Gold Shipping Navigation Co SA v Lulu Maritime Ltd

On 17 October 2005 a collision occurred in the Suez Canal between the vessels PEARL OF JEBEL ALI and PRIDE OF AL SALAM 95 as a result of which PRIDE OF AL SALAM 95 sank. The collision has given rise to a claim by the owners of PRIDE OF AL SALAM 95 of about US$10,600,000 and to a claim by the owners of PEARL OF JEBEL ALI of about US$1,500,000. By a Collision Jurisdiction Agreement dated 1 November 2005 the owners of the two vessels agreed English law and jurisdiction and to provide security for the other’s claim. Pursuant to section 190 of the Merchant Shipping Act 1995 (the successor to section 8 of the Maritime Conventions Act 1911) there was a two year time limit for commencing proceedings.

Between May and September 2007 there were discussions between the owners’ London solicitors, Inces and Holman Fenwick and Willan, about commencing proceedings in Egypt for the purpose of obtaining VTS and VHF data relating to the collision. Such proceedings would require an amendment of the Jurisdiction Agreement.

On 26 September 2007 Inces e-mailed Holman Fenwick and Willan as follows:

On 27 September Holman Fenwick and Willan replied that they were seeking instructions. On the same day Inces said by e-mail:

On 2 October at 1751 Inces e-mailed Holman Fenwick and Willan as follows:

At 1806 on the same day Holman Fenwick and Willan replied:

Thus an agreement was reached between the parties on the terms of the e-mail exchange of 2 October 2007. It does not appear that a side letter was signed.

On 16 October 2007, the day on which the two year limitation period expired, Holman Fenwick and Willan e-mailed Inces as follows:

Between November 2007 and March 2008 there were updates on and discussions about the Egyptian proceedings.

On 19 September 2008 Holman Fenwick and Willan e-mailed Inces:

On 14 October 2008 Holman Fenwick and Willan issued a Claim Form (2008 Folio 1062). They did not inform Inces that they had done so.

The claim form was not served until 26 January 2009. On the same day Inces sent the following e-mail to Holman Fenwick and Willan:

Inces issued a claim form on that day and served it on 29 January.

On 12 February Holman Fenwick advised Inces by e-mail that Inces Claim Form was time barred.

On 23 February Inces issued related applications in both 2008 Folio 1062 and 2009 Folio 106 for a declaration that their clients’ counterclaim or claim respectively is not time barred or, alternatively, an extension of time within which to bring any such counterclaim or claim pursuant to section 190(5) of the Merchant Shipping Act 1995. However, at the hearing the primary focus of the argument was in relation to the counterclaim in 2008 Folio 1062.

Since then collision statements of case have been served on 1 and 3 April 2009. The owners of PEARL OF JEBEL ALI have counterclaimed in the action commenced by the owners of PRIDE OF AL SALAM 95.

The issues which now arise for determination are:

What is the effect of the agreement reached on 2 October 2008 ?

Is a counterclaim subject to the two year limitation period in section 190 of the Merchant Shipping Act 1995 ?

Is this a proper case for extending time in favour of the owners of PEARL OF JEBEL ALI so that the counterclaim in 2008 Folio 1062 is not time barred ?

The terms agreed on 2 October were “a mutual unlimited extension of time from 16/10/07 within which to commence proceedings in England subject to one month’s notice of termination of intention to proceed by either side.” Something has gone wrong with the latter part of the agreement. The parties had contrasting suggestions as to how to make sense of it. On behalf of the owners of PEARL OF JEBEL ALI it was submitted that the words “of termination” should be deleted. The effect of such deletion was, it was submitted, that the parties had agreed a mutual unlimited extension of time and that if either party wished to proceed with its claim it must give one month’s notice of its intention to do so. On behalf of PRIDE OF AL SALAM 95 it was submitted that the words “of intention to proceed” should be deleted. The effect of such deletion was, it was submitted, that the mutual unlimited extension of time could be ended by either party on one month’s notice. An alternative suggestion by the owners of PEARL OF JEBEL ALI was that the word “and” or “or” should be inserted after “termination”. The effect of such insertion was, it was submitted, that either party could end the mutual unlimited extension of time by giving one month’s notice and/or give one month’s notice of its intention to proceed with its claim.

Construction of the Agreement reached on 2 October must be answered by reference to the principles expounded by Lord Hoffman in Investors Compensation Scheme v West Bromwich Building Society [1998] 1 WLR 896 not only because those are the applicable principles but also because they deal expressly with cases where something has gone wrong with the language in which the parties have chosen to express their agreement. The relevant principles are as follows:

The background knowledge which both parties had at the time of making their agreement on 2 October was that one of the parties wished to commence proceedings in Egypt to obtain VTS or VHF evidence regarding the collision before commencing proceedings against the other. For that purpose an extension of the two year time limit which would expire on 16 October 2007 was required. The meaning of the agreement made on 2 October is that which it would convey to a reasonable person having that background knowledge. Something has gone wrong with the syntax or choice of words but that meaning should still be capable of being ascertained.

Counsel for the Owners of PEARL OF JEBEL ALI submitted that the words “of termination” should be deleted. The reason this was suggested was that such words did not appear in the e-mail sent on 26 September and therefore it was said they had been inserted in the offer made on 2 October by mistake. The offer made on 26 September could be said to be part of the background to the offer made on 2 October but it would not be right on that account to delete the words “of termination” from the offer which was made and accepted on 2 October. Those words were part of the agreement made on 2 October. For the same reason I do not consider that it is right to delete the words “of intention to proceed” as suggested by the owners of PRIDE OF AL SALAM 95. Those words also were part of the agreement made on 2 October.

A reasonable person having the background knowledge to which I have referred would not expect the parties to have agreed an unlimited extension of time which was not capable of being brought to an end. Such an extension of time was not required by the need to seek VTS and VHF evidence in Egypt. A reasonable person would expect that the extension of time would be capable of being brought to an end when that evidence had been obtained or when it was apparent that evidence could not be obtained or when enough time had been spent in seeking that evidence. A reasonable person would therefore expect that there would be a means of terminating the unlimited mutual extension of time in any of those eventualities.

The mutual unlimited extension of time in the agreement made on 2 October was expressed to be “subject to one month’s notice of termination of intention to proceed by either side”. I consider that those words would convey to a reasonable person with the background knowledge to which I have referred that either party could give one month’s notice of the termination of the extension of time. Some meaning must also to be given to the words “of intention to proceed”. I consider that the reasonable meaning of those words is that when one month’s notice of termination is given the party giving it also gives notice that it intends to proceed with its claim. I do not suggest that such notice must also be of one month because that would prevent the party who gives one month’s notice of termination from issuing its claim form until after the expiry of one month, by which time the claim form would be time barred.

Thus the meaning which the words “a mutual unlimited extension of time from 16/10/07 within which to commence proceedings in England subject to one month’s notice of termination of intention to proceed by either side” would convey to a reasonable man with the background knowledge to which I have referred is:

that the parties have agreed a mutual unlimited extension of time from 16/10/07 within which to commence proceedings;

that that mutual unlimited extension of time may be terminated by either party on giving one month’s notice of such termination during which month that party intends to proceed with its claim by commencing proceedings.

Counsel on behalf of PEARL OF JEBEL ALI submitted that there were two distinct features of the agreement. First, the agreement contained an extension of time which was reciprocal and open ended so that time was extended indefinitely. Secondly, the agreement operated as a standstill agreement in relation to the pursuit of proceedings in England. However, counsel coupled this submission with a submission that the words “termination of” were inserted in the agreement in error. For the reason I have given I do not accept that this deletion is justified. If those words are not deleted then counsel’s submission that the parties had agreed an indefinite extension of time with no means of terminating that extension is not tenable. In addition, there is no express standstill agreement. However, in so far as the agreement may “operate as” a standstill agreement, the standstill is brought to an end when one month’s notice of termination of the mutual unlimited extension of time is given.

Counsel submitted that if the words were meant to require that both sides were obliged to issue their own proceedings within the following one month period there would have been words to the following effect: “upon termination by either party, both parties must issue proceedings within one month”. It was said that there was simply nothing in the agreement which required either party to issue a Claim Form within a month. I disagree. It is implicit in an agreement whereby a mutual extension of time may be terminated by one month’s notice that each party must issue proceedings within that month.

On 19 September 2007 the Owners of PRIDE OF AL SALAM 95 gave “notice to start proceedings in England within one month from today”. The notice was prefaced by a reference to “the mutual time extension agreed between our clients on 2 October 2007”. Counsel for the owners of PEARL JEBEL ALI submitted that the notice did not give notice of termination of the time extension. I am unable to accept that submission. Although the language used did not exactly replicate the language of that agreement, there can be no doubt that the notice was intended to be and was understood to be a notice pursuant to the agreement made on 2 October 2007. It did not expressly state that the mutual unlimited extension of time would be terminated in one month’s time but, read in the context of the agreement made on 2 October to which the e-mail expressly referred, the meaning of the notice, objectively construed, is that the mutual unlimited extension of time would end in one month. The effect of a notice terminating the mutual unlimited extension of time is that the parties must commence proceedings within one month and that is what the notice stated: “please consider this e-mail as notice to start proceedings in England within one month from today”. The owners of PRIDE OF AL SALAM 95 did so on 14 October. The owners of PEARL OF JEBEL ALI did not. It follows that their action commenced on 26 January 2009 was commenced after the time limited for commencing proceedings had expired.

Admiralty practice for a great many years has been that each owner of a ship involved in a collision issues a writ, now known as a claim form, within the two year limitation period or within such further period as has been agreed. If one owner serves his claim form and a collision statement of case the other owner will usually serve a defence and counterclaim. That counterclaim will not be regarded as time barred because the owner who served it will have issued his own claim form within time. (Section 35 of the Limitation Act 1980 pursuant to which counterclaims relate back to the date of the writ or claim form does not apply to limitations periods in other enactments). His own claim form will then usually be stayed.

In the present case the owners of PEARL OF JEBEL ALI have, in addition to commencing their own proceedings, counterclaimed for the damage sustained by that vessel in the action commenced by the owners of PRIDE OF AL SALAM 95. The owners of PRIDE OF AL SALAM 95 say that that counterclaim is time barred because the claim form issued by the owners of PEARL OF JEBEL ALI was not issued within time. Counsel on behalf of the owners of PEARL OF JEBEL ALI submitted that the time bar provision in section 190(3) of the Merchant Shipping Act 1995 does not apply to counterclaims. This submission in effect challenges the principles underlying the long standing Admiralty practice to which I have referred.

It is first necessary to set out section 190 of the Merchant Shipping Act 1995.

in respect of damage or loss caused by the fault of that ship to another ship, its cargo or freight or any property on board it; or

for damages for loss of life or personal injury caused by the fault of that ship to any person on board another ship.

the damage or loss was caused; or

the loss of life or injury was suffered.

the jurisdiction of the court, or

the territorial sea of the country to which the plaintiff’s ship belongs or in which the plaintiff resides or has his principal place of business, shall extend the period allowed for bringing proceedings to an extent sufficient to give reasonable opportunity of so arresting the ship.”

Counsel’s argument may be summarised as follows:

The proceedings referred to in section 190(4) and (6) are originating proceedings, not proceedings by way of counterclaim. “Proceedings” in the other sub-sections of section of 190 should also be construed as originating proceedings, and not as including proceedings by way of counterclaim.

There are sound policy reasons for construing proceedings as not including proceedings by way of counterclaim, namely:

To allow a counterclaim to be advanced against a claim brought within time would not offend against the policy underlying statutes of limitation, which is to ensure that claims are pursued with reasonable diligence.

The owners of ship A may decide not to bring a claim against the owners of ship B for good reason eg because the owners of ship B have no means. But if the owners of ship B choose to bring their claim just before the limitation period ends it would be unjust if the owners of ship A could not advance their counterclaim.

There is no purpose in requiring a second claim form to be issued when, following the inevitable counterclaim in the first action, it will be stayed.

Counterclaims in collision actions should be put on the same basis as other counterclaims which, by reason of section 35 of the Limitation Act 1980 “relate back” to the date of the claim.

There is no decision binding on this court that “proceedings” in section 190(3) includes proceedings by way of counterclaim.

The decision in The Fairplay XIV [1939] P. 57, which has been regarded as authority for the proposition that a counterclaim was caught by the two year time limit in section 8 of the Maritime Conventions act 1911, was not a decision on section 190 of the Merchant Shipping Act 1995. It should not be applied to section 190 because it was based upon section 34 of the Admiralty Court Act 1861 which has since been repealed.

In The Kafur Mamedov, an unreported decision of the Hong Kong Court of Appeal dated 21 July 1996, Seagroatt J. found the policy arguments in support of the proposition that counterclaims were not covered by section 8 of the Maritime Conventions Act 1911 persuasive and held that The Fairplay XIV was wrongly decided. Although Seagroatt J. was in the minority the majority disagreed with him primarily because the decision in The Fairplay XIV was regarded as settled law.

However, I do not consider that this argument can be accepted, for these reasons:

The 1995 Merchant Shipping Act 1894an act to consolidate the Merchant Shipping Acts 1894 to 1994 and other enactments relating to merchant shipping. Save that section 190 of the 1995 Act removes any reference to salvage services (the limitation period for which is now to be found in the Salvage Convention which, by section 224 of the 1995 Act, has the force of law) section 190 appears simply to restate section 8 in a modern legislative style. Neither counsel has discovered in his researches anything to suggest that there was any other motivation for altering the language of section 8. Thus, section 190(1) and (2) of the 1995 Act describe the claims to which the section applies in very similar terms to those in the opening lines of section 8 of the 1911 Act. Section 190(4), which makes provision for contribution claims, is the modern equivalent of the last few lines of the first sentence of section 8 of the 1911 Act. Sections 190(5) and (6) of the 1995 Act restate the discretionary and mandatory powers to extend time found in the proviso to section 8 of the 1911 Act. The limitation provision in section 8 is expressed as “no action shall be maintainable …unless proceedings therein are commenced within two years…” whereas the limitation provision in section 190(3) is expressed as “no proceedings ….shall be brought after the period of two years ….” The fact that the 1995 Act is expressed to be a consolidation act would suggest that that difference in wording was not intended to bring about a difference in meaning.

In The Fairplay XIV [1939] P. 57 the President of the Probate Divorce and Admiralty Division, Sir Boyd Merriman, considered an argument that section 8 of the 1911 Act did not apply to a defendant who wishes to counterclaim. That was said to be result of section 34 of the Admiralty Court Act 1861 which gave the court power to direct that “a cause of damage” and “a cross cause for damage” be heard at the same time and on the same evidence and, in certain circumstances, to suspend proceedings in the principal cause until security had been given in the cross cause. That led counsel to submit that the section was “intended to establish reciprocity between the parties” so that, I infer, if the cause of damage was in time so should the cross cause for damage be in time. The President held, contrary to the argument of counsel, that section 34 did not affect section 8 of the 1911 Act. He went on to say:

When section 190 of the 1995 Act was enacted it was an accepted tenet of Admiralty law that section 8 of the Maritime Conventions Act 1911 extended to counterclaims. Thus, no lesser an authority on Admiralty law than Brandon J. stated in The Gniezno [1968] p. 418 at p.447 that if that proposition had not been conceded he would have held that it followed from the decision in The Fairplay XIV. Further, in The Igman v The Atilim 2 (formerly named Malandrinon), an unreported decision of the Court of Appeal dated 27 May 1993 leading counsel familiar with this area of the law (Mr. Gross QC) did not argue that counterclaims were not caught by section 8 of the 1911 and the Court of Appeal did not suggest that they might not be.

It would therefore have appeared to Parliament in 1995 that it was and had been settled law for at least 45 years that counterclaims were caught by section 8 of the Maritime Conventions Act 1911. In those circumstances section 190 of the Merchant Shipping Act 1995 should not be regarded as changing that settled position unless there are clear words to that effect in the section.

I do not consider that there are such clear words. The section applies to “any proceedings to enforce any claim or lien against a ship or her owners in respect of damage or loss caused by the fault of that ship to another ship…” Those words, and in particular the words “any proceedings” are apt to extend to counterclaims in respect of such damage. (It may be noted that the President in The Fairplay XIV used the word proceedings as applying to both a cross-action and a counterclaim in the passage which I have quoted.) There is no reason why sub-section (3) should not be read in the same light. Sub-sections (4) and (6) make special provision for certain forms of originating actions but that is not a good reason for limiting the scope of the wide words “any proceedings” in sub-section (1) or the words “proceedings” in sub-section (3) to originating actions and excluding counterclaims.

Whilst there is merit in the policy arguments marshalled by counsel in favour of exempting counterclaims from the scope of section 190(3) of the Merchant Shipping Act 1995 (at any rate policy arguments (i)-(iii) above) they cannot, I think, overcome the apparent approval by Parliament of the settled position prior to 1995 that section 8 of the Maritime Conventions Act extended to counterclaims.

It is true that Mr. Michael Thomas QC, also very familiar with this area of the law, argued before the Court of Appeal in Hong Kong in June 1996 that counterclaims were not caught by section 8 of the 1911 Act. But that argument was rejected by the majority of the Court of Appeal. Godfrey JA said the court should regard the point as having been settled by the authorities to which I have referred and Nazareth V-P agreed with Godfrey JA and added that the legislature in enacting the Limitation Ordinance in 1965 with an express saving for periods of limitation prescribed by “any imperial enactment” must be taken to have intended to preserve section 8 of the 1911 Act “with its then known judicial interpretation.”

It is legitimate to observe, as counsel for the owners of PRIDE OF AL SALAM 95 did, that the “relation back” provision in section 35 of the Limitation Act 1980 does not apply to periods of limitation prescribed by other enactments and yet the effect of holding that section 190 of the Merchant Shipping Act 1995 does not apply to counterclaims arising out of the fault of a ship is to apply the relation back theory to such counterclaims, contrary to the intention of Parliament as expressed in the Limitation Act. That is true. However, the non-application of the relation back theory to counterclaims arising out of the fault of a ship is capable of giving rise to injustice. The shipowner who for good reason decides not to incur the expense of issuing a claim form against another shipowner because there is no prospect of recovery may nevertheless wish to counterclaim if that other shipowner, having issued a claim form on the last day of the limitation period, serves his counterclaim after the expiry of the limitation period. The question then arises how that injustice may be remedied. Counsel for the owners of PEARL OF JEBEL ALI says that it should be remedied by holding that section 190(3) of the Merchant Shipping Act 1995 does not apply to counterclaims arising out of the fault of a ship. Counsel for the owners of PRIDE OF AL SALAM 95 says that it may be remedied by the shipowner himself by taking the well known, clear and simple step of issuing his own claim form in time as a precaution. In most cases that will be a simple step proportionate in cost to the sums at stake in the usual collision case. However, there may be circumstances where it is not. But in such cases the remedy to the suggested injustice will lie in section 190(5) of the MSA 1995 which empowers the court to extend the time for bringing proceedings “to such extent and on such conditions as it thinks fit” rather than in construing section 190 of the MSA 1995 in a manner contrary to the settled meaning of its predecessor.

It follows that the counterclaim in 2008 Folio 1062 is time barred subject to the exercise of the court’s discretion to extend time.

Although the discretion conferred on the court by section 190(5) of the MSA 1995 is expressed in unfettered terms it was common ground that the discretion should be exercised in the principled manner explained by the Court of Appeal in The Al Tabith and The Alabfushi [1995] 2 Lloyd’s Rep. 336. First, the court must consider whether there is good reason for an extension of time. Secondly, if there is good reason, the court must consider whether it is appropriate to exercise its discretion in favour of extending or refusing to extend time. That two stage test reflected the approach to applications to extend the validity of a writ pursuant to the former RSC Ord.6 r.8. In The Norwhale [1973] 1 Lloyd’s Rep. 56 Brandon J. said at p.59 that “very similar considerations” apply whether the court is asked to renew a writ or extend time under the Maritime Conventions Act. Similarly, in The Zirje [1989] 1 Lloyd’s Rep. 493 Sheen J said at p. 497 that the “good reason” test should be applied “by parity of reasoning” to applications to extend time under the Maritime Conventions Act. He said the same in The Seaspeed America [1990] 1 Lloyd’s Rep. 150 at p.153. That approach was not in dispute in The Al Tabith and The Alabfushi.

However, in The Baltic Carrier [2001] 1 Lloyd’s Rep. 689 David Steel J. noted that the relevant rule for extending or renewing a claim form is now CPR Part 7.6. The case before him concerned an application to extend time for the commencement of proceedings pursuant to section 190 of the 1995 MSA in circumstances where a claim form had been issued within time but had been allowed to expire. David Steel J. noted that section 8 of the 1911 Act had been used in the past to permit the extension of the validity of an existing claim form as well as extending time so as to validate the issue of a claim form out of time and that “the practice which accordingly has developed is to treat applications pursuant to the discretionary power accorded by virtue of s.190 on similar principles to applications to extend the validity of the claim form pursuant to the relevant Rules of Court.” Having referred to CPR Part 7.6 he described the discretion as unfettered subject to the express limitations in the rule that the applicant must have taken all reasonable steps to serve the claim form and must have acted promptly in making the application.

In form the discretion conferred by section 190 of the MSA 1995 is, like its predecessor, an unfettered discretion. However, the discretion under section 8 of the 1911 Act was always exercised in a principled manner by requiring there to be “special circumstances which create a real reason why the statutory limitation should not take effect”; see The Llandovery Castle (1920) 2 Lloyds List Law Reports 273. In The Hesselmoor and The Sergeant [1951] 1 Lloyd’s List Law Reports 146 Willmer J. reviewed the authorities and summarised their effect as being that there must be “some good and substantial reason for the exercise of the Court’s discretion in favour of allowing the action to proceed.” In The Seaspeed America [1990] 1 Lloyds Rep. 150 Sheen J saw no difference between “a real reason” (as in The Llandovery Castle) and “a good reason”. I consider that the discretion conferred by s.190 of the MSA 1995 should be exercised in the same principled manner because, if time is extended, the statutory limitation will not take effect. There must therefore be good reason for extending time. What is a good reason cannot be defined. Whether there is or is not a good reason must depend upon all the circumstances of the case; see The Myrto (No.3) [1987] AC 597 at p.622 per Lord Brandon.

The present case is not one in which a claim form was issued in time but not served in time. Rather, it is one in which a claim form was not issued within time by one ship and an extension of time is sought pursuant to s.190 of the MSA 1995 to permit a counterclaim to be made in the claim issued within time by the other ship. In such a case the first of the two express limitations in CPR 7.6 (that all reasonable steps to serve the claim form have been taken) can have no application because a claim form was not issued within time (see paragraph 29 of David Steel J.’s judgment in The Baltic Carrier). The second express limitation (that the applicant has acted promptly in making the application) can apply and in any event would be a consideration to bear in mind when exercising the discretion conferred by section 190 of the MSA 1995.

Mr. Rod Jordan, a very experienced Admiralty Manager in Inces, the solicitors acting for the owners of PEARL OF JEBEL ALI, did not issue a claim form within one month of the e-mail dated 19 September 2008 from Holman Fenwick and Willan. He has explained in a witness statement why he did not do so. He has said that he understood the agreement of 2 October to give an unlimited extension of time. He also did not understand the agreement of 2 October to mean that if one party gave notice of intention to proceed that affected the right of the other party to give its own one month notice of its intention to proceed. Accordingly his clients were entitled to pursue their own claim by giving one month’s notice of intention to proceed. He did that on 26 January 2009 and issued a claim form which he served on 29 January because there was no sensible reason for delaying service.

It was submitted on behalf of the owners of PRIDE OF AL SALAM 95 that Mr. Jordan also said that he thought contemporaneously that there was no need to commence separate proceedings because a counterclaim could be made in the action commenced by the owners of PRIDE OF AL SALAM 95. It was further submitted that that could not be correct because Mr. Jordan in fact commenced separate proceedings. However, Mr. Jordan’s evidence as to his contemporaneous belief is set out in paragraph 23 of his witness statement. The passage challenged is in paragraph 27 which sets out his submissions. The first submission, on the basis that his understanding of the agreement was held to be wrong, was that he was genuinely and reasonably misled by the terms of the agreement. The second submission is that that there was no purpose in issuing separate proceedings because a counterclaim could be issued. That is not a statement of his contemporaneous belief but a submission. The challenge made to Mr. Jordan’s evidence as to his contemporaneous belief is therefore based upon a mistaken assumption. I have no reason not to accept Mr. Jordan’s statement of his contemporaneous belief as to the meaning of the agreements reached on 2 October.

It is plain from Mr. Jordan’s witness statement that he did not understand that the agreement made on 2 October 2008 had the meaning which I have held is the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract. The meaning which a contract may convey to a reasonable person may not be that which one or both of the parties to it thought was its meaning. In Attorney General of Belize & Ors v Belize Telecom Ltd & Anor (Belize) [2009] UKPC 11 (18 March 2009) Lord Hoffman said:

The context in which Mr. Jordan misunderstood the agreement of 2 October 2007 was one in which he had been careful to agree an extension of time so that his clients might commence proceedings in Egypt to obtain VTS and VHF evidence in Egypt before commencing proceedings in England. Earlier attempts had been made to get such evidence but to no avail. Whilst both owners could have and probably should have commenced proceedings within the two years neither did. Any fault in not commencing proceedings within the two year was therefore a fault of both shipowners. The Egyptian proceedings progressed slowly but did produce the VHF CD. When Holman Fenwick and Willan sent the notice of 19 September 2008 they did not use the language of the agreement dated 2 October 2007 and did not expressly mention termination of the mutual extension of time.

It was submitted by counsel for the owners of PRIDE OF AL SALAM 95 that Mr. Jordan “misunderstood what was the clear and usual effect of an agreement to grant a general extension of time.” However, the agreement was not a form approved by the Admiralty Solicitors Group and it was not in a common form. Moreover, the syntax of the agreement was muddled. Indeed, so muddled was it that each counsel submitted that words should be deleted from it, though they disagreed as to which words should be deleted. The words which Counsel for the owners of PRIDE OF AL SALAM 95 said should be deleted were the very words on which Mr. Jordan placed significant reliance. In those circumstances I do not consider that it can be said he misunderstood “the clear and usual effect of an agreement to grant a general extension of time.” He was misled by its unusual and clumsy terms. It would be harsh to say that Mr. Jordan’s misunderstanding of the agreement and consequent failure to issue a claim form within time was culpable or such as to prevent there being a good reason for an extension of time, notwithstanding that that misunderstanding may be described as Mr. Jordan’s “mistake” (cf The Al Tabith above, at p.339 and 342). Nor do I consider that his conduct can be described as “dilatory conduct” which is not tolerated in the Admiralty Court (see The Hesselmoor and The Sergeant, above, at p.148). The delay from 19 September 2008 until 26 January 2009 in commencing proceedings - some 4 months - was the result of his misunderstanding of the agreement and of the effect of the notice he had received on 19 September 2008. It was also in part the result of the fact that Holman Fenwick and Willan did not serve their clients’ claim form until 26 January 2009. Had it been served earlier, it is probable that Mr. Jordan would have issued and served his clients’ claim form earlier.

Since Mr. Jordan’s misunderstanding of the agreement dated 2 October and his consequent failure to appreciate the effect of the notice dated 19 September cannot fairly be described as culpable I consider that there is good reason to extend time.

If time is not extended the owners of PEARL OF JEBEL ALI will be unable to bring their counterclaim arising out of the collision which forms the subject of the claim against them. If time is extended the owners of PRIDE OF SALAM 95 will be unable to rely upon the limitation defence provided by section 190 of the MSA 1995. However, that defence is not absolute. It may be lost where the court considers that time may properly be extended.

It is necessary to keep well in mind that the application is to extend the time for bringing a counterclaim. Thus in The Fairplay XIV [1939] P.57 (which was a case where the applicants were content not to prosecute their claim until the offensive was taken against them just eleven days before the two years had elapsed) time was extended on the following ground:

That approach was noted in The Igman (the unreported decision of the Court of Appeal dated 27 May 1993 to which I have already referred) where it was said by Evans LJ (with reference to a counterclaim in respect of which the Court of Appeal was prepared to grant an extension of time) that:

In The Kafur Mamedov (the unreported decision of the Court of Appeal in Hong Kong to which I have referred) it was said by Godfrey JA that

In the present case neither shipowner commenced proceedings within the two year limitation period which expired in October 2007. A mutual extension of time was agreed. The applicants’ fault in not issuing proceedings within one month of the notice of 19 September 2008 was not culpable, or if it was, the degree of fault was slight, since it was caused by a misreading of an unusual and badly phrased time extension which both parties had agreed. I consider that in such circumstances it would be unjust and unfair if the applicants were deprived of their ability to counterclaim for the damage sustained by them in the collision which forms the subject matter of the claim which has now been brought against them. I also consider that it would not be unjust and unfair if the respondents were deprived of a limitation defence in circumstances where they had agreed the badly phrased time extension which the applicants misunderstood. It is true that the email sent on 16 October 2007 by Holman Fenwick and Willan might be said to have set out their understanding of the agreement. But this post-dated the agreement and Mr. Jordan cannot be criticised for seeking to understand the effect of what had been agreed on 2 October rather than the effect of the email dated 16 October.

To grant permission to bring a counterclaim does not offend against the policy underlying statutes of limitation which is to ensure that claims are pursued with reasonable diligence. The counterclaim will be heard at the same time as the claim. In such circumstances a limitation defence would be a windfall.

It is also necessary to consider whether the application has been made promptly. This is an express condition of an extension of the validity of claim form under CPR Part 7.6. But it is also a proper factor to taken into account when considering whether to extend time pursuant to section 190 of the MSA 1995. In the present case the time bar was first raised in conversation on 6 February 2009 and on 12 February 2009 Holman Fenwick and Willan wrote to inform Inces that “we intend to defend the claim and will use the time bar point in our Defence.” The application for an extension of time was issued on 23 February 2009. I consider that the application was made promptly.

For these reasons I consider that there is good reason to extend time and that it would be fair and just to do so to enable the owners of PEARL OF JEBEL ALI to bring their counterclaim in the proceedings commenced by the owners of PRIDE OF AL SALAM 95.