Thursday 28 April 2005
BNP PARIBAS v PACIFIC CARRIERS LTD (No 2)
Judgment
1 HANDLEY JA: The summary of the facts in the judgment of Giles JA, which I gratefully adopt subject to what follows, enables me to proceed to the critical issues. The High Court held that the Letters of Indemnity (LOI) were binding on the Bank and enforceable by Pacific Carriers Ltd (PCL) in accordance with their terms, but it left undisturbed this Court's decision that PCL had no cause of action in tort or under s 52 of the Trade Practices Act 1974.
2 In its amended summons PCL sought a declaration of its rights under the LOIs and specific performance, an order that the Bank indemnify it against its liability to indemnify Bolton against any award obtained in the London arbitration by Swiss Singapore Overseas Enterprises Pte Ltd (SSOE) and against its other liabilities and expenses, and damages.
3 The Bank repudiated the LOIs but PCL did not accept the repudiation and the contracts remained on foot. PCL was therefore entitled to a declaration of its rights, orders for specific performance of the contracts in respect of liabilities within the indemnities (McIntosh v Dalwood (No 3) (1930) 30 SR (NSW) 332, McIntosh v Dalwood (No 4) ibid 415), and damages for liabilities it had already discharged (McIntosh v Dalwood (No 4) above). However its claims in negligence and under s 52 involved once and for all assessments of its damages in respect of all losses and actual or potential liabilities within the terms of the LOIs.
4 The need for a final assessment of the plaintiff's damages in tort and under s 52 created an embarrassment for PCL and its advisers. PCL had indemnified Bolton and taken over the conduct of its London arbitration. Bolton was claiming that it was not liable to SSOE because that company had consented to the cargo being delivered to Royal and wrongfully arrested the MV Nelson at Calcutta. If this was correct and it obtained an award its rights of indemnity against the Bank would be limited to its solicitor and client costs and losses it could not recover from SSOE.
5 PCL's claims for declaratory relief, specific performance and damages for amounts it had already paid created no forensic difficulties in the New South Wales proceedings because that relief could be obtained without any prejudice to the arbitration in London. This could then have been prosecuted to an award on the merits. In that situation PCL would have been entitled to have its legal costs funded by the Bank under the indemnity. Those claims did not require PCL to prove in New South Wales that Bolton was liable to SSOE and would lose the arbitration. As each loss covered by the LOI crystallised and as each liability was finally incurred PCL could have obtained an order for payment of that amount by the Bank either direct or by way of reimbursement. Compare Attorney General v Arthur Ryan Automobiles Ltd [1938] 2 KB 16 CA; South Eastern Sydney Area Health Service v Gadiry (2002) 54 NSWLR 495 CA; Lawlor v Gray [1984] 3 All ER 345.
6 There were a number of possible answers to the dilemma in which PCL found itself in the New South Wales proceedings because of its claims for damages in tort and under s 52. PCL had the conduct of the arbitration and could have brought those proceedings to finality before the proceedings in New South Wales went to trial. An award adverse to Bolton would establish its liability to SSOE, and PCL's liability to Bolton under its LOI given pursuant to cl 63 of the time charter.
7 The promises of PCL to Bolton and the Bank to PCL under their respective LOIs extended to any "liability" incurred by the party indemnified. Liability for this purpose would be established by proof of an award and the issues would not have to be re-litigated in proceedings to enforce the indemnities. See Spencer Bower, Turner and Handley "Res Judicata" 3rd ed, 1996 p 225 and Edwards v Insurance Office of Australia Ltd (1933) 34 SR (NSW) 88. While PCL could have brought on the London arbitration first, the Bank could not.
8 Another solution, if the New South Wales proceedings were to be brought on first, would have been to press for a separate trial of the issues of liability and damages on the tort and s 52 claims. The trial started on 19 June 2000 but by then or shortly afterwards PCL and its advisers had the opinion of Mr Teare QC of 16 June which gave it every reason to press for separate trials. These were familiar features of admiralty practice. Oral applications to this effect were made to Hunter J after the trial started, but they were opposed by counsel for the Bank, and rejected. They were made "off the cuff", and were not pressed and fully argued. The legal difficulties facing PCL were not squarely presented to the Judge who did not appear to accept the right to specific performance of contracts of indemnity.
9 If an application for separate trials had been pressed and refused before a date for hearing was fixed or even after the trial had started, PCL could have abandoned its somewhat speculative claims in tort and under s 52, taken the matter to the Court of Appeal, or elected to defer the trial in New South Wales and have the London arbitration heard first. Instead PCL painted itself into a corner in the New South Wales proceedings and because of its claims in tort and under s 52 found itself in the embarrassing position of having to prove it was liable to SSOE, contrary to its stance through Bolton in the arbitration.
10 Even then it might have argued the case SSOE pleaded in London on the basis that if it won it would recover in full and if it lost after a proper contest the adverse decision would be followed by the arbitrators or would lead to a proper settlement. This was risky because PCL could not call all of the relevant witnesses from SSOE.
11 The opinion of Mr Teare that Bolton was liable to SSOE and would lose the arbitration was tendered on 30 January 2001, notice having been given in December. This made an already difficult position worse since SSOE as a cross-defendant obtained access to the opinion. No attempt was made to have it marked as a confidential exhibit to deny SSOE access but the application for such an order, even if successful, would have disclosed that the opinion was adverse to the position adopted by Bolton in the arbitration.
12 In any event the opinion, so far as it dealt with the merits of the arbitration, was clearly inadmissible. There is no suggestion of any relevant difference between the law of New South Wales and England. The opinion was nothing more than a written submission on legal questions which would have to be decided by Hunter J in due course. It only became relevant and admissible when the arbitration was settled.
13 Where a contract of indemnity is repudiated the innocent party, who is faced with an adverse claim, is in the difficult position having to litigate the issues on two fronts instead of none. In such circumstances a settlement of the adverse claim, if reasonable, will crystallise the loss for which the innocent party is entitled to indemnity. See Edwards v Insurance Office of Australia Ltd (1933) 34 SR (NSW) 88. Such a settlement is within the notional reasonable contemplation of the parties and a result of the breach. As I read Unity Insurance Brokers Pty Ltd v Rocco Pezzano Pty Ltd (1998) 192 CLR 603 (Unity Brokers) all judgments support this conclusion. McHugh J (612-4) and Gummow J (625) refer to Edwards v Insurance Office of Australia Ltd with approval.
14 The judgments in Unity Brokers confirm that the onus is on the plaintiff to prove that the settlement was reasonable and also establish that the test of reasonableness is objective and evidence from the legal advisers involved in the negotiations is admissible and will ordinarily be essential. McHugh J held (618) that reliance on the fact that the settlement was entered into on legal advice, disclosed or otherwise, is a waiver of legal professional privilege.
15 In that case the High Court sustained by a 3:2 majority the concurrent findings of the lower courts that the settlement was reasonable although the legal advisers had not given evidence in support of the settlement. McHugh J, in the majority, was only prepared to uphold the settlement because of the concurrent findings (618). He also relied on the fact that the defendant had not sought to cross-examine the insured's director about the reasons the legal advisers gave for advising that the settlement was reasonable.
16 This decision does not establish a general principle that a settlement can be upheld without evidence from the legal advisers or that the failure of the opposite party to cross-examine can fill gaps in the evidence. The fact that the High Court were prepared, by majority, to uphold the settlement in that case, although evidence had not been given by the legal advisers, establishes no principle for settlements effected since that decision. Until then legal advisers and lower courts would have been guided by the decision of the Court of Appeal in Biggin & Co Ltd v Permanite Ltd [1951] 2 KB 314 which suggested that such evidence was not required.
17 A party relying on a settlement as proof of his loss has the onus of proving that it was reasonable. This requires proof not only that the result was reasonable but also that the negotiations were conducted with proper care and skill. The settlement must reflect the plaintiff's true prospects of success if the proceedings had been conducted with care and skill because otherwise it will merely reflect his impaired prospects. Compare the analysis of McHugh JA in West v AGC (Advances) Ltd (1986) 5 NSWLR 610 at 620, 622 where his Honour held that a contract could be unjust because of the way it was made or because of its operation.
18 There is much to be said for the view that the outcome of the settlement negotiations was affected because PCL had painted itself into a corner in the New South Wales proceedings and placed itself in a very difficult position by bringing them on first without obtaining a separate trial of the issue of damages in tort and under s 52. These matters were not emphasised in the argument for the Bank and I will treat them as no more than background.
19 In my judgment the tender of the opinion of Mr Teare on 30 January 2001 and its prior disclosure were fatal to any claim that the settlement negotiations were conducted with reasonable care and skill. The opinion was clearly inadmissible when tendered and its disclosure to SSOE destroyed any chance of negotiating a settlement of the arbitration on a compromise basis.
20 The only evidence adduced by PCL to establish the reasonableness of the settlement was the opinion of Mr Teare, who was made available for cross-examination, and the affidavit of Mr Robert Wilson of 9 February 2001 (blue 18/7570). This proved that the settlement was concluded shortly before 2 pm on 8 February and annexed correspondence between the solicitors for PCL and the solicitors for the Bank. That was all. There was no evidence from Mr Wilson or anyone else as the course of the negotiations, and when where and between whom they were conducted. Apart from the opinion of Mr Teare there was no evidence of the factors considered by those conducting the negotiations on behalf of PCL.
21 The Court does not know whether PCL bargained SSOE down and by how much or whether it agreed to the amount demanded. This state of the evidence is not the result of a forensic accident but reflects a deliberate election by PCL and its advisers.
22 It has been suggested that the Bank should have cross-examined Mr Wilson but I cannot agree. The onus of proof was on PCL. It adopted the forensic position it did notwithstanding statements in the judgments in Unity Brokers on the importance of calling evidence about the negotiations and the factors which led the legal advisers to advise in favour of the settlement. In these circumstances counsel for the Bank were under no obligation to cross-examine Mr Wilson and the Court should not draw inferences about the settlement in favour of PCL. See Commercial Union Assurance Company of Australia Ltd v Ferrcom Pty Ltd (1991) 22 NSWLR 389 at 418-9. Smith v Chadwick (1884) 9 App Cas 187 could be added to the authorities there referred to.
23 Another course open to PCL was to seek a second opinion in London. There was ample time for this to be done. If this had favoured the view later supported by Mr Popplewell QC PCL could have tendered both opinions and asked Hunter J to choose which he would accept. They could also have negotiated with SSOE on the basis that the case was evenly balanced and should be compromised on that basis.
24 In my judgment the settlement was not reasonable because PCL did not establish that it was the result of negotiations conducted in circumstances calculated to lead to a reasonable compromise.
25 The merits of the settlement in substantive terms involve issues of considerable complexity and difficulty which were canvassed in the opinions of Mr Teare and Mr Popplewell and the judgment of Hunter J. These turn on the fax of 13 January 1999 from SSOE to PCL quoted in full by Giles JA, and the telephone conversation between Ms Farhana of SSOE and Captain Liang of PCL which preceded it.
26 Ms Farhana swore an affidavit in the Singapore proceedings which went into evidence in the Bank's case as part of that Court file (ex 32, 9/5357). She was employed as a secretary by SSOE and her affidavit annexed a fax of 4 January 1999 (5370) which advised the imminent sailing of MV Nelson from Brisbane with an estimated arrival at Saugor Roads on 17/18 January. She deposed to her conversation with Captain Liang on 13 January which she said was confined to the switching of the bills of lading (5361). She was not called in Sydney.
27 As she was preparing the fax she was told by Mr Balodi, an assistant manager of SSOE, to ask PCL to release the cargo to the notify party, ie Royal, against Banker's Guarantee (5361). Mr Balodi said in his affidavit in the Singapore proceedings that he received a telephone call that day from Mr Bhura of Royal who asked him to instruct the shipping company to release the cargo without production of the original bills of lading (5282-3). Mr Balodi obtained the necessary authority from Mr Jain (5284).
28 Mr Jain said in his Singapore affidavit that he asked Mr Balodi to give instructions to the shipping company to release the cargo without production of the original bills of lading against a bank guarantee "from the buyer" (5131-3). This part of the instruction was not passed on to Ms Farhana or Captain Liang.
29 Captain Liang, PCL's operations assistant, said in his Singapore affidavit (5377-005) that he received a telephone call on 13 January from Ms Farhana who told him that SSOE were the owners of the cargo. She asked not only about switching the bills but also for PCL to instruct its Calcutta agents to release the cargo to the notify party against Banker's Guarantee.
30 Both matters were confirmed in Ms Farhana's fax which Captain Liang sent on to Mr Chua of PCL. The receiver's copy bears that notation (5377-014). He said that he told Ms Farhana that PCL were not owners, as she thought, but time charterers and "disponent owners". As to the meaning of this expression see O/Y Wasa Steamship Co Ltd v Newspaper Pulp & Wood Export Ltd (1940) 82 Lloyds L Rep 936, 953-4. PCL had entered into the voyage charterparty with Neat as disponent owner (blue 8/4648). Nothing was said about Bolton and it seems that SSOE was not aware of its involvement.
31 The Captain said despite the reference in the fax to 14 pages only one other page arrived with details for one of the switched bills (5377-005). It identified Royal as the notify party with its Calcutta address and showed SSOE as the consignor (5377-015). He did not confirm its receipt to Ms Farhana as she had requested in the fax and no one from PCL did this (5364). Mr Chua told Captain Liang "as for the matter of the Banker's Guarantee this was a contractual matter … which would be dealt with by" him (5377-006). Captain Liang was not called in Sydney.
32 The two versions of the conversation differ as to whether or not Ms Farhana asked for the cargo to be delivered to the notify party without production of the bills of lading. This is marginal because that request was made in the fax. The Bank relies on Ms Farhana's fax (5373) as a consent by SSOE to the delivery of the cargo to Royal, and as a request which attracts an implied indemnity from SSOE to PCL. The part relied upon reads:
"PLEASE ALSO INSTRUCT YOUR DISCHARGE PORT AGENT TO RELEASE THE CARGO TO THE NOTIFY PARTY AGAINST BANKERS GUARANTEE."
33 Neither version of the conversation throws any light on the meaning of these words and the only evidence of surrounding circumstances it provided was Ms Farhana's claim that SSOE were owners of the cargo. Nothing was said in the conversation about the party who would provide the banker's guarantee, the party for whose benefit it would be obtained, the debt or liability which would be guaranteed or any other terms.
34 Neither Bolton nor PCL were named in the original bills of lading (blue 9A/5377-075 & foll) but Ms Farhana obtained the contact details for her call to Captain Liang from Mr Murali of Neat or Beaufort Shipping Agency in Singapore (5360). The latter were PCL's agents in Singapore who had been identified by Neat when it copied to her the fax of 4 January from Kilby to Sniekers (5370).
35 The request or instruction in the fax of 13 January was given by the company which claimed to be the owner of the cargo and was the notify party in the original bills. It was given to PCL which Ms Farhana now knew was the time charterer and disponent owner. SSOE was seeking to obtain switched bills which would show it as the shipper (5377-015) with Royal as the notify party.
36 It is evident that the fax falls to be construed in accordance with its terms with little assistance from surrounding circumstances known to both parties. This Court is therefore in as good a position as Hunter J or anyone else to construe it and has the background evidence . Many different constructions have been suggested but in my judgment that adopted by Mr Popplewell should be preferred.
37 For reasons which will appear, if PCL acted on SSOE's request in the fax, and discharged to Royal as the notify party under the switched bills, without production of the originals, the claims for which it would need protection would be those from unknown third parties in the chain between SSOE and Royal, or after Royal. As at 13 January they may not have been ascertained or ascertainable. PCL could only protect itself against such parties by obtaining a suitable bank guarantee or LOI. However if it acted on the fax it would be protected against claims from SSOE and Royal.
38 I am unable to accept the view that the bank guarantee was to be for the benefit of SSOE. This was not stated in the fax nor was the party who was to procure the guarantee identified. There was no request for a copy to be sent to SSOE either for approval or for its records. The whole matter was left entirely in the hands of PCL and it is evident that the guarantee was to be for its benefit. The request was not subject to a condition for the benefit of SSOE or indeed any conditions. The reference to a banker's guarantee was a statement of the obvious viz "and of course you will still need a bankers guarantee for your protection against possible third parties". I conclude that it was to be a guarantee or indemnity against claims by parties other than SSOE for delivering the cargo to Royal without production of the original bills of lading.
39 In the typical situation where a Bankers Guarantee or LOI is obtained the consignee presumptively entitled to the cargo provides a LOI from its bank to protect the carrier from claims arising from delivery to the consignee without production of the original bill of lading. The parties to the arrangement are the carrier, the consignee and its bank. See The Sormovskiy 3068 [1994] 1 Lloyd's Rep 266. The consignor shows no interest and the willingness of the consignee to provide a bank LOI is evidence of its good faith.
40 As at 13 January SSOE thought that the MV Nelson was due at Saugor Roads on 17 or 18 January [para 26] and the bills of lading had not been switched. PCL was not privy to the contractual arrangements between SSOE and Royal and was not on notice of Royal's defaults, or the fall in the market price of legumes in Calcutta.
41 The fax of 13 January stated on its face that SSOE, which had claimed to be the owner of the cargo, was content for it to be delivered to Royal, and the Court knows from the affidavits of Messrs Balodi and Jain that SSOE had acted on Royal's request to this effect.
42 In my judgment the fax was a delivery order given by SSOE as the owner of the cargo to PCL which it understood was either the carrier in possession of the cargo, or was in a position to give binding directions to the true carrier. See the discussion on delivery orders in "Carver on Bills of Lading" 1st ed, 2001, paras 8-027 to 8-034.
43 If SSOE wished at that stage to retain control of the cargo it might have refused to act on Royal's request, and said nothing or else foreshadowed to PCL a request for delivery to it at Calcutta or into a bonded warehouse. It might also have asked PCL to obtain a bank LOI or guarantee from Royal. Instead it requested delivery to Royal without production of the original bills of lading. What was the point of this unless it was to indicate that so far as SSOE were concerned PCL could safely deliver to Royal?
44 PCL submitted that the request in the fax did not take effect because it had not been confirmed as requested. But PCL acted on the fax by switching the bills of lading and for this purpose used the information in the proforma which accompanied it. SSOE knew that the fax had been received and that the first paragraph was being acted on.
45 A request, like a representation, can continue until it is revoked. SSOE did not revoke this request until 5 March when it notified PCL that it was reserving its rights in relation to the cargo delivered to Royal. In the meantime the request stood and PCL was entitled to act on it. Mr Jain said in evidence quoted by Hunter J [para 646] that he thought during February 1999 that PCL might be acting on a banker's guarantee it had obtained pursuant to the fax of 13 January.
46 The request in the fax must be construed in the light of the surrounding circumstances known to both parties. It should not be construed in the light of circumstances known only to SSOE. PCL would need a LOI to protect it from claims by parties other than SSOE and Royal, and was never likely to act on the fax alone. Having obtained LOIs from the Bank it proceeded to act on the fax by discharging cargo to Royal who was otherwise known to it only from the information provided by SSOE for the preparation of the switched bills. The natural inference is that PCL acted on both the fax and the LOIs, and indeed acted on the fax by obtaining the LOIs. The self serving evidence of Mr Chua at the trial contrary to the affidavit he swore in the Singapore proceedings and the position PCL adopted there is of no weight. The inference of reliance can and should be drawn from objective considerations rather than the ex post facto subjective of an interested witness.
47 The situation is comparable with that considered by McHugh J in Rosenberg v Percival (2001) 205 CLR 434, 443-4, a case of alleged negligence by a dentist. McHugh J referred to the importance of objective factors in determining whether to accept a patient's evidence about the decision he or she would have made if differently advised, and the diminished weight to be given to the patient's own evidence after the event on that topic. As McHugh J said:
"… human nature being what it is, most persons who suffer harm as the result of a medical procedure and sue for damages genuinely believe that they would not have undertaken the procedure if they had been warned of the risk."
48 The same point was made by Farwell J in Cackett v Keswick [1902] 2 Ch 456, 463-4, a prospectus case:
"… it cannot be enough for a man to swear that he would not have entered into the contract if he had known something … It is easy to be wise after the event, and many men can honestly persuade themselves when a company has failed that they would have been influenced by a circumstance which in all probability would have made no impression whatever on their mind … The test must be, Is the omission material? And if the Court sees that the fact omitted is of such a nature that it might reasonably deter … the ordinary investor … this is sufficient. It is in great measure an inference of fact to be drawn … from the circumstances of the case."
49 Hunter J appeared to think that if the Bank's construction of the fax of 13 January was correct the request from SSOE, acted on by PCL, would have given rise to an implied right in PCL to be indemnified by SSOE. Compare Kai Yung v Hong Kong and Shanghai Banking Corporation [1981] AC 287. In my judgment a construction of the fax having that result is excluded by its terms because PCL is asked or advised to obtain a Banker's Guarantee which is inconsistent with any implied indemnity by SSOE against claims by third parties. However it is not inconsistent with an implied indemnity against claims by SSOE itself.
50 I am unable to construe the fax as a request by SSOE which it acted on by PCL would leave SSOE free to sue PCL for doing what it had been requested to do. This would make it an involuntary guarantor of Royal and at the same time increase the assets of the latter. If that had been spelt out in the fax PCL would almost certainly have refused to act on such a request which involved the risk that the ship would be arrested. PCL would have been bound to disclose this information to any party it asked to procure a bank LOI. Why would any party other than Royal ask its bank to provide an LOI in those circumstances and why would a bank other than Royal's ever be willing to provide it?
51 The vessel arrived at Saugor Roads on 24 January and this was known to SSOE shortly afterwards [Hunter J paras 68, 69, 118-9, 169]. Lightening commenced on 9 or 10 February, ceased on the 15th, recommenced on the 19th and continued without any indication of SSOE's interest in the cargo being communicated to PCL until 3 March. On 5 March SSOE sent PCL a fax asserting to be the rightful owner of the cargo in possession of the original bills of lading, and threatening to hold PCL responsible for the cargo and its discharge [Hunter J para 254].
52 The request in the fax of 13 January was capable of being revoked by SSOE at any time and the fax of 5 March had that effect. The cargo discharged after 5 March was not discharged pursuant to that request and, as to any such cargo, SSOE has its full rights under the bills of lading. The vessel was arrested on 31 March.
53 By 18 February at the latest, on Hunter J's findings [paras 180, 181, 182, 187, 188, 189] SSOE knew that cargo was being discharged from the vessel. Moreover he found [para 264] there was never any real prospect of the switched bills of lading being available at the time of anticipated discharge of the MV Nelson in Calcutta. He said there was no dispute that SSOE were aware by mid-February that discharge had commenced [para 223]. Mr Jain was told by Mr Murali of Neat by telephone on 19 February that 4000 tonnes had been discharged, but the news did not provoke any protest or assertion of right [para 224].
54 Hunter J [paras 68, 69, 179, 180, 189, 226, 646, 653, 657] held that until 5 March SSOE allowed discharge to continue without interference. It seems that during this period 8,700 tonnes was discharged. In my judgment there was no defence to SSOE's claim in respect of cargo discharged after receipt of the fax of 5 March and before the arrest of the vessel, but PCL was not liable for cargo discharged under the orders of the High Court in Calcutta [Hunter J para 262].
55 The position in respect of cargo discharged before receipt of the fax of 5 March depends on the construction of the fax of 13 January and the effect of SSOE's inactivity between the arrival of the vessel at Saugor Roads on 24 January and its fax of 5 March. The Bank is entitled to rely on the combined effect of the fax of 13 January and SSOE's subsequent inactivity.
56 SSOE was the original party to the switched bills (blue 9/5212 & foll. Unfortunately the back pages of the original and switched bills do not appear to be included in the appeal books) and could sue for misdelivery of the cargo as a breach of contract, or in tort for its conversion. The consent of the true owner is a defence to an action for conversion: Maynegrain Pty Ltd v Compafina Bank [1984] 1 NSWLR 258, 58 ALJR 389 (PC).
57 PCL as the time charterer of the MV Nelson did not itself deliver any cargo to Royal. Bolton did. However PCL directed Bolton to discharge to Royal and thus was in the same position as BTE in Maynegrain Pty Ltd v Compafina Bank which instructed Maynegrain to load the barley onto the MV Bellnes. BTE had the consent of the ANZ Bank, as pledgee of the barley, just as PCL had the consent of SSOE as the holder of the original bills of lading. In my judgment the delivery of the cargo to Royal before receipt of the fax of 5 March was not a conversion and SSOE had no rights against Bolton in tort in respect of that cargo. The position in contract is not the same because consent without more is not a defence to an action for breach of contract (Bullen & Leake "Precedents of Pleadings", 3rd ed, 1868, pp 673-4; Rawlinson v Clarke (1845) 153 ER 442, 445 and Dobson v Espie (1857) 157 ER 33).
58 In answer to an action by SSOE for misdelivery in breach of contract Bolton must therefore rely either on the fax of 13 January as an authority to deliver to Royal or on an estoppel. The carrier's promise in the bill of lading is in substance to deliver the cargo to the holder of the original bill, or as he directs. The fax was a direction to deliver to Royal which was acted on until revoked. As such it was a defence to any action for breach of the bill of lading contracts.
59 Mr Teare, Mr Popplewell, Hunter J and counsel did not refer to Maynegrain Pty Ltd v Compafina Bank which was referred to by the Court during argument. This does not matter because Unity Brokers establishes that the test for the reasonableness of a settlement is objective.
60 Hunter J held that the settlement for US$2,900,000 plus interest was "right at the top of the scale" (para 732), but that is an understatement. SSOE's claim in respect of the whole cargo was US$3,159,725.80 less $194,974.32 for dun peas delivered to it by the Court appointed receivers of the cargo. There had been "a dramatic slump" in the market at Calcutta for chick peas and a lesser drop for dun peas, and Hunter J held that a further deduction of $250,000 should be made for this. However by some slip his Honour (paras 722-3) quantified the claim at "approximately $2,800,000" when on this basis it was $2,714,750.54. The effect is marginal but does not help PCL establish that the settlement was substantively reasonable.
61 The settlement on 8 February 2001 included the costs of the proceedings in Singapore and London and interest. Hunter J thought that SSOE may have had a claim for the higher contract price payable by Royal but it is well established that the measure of damages in contract for misdelivery and in tort for conversion is the market value of the goods at the relevant time and place. PCL is not entitled to any allowance in the settlement for a claim by SSOE for the contract price payable by Royal which was in default. PCL failed to establish that the settlement with SSOE was substantively reasonable having regard to the strengths and weaknesses of Bolton's case in the arbitration.
62 There is no clear guidance in the authorities as to the result of a finding that a settlement was not reasonable. Unity Brokers does not assist because the minority ordered a new trial on the issue of damages. On any view the settlement, even if unreasonable, establishes an upper limit (Biggin & Co Ltd v Permanite Ltd [1951] 2 KB 314 CA).
63 Where a plaintiff relies on a settlement to quantify his damages but fails to establish that it was reasonable he is left with the onus of proving his damages. If the failure to negotiate a reasonable settlement was seen as a failure to mitigate his damage the defendant would have the onus of proving the extent to which the actual settlement exceeded one which would be reasonable: Bagnall v National Tobacco Corporation of Australia Ltd (1934) 34 SR (NSW) 421, 430; McGregor on Damages 17th ed, 2003, para 7-019.
64 This would produce a conflict between the onus on the plaintiff to prove that the settlement was reasonable and the onus on a defendant to prove the extent to which the settlement was unreasonable. In my judgment there is no such conflict because the mitigation principle only applies once the plaintiff has proved his damages on a prima facie basis. If a failure on his part to mitigate his damage is relied on to reduce that prima facie measure the defendant has the onus of establishing that failure and the quantum of any deduction. The failure to establish that the settlement was reasonable meant that there was no prima facie measure of damage, and the question of mitigation does not arise.
65 In this situation the task of the Court is not to determine what would have been a reasonable settlement. It has no authority to make a notional compromise binding on the parties which the plaintiff and the third party may never have accepted. Its task is to assess the plaintiff's damages on the available evidence, and if that it not possible it must hold that the plaintiff failed to prove that part of his damages.
66 There is evidence which enables the Court to make an assessment. PCL is entitled to recover its direct out of pocket losses and expenses and those of Bolton for which it was liable under its indemnity. These fall within the terms of the LOIs given by the Bank and PCL is entitled to recover them in full.
67 SSOE having revoked its consent and request by the fax of 5 March, Bolton had no defence in respect of deliveries to Royal after that date and SSOE was entitled to arrest the ship in respect of further deliveries. This means that Bolton's cross-claim in the arbitration would have failed but SSOE would only have recovered for deliveries to Royal after 5 March.
68 SSOE's claim in London (6040) was based on switched bills of lading 1A-F for 5762.58 m.t. and switched bills of lading 3A-E for 4169.23 m.t. of dun peas, a total of 9931.81 m.t.; and switched bills of lading 4A-D for 3800 m.t. of chick peas. However a total of 10,469.23 m.t. of dun peas had been shipped [Hunter J paras 24-5], and 9273.96 m.t. of chick peas [paras 25-6]. Bills of lading for dun peas were switched as follows [Hunter J paras 73-7]:
Bill of lading 1 5762.58 m.t. Switched bills of lading 1A-E for 1000 m.t. each and bill of lading 1F for 762.58 m.t.