MIOM 1 Ltd & Anor v Sea Echo ENE (No 2)

On 8 December 2010 I gave judgment on liability in this collision action and determined that liability for the collision must be borne equally by the Claimant and the Defendant; see [2010] EWHC 3180 (Admlty). The parties have been unable to agree the question of costs and so have returned to Court. The costs dispute has given rise to one or two issues of interest, at least to Admiralty lawyers. The parties’ respective positions may be summarised as follows.

The Defendant claims to have made an offer pursuant to CPR 61 on 5 February 2010 to settle liability for the collision on the basis that each ship was equally to blame. Accordingly the Defendant contends that as from 21 days after the date of that offer the Claimant should pay the Defendant’s costs of the action and that prior to that date costs should be apportioned in accordance with the collision liability, or alternatively, that there should be no order as to costs.

The Claimant says that the Defendant should pay the Claimant’s costs of the action incurred before 26 February 2010 because it obtained judgment on its claim, albeit for 50% of its damages, and the Defendant had not issued a claim form within the period of two years from the date of the collision so that there was no effective counterclaim. So far as costs incurred after 26 February 2010 were concerned it was said that the Defendant’s offer dated 5 February 2010 failed to comply with CPR Part 61 and so the Defendant ought not to be awarded its costs from 26 February 2010. If the offer is to be accorded some weight then the appropriate order is “no order as to costs” for the period after 26 February 2010.

In response to the Claimant’s case that there is no effective counterclaim the Defendant said that it is now too late to raise the time-bar point, that the Claimant is stopped from relying upon it, that time should be extended for making the counterclaim pursuant to section 190(5) of the Merchant Shipping Act 1995 and that in any event, having regard to the single liability principle established by the decision of the House of Lords in The Khedive (1882) LR 7 App.Cas. 795, alternatively the principle of equitable set-off, the Claimant is only entitled to judgment for the sum by which 50% of its claim exceeds 50% of the Defendant’s claim.

Mr. Jacobs QC, on behalf of the Defendant, submitted that the question of costs after 26 February 2010 could be resolved solely by reference to the offer dated 5 February 2010. Mr. Kimbell, on behalf of the Claimant, accepted that that was so. Since it is common ground that more costs were incurred after rather before 26 February 2010 it seems sensible to begin with those costs and a consideration of the terms of the offer dated 5 February 2010.

Prior to that offer there had been two other offers. On 23 November 2009 the Claimant offered to settle liability for the collision on the basis of 60/40 in favour of the Claimant. That offer complied with the provisions of CPR Part 61.4(12). On 7 December 2009 the Defendant offered to settle liability for the collision on the basis of 60/40 in favour of the Defendant. That offer was said to have been made pursuant to CPR Part 61 and on the same basis as the Claimant’s offer of 23 November 2009.

On 5 February 2010 the Defendant wrote to the Claimant as follows:

“We refer to previous correspondence in this matter and to the consent order dated 18 January 2010. While we consider our clients to have a strong legal position with respect to this claim, they are conscious that the parties are now entering into the stage of the proceedings where legal costs and expenses accumulate quickly. With this in mind, we are instructed by clients to offer to settle the issue of liability on the basis of each vessel being equally to blame for the collision.

Such offer is made pursuant to Parts 61 and 36 of the CPR and shall remain open for 21 days.”

CPR Part 61.4(10)-(12) deal specifically with collision actions. Sub-para.(12) provides as follows:

“An offer under paragraph (10) must be in writing and must contain

(a)

an offer to settle liability at stated percentages;

(b)

an offer to pay costs in accordance with the same percentages;

(c)

a term that the offer remain open for 21 days after the date it is made; and

(d)

a term that, unless the court orders otherwise, on expiry of that period the offer remains open on the same terms except that the offeree should pay all the costs from that date until acceptance.”

Mr. Kimbell submitted that the offer dated 5 February 2010 did not comply with sub-para.(12) because the offer did not comply with sub-paragraphs (b) and (d) of CPR 61.4(12).

In construing the offer dated 5 February 2010 it is necessary to follow the guidance of the Court of Appeal in C v D [2011] EWCA Civ 646. The question is how a reasonable solicitor would have understood the offer in its context, including the known context of the dispute as it stood at the time; see Rix LJ at para. 45. Rimer LJ, at para.75, said:

“It was expressly stated to be an 'Offer to Settle under CPR Part 36' that was 'intended to have the consequences set out in Part 36….' Of course, that does not mean that it did in fact comply with Part 36 and therefore must, come what may, somehow be shoehorned into the confines of its four corners: a stated bid to attain a particular goal does not also mean that the goal has been attained. The answer to the critical question still turns on how the reasonable man would read the offer. The relevance, however, of the claimant's expressed intention to make its offer a Part 36 offer is that, if there are any ambiguities in it raising a question as to whether the offer does or does not comply with the requirements of Part 36, the reasonable man will interpret it in a way that is so compliant. That is because, objectively assessed, that is what the offeror can be taken to have intended.”

I consider that a reasonable solicitor would have understood the offer dated 5 February 2010 as complying with CPR Part 61.4(12). It is true that, although the offer was expressed to made pursuant to Part 61, no specific reference was made either to costs or to the terms which applied on expiry of the offer (sub-paragraphs (b) and (d) of Part 61.4(12)). But the offer was the third of three offers, the first of which expressly set out the matters required by Part 61.4(12) and the second of which was said to be on the same basis as the first. The third offer began by referring to the previous correspondence. In that context I consider that the reasonable solicitor would understand the third offer to have been made on the same basis as the earlier two offers which expressly or by incorporation complied with CPR Part 61.4(12). It is true that the offer made reference to the 21 day duration of the offer, and so complied with sub-paragraph Part 61.4(12)(c), which might be said to introduce an uncertainty as to whether sub-paragraphs (b) and (d) were intended to be complied with but the reasonable solicitor would, in my judgment, interpret the offer in context as complying with the provisions of Part 61.4(12) because it was expressed to be made pursuant to Part 61.

In circumstances where the Defendant obtained at trial an apportionment equal to its offer the Defendant is entitled to all its costs from 21 days after the offer was made unless such order was unjust; see CPR Part 61.4 (10)-(11). Such an order would not be unjust and so the Defendant is entitled to payment of its costs incurred from 26 February 2010, that is 21 days after the date of the offer.

If I am wrong in concluding that the offer complies with CPR Part 61 it was, nevertheless, an offer to settle which, pursuant to CPR 44.3(4)(c), I am entitled to take into account when determining the incidence of costs. There was no dispute that in doing so it was appropriate to apply the causation test to which I made reference in The Samco Europe [2011] EWHC 1656 (Admlty) at paragraph 26. That test requires the court to consider whether the costs incurred after 26 February 2010 would have been incurred by the parties had the offer been accepted. It is plain that they would not. It was not suggested that the Claimant had good reason not to accept the offer and so, even if the offer dated 5 February 2010 did not comply with CPR Part 61, I would have decided, in the exercise of my discretion, that the Claimant should pay the Defendant’s costs incurred after 26 February 2010

It is unnecessary to consider CPR 36 because Part 61 is the rule which deals with offers in Admiralty collision actions.

After the oral hearing Mr. Jacobs, who had said at the hearing that costs on the indemnity basis were not sought, changed his mind and in a written note sought costs on the indemnity basis on the basis that Part 36.14 provided for that where a Part 36 offer was successful and the same approach should apply where a Part 61 offer was successful. Mr. Kimbell said that Mr. Jacobs should not be permitted to withdraw his concession but since it was withdrawn before I had delivered judgment and Mr. Kimbell had an opportunity to respond to it I consider that Mr. Jacobs should be permitted to withdraw his concession.

Part 61 does not provide for costs on the indemnity basis where a Part 61 offer is successful whereas Part 36 does provide for such costs when a Part 36 offer is successful. That is a clear indication that the authors of Part 61 did not intend that indemnity costs should be awarded merely because a Part 61 offer had been successful. In those circumstances I do not consider that it is appropriate in a collision action governed by Part 61 to order costs on an indemnity basis merely because an offer has been successful. There is no other reason to award costs on an indemnity basis.

Determining who should pay these costs requires the court to consider whether the Defendant had an effective counterclaim because if there is not then the Claimant, having recovered judgment on its claim, albeit for only 50% thereof, claims that it is entitled to all of its costs incurred before 26 February 2010. If there is an effective counterclaim it was not disputed that each party should pay 50% of the other’s costs.

It is necessary to set out the course of events from collision until the time when it was first contended that there was no effective counterclaim by reason of the Defendant not having brought proceedings within the period of two years following the collision.

Following the collision on 3 February 2007 security was provided in respect of each vessel’s claim. It was immediately apparent that the Claimant had by far the greater claim. The Claimant required security in the sum of £5.6m. and the Defendant required security in the sum of £53,000. Towards the end of 2008 and in early 2009 the parties, through their respective solicitors, discussed the mutual exchange of without prejudice submissions on liability. On 15 January 2009 the Claimant suggested a mutual extension of time for 6 months from 3 February 2009. A draft agreement was provided on 16 January 2009. On 22 January 2009 the Claimant suggested that it might be simpler for each party to issue a claim form and then agree a mutual stay of proceedings. On 23 January 2009 the Defendant said that a mutual extension of time would be simpler. On 27 January 2009 the parties agreed that without prejudice submissions on liability would be exchanged on 30 January 2009.

On 30 January 2009 the Claimant issued its claim form. The two year limitation period for issuing a claim form expired on 3 February 2009. The Defendant did not issue a claim form by that date. Mr. Leonard of Wikborg Rein & Co., who acted for the Defendant, has stated that at that time, in view of the size of its claim, it was the intention of the Defendant to pursue its claim only if the Claimant pursued its claim. It was the belief of Wikborg Rein & Co. that “any Counterclaim could be raised by way of defence or set-off to the claim without the need for [the Defendant] to issue [its] own independent proceedings.”

On 5 February 2009 the Claimant informed the Defendant that a claim form had been issued within the 2 year limitation period but that it wished to proceed with the without prejudice exchange of liability submissions. The email continued:

“We do not know if your clients also issued proceedings for their claim (?), but in any event would propose the following course of handling…..”

The e-mail then proposed that after service of “the respective proceedings” there should be a two month stay to permit exchange of without prejudice statements and a settlement meeting.

On 16 February 2009 without prejudice “position papers” were exchanged and the Claimant served its claim form on the Defendant. On 21 April 2009 the Defendant acknowledged service of the claim form.

On 6 and 16 July 2009 respectively the Defendant and Claimant filed their Statements of Case. The Statements of Case were exchanged on 4 August 2009. Part 2 of the Defendant’s Statement of Case claimed “Judgment against the Defendants for the loss and damage sustained” and a reference to the Registrar to assess the amount of such damage. It was common ground that the reference to “the Defendants” was a typographical error and should have been a reference to the Claimant. The error was corrected by a later amendment. The Defendant’s Statement of Case was in the form specified in the Practice Direction to CPR Part 61. The prayer was headed “And the Defendants Claim”. The word “counterclaim” was not used. CPR 61 PD para.4.2(2)(c) requires the Statement of Case to state the remedy which the party filing the collision statement of case “claims”. That is what the Defendant did. Where “claim” appears in a Defendant’s Statement of Case that would be reasonably understood as “counterclaim” (or, to use the language of CPR 61.4(9) a “cross-claim”).

It was accepted at the hearing before me that the Claimant was aware by August 2009 that the Defendant had not issued a claim form within time and that a time bar argument existed. Whether or not such an argument should be advanced at that stage was considered by the Claimant’s solicitor and counsel. Mr. Donaghy of Weightmans, solicitors for the Claimant, has stated that it was decided that “there was no strong reason to formally introduce an argument at this stage that the counterclaim was time barred. This was because in accordance with usual procedure in the Admiralty Court, the apportionment of liability would be tried first and no further statement of case was going to be served by either party in response to the respective collision statements of case.”

On 2 September 2009 there was a without prejudice meeting.

On 23 November and 7 December 2009 respectively the Claimant and the Defendant made the offers to which I have already referred.

On 11 January 2010 the parties agreed the Case Memorandum and List of Issues. The Case Memorandum stated that the Defendant had not issued its own proceedings and that its Statement of Case contained a counterclaim expressed to be for “Judgment against the Defendants” in respect of which there would be an application to amend “Defendants” to “Claimants”. The List of Issues identified 16 principal issues of which the last two were:

“15.

The correct apportionment of liability between the [Claimant] and the [Defendant].”

16.

Quantum”

On 18 January 2010, by consent, directions were given for trial, including the amendment of the Defendant’s Statement of Case.

On 5 February 2010 the Defendant made the offer which I have already quoted.

The trial took place in October 2010 and judgment was given on 8 December 2010. On 23 December 2010 the Defendant informed the Claimant that, as a result of its successful offer, it was entitled to its costs as from 27 February 2010 and that each party should bear its own costs incurred before that date.

On 28 January 2011 the Claimant said that it did not accept that the Defendant was entitled to its costs from 27 February 2010 because the Defendant’s offer did not comply with the rules. The Claimant also said that the Defendant had not protected the time for suit by commencing proceedings and that there was no “formal counterclaim.” It was said that “the ordinary rules as to costs should apply” and that the Claimant was entitled to its costs “in full”. On 1 March 2011 the Defendant said that it had advanced a claim for damages in its Statement of Case and maintained its position on costs. On 19 April 2011 the Claimant maintained its position.

Thus on 10 May 2011 the Defendant issued an application for a declaration that its counterclaim was not time-barred or, in the alternative, for an extension of time in which to bring a counterclaim pursuant to section 190(5) of the Merchant Shipping Act 1995. On 14 June 2011 the Claimant issued an application for a declaration that any claim for damages by the Defendant was time barred.

Mr. Jacobs submitted that in circumstances where (i) the Defendant, by its Statement of Case served on the Claimant in August 2009, claimed judgment against the Claimant for the damages sustained in the collision, (ii) the Claimant chose not to take any time bar point at that time and (iii) the matter went to trial in October 2010 and judgment was given in December 2010 it was too late for the Claimant to take the time bar point in January 2011. Mr. Jacobs said that once it was clear to the Claimant that the Defendant was seeking judgment for the damage sustained by the Defendant it was incumbent upon the Claimant, if it wished to say that any such claim was time barred, to say so promptly thereafter. Otherwise the Defendant would proceed to trial believing that there was no objection to his seeking judgment for the damage it had sustained.

Mr. Kimbell submitted that the time bar point could be taken at any time before the matter was referred to the Registrar to assess damages. He submitted that section 190 of the Merchant Shipping Act 1995 barred the remedy of damages and that damages were determined by the Registrar after judgment on liability so that the latest time for taking a time bar point was before the court ordered a reference to assess damages. He accepted that there might be circumstances in which it would be appropriate to give notice before that time but the present case was not such a case. Having regard to the large amount of damage sustained by the Claimant and the small amount of damage sustained by the Defendant the collision action would continue even if the Defendant’s claim was time barred.

Section 8 of the Maritime Conventions Act 1911 provided that “no action shall be maintainable” unless proceedings are commenced within two years and section 190 of the Merchant Shipping Act 1995, its successor, provides that “no proceedings ……shall be brought” after two years has expired. Thus what is barred is the proceedings. Whether the time bar is engaged will be apparent when the proceedings are commenced. That is when the claim form is issued or when a defendant to an action for damages caused by a collision counterclaims for judgment in respect of his own damage. The reference, which is the conventional procedure in the Admiralty Court for determining the quantum of damages, is part of the proceedings which are barred. The bar is not restricted to the reference but extends to the proceedings as a whole.

As a matter of practice a time bar point must be pleaded. CPR Part 16 Practice Direction 13.1 provides that the details of any relevant limitation period relied on must be given. The notes in the White Book to section 190 of the Merchant Shipping Act 1995 draw attention to that provision; see Vol.2 para.2D-257.

The modern preferred practice of “putting your cards on the table” in order to avoid surprise requires that a time bar point be taken at early stage. Admiralty practice is to the same effect. Since at least 1932 Admiralty practitioners have been advised to raise any defence based upon section 8 of the Maritime Conventions Act 1911 (the predecessor of section 190 of the Merchant Shipping Act 1995) as a preliminary objection by way of summons or motion seeking an order that the action is not maintainable; see The Merchant Shipping ActsbyTemperley 4^th ed. (published in 1932) at p.551, which advice is now to be found in the 7^th ed. of that work (published in 1976) at p.346. The same advice is given in The White Book at Vol.2 para.2D-257. In practice time bar points pursuant to section 190 of the Merchant Shipping Act 1995 (as with its predecessor section 8 of the Maritime Conventions Act 1911) are taken initially by letter; see for example The Pearl of Jebel Ali [2009] 2 Ll.Rep. 484 at para.14.

Thus as soon as it is apparent that a shipowner is seeking judgment for the damage sustained in a collision notwithstanding that he has not brought proceedings within the period of two years from the collision it is incumbent upon the defendant to that claim to raise the time bar point if he wishes to rely upon it to prevent such proceedings being brought. In the present case it became apparent to the Claimant in August 2009, when Statements of Case were exchanged, that the Defendant was seeking judgment for the damage sustained in the collision between Sea Express 1 and Alaska Rainbow notwithstanding that no claim form had been issued by the Defendant within two years of the date of collision. At that stage the time bar point could have been taken by a letter to that effect and/or by the issue of an application seeking a declaration that the claim could not be brought. The point could also have pleaded by way of a defence to counterclaim although that would have been unusual.

It is true that the taking of the time bar point in August 2009 would not have made the trial of liability for the collision unnecessary. But, on the Claimant’s case, the time bar was capable of having an important effect on the costs of the proceedings. For if there was no counterclaim then, on the Claimant’s case, it was arguable that the Claimant should obtain its costs of the proceedings even if the court were to hold that liability for the collision should be borne equally by both vessels; see The Victory [1996] 2 Lloyd’s Rep. 482 at p.501 and The Krysia and Europa (no.2) [2008] 2 Lloyd’s Rep.707 at para.29. It was therefore only fair that the Defendant should know that the Claimant was intending to take that point.

The point was not taken at that stage. Nor was the point taken at the CMC in January 2010. The parties set out the “principal issues”. They included apportionment and quantum but no reference was made to a time bar point.

The trial took place in October 2010 and it was not until after judgment was given that the Claimant decided to take the point, in January 2011.

In my judgment, where the Defendant had stated in its Statement of Case in August 2009 that it was seeking judgment for the damage it had sustained in the collision, the Claimant, if it wished to contend that the Defendant was not entitled to bring proceedings for such damage pursuant to section 190 of the Merchant Shipping Act 1995, was obliged to take that point in response to the Defendant’s Statement of Case, either by preliminary objection by way of application, letter or a further pleading. The Defendant was entitled to be told that the Claimant was saying that such a claim could not be brought long before trial rather than after trial when the parties were seeking to agree the ancillary orders consequential to my judgment. Such notification would have been consistent with the long established Admiralty practice to which I have referred and with the modern practice of “cards on the table”.

I do not accept Mr. Kimbell’s submission that the Claimant was entitled to take the time bar point at any time before the court ordered a reference to assess damages. The Defendant’s pleading seeking judgment for the damage sustained and an order for a reference had been served in August 2009. That was when the time bar point ought to have been taken for, if successful, it would prevent the Defendant from obtaining judgment and a reference. To delay taking the point until after judgment has been given on the issues pleaded in the respective statements of cases was, in my judgment, contrary to principle and good practice. It is significant that Mr. Kimbell was unable to point to any case in which a time point based on section 8 of the Maritime Conventions Act 1911 or section 190 of the Merchant Shipping Act 1995 had been taken after the trial on liability.

I therefore accept Mr. Jacobs’ submission that it now too late for the Claimant to take the time bar point. There may be circumstances where a point can be taken after judgment but they would have to be exceptional (see The White Book Vol.1 para.17.3.8) and it was not suggested that the circumstances of the present case were exceptional.

It follows that there was an effective counterclaim and that there is no reason why the costs incurred before 26 February 2010 should not be borne in accordance with liability for the collision. Since the Claimant’s costs were somewhat greater than the Defendant’s costs the appropriate order is that each should pay 50% of the other’s costs rather than making no order as to costs.

It is unnecessary to decide the other arguments addressed to me by Mr. Jacobs but in deference to those arguments and to Mr. Kimbell’s arguments in response I shall give my views on them as shortly as I can.

Mr. Jacobs submitted that the Claimant was estopped from now relying upon the time bar point.

In order to found a claim that a person is estopped from asserting a legal right, in this case the right to say that the Defendant’s counterclaim may not be brought because the two year time limit had expired, it is necessary to show that the person has made a clear and unequivocal representation that the right will not be asserted; see Ace Insurance v Surendranath Seechurn [2002] EWCA Civ 67 per Ward LJ at paragraphs 17-125. If the representation is said to have been made by conduct it is necessary to show that the person was aware of his right and that the course of conduct on which he engaged was inconsistent with reliance upon that right; see The Superhulls Cover Case [1990] 2 Lloyds Rep.431 per Phillips J. at p.450.

For the reasons I have already given it was incumbent upon the Claimant, if it wished to rely upon the time bar point, to take that point promptly after the Defendant had stated in its Statement of Case that it sought judgment in respect of the damage it had sustained and a reference to assess that damage. On 11 January 2010 prior to the CMC the parties agreed the Case Memorandum and List of Issues. The Claimant was aware that the Defendant had not commenced proceedings within the two year time limit and yet, although quantum was stated to be one of the issues in the action, the Claimant did not raise reliance on the time bar as being one of the issues in the proceedings. The Claimant’s conduct in failing to inform the Defendant at the time of the CMC that it was intending to rely on the time bar was, in my judgment, a clear and unequivocal representation that the Claimant was not relying upon the time bar. If the Claimant had been intending to rely upon the time bar the Claimant ought to have informed the Defendant (and the Court) of that by the time of the CMC at the latest. Its failure to take the point by that time was, in one sense, silent conduct, but it was silent conduct at a time when the Claimant had a duty to take the point if it wished to rely upon it. Silence in that context is a clear statement that the time bar point is not to be relied upon. It is inconsistent with an intention to rely upon the point.

The evidence of Mr. Leonard of Wikborg Rein was that if the limitation issue had been raised the Defendant would have made an application for an extension of time. There is no reason to doubt that. For the reasons explained below such application would have succeeded and so it would be unfair or unconscionable to permit the Claimant to rely upon the time bar.

Mr. Leonard also said that if such an application had failed it was likely, though he could not be certain, that the First Defendant would have made an offer on a 50/50 basis earlier than the Defendant in fact did. This however was on the basis that there was a representation in February 2009 that the time bar point would not be taken and that an application to extend time in May 2009 had failed. Since I have identified the agreement of the list of issues in January 2010 as the time when a clear and unequivocal representation was made it is unnecessary to consider this alternative “reliance” since a 50/50 offer to settle was made on 5 February 2010.

Mr. Jacobs applied on behalf of the Defendant for an extension of the time for bringing proceedings until 7 July 2009, the day after the Defendant filed its Statement of Case. Section 190(5) of the Merchant Shipping Act 1995 gives the court power to extend the period allowed for bringing proceedings “to such extent and on such conditions as it thinks fit.”

It was common ground that this court was bound by the decision of the Court of Appeal in The Al Tabith [1995] 2 Lloyd’s Rep. 336 to adopt a two stage process in dealing with this application, stage one being whether there was good reason for an extension and stage two being whether it was fair and just to grant the extension.

What is a good reason for an extension cannot be defined; see The Pearl of Jebel Ali [2009] EWHC 1365 (Admlty) at para.37. In that case I noted that what must be shown has previously been described as “special circumstances which create a real reason why the statutory limitation should not take effect” (see The William Gray and The Llandovery Castle (1920) 2 Ll.Rep. 273) or “some good and substantial reasons for the exercise of the Court’s discretion in favour of allowing the action to proceed” (see The Hesselmoor and The Sergeant [1951] 1 Lloyd’s Rep.146).

Mr. Leonard of Wikborg Rein has stated that:

“….it was our intention only to bring the claim as a counterclaim in circumstances where the Claimants brought a claim. In the light of the size of any prospective counterclaim to be advanced on behalf of the First Defendants, it was not intended to pursue this claim independently in circumstances where Claimants elected not to pursue their own. When we were informed of the Claimants’ intention to issue their own proceedings (in January 2009) it was thought that any counterclaim could be raised by way of defence or set-off to the claim without the need for the First Defendants to issue their own independent proceedings.”

Given the very small size of the Defendant’s claim (security had been sought in the sum of £53,000) it was (putting to one side section 190 of the Merchant Shipping Act 1995) a sensible and proportionate decision not to pursue that claim unless the Claimant pursued its claim. With regard to the belief that “any counterclaim could be raised by way of defence or set-off to the claim without the need for the First Defendants to issue their own independent proceedings” the argument before me proceeded on the basis that the Defendant’s solicitor thought that section 190 of the Merchant Shipping Act 1995 did not apply to counterclaims. (Footnote: ¹) Such a belief was mistaken, as reference to The Fairplay XIV [1939] P. 57 would have shown. That case is referred to in The White Book Vol.2 p.574, The Merchant Shipping Acts by Temperley 7^th ed. p.347 and Marsden on Collisions at Sea 13^th ed. p.455. (My decision to the same effect in The Pearl of Jebel Ali was not delivered until 18 June 2009.)

This is a case where an extension of time is sought to bring a relatively small counterclaim which it is sought to set off against the Claimant’s very much larger claim. That very circumstance is capable of providing good reason for extending time, namely, that in circumstances where the Claimant’s claim will in any event be before the court, the Defendant’s counterclaim can be tried on the same evidence and without any increase in expense; see The Fairplay XIV [1939] P. 57 at pp.62-63 per Sir Boyd Merriman P. and the passages from The Igman (an unreported decision of the Court of Appeal dated 27 May 1993) and The Kafur Mamedov (an unreported decision of the Court of Appeal in Hong Kong dated 12 July 1996) quoted in The Pearl of Jebel Ali [2009] EWHC 1365 (Admlty) at paragraphs 47 and 48.

Mr. Kimbell objected that the fact that an extension is required to bring a counterclaim is “classically” a stage two consideration and that to treat it as good reason for an extension of time “collapses” the test into a single stage test. I accept that in The Pearl of Jebel Ali (where there was considerable debate as to why the applicant had not issued proceedings within time) I considered the counterclaim at the second stage but I am unable to accept that it cannot be considered at the first stage. That would be inconsistent with the approach of Sir Boyd Merriman P. in the Fairplay XIV. Nor do I accept that it collapses the two stage test into a single stage test because it will still be necessary to consider whether it is fair and just to extend time.

The Defendant’s solicitor was mistaken in thinking that section 190 of the Merchant Shipping Act 1995 did not apply to counterclaims. However, the mere fact that the solicitor is mistaken in not ensuring that the Defendant had issued proceedings within the two year time limit is not a bar to extending time. If it were then time would not have been extended in The Fairplay XIV where the applicant failed to issue proceedings within the two year time limit; see p.61.

In considering where the interests of justice lie it is necessary to balance all the circumstances of the case. In the present case the Defendant, whose counterclaim is relatively small, sensibly had no desire to commence proceedings but, if the Claimant commenced proceedings, wished to set off its small counterclaim against the claim. Such a set-off would neither lengthen nor increase the costs of the trial. In such circumstances the interests of justice, in my judgment, favour an extension of time to permit the counterclaim to go ahead notwithstanding the Defendant’s mistake in thinking that he did not have to commence proceedings within the two year time limit. Had an application been made for an extension of time shortly after the CMC I consider that it would have been granted.

The trial has now taken place. It was heard before the Claimant had indicated that it wished to rely upon the time bar. If anything the interests of justice demand even more strongly that the Defendant’s counterclaim be permitted to be brought. For the Claimant permitted the Defendant to pursue its claim for judgment and a reference through to trial without informing the Defendant that it intended to say that the Defendant was entitled to neither judgment nor reference by reason of the Defendant’s failure to bring proceedings within two years.

Therefore, had it been necessary, I would have extended the Defendant’s time for commencing proceedings until 7 July 2009 so as to validate the Defendant’s claim for judgment and a reference to assess damages made the day before.

Mr. Jacobs submitted that by reason of the single liability principle established by the Khedive the Claimant was in any event unable to recover judgment on its claim without having 50% of the Defendant’s damage set-off against it in order to reduce it. Mr. Kimbell submitted that this could not be so because it would mean that section 190 (or its predecessor) did not apply to a counterclaim which did not exceed the claim. That had never before been suggested. Mr. Jacobs pointed out that the point had been raised but not decided in The Kafur Mamedov (see paragraphs 63,68 and 74) and that he had reserved the right to argue it in The Pearl of Jebel Ali.

The issue in the Khedive concerned a question which had arisen in the context of the tonnage limitation of a shipowner’s liability. In that case the Voorwaarts had collided with the Khedive. The owners of the Voorwaarts brought an action in rem in the Admiralty Court against the Khedive. The owners of the Khedive defended the action and counterclaimed in respect of their own damage. Both vessels were held to have been at fault. (At common law neither would therefore have had a claim but in Admiralty the rule was that “the loss must be apportioned between them as having been occasioned by the fault of both of them”; see the Woodrop-Sims (1815) 2 Dodson 83 at p.85 per Lord Stowell and Cayzer, Irvine v Carron Company (1884) 9 LR App.Cas. 873 at pp.880-881 per Lord Blackburn.) The owners of the Khedive brought a limitation action against the owners of the Voorwaarts and all other persons claiming damages against the owners of the Khedive to limit their liability pursuant to the Merchant Shipping Amendment Act 1862 and paid the amount of their liability into court. The limitation fund was not sufficient to satisfy in full the claims for which they were answerable to damages.

The owners of the Khedive submitted that the fund should be apportioned rateably between the owners of the Voorwaarts and the other claimants against the fund in proportion to the respective amounts of their claims. For this purpose the claim of the Voorwaarts was a moiety of their claim and that was the sum for which the owners of the Khedive were liable. They said the claim against the Khedive should be stayed apart from their counterclaim which they sought to enforce against the owners of the Voorwaarts.

The owners of the Voorwaarts submitted that the owners of the Khedive were actually liable for damages in a sum equal to a moiety of the damage sustained by the owners of the Voorwaarts less a moiety of the damage sustained by the owners of the Khedive and that such sum was the sum to be proved against the limitation fund rateably with the other claimants on the fund. The owners of the Khedive would thus have no claim to pursue against the owners of the Voorwaarts.

In practical terms the owners of the Khedive, having paid their limitation fund into court, wished to be able to claim a moiety of their loss from the owners of the Voorwaarts. For their part the owners of the Voorwaarts were prepared to prove a lesser sum against the fund in return for being able to prevent the owners of the Khedive from pursuing them for a moiety of their claim. Also, other claimants on the fund would obtain a greater payment from the fund if the arguments of the Voorwaarts prevailed.

The House of Lords held in favour of the Voorwaarts. The basis of the decision was that the rule in Admiralty was that where both ships were at fault there were not two cross liabilities in damages but a single liability for the difference between a moiety of the larger claim and a moiety of the smaller claim; see the judgment of Lord Selborne at pp.801-807 (especially at pp. 801 where the question – two cross-liabilities or one liability - was identified and p.807 where Lord Selborne agreed with the Master of the Rolls and Brett LJ in an earlier case (see p.803) that there was no liability in damages except for the balance) and the judgment of Lord Blackburn at pp.816-822. Lord Watson agreed with both of those judgments. (Lord Bramwell would have dissented but decided not to trouble their Lordships with his judgment and yielded to the other judgments. The reporter was nevertheless permitted to publish the judgment which Lord Bramwell had prepared but not delivered as a footnote; see pp.824-827.)

Thus the decision in the Khedive did not decide the issue raised by Mr. Jacobs. Indeed, the two year time bar was not enacted until the Maritime Conventions Act 1911. However, the issue in that case was resolved by reference to a principle of Admiralty law, namely, that there were not two cross liabilities in damages but only one liability.

Mr. Kimbell said that it was not clear that the House of Lords said that there was a single liability and he noted that in the Despina R [1978] QB 396 at p.414 Brandon J. summarised the decision in terms of there being one judgment for the difference between two liabilities. However, as I have pointed out, Lord Selborne expressed his view in terms of there being only one liability. The basis of that view was that there would be only one monition issued to pay the balance. As Sheen J. held in the Transoceanica Francesca [1987] 2 Lloyd’s Rep.155 at p.161 (after quoting from the judgment of Brett LJ which had been approved by Lord Selborne) “where there is a claim and a counterclaim neither party is liable to pay until a balance has been struck”. Similarly in the Lu Shan [1993] 2 Lloyd’s Rep. 259 at pp.263-4 Clarke J., having analysed the decision in the Khedive, said that its effect was that there is “only one liability for half the excess of the aggregate loss.” I prefer the analysis of the decision by Sheen J. and Clarke J. to the short summary by Brandon J. (See also Marsden on Collisions at Sea 13^th ed. para.14-27 which analyses the decision in terms of there being “only one liability”.)

Mr. Jacobs submitted that it was a logical consequence of the single liability principle established by the Khedive that where ships A and B collided as a result of the equal fault of each but only A had commenced suit within the two year limitation period B was only liable for the amount by which a moiety of A’s claim exceeded a moiety of the claim of B. Mr. Kimbell submitted that the Khedive concerned only the question decided as to the application of the tonnage limit and that it had never been suggested in any case or textbook that an out of time counterclaim might still be relied upon as a set-off to reduce the claim of the other shipowner who had commenced his action within time.

It cannot be doubted that the decision in the Khedive remains good law. Later Admiralty judges have noted what it decided without suggesting that it no longer remains good law; see the Tojo Maru [1969] 1 1 Lloyd’s Rep.133 at p. 148 per Willmer LJ, the Despina R [1978] QB 396 at p.414 per Brandon J., the Transoceanica Francesca [1987] 2 Lloyd’s Rep. 155 at pp.159-161 per Sheen J and the Lu Shan [1993] 2 Lloyds Rep.259 at pp.263-264 per Clarke J.

The logical consequence of the single liability principle appears to be that for which Mr. Jacobs contends. If the only liability which the Claimant can enforce where both ships are equally to blame is a liability for the difference between a moiety of both claims then the Claimant cannot claim that the Defendant is liable in a sum which does not take account of the damage suffered by the Defendant’s ship.

Mr. Jacobs’ submission is supported by the decision of Dr. Lushington in the Seringapatam (1848) 3 Wm.Rob 38 as explained by Lords Selborne and Blackburn in the Khedive at pp.806 and 821. In the Seringapatam there was a collision between two ships. An action and cross-action were commenced but the cross-action was discontinued. Both vessels were found to have been at fault. The shipowner who had discontinued his cross-action sought an order that a moiety of his damage should be deducted from the moiety of the damage claimed by the other shipowner. Dr. Lushington refused to grant such an order because, the cross-suit having been discontinued, the shipowner seeking the order could not have “the benefit of a decree which, in point of fact, has never been pronounced in their favour”. However, he resolved not to permit the other shipowner to recover the moiety he claimed unless he submitted to the deduction of a moiety of the damage sustained by the shipowner who had discontinued his cross-suit. “By this decision I conceive that the owners of the Seringapatam will have no reason to complain that injustice has been done towards them.” Lord Selborne said that this decision could be reconciled with “sound principle” and Lord Blackburn said the decision was justified on the basis that “the substance was that the balance only should be paid.” Thus, despite the absence of an effective counterclaim, the principle later established by the Khedive applied.

The important question, it seems to me, is whether section 8 of the Maritime Conventions Act 1911 and its successor section 190 of the Merchant Shipping Act 1995 have modified the single liability principle so as to enable a shipowner to assert and claim a liability which does not take into account the damage suffered by the other vessel whose owner has not complied with the time limit provided by those Acts.

In the Pearl of Jebel Ali I held that section 190 of the Merchant Shipping Act 1995, like its predecessor, applied to counterclaims. “Any proceedings” includes a counterclaim. The novel question to which Mr. Jacobs’ submission has given rise is whether that phrase includes the raising of an argument based upon the principle in the Khedive, namely, that if the defendant is liable the claimant can recover no more than the difference between their claims in accordance with the Admiralty rule.

Section 190 bars the remedy of bringing proceedings as did its predecessor, section 8 of the Maritime Conventions Act 1911; see Aries Tanker v Total Transport [1977] 1 WLR 185 at p. 188 per Lord Wilberforce. A shipowner who expects to be the net payee needs to enforce the remedy available to him by bringing proceedings against the other shipowner. If he has failed to comply with section 190 that remedy is barred. However, where he expects to be the net payor, he may not wish to commence proceedings but only, if sued by the other shipowner, to rely upon the principle established by the Khedive to ensure that any judgment obtained against him takes account of the damage suffered by him. In that event he is merely defending himself by relying upon the limitation imposed by the rule in Admiralty on the sum in respect of which the defendant is liable to the claimant. He is not bringing proceedings.

I have therefore concluded that section 190 does not affect the application of the principle established by the Khedive. It follows that, whether or not the court may properly grant the Defendant an extension of time, the Defendant remains entitled to rely upon that principle.

I recognise that it is now the centenary of the Maritime Conventions Act 1911 and this defence has not been the subject of any decision or mentioned in any textbook since that Act was passed. But for the reasons I have endeavoured to express I have concluded that it is available. However, a shipowner will often be unable to be confident that he will ultimately be the net payor and so the safe course will continue to be the commencement of proceedings within the two year limitation period rather than reliance upon the principle in the Khedive. As I said in the Pearl of Jebel Ali at para.28 that has been the practice for many years.

The principle in the Khedive is a form of set-off long recognised in Admiralty law. In those circumstances it is unnecessary to discuss whether the principle of equitable set-off would in any event come to the aid of the Defendant; cf Fearns v Anglo-Dutch Paint and Chemical Co.Ltd [2011] 1 WLR 366 at paragraphs 40-43 per George Leggatt QC.

There being several reasons why there is an effective counterclaim it is also unnecessary to consider what order for costs would have been appropriate had there been no effective counterclaim. I shall therefore not enter into any further consideration of the issues considered in the Victory [1996] 2 Lloyd’s Rep. 482 and the Krysia and Europa [2008] 2 Lloyd’s Rep. 707.

As a result of its successful offer the Defendant is entitled to the costs of the action incurred after 26 February 2010.

With regard to the costs of the action incurred before 26 February 2010 each party should pay 50% of the other’s costs. The Claimant is unable to contend that there was no effective counterclaim because