EXTRA DIVISION, INNER HOUSE, COURT OF SESSION
Lord Osborne Lady Paton Lord Carloway	[2009] CSIH 35 CA23/07 OPINION OF LORD OSBORNE in the Appeal by FARSTAD SUPPLY A.S. Pursuers and respondents; against ENVIROCO LIMITED Defenders and Reclaimers: and ASCO UK LIMITED (formerly called Aberdeen Service Company (North Sea) Limited) Third Parties; _______

Pursuers and Respondents: Clark Q.C.; HBJ Gateley Wareing LLP

Defenders and Reclaimers: Howie Q.C.; Paull & Williamsons

Non Participating Party - Third Party; Simpson & Marwick

1 May 2009

The background circumstances

[1] The respondents were the owners of the oil rig supply vessel, MV Far Service, when it was damaged by fire when berthed in Peterhead harbour on 7 July 2002. The respondents have claimed damages against the reclaimers, a service company, averring that the fire in question resulted from the fault and negligence of the reclaimers' employees when they were engaged in removing residue from the starboard base oil tank of the vessel. It is averred that the fire started when the reclaimers' employees disconnected their hosepipes following the substantial completion of the extraction of the residue. This happened at a time when the main engines of the vessel had been started up, preparatory to the vessel leaving her mooring. Base oil flowed back from the pipes that had been used in the extraction operation and came into contact with a hot engine, whereupon it ignited, thus causing the fire.

[2] The reclaimers, as well as averring contributory negligence against the respondents' employees, seek a contribution from the third parties, who were charterers of the vessel, averring that the third parties had failed in their duty as charterers and base operators to direct and supervise the operations carried out on the vessel while it was in port. Although it is not expressly averred, the pleadings imply that the third parties failed in their duty to the respondents to take reasonable care to avoid causing physical damage to the vessel. In the event that they are found liable in damages to the respondents, the reclaimers seek to recover from the third parties a contribution in terms of section 3 (2) of the Law Reform (Miscellaneous Provisions)(Scotland) Act 1940.

[3] The Charter Agreement between the respondents and the third parties, dated 4 February 1994, contained a condition in the following terms:

".....the Owner shall defend, indemnify and hold harmless the Charterer....from and against any and all claims, demands, liabilities, proceedings and causes of action resulting from loss or damage in relation to the Vessel.....irrespective of the cause of loss or damage, including where such loss or damage is caused by [sic], or contributed to, by the negligence of the Charterer....".

That provision forms part of a clause which allocates the risk of various events as between the owner and charterer of the vessel.

[4] The respondents stated a preliminary plea in the following terms:

"1. The defenders' averments anent contribution by the third party being irrelevant et separatim lacking in specification, the said averments should not be remitted to probation."

The averments against which that plea was taken are to be found at page 30D-E in the Reclaiming Print. Those averments were supported by a plea of contribution, plea-in-law 5 for the reclaimers. The respondents' preliminary plea came before the Lord Ordinary at a debate on 28 January 2008. On 23 April 2008, the Lord Ordinary sustained the first plea-in-law for the respondents and excluded from probation the averments to which reference has just been made; furthermore, he excluded from probation certain averments of the reclaimers to be found on page 20C-D of the Reclaiming Print, concerning an alleged contribution to the accident on the part of the third parties. The Lord Ordinary also repelled the fifth plea-in-law for the reclaimers. Against that interlocutor, the reclaimers have now reclaimed to this court.

Submissions of the reclaimers

[5] Senior counsel for the reclaimers commenced his submissions by explaining the background to the case and the issues which had arisen on the pleadings, already described. He pointed out that the third parties were not individually represented; it was the pursuers and respondents that had an interest to argue the point decided by the Lord Ordinary. Senior counsel went on to refer to the Opinion of the Lord Ordinary. His characterisation of the issues that had arisen in paragraph [9] of his Opinion was uncontroversial. The terms of the ASCO Charter Agreement (1992), 6/1 of process, were important, particularly the terms of clause 33, to be found between pages 14 and 16 of the Appendix.

[6] Senior counsel went on to draw to our attention the provisions of section 3 of the Law Reform (Miscellaneous Provisions) (Scotland) Act 1940, which are reproduced in paragraph [6] of the Lord Ordinary's Opinion.

[7] Senior counsel submitted that these statutory provisions were capable of affecting the rights of persons who were outwith the pursuers' "contractual ambit", someone who was a "stranger to the pursuer". In consequence of that fact, under reference to the words in section 3 (2) of the 1940 Act "might also have been held liable....", the interpretation to be favoured was that least likely to restrict the rights of contribution or relief to which that outsider might be entitled.

[8] In paragraph [31] of the Lord Ordinary's Opinion, he had mentioned what might be thought to be an inequitable result of his view; it was submitted that the law should strive to make such occasions as rare as possible. The phrase "....might also have been held liable...." was satisfied when the court could hold that the person from whom a contribution was sought was indeed a wrongdoer. It was not the position that the language of the statute necessitated a situation in which there was a net movement of funds from the "contributor", the third parties, to the pursuer. In response to a question by the court, senior counsel said that the word "liable" in section 3 (2) of the 1940 Act meant abstract liability, according to the merits of the dispute. To be "liable" did not involve necessarily the payment of damages as a net transfer of funds. If a party was "liable", that party might operate an indemnity in their favour. Again, in response to a question by the court, senior counsel submitted that the expression "held liable" in section 3 (2) of the 1940 Act did not necessarily infer an adjudication by a court in the sense of the rendering of a party liable to another. It might refer to a situation in which a court simply pronounced a declarator. In this connection senior counsel relied upon Central S.M.T. Company Limited v Lanark County Council 1949 S.L.T. 310. That was an example of a case in which such a declarator had been held competent. Reference was made particularly to the observations of Lord Keith at page 314. Senior counsel submitted that what an indemnity did was not to affect liability; it affected responsibility for ultimate payment. What the third parties were doing in the averments at pages 34-35 of the Reclaiming Print was relying on clause 33.5 of the Charter Agreement as an indemnity. Senior counsel said that the construction for which he was contending was consistent with the approach of the court in other circumstances, where it had been said that it was not open to a pursuer to "affect" the rights of outsiders by contractual arrangements. In that connection he relied on Singer v Gray Tool Company (Europe) Limited 1984 S.L.T. 149. It was there held that section 3 (2) of the 1940 Act did not put it into the hands of a pursuer at his whim to defeat the rights of a person to obtain relief against a joint wrongdoer; the words "if sued" in that subsection had to be construed as "if sued to judgement". However, senior counsel agreed that the present case was not one where the rights of a joint wrongdoer had been affected by the pursuer's whim, because of the chronology of events, in particular the date of the Charter Agreement. However, the "whim principle" was an indication of the policy underlying the 1940 Act. Senior counsel went on to rely upon Comex Houlder Diving Limited v Colne Fishing Company Limited 1987 S.L.T. (H.L.) 443, at page 445, where the operation of section 3 (2) of the 1940 Act was discussed. There was a distinction between an indemnity clause, which required to be invoked before it would operate, and an exclusion clause, which, if valid, operated inevitably. An exclusion clause required to be taken into account in an issue involving section 3 (2) of the 1940 Act, but an indemnity clause did not. In the present case clause 33.5 of the Charter Agreement was an indemnity clause, which dealt with how the consequences of liability were to be handled. If a third party were held liable, who had the benefit of an indemnity clause, that would be enforceable against the indemnifier, but would not affect the operation of section 3 (2) of the 1940 Act.

[9] Senior counsel then proceeded to examine the terms of clause 33.5 of the Charter Agreement. Looking at the case pleaded by the third parties, the clause concerned had to be seen as an indemnity clause. In effect, what it said was "here is a liability; I am not going to bear the cost of that; you are." That amounted to passing on the consequences of an existing liability. The language of the clause included the words "...shall defend, indemnify and hold harmless the charterer....from and against any and all claims, demands, liabilities....". That clause did not free the third parties from liability. It provided indemnification against the financial consequences of liability. It did not bear at all upon the question of whether there was liability in the first place. The words "indemnify and hold harmless" were tautology in this case. The word "defend", used in the clause was intended to cover the cost of defending proceedings against third parties. In all the circumstances the reclaiming motion ought to be allowed and the interlocutor of the Lord Ordinary recalled. Plea-in-law 1 for the respondents should be repelled; plea-in-law 5 for the reclaimers should stand. A proof before answer on all pleas-in-law of the reclaimers, and pleas two to four of the respondents should be allowed. Plea-in-law one of the third parties should be repelled.

Submissions of the respondents

[10] Senior counsel for the respondents moved the court to refuse the reclaiming motion. The submissions would fall into three chapters: (1) general matters; (2) statutory interpretation; and (3) the proper construction of clause 33.5 of the Charter Agreement. As regards the first of these matters, it was evident that the Lord Ordinary had relied in part on the common law. In paragraph [15] of his opinion he had looked at liability to pay damages or expenses, not just liability as a wrongdoer. That was important, because of the existence of clause 33.5 of the Charter Agreement. In this connection senior counsel relied on Palmer v Wick and Pulteneytown Steam Shipping Company Limited (1894) 21 R.(H.L.) 39, a pre 1940 Act case. The case contained a description of the common law operating before the passing of the 1940 Act. Reference was made particularly to the observations of Lord Chancellor Herschell, page 40 and Lord Watson at pages 43-45. In connection with the operation of the law, it was necessary to look at the actual position of a third party. The whole basis of a claim under section 3 (2) of the 1940 Act was that the claimant had discharged an obligation to make reparation also imposed upon the third party. That obligation did not exist in a vacuum; it was necessary to look at the actual position of the third party. If one did that in the present case, it was plain that the terms of clause 33.5 of the Charter Agreement meant that the third parties could not be liable to the respondents, who had suffered injury to their property. Payment by the reclaimers would not have the effect of releasing the third parties from any liability, because there was none.

[11] Senior counsel for the reclaimers had accepted that if the third parties had been in benefit of an exclusion clause, the wording of section 3 (2) of the 1940 Act was such that a claim under section 3 (2) could not be made. It was of interest to note that the House of Lords had held that an exclusion clause had the effect of excluding a claim for contribution under the relevant English enactment, the Civil Liability (Contribution) Act 1978, as appeared from Co-operative Retail Services Limited v Taylor Young Partnership Limited and others [2002] 1 WLR 1419. The language of section 1 of the 1978 Act included the words "liable in respect of the same damage". Reliance was placed in particular on the observations of Lord Bingham of Cornhill in paragraphs 2, 3, 4, 6 and 10 of his opinion. Reliance was also placed on Caledonia North Sea Limited v British Telecommunications Plc and others 2002 SC (HL) 117.

[12] If the concession made by senior counsel for the reclaimers were to be ignored, it was necessary to find in section 3 (2) of the 1940 Act the principle that no contractual arrangements could exclude the right of contribution. However there was no basis for such a conclusion. If one proceeded upon the basis of the concession made by senior counsel for the reclaimers, the argument on equity relied upon by him vanished. There was no room for the distinction sought to be made by him. Clause 33.5 of the Charter Agreement had the same effect as an exclusion clause. Paragraph 10 of the Opinion of Lord Bingham in Co-operative Retail Services Limited v Taylor Young Partnership Limited and others dismantled the equity argument. Further support for the view that contractual provisions should be allowed to have effect could be got from a study of the Report of the South African Law Reform Commission (Project 96) in relation to the apportionment of damages, dated July 2003.

[13] Senior counsel then turned to the second chapter of his submissions, concerned with the interpretation of section 3 of the 1940 Act. The words "might also have been held liable,", in section 3 (2) were crucial. What the Lord Ordinary had said in paragraph [15] of his opinion was correct. The provisions of the section were not concerned with some bare liability in the abstract; they related to the realities, including the contractual position of a third party.

[14] Senior counsel went on to consider in detail the interpretation of clause 33.5 of the Charter Agreement. The view of the Lord Ordinary on this matter was commended. Clause 33.1 referred to "exceptions and indemnities" as set out in the clause. Looking at the terms of clause 33.5, it was not just an indemnity clause; the owner had to "defend, indemnify and hold harmless" the charterer against any and all claims. It was wrong to say that a person protected by that clause "might be held liable". Clause 33.5 was in the nature of an exclusion clause. The observations of the Lord Ordinary in paragraph [25] of his opinion were sound. The words "hold harmless" involved the giving up of any right to claim damages; liability simply could not come into being. In all these circumstances, section 3 (2) of the 1940 Act could not operate. The reclaiming motion should be refused.

Submissions of senior counsel for the reclaimers in reply

[15] The case of Co-operative Retail Services Limited v Taylor Young Partnership Limited and others was not of assistance; nor was Caledonia North Sea Limited v British Telecommunications plc. They were not concerned with the 1940 Act, which differed materially from the 1978 Act. Furthermore, the former case was much concerned with the construction of a building contract, the terms of which were unique to it. There was no issue concerning common law negligence. The material from the South African Law Reform Commission was not helpful. It did not palliate the inequity involved in the position taken by the Lord Ordinary. No assistance could be got from Majkowski v American Imaging Management Services LLC 2006 WL 3627111 (Del.Ch.). There was no magic in the words "hold harmless". The appearance of those words of clause 33.5 of the Charter Agreement did not convert that clause into an exclusion clause.

My conclusions

[16] Since the law relating to contribution among joint wrongdoers in Scotland has, since the enactment of the 1940 Act, been statutory, it is appropriate to note the relevant provisions. Section 3 (1) of that Act provides as follows:

"Where in any action of damages in respect of loss or damage arising from any wrongful acts or negligent acts or omissions two or more persons are, in pursuance of the verdict of a jury or the judgment of a court found jointly and severally liable in damages or expenses, they shall be liable inter se to contribute to such damages or expenses in such proportions as the jury or the court, as the case may be, may deem just: Provided that nothing in this subsection shall affect the right of the person to whom such damages or expenses have been awarded to obtain a joint and several decree therefor against the persons so found liable."

Section 3 (2) provides as follows:

"Where any person has paid any damages or expenses in which he has been found liable in any such action as aforesaid, he shall be entitled to recover from any other person who, if sued, might also have been held liable in respect of the loss or damage on which the action was founded, such contribution, if any, as the court may deem just."

The reference in section 3 (2) to "such action as aforesaid", I consider, must be a reference to the kind of action described in section 3 (1), namely "any action of damages in respect of loss or damage arising from any wrongful acts or negligent acts or omissions". Although there was some discussion before us of the state of Scottish common law prior to the enactment of the 1940 Act, I do not find that to be of great assistance in the present context. In my opinion the claim for contribution at the instance of the reclaimers in the present case must depend on a proper interpretation of the provisions of section 3 (2) of the 1940 Act, which now governs such right as they may have, and upon nothing else.

[17] The terms of certain parts of the Asco Charter Agreement (1992) were fundamental in the decision of the Lord Ordinary. Furthermore, it was apparent from the submissions made to us that certain provisions of that agreement and their proper interpretation are crucial to any decision on this reclaiming motion. For these reasons it is necessary to examine, in particular, the provisions of clause 33 of the Agreement. It is to be observed that clause 33.5, upon which attention requires to be focused particularly, is part of a group of clauses, headed "EXCEPTIONS/INDEMNITIES", which contains a series of clauses regulating the relationship between the Charterer and the Owner of the vessel in question. In particular clauses 33.2 to 33.6 seek to regulate responsibility as between the charterer and owner in respect of the eventualities described therein. All of these clauses contain the words "defend, indemnify and hold harmless", which featured in the debate before us in relation to clause 33.5. Clause 33.5 itself provides as follows:

"Subject to Clause 33.1, the Owner shall defend, indemnify and hold harmless the Charterer, its Affiliates and Customers from and against any and all claims, demands, liabilities, proceedings and causes of action resulting from loss or damage in relation to the Vessel (including total loss) or property of the Owner, including personal property of the Owner's Personnel or of anyone for whom the Owner may be responsible on the Vessel, irrespective of the cause of loss or damage, including where such loss or damage is caused by, or contributed to, by the negligence of the Charterer, its Affiliates or Customers."

[18] In the course of the debate before us, there was discussion as to whether this clause ought to be categorised as an indemnity clause or an exclusion clause. In my opinion, it is not necessary to reach a conclusion upon that issue. What is clear from the language used in the latter part of the clause is that the parties intended that it should operate in a situation "where such loss or damage is caused by, or contributed to, by the negligence of the Charterer,...".

[19] The question which I see as arising in relation to this clause is whether the words "the Owner shall defend, indemnify and hold harmless the Charterer.....from and against any and all claims, demands, liabilities, proceedings and causes of action resulting from loss or damage in relation to the Vessel..." would have the effect in law of preventing the respondents, as owners of the vessel from taking successful legal action against the third parties for reparation in respect of damage done to the vessel in the fire on it. In my opinion, the language of clause 33.5 undoubtedly would have that effect. In particular, I consider that if the respondents had taken legal action against the third parties in respect of such damage, the third parties would have been able to plead that they had a contractual defence to that action arising out of the language in the clause, which I have quoted. Where the respondents have contracted to "defend....and hold harmless" the third parties, in my opinion, they would not be legally entitled to obtain against the third parties a decree in respect of the matters in relation to which the respondents had undertaken to defend them and hold them harmless. Thus I agree with the submission made on behalf of the respondents that the language of clause 33.5, however one may choose to describe that clause, amounts to very much more than an indemnity, although that word is, of course, used in the clause, along with the other language referred to. For the respondents to take legal action in respect of damage to the vessel against the third parties would be a direct negation of their responsibility to "defend....and hold harmless" the third parties. For these reasons, I find myself in agreement with the Lord Ordinary's observations concerning this language in paragraphs [25] to [27] of his opinion.

[20] In Co-operative Retail Services Limited v Taylor Young Partnership Limited and others there came under consideration in the House of Lords the terms of the Civil Liability (Contribution) Act 1978, sections 1 and 6. While the terms of those enactments are materially different from section 3 of the 1940 Act, there are certain similarities. Section 1 (1) provides:

"Subject to the following provisions of this section, any person liable in respect of any damage suffered by another person may recover contribution from any other person liable in respect of the same damage (whether jointly with him or otherwise)."

Section 6 (1) provides:

"A person is liable in respect of any damage for the purposes of this Act if the person who suffered it (or anyone representing his estate or dependents) is entitled to recover compensation from him in respect of that damage (whatever the legal basis of his liability, whether tort, breach of contract, breach of trust or otherwise)."

[21] The circumstances of the case concerned are complex and very different from those of the present case. Nevertheless, the issue arose in it as to whether certain contractual provisions might operate so that they could render a person not liable under section 1 (1) in respect of certain fire damage and hence not a person from whom those otherwise entitled might seek a contribution. That issue was decided in such a way that contribution was not available. In this connection I refer to paragraph 4 of the opinion of Lord Bingham of Cornhill, where the issues in the case are explained. The grounds of decision in the case were succinctly expressed in paragraphs 69 and 70 of the opinion of Lord Rodger of Earlsferry. There he said:

"69 Under section 1 (1) of the Civil Liability (Contribution) Act 1978 a person who is liable in respect of damage can recover contribution from any other person who is liable in respect of the same damage. It follows that the appellants can recover contribution from Wimpey in respect of the fire damage to the works only if Wimpey were 'liable in respect of' the fire damage. Section 6 (1) provides that a person is liable in respect of any damage if the person who suffered it 'is entitled to recover compensation from him in respect of that damage'. So the appellants can recover a contribution from Wimpey only if CRS were 'entitled to recover compensation from [them] in respect of' the fire damage to the works.

70. On no conceivable construction of section 6 (1) can it be said that a person who is liable to restore damaged work is a person from whom the employer is 'entitled to recover compensation' in respect of the fire damage to the works. It follows that, for the purposes of section 1 (1), Wimpey are not a person who is liable in respect of the fire damage to the works and the appellants cannot recover contribution from them."

[22] While I would immediately acknowledge the material differences between, firstly, the English legislation and the 1940 Act and, secondly, the facts of that case and the present one, in principle, the decision seems to me to support, not only the conclusion reached by the Lord Ordinary, but also that which I myself have reached. Looking at the terms of section 3 (2) of the 1940 Act, in my opinion, it is plain that the entitlement of any person who has paid damages or expenses in which he has been found liable in any action to which section 3 applies to recover a contribution from any other person is dependent upon his showing that that other person is within the category of "any other person who, if sued, might also have been held liable in respect of the loss or damage on which the action was founded." Having regard to the provisions of clause 33.5 of the Charter Agreement, which governs the relationship between the respondents and the third parties, which I have considered, I am quite unable to hold that the third parties in this action are such a person. If one considers what would have happened if the third parties had been sued by the respondents in this case, having regard to the language used in clause 33.5 of the Charter Agreement, in my view, it would have been inevitable that such an action against them would have failed; in other words, they would not have been held liable in respect of the loss or damage concerned.

[23] During the course of the debate before us, senior counsel for the reclaimers conceded that, if clause 33.5 of the Charter Agreement could properly be seen as an exclusion clause, then the reclaimers' claim for contribution would fail. While such a concession cannot bind the court, it does appear to me to reflect a view of the law with which I would agree. Furthermore, it appears to me to undermine the argument advanced on behalf of the reclaimers that the Lord Ordinary's decision resulted in an apparent inequity, something recognised by the Lord Ordinary in paragraph [31] of his opinion. In any event, in my opinion, there are two sides to the equity coin. While a party in the position of the reclaimers might generally expect to be entitled to rely upon the right of contribution enacted in section 3 (2) of the 1940 Act, before concluding that that right was necessarily available in any particular situation, it appears to me that a party contracting as the reclaimers did with the respondents would be prudent to explore the relationship between the respondents and other persons with whom they have contracted. If they did not do so, the consequences of that failure might properly be laid at their door. However, the position of the reclaimers is not the only position to be considered in equity. It is quite plain that the Charter Agreement and in particular clause 33 thereof sought to introduce clarity as regards the responsibility of the respondents, as owners of the vessel, and the third parties, as charterers in relation to a range of possible sources of loss. No doubt insurance arrangements would be made upon the basis of the effectiveness of those provisions. In those circumstances, there might be thought to be inequity in the reaching of a conclusion which would have the effect of upsetting those arrangements.

[24] For all these reasons, I would have moved your Lordship and your Ladyship to refuse this reclaiming motion. However, since I have the misfortune to differ from your conclusions, I recognise that the reclaiming motion must be allowed.

EXTRA DIVISION, INNER HOUSE, COURT OF SESSION
Lord Osborne Lady Paton Lord Carloway	[2009] CSIH 35. OPINION OF LADY PATON in the cause FARSTAD SUPPLY AS Pursuers and respondents; against ENVIROCO LIMITED Defenders and reclaimers; and ASCO UK LIMITED Third party: _______

Pursuers and respondents: Clark QC; HBJ Gateley Wareing LLP

Defenders and reclaimers: Howie QC; Paull & Williamsons

Non Participating Party -Third party; Simpson & Marwick

1 May 2009

Fire damage to oil rig supply vessel

[25] The pursuers (Farstad) are the owners of an oil rig supply vessel, and the third party (ASCO) are charterers. On 7 July 2002, the vessel was berthed at Peterhead Harbour. ASCO instructed the defenders (a service company, Enviroco) to clean out certain holding tanks in the vessel. Towards the end of the cleaning exercise, a representative of ASCO spoke to the master of the vessel about moving to another berth. The master, for whom Farstad are liable, started up the engines, preparatory to moving. At that stage an employee of Enviroco inadvertently opened a valve, releasing oil into the engine room near hot machinery. The oil ignited, causing a fire. One of Enviroco's employees was killed. The vessel was badly damaged.

[26] The Charter Agreement between Farstad and ASCO contained the following clause:

"33.5 ... [Farstad] shall defend, indemnify and hold harmless [ASCO] from and against any and all claims, demands, liabilities, proceedings and causes of action resulting from loss or damage in relation to the vessel (including total loss) or property of [Farstad], including personal property of [Farstad's] personnel or of anyone for whom [Farstad] may be responsible on the vessel, irrespective of the cause of loss or damage, including where such loss or damage is caused by [sic], or contributed to, by the negligence of [ASCO] ..."

[27] In this action, Farstad seeks damages from Enviroco on the ground of negligence. Enviroco, for their part, aver that Farstad were contributorily negligent in that the master of the vessel started up the engines before the cleaning exercise was completed. Enviroco further blame ASCO for failing to direct and supervise the cleaning operation, and for giving an order to move the vessel before the cleaning operation had been completed. Enviroco avers in the last two sentences of Answer 5:

"Further explained and averred that in the event that [Enviroco] are found liable to [Farstad], any award of damages should be apportioned between [Enviroco] and [ASCO] in terms of the Law Reform (Miscellaneous Provisions) (Scotland) Act 1940. Reference is made to the averments in Answer 4 above regarding [ASCO]."

Answer 4 contains the following averments:

"Separatim, it was the duty of ASCO as charterer and base operator to give the order to shift berths at such time that the vessel's engines would not require to be started until after the cleansing operations had been completed. In the aforementioned duties ASCO failed and is so doing materially contributed to the accident."

Enviroco's fifth plea-in-law is in the following terms:

"5. In the event that [Enviroco] are found liable to [Farstad], any award of damages should be apportioned between [Enviroco] and [ASCO] in terms of the Law Reform (Miscellaneous Provisions) (Scotland) Act 1940."

[28] ASCO in their pleadings rely upon Clause 33.5 of the Charter Agreement. In Answer 7, they aver:

"The claim made against [ASCO] in these proceedings is a claim to which [Clause] 33.5 applies. In terms of Clause 33.5 [ASCO] is entitled to be indemnified by [Farstad] against such claim."

ASCO's sixth plea-in-law is in the following terms:

"6. Esto any liability to make payment of damages [to Farstad] is apportioned upon [ASCO], [ASCO] is entitled to be indemnified against such a liability by [Farstad]."

[29] Farstad have not adopted Enviroco's case of fault against ASCO and do not seek payment of damages jointly and severally from Enviroco and ASCO, but only payment of damages from Enviroco. Accordingly section 3(1) of the Law Reform (Miscellaneous Provisions) (Scotland) Act 1940 is not relevant. Section 3(2) of the 1940 Act is however relied upon by Enviroco. That sub-section provides:

"Where a person has paid any damages or expenses in which he has been found liable in any [action of damages in respect of loss or damage arising from any wrongful acts or negligent acts or omissions], he shall be entitled to recover from any other person who, if sued, might also have been held liable in respect of the loss or damage on which the action was founded, such contribution, if any, as the court may deem just."

Debate and pleadings

[30] After a debate, Lord Hodge concluded:

"[32] I am satisfied that [Farstad] at the time of the accident and thereafter did not have a right to obtain damages from [ASCO] in relation to the damage which the vessel suffered in the fire, and that as a result [Enviroco] are not entitled to a contribution from [ASCO] under section 3(2) of the 1940 Act. I therefore uphold the first plea-in-law for [Farstad] by (a) excluding from probation the averments in Answer 4 on page 4 of the defences in the two sentences from "Separatim, it was the duty" to "materially contributed to the accident" and the last two sentences in Answer 5 on page 8 commencing "Further explained" and (b) repelling the fifth plea-in-law for [Enviroco]."

The Lord Ordinary granted an interlocutor dated 23 April 2008, giving effect to paragraph [32] of his opinion. The averments deleted are quoted in paragraph [27] above.

[31] Enviroco now reclaim against the Lord Ordinary's interlocutor of 23 April 2008.

Submissions

Submissions for Enviroco

[32] Senior counsel submitted that, when applying section 3(2) of the 1940 Act, the correct approach was to look at the merits of the case, and to assess whether it was possible that the person from whom a contribution was sought was a person who could be held liable to the pursuer. The subsection was capable of affecting the rights of persons other than those with contractual relations with Farstad, and accordingly the interpretation of the phrase "might also have been held liable in respect of the loss or damage" should be one which was least likely to restrict the rights of contribution or relief to which that non-contracting party might be entitled. In other words, the phrase should be construed in a way most generous to the person seeking relief. The provision "if sued, might also have been held liable" could therefore be satisfied where a court could hold by declarator that the person from whom the contribution was sought was a wrongdoer liable for a certain percentage of liability. It was accepted that the words "if sued" meant "if sued by the injured party": cf Lord President Emslie in the Inner House in Comex Houlder Diving Ltd v Colne Fishing Co Ltd 1987 S.L.T. 13. A person could be found liable without the necessity of a transfer of funds (cf the situation where a defender was found liable, but the pursuer was found to be contributorily negligent to the extent of one hundred per cent). An indemnity did not remove liability, but only changed the financial consequences. In the last sentence of Article 7 of Condescendence, Farstad admitted that ASCO were entitled to be indemnified by Farstad against Enviroco's claim.

[33] Senior counsel conceded that, had Clause 33.5 been an exclusion clause, Enviroco would not be able to claim relief against ASCO. However Clause 33.5 was an indemnity clause which did not exclude liability, and accordingly Enviroco were entitled to a contribution from ASCO (whether or not ASCO sought to be indemnified by Farstad). Indemnity merely altered the financial consequences, but not the liability: cf Singer v Gray Tool Co (Europe) Ltd 1984 S.L.T. 149 at page 150; Comex Houlder Diving Ltd.

[34] Accordingly the Lord Ordinary had fallen into error in holding that, by virtue of Clause 33.5, Enviroco could not recover a contribution from ASCO in terms of section 3(2) of the Law Reform (Miscellaneous Provisions) (Scotland) Act 1940. The reclaiming motion should be allowed, the Lord Ordinary's interlocutor of 23 April 2008 recalled, Farstad's first plea-in-law repelled, and the case remitted to the Lord Ordinary to proceed as accords.

Submissions for ASCO

[35] Senior counsel submitted that the reclaiming motion should be refused, and the case remitted back to the Commercial Court. The common law existing before the enactment of section 3(2) of the 1940 Act could be found in authorities such as Palmer v Wick & Pulteneytown SS Co (1894) 21R (HL) 39 and Comex Houlder Diving v Colne Fishing Co Ltd 1987 SC (HL) 85. However it was accepted that the present case depended upon the proper construction of the 1940 Act and Clause 33.5. Mr Howie, for Enviroco, had accepted that if Clause 33.5 was an exclusion clause, then ASCO could not be someone who "if sued, might also have been held liable" in terms of section 3(2) of the 1940 Act. Reference was made to Co-operative Retail Services Ltd v Taylor Young Partnership Ltd [2002] 1 WLR 1419, a case concerning the Civil Liability (Contribution) Act 1978 (which had different wording but a scheme similar to the 1940 Act). Parties were free to allocate their rights as they thought fit by contractual terms. If another non-contracting party suffered as a result, that was not the contracting parties' concern. Clause 33.5 had the same effect as an exclusion clause: it was in effect an allocation of risks between Farstad and Enviroco.

[36] Thus even if the Lord Ordinary was wrong in his approach to the statute, he was correct in his construction of Clause 33.5. That clause was truly an exclusion clause, which prevented ASCO from being held liable. The clause provided that if any claim were made against ASCO, Farstad would defend it and deal with it (and further, if matters reached such a stage, would indemnify ASCO if the latter had been obliged to make payment). The Lord Ordinary had correctly analysed matters in paragraphs [23] et seq of his opinion. The words "hold harmless" could not be assumed to be superfluous, or to have the same meaning as "indemnify". The words meant "prevent any liability emerging". Thus the words went further than indemnity. Farstad had undertaken that ASCO would under no circumstances become liable to Farstad in damages. Farstad in their pleadings had expressly abandoned any claim for damages against ASCO. As a result of the contractual agreement between Farstad and ASCO, ASCO simply could not be held liable to Farstad.

Final reply for Farstad

[37] Senior counsel responded, contending that no assistance could be derived from Co-operative Retail Services Ltd. That case concerned English legislation (not the relevant Scottish Act) and a building contract which provided a substitute remedy for common law damages, namely an obligation to rebuild, using insurance monies. That special contractual provision, taken with the wording of the English legislation, resulted in an inability to seek relief. But those provisions and consequences were irrelevant in the present circumstances. Further the Majkowski case (referred to by the Lord Ordinary in paragraph [24] of his Opinion) decided only that the words "to hold harmless" might extend to reimbursement of litigation fees in addition to damages. That result was entirely consistent with indemnification, and had nothing to do with exclusion of liability. Nor did the word "defend" take ASCO any further. The key word was "indemnify". The other words were added simply to ensure that all matters were provided for.

Discussion

Clause 33.5: exclusion or indemnity

[38] Counsel for Enviroco contended that Clause 33.5 was an indemnity clause. Counsel for Farstad, on the other hand, submitted that the effect of the clause went far beyond mere indemnity, and was an agreement that, in any question with Farstad, ASCO would not be found liable to pay damages (but esto they were found liable, Farstad would indemnify them). Both counsel advised the court that the wording of Clause 33.5 had not been authoritatively construed in any reported case.

[39] In my opinion, clear and precise language is required to achieve exclusion of liability, whether arising from negligence, breach of contract, or some other breach of legal duty. I do not consider that Clause 33.5 contains such language. On the contrary, the wording envisages liability arising on the part of ASCO, as the clause provides:

"... [Farstad] shall defend, indemnify and hold harmless [ASCO] from and against any and all claims, demands, liabilities [italics added], proceedings, and causes of action resulting from loss or damage in relation to the vessel ..."

There is nothing in the language to provide any support for a construction which involves reading into the clause restrictive words which are not expressed. Thus I do not accept that there should be read into the clause, after the words "liabilities", words such as "arising from a claim made by any party other than Farstad": yet on the basis of Farstad's argument, such words would require to be implied: for if they were not implied, "liabilities" would prima facie include a liability to Farstad arising from negligence on the part of ASCO causing loss or damage in relation to the vessel. Nor do I accept that the word "liabilities" in Clause 33.5 is necessarily restricted to liabilities 'to make payment of damages". The Charter Agreement does not restrict the meaning of "liable" or "liabilities" in such a way. In this context I consider that the reasoning and ratio in Co-operative Retail Services Ltd, based as they are upon particular contractual provisions, restrictive definitions, and circumstances very different from those in the present case, provide little assistance.

[40] In my view Clause 33.5 provides that, in the event of any liability arising on the part of ASCO "resulting from loss or damage in relation to the vessel ... including where such loss or damage is caused ... or contributed to, by the negligence of [ASCO]", then Farstad will defend and indemnify ASCO and hold them harmless. In other words, Farstad will take steps to ensure that ASCO are not damaged, prejudiced, or made to suffer any loss or expense as a result of a liability on their part which has arisen in respect of loss or damage in relation to the vessel, even if that loss or damage has been caused by their negligence. I therefore agree with counsel for Enviroco that Clause 33.5 is, on a proper construction, an indemnity clause, and not an exclusion clause.

Effect of indemnity clause and section 3(2) of the 1940 Act

[41] Section 3 of the Law Reform (Miscellaneous Provisions) (Scotland) Act 1940 makes provision for at least two situations:

(a)               where the pursuer chooses to sue all the alleged wrong-doers: section

3(1);

(b)              where the pursuer elects to sue only one alleged wrong-doer: section

3(2).

Section 3(3)(b) specifically provides that nothing in section 3 should "affect any contractual or other right of relief or indemnity".

[42] Where the pursuer sues all the alleged wrong-doers: Following upon the accident, Farstad might have chosen to sue both Enviroco and ASCO. The existence of Clause 33.5 (an indemnity clause) would not prevent ASCO from being found liable. Accordingly both defenders could be found liable jointly and severally to pay damages to Farstad, in proportions reflecting their respective liability (say X per cent to Enviroco and Y per cent to ASCO): section 3(1) of the 1940 Act. ASCO has the contractual indemnity from Farstad in terms of Clause 33.5, and would demand that Farstad meet ASCO's liability for damages. In the result, Farstad would recover only X per cent of the damages award from Enviroco (having indemnified ASCO for their share of the damages). That result would be broadly equitable, as Farstad would receive reduced damages as a result of having freely entered into a contractual indemnity with ASCO, while Enviroco for their part would have to pay only the damages properly reflecting their actual contribution to the accident as judicially assessed.

[43] Where the pursuer sues only one alleged wrong-doer: Farstad have chosen to sue Enviroco alone. Enviroco have included ASCO as a third party, but Farstad have not adopted the case of fault against ASCO. Section 3(2) of the 1940 Act applies in that ASCO "if sued" by Farstad (cf Lord President Emslie in Comex Houlder Diving and Lord Dervaird in Taft v Clyde Marine Motoring Co Ltd 1990 S.L.T. 170) "might have been held liable". The circumstances of the accident could therefore be explored in a proof before answer. The judge would be invited to reach a view on apportionment of liability (say X per cent to Enviroco, and Y per cent to ASCO). As Enviroco are the sole defenders, and Farstad have not adopted Enviroco's case against ASCO, Enviroco would be obliged to pay the whole damages awarded in favour of Farstad (without any reduction of Y per cent to reflect ASCO's negligence). However Enviroco could then raise their own action against ASCO, seeking relief in terms of section 3(2) which (adjusted to reflect the present circumstances) provides:

"Where [Enviroco have] paid any damages or expenses in which [they] have been found liable in any [action of damages in respect of loss or damage arising from any wrongful acts or negligent acts or omissions, they] shall be entitled to recover from any other person who, if sued [by Farstad], might also have been held liable in respect of the loss or damage on which the action was founded, such contribution, if any, as the court may deem just."

In that subsequent action of relief against ASCO, Enviroco would no doubt rely upon any judicial ruling in the present case as to the apportionment of liability between Enviroco and ASCO, although such a ruling would not necessarily be binding on the judge in the subsequent action: cf Anderson v Wilson 1972 S.C. 147. Whatever damages Enviroco recovered from ASCO, ASCO would be entitled to call upon Farstad to indemnify them. Again therefore the result would be broadly equitable: Farstad would receive reduced damages because of a contractual arrangement freely entered into by them with ASCO, while Enviroco would pay damages properly reflecting their actual contribution to the accident as judicially assessed.

Conclusion

[44] In the result, it is my opinion that the averments relating to contribution and section 3(2) of the Law Reform (Miscellaneous Provisions) (Scotland) Act 1940 are relevant and should remain on the Record. The apportionment of liability in respect of the accident between Enviroco and ASCO may be considered and pronounced upon by the court. I would therefore allow the reclaiming motion, recall the interlocutor of the Lord Ordinary of 23 April 2008, repel the first plea-in-law for the pursuers, and quoad ultra remit the cause to the Lord Ordinary to proceed as accords.

EXTRA DIVISION, INNER HOUSE, COURT OF SESSION
Lord Osborne Lady Paton Lord Carloway	[2009] CSIH 35 OPINION OF LORD CARLOWAY in the cause FARSTAD SUPPLY A.S. Pursuers and Respondents against ENVIROCO LTD. Defenders and Reclaimers and ASCO UK LTD. Third Parties _______

Reclaimers: Howie QC, Paull & Williamsons

Respondents : Clark QC; HBJ Gately Wareing LLP

Non Participating Party - Third Party; Simpson & Marwick

1 May 2009

1. Statutory Interpretation

[45] This case turns on the proper construction of sub-section 3(2) of the Law Reform (Miscellaneous Provisions) Act 1940 (3 & 4 Geo 6 c 42). In order to interpret that sub-section, and indeed the whole section, it is necessary to consider the state of the law before the Act was passed. Fundamental to that consideration is that, for some time prior to the Act, it was an established principle of Scots law that, where one of several joint wrongdoers had been found liable in reparation in respect of quasi-delictual (eg negligent) actings, that party, if he had paid the damages, had a right of relief pro rata against his co-delinquents. Unless the wrongdoers had all been called as defenders by the pursuer, that right would have to have been vindicated in a separate action between the wrongdoers. Third party procedure was not then competent (other than during an unsuccessful experimental period in the 1930s).

[46] The foundations of the principle, which is an equitable one, are contained in the institutional writings of Lord Kames and Lord Bankton. The relevant passages are quoted by Lord Watson in Palmer v Wick and Pulteneytown Steam Shipping Co (1894) 21 R 39 (at p 44). They are also referred to in subsequent cases but, in view of their importance, they merit repetition. Bankton (Institutes 1.10.4), writing his chapter on "Reparation arising from Crimes or Delinquencies" in 1751, states:

"in the Reparation of damages, tho' every one that is guilty of the crime is liable for the whole and in solidum, yet payment and satisfaction made by one liberates the rest, and in equity he ought to have relief against them proportionably, since by his money they are freed from the obligation".

Kames (Equity 4^th ed. p 89), writing in 1800, on the "Powers of the court of equity to remedy what is imperfect in common law with regard to the natural duty of benevolence" examines the right of relief of a cautioner against a debtor and continues:

"The same principles and conclusions are equally applicable to correi debendi [joint debtors], where a number of debtors are bound conjunctly and severally to one creditor. Equity requires the utmost impartiality in him to his debtors: if for his own ease he takes the whole from the one, he is bound to grant an assignment precisely in the case of co-cautioners. Utility joins with equity to enforce this impartiality. And it makes no difference whether the correi debendi be bound for a civil debt or be bound ex delicto: for in both cases equally it is the duty of the creditor to act impartially, and in both cases equally utility requires impartiality".

Lord Watson considered that Baron Hume (Decisions, 1839) was taking a different view when, reporting and commenting on Smith v O'Reilly (1800 p 605), he wrote:

"Nor is the law at all inclined to distribute the damages out of tenderness to the delinquents".

But Baron Hume may simply have been referring to the principle that each delinquent is, in a question with the victim, liable to pay the whole damages, as he continued:

"On the contrary, what the law mainly considers on such occasions is, the convenience of the injured party that he may recover his damages as speedily and certainly, with as little trouble and expense as may be".

[47] Lord Watson did not consider that either Lord Stair or Professor Erskine added much to the debate on the particular point but he did comment (p 45) that:

"the claim of relief rests not upon any injury sustained by the claimant but on the fact, as Lord Bankton puts it, that by the use of his money the rest have been freed from their obligation - a circumstance which, in ordinary cases, is sufficient...to raise a right of relief".

Strictly, Bankton referred to being freed from "the" rather than "their" obligation. Lord Watson did derive some assistance from the dicta of the Lord Justice Clerk (Inglis) and the Lord President (McNeill) respectively in the fraud cases of Liquidators of Western Bank v Douglas (1869) 22 D 447 (at p 475) and Liquidators of Western Bank v Bairds (1862) 24 D 859 (at pp 911-912). Certainly the Lord President acknowledged a trustee's right of relief against a delinquent co-trustee, where all trustees have been found liable. Lord Shand reached the same view in the third case quoted by Lord Watson, namely Croskery v Gilmour's Trs (1890) 17 R 697 (at p 701). Lord Shand also sat in Palmer but simply concurred with both the Lord Chancellor (Herschell) and Lord Watson. His concurrence related primarily to Lord Watson's conclusion (p 46), well reasoned from the authorities quoted, that the principle was that:

"a right of relief exists and is available to a co-delinquent whose acts or omissions are not tainted with fraud or other moral delinquency".

That principle, he added, was: "founded on substantial considerations of equity". The Lord Chancellor did not express a firm a view on the subject but (p 41) saw "no reason to differ" from Lord Watson's opinion. Lord Halsbury agreed, so far as the jurisprudence of Scotland was concerned. Both expressly did not apply what was thought to be the ratio of the King's Bench Division (Lord Kenyon CJ), in Merryweather v Nixan (1799) 8 Dur and East 186 (8 TR 186), that there was no right of relief between joint wrongdoers under English common law.

[48] Lord Watson's dicta in Palmer may be obiter, since the decision depended upon the assignation of a decree, but it is highly persuasive and may reasonably be taken to represent what was regarded as settled law thereafter. That was certainly the view of Lords Trayner and Moncreiff in Douglas v Hogarth (1901) 4 F 148 (at respectively p 150 and p 151). There matters stood until the subject was raised again before the Lord Ordinary (Lord Murray) in Glasgow Corporation v John Turnbull & Co 1932 SLT 456. But it was not contended there (p 458) that there was an applicable rule of "no contribution between wrongdoers". Rather, the defenders' submission was that relief should be refused because the contributories in that case "were each guilty of a separate and independent act of negligence and not participant as concurrents in one joint act of negligence". This, held Lord Murray, was beside the point as several wrongs may be contributory to the same injury and damnum (p 460). A reclaiming motion (appeal) was allowed of consent. Lord Murray's interlocutor repelling the defenders' plea to the relevancy and allowing a proof before answer was recalled, but this was only to the extent of restoring the plea. There is no reason to suppose that his substantive opinion would have been open to successful challenge.

[49] Some weight has been placed upon Lord Murray's dicta (at p 459) that:

"The right of relief...is in truth an equitable remedy which arises from, and which ultimately rests upon, the fact that the party claiming has in fact discharged the proper debt or liability of another. The right is doubtless conditioned by this, that the debt or obligation, when so discharged, shall be a subsisting debt or obligation prestable against the third party, as also that payment or satisfaction of the debt was not intended by the person claiming relief to effect a liberation of the third party from his proper debt or liability".

That statement is no doubt correct as a generality. However, what is important is that the accepted principle in Scots law, but not apparently in English law, was that a person found liable in damages as a wrongdoer, who had paid the full sum to the victim, had a right of relief against any joint wrongdoer pro rata, provided at least that no delictual, in the sense of criminal, acts were involved. If a wrongdoer has a right of relief against a joint delinquent at common law, it would be surprising if that right could ever be excluded, as is contended for by the respondents, by: (a) a contractual term between two other persons; or (b) anything other than a clear statutory provision to that effect.

[50] The common law in England, as it was expressed in the short report of Merryweather v Nixan (supra), was altered by section 6 of the Law Reform (Married Women and Tortfeasors) Act 1935 (25 & 26 Geo 5 c 30). It is not necessary to go into the detail of that section or its construction, in a variety of different ways, by the concurring and dissenting judges in both the Court of Appeal and the House of Lords in George Wimpey & Co v British Overseas Airways Corporation [1953] 2 QB 501; [1955] AC 169. It is true that the wording of sub-section 6(1)(c) that "any tortfeasor liable in respect of that damage may recover contribution from any other tortfeasor who is, or would if sued have been, liable in respect of the same damage" bears a considerable, indeed striking, similarity to the wording in section 3(2) of the 1940 Act. But, as was stressed by the Lord Ordinary (Lord Mackay of Clashfern) and the Lord President (Emslie) in Comex Houlder Diving v Colne Fishery 1987 SC (HL) 85 (at respectively p 96 and p 105), sub-section 6(1) has to be interpreted "against the very different background of the English common law". This can be said with equal, if not greater, force relative to the interpretation by the House of Lords of the section's successor provision (section 1 the Civil Liability (Contribution) Act 1978 (c 47)) in Co-operative Retail Services v Taylor Young Partnership [2002] 1 WLR 1419.

[51] Sub-section 3(1) of the 1940 Act, so far as relevant, provides:

"Where in any action of damages in respect of loss or damage arising from any wrongful acts or negligent acts or omissions two or more persons are in pursuance of the verdict of the jury or the judgment of a court found jointly and severally liable in damages...they shall be liable inter se to contribute to such damages...in such proportions as the jury or the court...may deem just: Provided that nothing in this subsection shall affect the right of the person to whom such damages...have been awarded to obtain a joint and several decree therefor against the persons so found liable".

The sole purpose and effect of this was to end the rule that each wrongdoer was only liable pro rata. In the future, the court would be able to determine the extent to which each should contribute to the liability in damages. A pursuer would still be entitled to execute his decree against any one or more of the wrongdoers as he chose, but any one who had paid the pursuer would retain his right of relief, quantifiable by the court. The sub-section thus altered the power of the court from one which bound it to grant decree pro rata against joint wrongdoers to one which bound it to assess the relative fault of each wrongdoer.

[52] Sub-section 3(2) continues:

"Where any person has paid any damages...in which he has been found liable in any such action as aforesaid, he shall be entitled to recover from any other person who, if sued, might also have been held liable in respect of the loss or damage on which the action was founded, such contribution, if any, as the court may deem just".

This provision has to be read in light of the purpose and effect of sub-section 3(1). It cannot be interpreted as intended to extinguish a wrongdoer's common law right of relief against a co-delinquent, even if the quantum of that relief would now be variable. Henceforth, a party seeking relief would not necessarily achieve parity with his fellow wrongdoers. Rather, the court, in any action of relief (whether by third party procedure or separate cause), would determine the relative fault of each party and grant relief accordingly (see Lord Keith's interpretation in Central SMT Co v Lanark County Council 1949 SLT 310 at p 314 and Lord Keith of Kinkel's analysis in Comex Houlder Diving v Colne Fishing Co (supra) at p 121). If that is correct, there ought to be no question of the sub-section having the effect, as would be the ultimate result of sustaining the respondents' contention, that the right of relief, which had been held to exist at common law, could be discharged in whole or in part as a result of a contractual arrangement between parties, neither of whom was the person possessing that right. Sub-section 3(3) reinforces the view that contractual provisions do not affect the matter. Such provisions are capable only of regulating the rights of the contracting parties, or, at best, those who are proved to have accepted that they are acting within their ambit (see Lord Bingham in Co-operative Retail Services v Taylor Young Partnership (supra) at p 1422, under reference to Caledonia North Sea v British Telecommunications 2002 SC (HL) 117).

[53] The decisions which have analysed section 3 in the post war years point towards the construction advanced above being the correct one. In particular, although each case is capable of being distinguished upon its own facts, they all emphasise that the relevant right of relief is not being capable of being discharged or extinguished by the actings of others, notably the victim of the wrongdoing. Thus in Singer v Gray Tool Co (Europe) 1984 SLT 149, the Lord President (Emslie) stressed (at p 150) that:

"Section 3(2) does not put it into the hands of the pursuer at his whim to defeat the rights of a person to obtain relief against a joint wrongdoer".

Although it could be said that entering into a contract prior to an accident forming the subject matter of a dispute ought not to be categorised as a "whim", nevertheless the point is well made that a victim ought not, standing the existence of a general right of relief, to be able to extinguish that right by a private arrangement with other potential wrongdoers, whether that arrangement is made before or after the accident.

[54] The authorities also demonstrate that the interpretation of "might also have been held liable" is simply that the sub-section applies in circumstances where, had an action been timeously raised against the party against whom relief is sought, the court would have held that party liable in reparation as a joint wrongdoer. This could occur, for example, by the court sustaining a plea-in-law in the normal form that "The [victim], having suffered loss and damage through the fault of the defenders, is entitled to reparation from them therefor" (see the third parties' plea infra). It is not a requirement of the section that the victim would or could have secured a decree for payment against the party who has become the defender in the action for relief. It is sufficient that that party was capable of being found liable in reparation. That appears to be the construction urged by Lord Keith in Central SMT Co v Lanark County Council (supra). His reference to "liability on the merits" refers to liability in reparation as a wrongdoer, irrespective of any collateral defence such as, in that case, limitation of actions. The fact that a party, had he been sued by the victim, had such a defence to the action, including one based upon a contractual indemnity, or even an "exclusion" of liability clause, is irrelevant. Similarly, the Lord President's acceptance in Singer v Gray Tool Co (Europe) (supra) that the words "if sued" in s 3(2) mean "if sued to judgment" does not carry with it the added feature that a decree for payment, as distinct from a judgment on liability in reparation, might have been pronounced. The concession of law made by the reclaimers in relation to "exclusion clauses" is misplaced in this context.

[55] For all of these reasons, the commercial judge is in error in considering that a contractual defence between a victim and a joint wrongdoer can result in the extinction of another joint wrongdoer's right of relief. It can not. There is nothing strange in this conclusion. The joint wrongdoers will have rights of relief inter se and any indemnity, or other contractual provision, will come into effect only if and when liability in reparation is established or accepted and the indemnity, or other provision, is founded upon by the party in whose favour it is phrased. The application of these principles avoids an inequitable result, which the commercial judge correctly identified (para [31]) as flowing from his construction of the statutory provisions. That inequity would be that a party who has minimal responsibility for causing damage may require to bear all, or a substantial part of, the cost of that damage. That is a consequence which, it is not unreasonable to presume, Parliament is unlikely to have intended when it passed section 3 of the 1940 Act. Indeed its intention seems to have been quite the opposite.

2. Charterparty Construction

[56] The sixth plea-in-law for the third parties is correctly framed as follows:

"Esto any liability to make payment of damages to the pursuers is apportioned upon the third party, the third party is entitled to be indemnified against such a liability by the pursuers".

The plea is one for the third parties, and the third parties alone, to take, based upon clause 33.5 of the contract between them and the respondents. Whether such a plea is to be sustained may depend upon a wide range of issues, not least the potential application, in a given case, of section 17 of the Unfair Contract Terms Act 1977 (c 50). The third parties did not appear at the debate before the commercial judge, having been "excused" attendance on the basis that they did not intend "to actively participate (sic) in the debate and that their interests at the debate will be represented by counsel for the [respondents]" (see the interlocutor of 11 December 2007). They did not appear at the hearing of the reclaiming motion. However, counsel for the respondents specifically did not purport to represent the third parties at that hearing.

[57] The third parties, in whose favour the clause is written, do not contend in their pleadings that the clause is anything other than a straightforward indemnity provision. So far as relevant, it reads as follows:

"...the Owner shall defend, indemnify and hold harmless the Charterer...from and against any and all claims, demands, liabilities, proceedings and causes of action resulting from loss or damage in relation to the Vessel...irrespective of the cause of loss or damage, including where such loss or damage is caused by, or contributed to, by the negligence of the Charterer...".

For the reasons advanced above, it is of no moment whether this clause goes beyond indemnity, as the respondents contend it does. However, quantum valeat, the third parties' characterisation of the clause as an indemnity provision appears accurate. As was said by the Vice Chancellor (Strine) in the Delaware Court of Chancery case of Majkowski v American Imaging Management Services 2006 WL 3627111 (Del.Ch.) (at para 11), courts may strive to interpret each word of a contract in a manner which avoids "rendering contractual language mere surplusage" but:

"The terms "indemnify" and "hold harmless" have a long history of joint use throughout the lexicon of Anglo-American legal practice. The phrase "indemnify and hold harmless" appears in countless types of contracts in varying contexts. The plain fact is that lawyers have become so accustomed to using the phrase "indemnify and hold harmless" that it is often almost second nature for the drafter of a contract to include both phrases in referring to a single indemnification right".

Although the Vice Chancellor added in a footnote (fn 55) that the two terms may have subtly different meanings in certain contexts, the major point is that they, with or without the addition of the word "defend", are commonly used by drafters when formulating what is intended to be a simple indemnity provision. That is the case here. The commercial judge is in error when he extends the meaning of the clause to encompass a renunciation by the respondents of rights against the third parties.

[58] As an indemnity provision, the clause's application is, as it states, in the event of there being a "liability" of the third parties in existence which has to be defended against, and indemnified, and in respect of which the respondents are to hold the third parties "harmless". Put another way, as the reclaimers (appellants) submitted, the clause presupposes the existence of liability for its application.

3. Interlocutor

[59] The case is subject to the abbreviated procedure directed by the commercial judge (Rule of Court 47.5). That procedure resulted in an interlocutor of 11 December 2007, which allowed to parties a "debate" on the issues raised in a Note of Argument lodged by the respondents concerning the matters aired before the commercial judge. The result of that debate is now that the pursuers' first plea-in-law, challenging the relevancy of the defenders' averments on contribution, must be repelled. Quoad ultra, it will be for the commercial judge to determine the future procedure and the cause should be remitted to him to proceed as accords.