BISHOP v BALTIC SHIPPING CO

3. In lieu judgment should be entered for the appellant for $1,472.00 and costs with effect from 28 May 1993; and

Kirby P This decision relates to ie outstanding (and one hopes ie last) case in ie litigation in this Court arising out of ie sinking of the Mikhail Lermontov in New Zealand waters on 16 February 1986.

The history of ie proceedings may be found in earlier decisions of ie High Court of Australia (see Baltic Shipping Co v Dillon (1993) 176 CLR 344), of this Court (see Ballic Shipping Co v Dillon Mikhail Lermontov (1991) 22 NSWLR 1 (CA) and Baltic Shipping Co v Merchant and Ors - Mikhail Lermontov Court of Appeal (NSW), unreported, 28 April 1994) and of the Admiralty Division of ie Supreme Court (see Dillon and Ors v Ballic Shipping Co; The Mikhail Lermontov (1989) 21 NSWLR 614 (SC)).

When the Court resolved a series of appeals from judgments entered by Carruthers J in the Admiralty Division concerning a number of passengers other than Mrs Dillon, it excised from the list of passengers one, Mr David Bishop. For reasons of convenience, it was decided to deal with Mr Bishop's case later. His was the only claim of the passengers which Carruthers J had dismissed in its entirety. Mr Bishop appealed to this Court from that order of dismissal. These reasons deal with his appeal and with a cross-appeal filed by Baltic Shipping Company against the cost order which Carruthers J made in the circumstances.

Mr Bishop was born in June 1937. When the Mikhail Lermontov sank, he was therefore nearly fifty years of age. He is now fifty-seven years old. He is an invalid pensioner. His life history is told in a statement which was received into evidence by Carruthers J as an exhibit.

He was educated in Sydney at the Conservatorium of Music High School. He progressed to the Leaving Certificate. After school, he entered the public service in the Federal Department of Customs and Excise. He remained in that service until 1974 when he was "pensioned off' on medical grounds. Because of a severe anxiety depression he was placed on a "medical pension": apparently connected with the Commonwealth superannuation scheme. He has not worked since 1974. He had no living parents and no brothers and sisters. He was single and had never married. He lived off his pension and his investments.

Despite his diagnosis as having a severe anxiety depression, Mr Bishop claimed that he "always felt okay and still do". He spent some of his spare time (of which there was a lot) travelling. He had been keen to see the fiords of the South Island of New Zealand. It was this desire which led him to a travel agency at Kingsford to secure a ticket for the Mikhail Lermontov's fateful last cruise. According to Mr Bishop, he paid for the ticket through the travel agent who sent his money off. Later he called at the travel agent to collect the ticket. He state that he thought he remembered ting to read ie conditions on the ticket "but they were too small". His receipts, tickets and insurance papers were all lost when the Mikhail Lermontov sari.

Mr Bishop described how he was in his cabin (number 508) when the ship hit rocks at about 5.40 p.m. on 16 February 1986. His cabin was on the lowest passenger deck:

"... I was sitting down listening to the radio. There was this almighty bang and shudder and shake. Cupboards flew open things flew off the shelves the wardrobe doors flew open. Then I could hear the crew running outside yelling so I walked outside. I could see the floor below and water rising in it. I went upstairs to the lounge. The band was playing and the ship was listing They assured us it would be fixed. They said to get life jackets but the water-tight doors to my cabin were shut off. That worried me. After that they told us they would beach the ship and I braced myself against a wall. A crew member gave me a life jacket after a couple of hours. That made me feel better. I had no idea what would happen and I felt we could die. We were led up and down stairs out to lifeboats which they did not launch then inside and up and down more steps. People were falling over. The listing was getting worse and worse. In the finish I was pulling myself by ropes in darkness inside the ship to get to the gunport door to get out. It was now about 10.15 pm.

To leave the ship I had to go down several rope ladders joined together to the lifeboat. I have a fear of heights and felt very afraid as I went down the ladders. The sailors were dragging my feet from rung to rung to keep us moving quickly

so I felt I had no control and was very frightened. My fear of height is such that I cannot go up one or two steps on a ladder so climbing down the ship s side under pressure from the sailors was terrifying. I felt I could fall at any time and be killed. I felt I had no control over what I was doing because of the way the sailors took charge. I felt very relieved in the life boat."

Mr Bishop, together with the other passengers, was lifted into a car ferry. He was then transported to Wellington and eventually back to Sydney by air.

He went to his insurance company on the Friday following his return. He went to the ship's agents ("CTC") and asked what they were going to do about compensation for him. They told him to write out a letter. He filled in a form. They took a photocopy of his insurance claim. He filled out a claim for the unused portion of the cruise fare and left it with the owners' representative.

Within a few days, Mr Bishop received a cheque for $816.07 being for the "unused fare". He subsequently received letters from the shipowners' agent. He signed a release "to get the balance of my loss". The amount received was a mere $193.

"T considered I did not have any bargaining power with CTC but I figured that with my insurance money and the $193 from CTC I had got back my baggage loss. I fell they owed me more for what they put me through but I never thought to sue because I have no experience with legal matters. I never really understood that 1 might be entitled to any legal redress. I now realise that I might have more rights but I did not think of it then."

Mr Bishop did not suffer physical injuries, in the orthodox sense, in the trauma of the sinking of the Mikhail Lermontov. However, he gave evidence of "seasickness" after his return to Sydney. He stated that he had since taken a cruise on another Russian vessel, Belorussyia. This was a "standby ticket" which he had purchased in the hope of enjoying a cruise of the kind which he had missed when the Mikhail Lermontov sank. The journey of the Belorussyia was to Cape York and back to Sydney via Townsville and Cairns. However, he became severely seasick and required medical attention. He appears at times (but not consistently) to have ascribed his seasickness to a reaction to ship travel following his earlier ordeal:

"This limits my enjoyment of holidays. Because I do not work holidays are a major part of my life and the seasickness limits my options."

Dr John Strum, consultant psychiatrist, saw Mr Bishop and reported on his findings on 20 August 1992. His report was exhibited in the proceedings. Mr Bishop told Dr Strum that he had not related well to his parents who were "weird people". Dr Strum concluded:

"At the time of examination although I thought Mr Bishops personality was somewhat unusual I could find no evidence of psychiatric illness. Neither could I find any evidence of depression anxiety psychosis nor organic brain damage."

Dr Strum was not sure of the basis of Mr Bishop's diagnosed depression and anxiety which had led to his enforced retirement from the Federal Public Service. He concluded that:

"Some aspects of Mr Bishop s personality suggest frontal lobe involvement. This may not however be the case and Mr Bishop s personality may be part and parcel of the way he is. Certainly he is very much a loner."

Nevertheless, Dr Strum did not feel that he was suffering from psychiatric illness or that the effect of the trauma upon him would handicap his life. Another psychiatrist, Dr McMurdo likewise found no evidence of post-traumatic stress disorder or overt evidence of anxiety, depression or psychosis. Dr McMurdo did

not ascribe Mr Bishop's fear of travelling to the experience on the Mikhail Lermontov. He quoted Mr Bishop as being of the same opinion.

Carruthers J recounted the foregoing. Turning to the signature of the release, his Honour noted the submission that Mr Bishop's improvident action was due to the disability which had led to his being retired from the Federal Public Service. However, his Honour did not think that the evidence before him supported such a conclusion. He went on:

"There is no doubt that the amount for which Mr Bishop signed the release was less than damages to which he would have been entitled if he had pursued his claim. However I am unable to conclude that it was unjust in the circumstances within the meaning of the CONTRACTS REVIEW ACT. Despite the fact that Mr Bishop had been boarded out of the Commonwealth Public Service on psychiatric grounds neither Dr McMurdo nor Dr Strum was able to find any evidence of a persisting psychiatric disorder or more particularly evidence to demonstrate that at the time Mr Bishop signed the release he was in an emotionally vulnerable frame of mind. By reason of the remarkable fortitude which he demonstrated Mr Bishops claim could never have been described as a significance one and therefore it is not surprising that any passenger in his position would have been prepared to take what he or she could get. There is much to be said for the view that the release signed by Mr Bishop was unfair but I am unable to conclude that it was unjust in the circumstances within the meaning of s9 of the Contracts Review Act. Accordingly in my view there must be a verdict for the defendant in Mr Bishop's claim."

Mr Bishop sought leave to appeal to this Court upon the footing that his was one of a number of cases in a series, as yet incomplete, and that leave was thus necessary. Leave was granted by this Court on 5 July 1993.

The notice of appeal contested Carruthers J's finding that the evidence supported conclusions that Mr Bishop was not suffering emotional consequences of the sinking and was not in a vulnerable frame of mind when he signed the release. The grounds of appeal asserted, in effect, that Mr Bishop's denial of a psychiatric condition was itself part of the condition which had resulted in his early retirement from work. For a person in such a condition, and with materially unequal bargaining power, to be confronted with a release presented a risk of an unjust contract because of his "diminished capacity to protect his own interests."

The appellant's argument at first instance, substantially repeated in this Court, was that Mr Bishop's execution of the release was not only unwise and unfair (as found by Carruthers J) but such as rendered the release of contract unjust within the terms of the Act. The following considerations were especially relied on:

(a) The significant disproportion between Mr Bishop's entitlement and the tiny payment made to him;

(b) The context which was one of a substantial foreign ship owner dealing with vulnerable, unrepresented and in many cases elderly or disadvantaged Australian passengers who, in the case of Mr Bishop, were pensioners unused to having to face such circumstances;

(c) The conduct of the respondent in channelling Mr Bishop's claim upon CTC to one for his lost personal possessions only;

(d) Leading Mr Bishop to believe - that the only claim he had was for compensation for his lost personal possessions;

(e) Misleading Mr Bishop with the suggestion that he was bound by the terms of the ticket (when he was not);

(f) Mr Bishop's lack of awareness of his legal rights; (g) The significant inequality of bargaining power which weighed on his mind.

His explanation for signing the release, being that "I didn't have any choice. I wanted my $193";

(h) The ambiguity of the release which exempted me ship owner in respect of personal injury". Mr Bishop did not concede that he had had "personal injury" in the sense of actual bodily injury and thus could easily have misunderstood the extent of the surrender of his rights; and

(i) The conduct of the ship owner which was described as sharp practice (cf Dillon (above) 22 NSWLR 1.9). However, as the respondent pointed out, there are important points of difference between the case of Mrs Dillon and this case, where no physical injuries nor any overt grief and trauma were caused.

Handley JA has concluded that so much of the release executed by Mr Bishop as included the subrogated claim for $785 for the benefit of Mr Bishop's insurer (plus interest) was not binding on the insurer and was no defence to the subrogated claim. Accordingly, to that extent his Honour is of the view that the appeal by Mr Bishop must be allowed. I agree. However, Handley JA (with Mahoney JA's concurrence) has also concluded that otherwise Mr Bishop's claim must be dismissed. I do not agree.

I allow for the advantages which Carruthers J had in assessing Mr Bishop's psychiatric condition and the impact on him of the shock, trauma and disappointment of the sinking of the Mikhail Lermontov. I accept that Carruthers J found that Mr Bishop was a stoical individual, demonstrating a "remarkable fortitude". Of necessity, Mr Bishop's reaction to the trauma ta which he was exposed will affect the damages which he can recover if he can overcome the release. But fortitude is not a disqualification from recovery. Nor does it disentitle those who demonstrate such admirable human qualities from the protection of the Contracts Review Act. The focus of that Act is upon the contract. The personal qualities of the contracting parties are only relevant insofar as they throw light upon the characterisation of the contract as "unjust" or otherwise.

The essential error which I see in the judgment of Carruthers J is, with respect, that his Honour applied to Mr Bishop a standard different to that which he applied to the other co-plaintiffs. This may have been the consequence of Mr Bishop's status as an invalid pensioner, apparently with psychiatric (perhaps frontal lobe) disabilities. Perhaps it was because of the equivocal or negative opinions of Drs McMurdo and Strum. Whatever the explanation, the objective facts remain clear. As with the other co-plaintiffs, Mr Bishop was induced to sign a release which was extremely improvident. It was presented for execution soon after the trauma of the sinking. It was executed without proper legal advice. It was secured against the background of the knowledge by the respondent of the matters now disclosed by the internal correspondence described by Handley JA in his judgment in Merchant (above).

No good reason has been given as to why Mr Bishop (whose case on the release was not otherwise materially different from that of the other co-plaintiffs) should be excluded from the same relief under the Act as those co-plaintiffs secured simply because he displayed fortitude or because experts could not diagnose frank psychiatric disabilities.

In my respectful opinion, in respect of his release, Mr Bishop was in the same situation as virtually all of the other co-plaintiffs. As in their cases, the release was not wholly void. But it should be varied to exclude from its ambit claims for damages for disappointment and distress based on Jarvis v Swans Tours Ltd [1973] QB 233 and for personal injuries.

Having come to the foregoing conclusion, it is not necessary for me to deal with certain additional grounds in respect of which Mr Bishop sought leave to add certain grounds to his notice of appeal. These raised contentions that Carruthers J had erred in not considering the alternative case which, it was alleged, Mr Bishop advanced based upon the assertion that the contract of release was unconscionable, the product of undue influence or of economic duress.

Mr Bishop may not have had frank psychiatric disability which Drs Strum or McMurdo could find. But he was an odd personality. He had possible frontal lobe disturbance. He had been found suffering from a sufficient anxiety depression to warrant his early retirement from work and provision of an invalid or like pension or superannuation benefit. He was a "loner". He had embarked upon a cruise which turned into a fearful ordeal. Cf C A Hopkins, "A Terrible (but Transient) Ordeal" [1994] Cambridge LJ 9. Although he had no physical injuries, had undertaken a later cruise and gave equivocal evidence about the ongoing impact of the trauma, his case is to be assessed as one towards the lower end of the scale. The assessment should be in harmony with that provided in the case of the other co-plaintiffs.

In some ways, Mr Bishop's case bears certain similarities to that of Mr Mark Raymond. See Merchant, per Handley JA, 46.

Although there might be some reasons for returning this case for reassessment, given the peculiar personality and psychiatric evidence involved and the importance of judicial impression thereon, there are countervailing strong reasons for bringing the litigation to a close. Not least amongst these is the high desirability of conserving the expenditure of further funds on costs which would be devoted to only the slightest marginal benefit in this outstanding claim. I am therefore satisfied that this Court can safely proceed to a reassessment in the circumstances and should do so.

General damages $ 9,000 ($7,000 for the past) Damages for disappointment and distress $ 3,000 Nett loss of personal effects $ 785 Interest on past general damages $ 980 Interest on damages for disappointment and distress $ 315 Interest on nett loss of personal effects $ 494 $14,574

The respondent, as cross-appellants, cross-appealed against the orders which Carruthers J made disposing of the costs in Mr Bishop's case. The cross-appellant contended that his Honour ought to have made the ordinary order that Mr Bishop pay its costs. The ordinary rule of litigation in this Court is that costs follow the outcome of litigation.

Alternatively, it was argued for the respondent, as cross-appellant, that Carruiers J had failed properly to take into account offers of compromise which were made during the course of the litigation. It was submitted that these offers made the requirement for an order for costs in favour of the respondent (cross-appellant) "overwhelming".

Placed before the Court was an affidavit of the cross-appellant's solicitor deposing to negotiation which took place before and during the trial. It emerges that offers were indeed made. However, none of these was higher than the judgment which I would enter in favour of Mr Bishop. Accordingly, the circumstances which gave rise to the cross-appellant's cross-appeal do not, in the view which I take, need to trouble this Court. Being entitled to a judgment in his favour upon his claim (albeit a modest one) Mr Bishop should recover his costs.

2. Set aside the judgment in the Admiralty Division in favour of the defendant (respondent);

3. In lieu thereof, enter judgment in favour of Mr David Bishop in the sum of $14,574, such judgment to take effect from 28 May 1993;

4. The defendant to pay the plaintiffs costs of the proceedings in the Admiralty Division;

5. The respondent to pay the appellant's costs of the appeal but to have, in respect thereof, if otherwise so qualified, a certificate under the Suitors' Fund Act 1951, and

Mahoney JA I concur in the judgment of Handley JA. After the sinking of the vessel Mikhail Lermontov he claimed damages from the company. He agreed to accept payments and released the company from liability otherwise. He now seeks to have the release set aside, essentially in reliance upon the Contracts Review Act 1980. Carruthers J, who heard the proceeding, rejected his claim. He has appealed to this Court. It is, I think, accepted that, unless the release be set aside, his appeal must fail. His claim to have the release set aside was based in the main upon two things: that the loss which he suffered was disproportionate to the amount he was paid; and that the contract which the release embodied was unjust. (I use "unjust" to comprehend the effect of the Contracts Review Act).

Mr Bishop agreed to accept less than he might have been awarded if, having fought his case to a conclusion in the court, he had been fully successful. Indeed, the amount he received was, I shall assume, less than he could have expected to receive JUDGMENT for the effects which, he claimed, the accident produced. But the extent of his injuries were, the judge held, much less than had been claimed for him. The judge was, to put the matter no higher, not satisfied that he was suffering what had been put for him. The evidence of the two psychiatrists supported the assessment which the judge made. The judge had the benefit of observing Mr Bishop in evidence before him. He was in a position of advantage in assessing the evidence in this regard. Adhering to well settled principles, I do not think that this Court can or should come to a conclusion different from that to which the judge came.

The judge also concluded that there was no ground for setting aside the release under the Contracts Review Act. The jurisdiction which that Act confers on a judge is, in the relevant sense, discretionary. Accordingly, if the established principles be adhered to, this Court cannot or should not set aside the judgment

at which his Honour arrived. It was suggested that the judge acted upon a wrong conclusion of fact in exercising his discretion in that he formed a wrong assessment of Mr Bishop's condition. For the reasons to which I have referred, I do not feel I should agree with this. It was not suggested - at least it was not established - that there was any other error affecting the exercise of the judge's discretion. Accordingly, his Honour's judgment should be upheld. One may feel a natural sympathy for a person who endured the wreck of the Mikhail Lermontov. This Court is familiar with what occurred. Carruthers J, even more than this Court, was familiar with the detail of what happened. His Honour considered the facts of Mr Bishop's case and dismissed his claim. The appeal to this Court is by way of rehearing: Supreme Court Act 1970 s75A. But if the established principles are to be applied, I do not think that we are justified in differing from what his Honour did. I agree with the orders proposed by Handley JA.

Handley JA The Court heard appeals by Baltic Shipping Co against judgments entered by Carruthers J in favour of seventeen plaintiffs who had been cruise passengers on the Mikhail Lermontov when it sank off the South Island of New Zealand on 16 February 1986. The Court also heard an appeal by Mr David Bishop, another passenger, whose claim had been dismissed by the Judge and a cross-appeal by the company against the Judge's order for costs. The Court gave judgment in relation to the company's appeals on 28 April this year. At that time it was not in a position to deliver judgment in the appeal and cross-appeal in the Bishop case and did not wish to defer any longer the delivery of judgment in the company's appeals.

Mr Bishop, like the other passengers, signed a release in favour of the company in return for payment of $193.00 for his uninsured baggage claim. The Judge refused to set aside his release under the Contracts Review Act and accordingly dismissed his claim.

His counsel Mr P E King submitted that the Judge had erred in refusing to set aside the release and asked this Court to allow the appeal, set aside the release, and assess the appellant's damages. Mr Bishop was 49 at the time of the sinking and 55 at the date of judgment, then having a life expectancy of approximately 21 years. After leaving school he entered the Commonwealth Public Service and worked in the Department of Customs and Excise until 1974 when he was pensioned off on medical grounds because of a severe anxiety depression. He has not worked since but has lived off his pension and investments. He has never married, has no siblings, and his parents are now dead. Although he was diagnosed as having a severe anxiety depression he said that he had always felt alright and still does. He told both psychiatrists who examined him that he did as little as possible in the Public Service and prefers to be on permanent holiday.

He made a claim on the company for $978 for loss of personal effects but signed the release on 26 May 1986 in consideration of receiving $193 which was his net loss after payment by his insurance company.

The Judge found that after the grounding Mr Bishop was subject to stressful and frightening experiences similar to the other passengers. He suffers from a fear of heights and thus was terrified when required to climb down the ship's ladder to obtain access to a lifeboat. However on his return to Australia he did not have any nightmares or suffer disturbed sleep. He does not consider that he had any adverse reaction to the sinking and did not consult a doctor. He has since been on other cruises including a trip on the Belorussyia to the South Island of New Zealand. He was examined by Dr Strum in August 1992 and by psychiatric

problems relating to the sinking of the ship and neither doctor could detect any such problem. Dr McMurdo said there was no evidence of a post-traumatic stress disorder, no evidence of psychosis, and he could not find any overt evidence of anxiety or depression. Dr Strum also concluded that Mr Bishop was not suffering from any psychiatric illness and that the effect of the trauma upon him was minimal.

The Judge found that the amount for which Mr Bishop signed the release was less than the damages to which he would have been entitled. Neither psychiatrist was able to find any evidence to demonstrate that when Mr Bishop signed the release he was in an emotionally vulnerable frame of mind. As the Judge said, because of his remarkable fortitude Mr Bishop's claim could never have been a significant one and therefore it is not surprising that he would have been prepared to take what he could get. He thought there was much to be said for the view that the release was unfair but he was unable to conclude that it was unjust.

Mr Bishop's claim included a subrogated claim for $786 for the benefit of his insurer. The release was not binding on the insurer and was no defence to the subrogated claim. The appeal must to that extent be allowed. However in my opinion it should otherwise be dismissed. The Judge's finding that the release was not unjust in the circumstances was a value judgment which involved assessing the relative importance of a number of factors, some favourable to Mr Bishop, some unfavourable. His assessment of the man that he saw and heard in the witness box necessarily entered into his overall evaluation of the contract. The appellant was unable to identify any error of fact, law or principle in his Honour's reasons for refusing to set aside the release and was also unable to demonstrate that the Judge had taken into account irrelevant relevant. Although the release was not binding on the insurer under the general law this provides no basis for setting it aside for the benefit of Mr Bishop personally.

In the alterative Mr King submitted that the release should be set aside on equitable grounds, or else on the analogous principles applied in Admiralty. In my opinion there is no basis, in the circumstances of the present case, for a finding that a contract which could not be set aside under the Act, could be set aside under the general law.

Mr Bishop's appeal therefore succeeds to the extent indicated, but solely for the benefit of his baggage insurer. This necessarily disposes of the company's cross-appeal. In my opinion the following orders should be made:

3. In lieu judgment should be entered for the appellant for $1,472.00 and costs with effect from 28 May, 1993.

Counsel for the appellant: P E KING/ J E STUCKEY-CLARKE Solicitors for the appellant: DUNHILL MADDEN BUTLER Counsel for the respondents: A W STREET/ AJL OGBORNE Solicitors for the respondents: NORTON SMITH AND CO