 evidence that there was a binding agreement as alleged.
(1) The parties later corresponded with a view to varying the arrangements which had been agreed in 1997. Thus, in 1998, Ince & Co wrote to the Fund, copied to Gard, seeking to agree that, instead of the Club paying all claims up to the CLC limit, the Fund should drop down and pay a portion of claims below the limit. Mr. Jacobsson's immediate response was that the Executive Committee had in the past been "adamant that the CLC limit should be reached by the shipowner/Club before the Fund started to make payments". However, Mr. Jacobsson agreed to, and did, submit a Note setting out the proposal to the Executive Committee on 20 January 1999. At the outset of that Note Mr. Jacobsson reminded the Committee that the Fund had in the past "required" the Club to pay compensation up to the CLC limit before the Fund started paying and that an adjustment was then made between the Club and the Fund when the exact limitation amount had been determined. The Executive Committee declined to agree to change the agreed procedures. Gard submitted that if there had been no agreement, this would make no sense; it was because there was an agreement that the Club needed the Fund's agreement.
(2) The parties followed the procedures which had been employed in earlier cases in this case. Thus:-
(i) The Director approved settlements;
(ii) The Club paid the claims which were approved until their CLC limit was reached;
(iii) The Fund then took over the payment of claims.
(3) The Fund took the lead in the negotiations with the Republic. Gard submitted that this was because, once the CLC limit had been reached, further claims were perceived as the responsibility of the Fund, and the Fund had the interest in resolving them. In 2004 the Fund's Administrative Council instructed the Director to approach the Venezuelan authorities to search for a global solution and meetings between Fund and Republic representatives took place in Venezuela in March 2004. The Administrative Council instructed the Director to seek an assurance by the Republic that it would "Stand Last in the Queue" and the Director duly obtained "the necessary assurance" in August 2004. This in essence meant that the Fund was no longer concerned that the Fund limit might be exceeded, with the result that the Fund could pay other claims in full, rather than in their prorated amount, which the Fund then did.
(4) Gard and the Fund gave joint instructions to Mr. John Maxwell to undertake an audit to reconcile, on a provisional basis, the claims settled and claims-handling costs incurred by, respectively Gard and the Fund. The Fund paid the balancing payment of US$303,041.58 found to be due to Gard in the provisional audit published by Mr. Maxwell on 28 April 2006.
(5) Gard sent various letters to the Fund pointing out that, whether the Fund's defences in Venezuela were successful or not, there would need to be a further financial adjustment as between the Fund and Club, as set out in Gard's letters to the Fund dated 30 July 2007, 3 February 2010 and 20 May 2011, with which letters the Fund did not take issue. The Fund never questioned the need for such an adjustment. Further, the Fund's current Director, Mr. Maura said, at a meeting with Gard on 10 September 2013, that "the Fund had agreed to pay and there had not been a response to the letters since there had not been a problem".
(6) Mr. Maura, acknowledged that a claim by Gard for a balancing payment was based on rights and obligations between Gard and the Fund arising from the claims-handling practices and interim payment procedures they agreed to follow, not on the Conventions, as reflected in a note of meeting on 10 September 2013.
(7) At a meeting of the Sixth Intersessional Working Group of the 1992 Fund, the Fund's Director noted that "there was no legal basis for interim payments in the Civil Liability and Fund Conventions, and thus it was not a matter of interpretation of the Conventions but rather a matter of practice and agreement" adding that under the usual practice "the Club concerned and the 1992 Fund would carry out a reconciliation, which was simply an accounting exercise, whereby each party would determine what each party had paid in compensation to victims, what were the joint expenses, what was the final percentage of liabilities between the Club and the Fund after all payments had been made, and thus how much was owed by one party to the other as a result of the reconciliation".
(8) In a Note by the Fund's Secretariat of 22 April 2014 the Director stated that "[t]here is an agreement between the Gard Club and the 1971 Fund to make interim payments in respect of the Nissos Amorgos incident. … Under this agreement the Gard Club and the 1971 Fund have paid compensation for some US$24.4 million".
(9) The existence of the practices and procedures relied on by Gard was confirmed in a number of later Fund documents, including the Note by Mr. Jacobsson dated 20 January 1999 to the Fund's Executive Committee, Mr. Jacobsson's letter to Mr. Stephen Martin (of Steamship Mutual) dated 21 January 2003 re The Erika incident; Mr Jacobsson's explanation of the procedures to the Executive Committee on 7 February 2003 re The Prestige incident and the Study by Messrs Jacobsson and Shaw of February 2012.
(1) It was obviously sensible to seek agreement in relation to any departure from previous practices in relation to the "consecutive payment arrangement" even if, as I find to be the case, that "arrangement" was not contractual. Further, as already found, Ince & Co.'s letter of 5 March 1998, does not refer to a contract or binding agreement, and is expressed in terms inconsistent with there being such an agreement.(2)(3)(4) This conduct is equally consistent with the parties' having such an arrangement, but it being non-contractual.
(5) Whilst Gard's letters referred to the need for further adjustment they did not refer to there being a contract or other binding agreement, or to the adjustment being required thereunder. Mr Maura's reference to the Fund having agreed to pay claims does not expressly or necessarily connote a contractual agreement.
(6) Again, Mr Maura was not expressly or necessarily referring to a contractual agreement. Even if he was, what he said is consistent with the Club having subrogation rights outside the Convention, a right which the Fund had long recognised.
(7) The Director refers to a "practice" and whilst he mentions "agreement" he is not expressly or necessarily referring to a contractual "agreement". The recognised legal basis for the "consecutive payment arrangement" and the consequent accounting reconciliation was mutual subrogation.
(8) The Note is not expressly or necessarily referring to a contractual agreement.
(9) The existence of the practice and procedures is not in doubt. The issue is whether they are contractually binding. None of the documents referred to address this.
Issue (2) Is that contract one which falls within the exception from immunity from suit and legal process in Article 6(1)(c) of the 1979 Order, namely a contract of loan or for the provision of finance?
The proper approach
(1) An analogy with the presumption of immunity under s.1 of the State Immunity Act 1978 ("the 1978 Act");
(2) The reasons why Parliament conferred immunity on the Fund;
(3) The distinction between "public" and "commercial" acts and the fact that the Fund's activities in the present case have the character of acta jure imperii not acta jure gestionis.
"First the absolute doctrine of sovereign immunity grew up in reliance on a theory that sovereign states were characterised by what Marshall C.J. in Exchange (Schooner) v. M'Faddon (1812) 7 Cranch. 116 described as "perfect equality and absolute independence." It followed from this that one sovereign would not insult the dignity or undermine the independence of another by seeking to assert jurisdiction over him. Whatever the merits of this doctrine as between personal sovereigns or sovereign states, it is not obviously apt to be applied to a body such as the I.T.C. of which sovereign states are no more than members and whose own sovereign status is said to have a certain Cheshire cat quality. The I.T.C could scarcely be seen as enjoying perfect equality with the United Kingdom or the same absolute independence. It is not therefore to be assumed that the strict principles established by authority would have been applied in these different circumstances or that such application would in 1972 have been expected. Second, and perhaps more importantly, international organisations such as the I.T.C. have never so far as I know been recognised at common law as entitled to sovereign status. They are accordingly entitled to no sovereign or diplomatic immunity in this country save where such immunity is granted by legislative instrument, and then only to the extent of such grant. In the present case the I.T.C. enjoyed such immunity as was granted by article 6(1) of the Order of 1972, no more and no less."
"(1) Within the scope of its official activities the Fund shall have immunity from suit and legal process except:(a) to the extent that it shall have waived such immunity in any particular case;
(b) in respect of actions brought against the Fund in accordance with the provisions of the Convention;
(c) in respect of any contract for the supply of goods or services, and any loan or other transaction for the provision of finance and any guarantee or indemnity in respect of any such transaction or of any other financial obligation;
…"
"loan or other transaction for the provision of finance"
"A contract of loan of money is a contract whereby one person lends or agrees to lend a sum of money to another, in consideration of a promise express or implied to repay that sum on demand, or at a fixed or determinable future time, or conditionally upon an event which is bound to happen, with or without interest"
"In my opinion in the particular circumstances of this case the payments were not made by way of loan. They were made in accordance with the practice which had long existed by which the governing director of the company in which he had held all the shares directed or requested the company to make payments on his behalf as a matter of ordinary convenience. The company had never carried on a business of bankers or moneylenders and it is not in my opinion a fair use of language to describe payments made for the governing director in such circumstances as loans".
"Now, I entertain little doubt that in certain circumstances it may properly be said that, if A out of his own moneys pays a sum to B for and at the request of C, A has paid the sum by way of loan, and by way of loan to C in the sense, and only the sense, that he has thereby created the relation of lender and borrower between himself and C. But this is not to say that all transactions of that kind are loans. They may be but incidents in some wider relationship, other than that of lender and borrower, and take, as it were, their colour from it. For example, a rent agent may have to pay rates and a solicitor may have to pay stamp duties for clients whose accounts are not in credit at the time of payment. But in the ordinary course of events I do not think it would occur to anyone, or be a correct use of language, to say that such disbursements were loans or made by way of loan. On the other hand, the kind of wider relationship to which I am referring may provide opportunity for transactions within it which are exceptional and beyond the normal scope of the relationship and which may properly be describable as loans and nothing else."
"25. It seems to me that Lord McDermott in [Potts] is there recognising that there may be some tripartite situations and the one involving a bank referred to by Lord Normand is the most common and obvious one, where notwithstanding that there is no direct payment as between lender and borrower but rather a direct payment from the lender to the third party, that, nonetheless, can still be as a matter of law a loan.
26. For that to be the case, it seems in my judgment that there must be either a pre-existing relationship of debtor and creditor to which that new transaction is attributable and which, to use Lord McDermott's words, gives it its colour, or alternatively it must actually be agreed between the parties, and in particular the alleged lender and borrower, that as between themselves the contract is to be one of loan, in other words, that the money is to be treated as paid to the borrower and repaid by the borrower on whatever terms have been agreed. Where the provider of the funds, the payer simply agrees to pay money to a third party in satisfaction of the liabilities of the other party to that third party, that does not of itself constitute a contract of loan, particularly whereas in this case the pre-existing relationship was one of guarantor and principal debtor."
"any loan or other transaction for the provision of finance and any guarantee or indemnity in respect of any such transaction or of any other financial obligation: two aspects of this element of the definition are of note. The first is that the provision of finance may be either by or to the State. Secondly, there would appear to be a distinction drawn between a "transaction for the provision of finance" and "any other financial obligation" (a mere financial obligation does not fall within the definition of "commercial transaction" in its own right), but the nature of the distinction is elusive. The former phrase would certainly encompass any bond or other bearer debt instrument, derivative transaction, letter of credit, bill of exchange or promissory note as well as the provision of security for indebtedness. Bank overdrafts would also seem to be covered. The intention behind the latter phrase is less clear, but it may well cover other monetary obligations of third parties, such as the price under a sale of goods contract, rental payments or maintenance obligations".
Application to the facts
(1) The transaction is not akin to any of the examples given in Dickinson. That list of examples is not exhaustive and Gard was able to suggest other examples in a tripartite context, namely a credit card agreement and a hire purchase agreement. However, nor is the transaction akin to any of these further examples.(2) The essence of the "consecutive payment arrangement" is the payment of claims, not the provision of funding. The claims are paid up to the amount of each relevant limit. They are consecutive because Gard's CLC liability comes first and it is only once the CLC limit is found to be too little to provide adequate compensation that the Fund's liability is engaged. The amount paid and the sequence of payment did not arise out of or relate to the borrowing needs of the Fund.
(3) Although the effect of the arrangement could be regarded as providing funding (since, once the claims exceeded the CLC limit, the Club's liability was only for a prorated amount of each claim), that was not its purpose. Its purpose was to provide a convenient and efficient means for the making of interim claims payments and for the discharge of each party's claims liabilities.
(4) The legal basis of the arrangement was mutual subrogation.
(5) An agreement that Gard will pay first and the Fund will pay second is essentially a hold harmless or indemnity agreement.
(6) At the time that Gard paid claims it would not be known whether it is paying more to claimants than it is obliged to or, if it is, by how much. It is a curious loan or transaction for the provision of finance where it is not clear at the time of the payment that any loan or transaction for the provision of funding has taken place.
(7) There was no discussion or agreement as to the terms on which any finance was being provided. There was no agreement either to pay or not to pay interest. The matter was simply not addressed.
(8) The alleged contract was to adopt the usual practices and procedures. The "consecutive payment arrangement" was simply one element of those practices and procedures.
Conclusion
