Nautical Challenge Ltd v Evergreen Marine (UK) Ltd

On 11 February 2015 off Jebel Ali at 23.42 hours local time the Ever Smart, a 7,024 TEU container ship, drove into and almost through the Alexandra I, a Suezmax tanker. Ever Smart made contact at an angle of about 42° to Alexandra I's heading. At impact Ever Smart was making 12.4 knots over the ground, 10.3 knots through the water, Alexandra I just 2.4 knots over the ground. The point of impact was on Alexandra I's starboard bow, thankfully forward of her collision bulkhead and cargo tanks. She was laden with about 975,000 barrels of condensate, loaded (as I find) in Iran, for discharge at Jebel Ali. Ever Smart was exiting Jebel Ali carrying a mix of laden and empty containers, as is typical

These two claims have been collision actions between the owners of the two vessels at the time of the collision, Nautical Challenge Ltd, the owner of

Teare J determined that, whilst both vessels were at fault, responsibility for the resulting damage should be apportioned 80:20, i.e. the damage is to be borne as to 80% by Ever Smart and as to 20% by Alexandra I: see [2017] EWHC 453

It now falls to the court to assess the damages recoverable, subject to apportionment, by Alexandra I and Ever Smart respectively, upon the basis of which final monetary judgment can be entered. I shall not refer again until the end of this judgment to the 80:20 apportionment. All references to amounts will be to amounts claimed or adjudged to be recoverable at 100%, i.e. prior to the

A major issue to consider in assessing the damages recoverable by Alexandra I is the impecuniosity (as asserted) of its owner, Nautical Challenge. A little over two years after the collision, in April 2017, Alexandra I was sold by judicial auction, having been arrested in Singapore for non-payment of crew wages. She was then

Whatever I make of Nautical Challenge's claim of impecuniosity as regards the position at the time of and in the two years or so after the collision, until she was finally sold in Singapore, it is certainly impecunious today. Having been represented ably by Clyde & Co and leading and junior counsel at all stages, it failed to put them in funds for the final hearing of the damages assessment and they came off the record. With my permission, Mr Vitali Sokolenko represented Nautical Challenge at the hearing, he having authority from Nautical Challenge to

Mr Sokolenko is Ukrainian by nationality, now resident in Switzerland, and I accepted from him -- although this was not formally evidenced -- that his wife was and is the ultimate beneficial owner of Nautical Challenge. This was an exceptional grant of a special right of audience, but for which Nautical Challenge would have been unrepresented at the damages assessment hearing. Mr

Whilst paying tribute, I should also record that through Mr Jacobs QC and Mr Henton, instructed by Ince Gordon Dadds LLP, Ever Smart did not seek to take advantage of the inequality of legal arms resulting from Clyde & Co's departure. They presented the case as a whole, and the arguments on particular points, fairly to both sides. One conspicuous example was that, pursuant to CPR

Thus, I was invited to have regard to the expert evidence served by Clyde & Co, even though Mr Sokolenko was not in a position to call the experts in question and so Mr Jacobs QC was unable to cross-examine them. Of course, where there were important points of difference I have borne well in mind that the expert evidence served by Clyde & Co has not been tested in cross-examination. That is not to be unfair to Alexandra I given the inequality of arms, but only to avoid unfairness to Ever Smart.

Ever Smart pleaded various heads of claim totalling just over US$5 million. Through concessions that included dropping a claim for loss of use pleaded at

In the event, Mr Sokolenko confirmed, in the written outline of the case he sought permission to pursue on behalf of Alexandra I that I directed him to provide, that the remaining points of dispute would not be pursued. Ever Smart's recoverable loss was therefore agreed at US$2,506,310.60 prior to the customary claim for

The recoverable loss claimed by Alexandra I, as pursued at the hearing, comprised the following elements (prior to the customary claim for ‘agency’ at 1%):

The first post-repair fixture generated an arbitration claim by Newton Shipping, as charterers, in respect of which, somewhat ambitiously, Alexandra I claimed damages against Ever Smart asserting that any liability to Newton Shipping was caused by the collision. Mr Sokolenko sensibly did not pursue that claim at the

In all respects other than the claim for the basic loss -- as I have labelled it -- Alexandra I's claim was infected by a basic misapprehension that anything and everything, of which it might plausibly be said that it would not have happened to Alexandra I but for the collision, could be claimed. It was accepted that losses that may have been suffered by other businesses were too remote and could not be claimed. For example, it was said that one associated entity borrowed against the value of another vessel, the Mila, so as to lend to Nautical Challenge, leading ultimately to the loss of the Mila, and no claim arising out of that was advanced. But that is not where the boundary is to be drawn between loss effectively caused by the collision and loss not so caused, or at any rate it may not be where that

To the extent Alexandra I advanced claims for loss alleged to have resulted from the impecuniosity of Nautical Challenge, there were issues of principle concerning the effect and proper application of the decision of the House of Lords in Lagden v O'Connor [2003] UKHL 64, [2004] 1 AC 1067, and there were issues over whether Nautical Challenge had proved whatever it needed to prove on the facts, anyway. But there was also a question whether Nautical Challenge was entitled to pursue those claims at all, given the terms of an unless order of Teare J

It is convenient to deal first with two main questions, before turning to the

Firstly, Alexandra I was repaired at DDW Dubai, although the initial quote of

Secondly, as I have already indicated, there was a difference between the parties as to how long it ought reasonably to have taken following the collision before Alexandra I was fully repaired, if delays consequent upon Nautical Challenge's

I am satisfied on the evidence that the decision to use the DDW yard was reached essentially on safety grounds, given its proximity. Alexandra I was not disabled by the casualty, she was capable of main engine propulsion, navigation and manoeuvring. Indeed, Mr Jacobs QC emphasised the evidence that whilst waiting to go to the repair yard, since she had no usable anchor because of the collision damage, she adopted a pattern of repeatedly drifting, then regaining her position under her own steam. The total distance travelled in that pattern was assessed by Mr Bailey, the expert marine engineer called by Ever Smart, at c.270 nm.

Logically, about half of that will have been made good under power and about

Furthermore, the final scope of work was so much more extensive than that quoted for initially by DDW and ASRY that I cannot be satisfied that the final bill would have been materially less than it was in fact if the work had been awarded

The decision to award the repair work to DDW was, I conclude, a reasonable

I turn then to the length of the reasonable repair period. There are two aspects to this, on both of which I prefer the case for Alexandra I, as I shall explain. The result is that the reasonable repair period is 220 days as claimed. The resulting loss of use claim period is therefore 218 days, recognising that without the collision Alexandra I was due to spend two days discharging her cargo before

Firstly, Alexandra I made it to the yard at DDW for repairs on 8 April 2015, some 56 days after the collision. Upon the basis of an assessment of how quickly, all going well, the necessary operations in principle could have been done, Ever Smart contended that she ought reasonably to have made the yard no more than 20 days after the collision. However, I was shown no evidence that DDW or

The one significant exception to that general statement is that although on 23 February 2015 a tanker called Falcon Pride had been engaged to take by STS transfer the whole of Alexandra I's cargo, that transfer operation was interrupted because of adverse weather, or at least the forecast of adverse weather, on 26 February and never resumed. Falcon Pride lifted about 55% of the cargo. The balance was only lifted over three weeks later by the Gemini in an STS transfer

The making of those arrangements, however, was in the hands of those interested in the cargo, ultimately Emirates National Oil Company (‘ENOC’), and in my judgment it was reasonable of Nautical Challenge to expect those interests to

In the circumstances, I am not in a position to find that it ought reasonably to have taken Alexandra I anything less than the 56 days she actually took before making her repair yard.

Secondly, then, Ever Smart, relying on Mr Bailey's opinion, contended that the repairs themselves ought reasonably to have taken no more than 136 days. Mr Bailey's opinion in turn relied entirely on a projected repair programme drawn up by DDW on or about 24 May 2015. It is right to note, as Mr Bailey emphasised, that by then DDW had had the vessel at the yard for over a month and their assessments were by then, therefore, not only preliminary assessments such as might have been reached on initial inspections whilst Alexandra I was still offshore. However, Mr Lillie, the expert whose report had been served by Clyde & Co for Alexandra I, pointed out that that programme would have required an unrealistic steel fabrication rate of 13 m.t. per day. Re-assessing the programme on a realistic steel fabrication rate of 8 m.t. per day gave Mr Lillie his

Conscious as I am that Mr Lillie's views were not tested by cross-examination, nonetheless his evidence as to steel fabrication rates derived both from his general experience, and his particular knowledge of the yard, seemed to me realistic and was not to my mind seriously gainsaid by Mr Bailey. Furthermore, the proposition that the 24 May 2015 repair programme was optimistic, rather than realistic, is borne out in my judgment by the actual chronology (even allowing for the fact that at this stage I must strip out any impact of Nautical Challenge's financial difficulties). In the event, save for the installation of a new windlass, the supply of which was Nautical Challenge's responsibility, repairs were purportedly completed only in November 2015. (I say purportedly because, as was shown by a helpful chronology prepared by Mr Jacobs QC and Mr Henton, snagging issues became apparent after the windlass had eventually been supplied and fitted,

Though it is clear to me that without Nautical Challenge's apparent difficulties in meeting financial obligations on time, the vessel ought reasonably to have been finished at DDW fully repaired and ready for employment long before she actually was in late July 2016, I do not accept she ought reasonably to have been so in less than the 220 days assessed by Mr Lillie. To the contrary, I find that the reasonable period after which, absent financial difficulties affecting

On the basis of those conclusions as to yard and period for repairs I can now turn to quantify the reasonable cost of repairing the damage to Alexandra I as follows:

Totalling all of those items, the amount recoverable by Alexandra I to represent the reasonable cost of repairing her collision damage (leaving aside any allowance for loss of use) is US$7,565,737.41, plus ‘agency’ at 1%, giving a total recoverable amount of US$7,641,394.78. As to ‘agency’, I do not accept the submission of Mr Jacobs QC, for which no authority was cited, that there is some element of double recovery if the customary 1% is added where some of the allowable repair cost represents the cost of external services from technical

I turn to the claim for loss of use. It is important at the outset to note that Alexandra I did not set out to establish precisely what fixtures, for whom, earning what freight, she would probably have undertaken during whatever was held to be the relevant period. In the terminology of the older authorities, she did not seek special damages based upon some particular lost business, but general damages on the principle that her owner had been deprived of her use as a profit-earning chattel: see the Mediana [1900] AC 118 and the discussion in Marsden and Gault

Also, as Mr Sokolenko put it in a memorable plea, it is important not to forget that

Furthermore, and all going to narrow, but therefore render reasonably certain, her normal employment prospects, on Mr Pearce's evidence -- which again I accept -- there were only two trade routes on which Alexandra I could realistically have been employed: Arabian Gulf to India (West Coast or East Coast) if she had and could maintain a satisfactory up-to-date SIRE inspection report; Mediterranean or

In either case, of course, there might occasionally be some other specific opportunity, perhaps quite favourable, e.g. an intra-Gulf voyage, but it is essentially speculative to know whether such business would have arisen at all or

Meanwhile, the evidence of what business Alexandra I had actually undertaken, in the year since she was acquired by Nautical Challenge prior to the casualty,

As regards SIRE inspections, she had been inspected by Koch in March 2014 and by ENOC in September 2014. Both inspection reports were similar, in the sense that they picked up deficiencies that would need to be addressed for her to be treated as having a satisfactory SIRE inspection status. There was evidence demonstrating that those deficiencies had been addressed to Koch's satisfaction in relation to their report, meaning that Alexandra I had a clean SIRE inspection status from March to September 2014. The evidence of her having addressed deficiencies to ENOC's satisfaction after the September inspection was missing, but, in February 2015, she was plainly acceptable to and accepted by ENOC, as her casualty voyage was then for ENOC's ultimate account. Notwithstanding Mr Jacobs QC's criticisms of the disclosure, in my judgment the probability is, and I find, that Alexandra I had a clean SIRE inspection status from September

Nautical Challenge planned to change technical managers after the casualty voyage and, by then, in any event, the last SIRE inspection would have been five months old. So, there would have been a need to undergo a fresh SIRE inspection, but there is in my judgment no basis for thinking that she would not have come through that satisfactorily, and I find on the balance of probabilities that she could and would have done so. I wonder whether in fact Alexandra I would have been able to achieve a continuously satisfactory SIRE status through her change of technical management, but Mr Pearce's evidence as to the effect of the change of management was that it would be regarded as invalidating her extant SIRE status. Taking that language at face value -- and it was not challenged by Mr Sokolenko -- I cannot find that Alexandra I would have been available for the better paid, or possibly better paid, AG-India business without first completing a ‘non-SIRE’ fixture and being inspected under the SIRE scheme

Subject to an overarching argument advanced by Mr Jacobs QC, in those circumstances I would assess the value of the loss of the use of Alexandra I over 218 days, from 14 February to 19 September 2015 inclusive, by reference to Mr Pearce's assessments of the earnings available for an initial ‘non-SIRE’

Mr Jacobs' overarching argument was that because the disclosure of the actual trading history for the preceding year was incomplete and unsatisfactory, I should disallow the claim entirely. There were two strands to the argument. One was that the court should say simply that no loss of use claim had been proved, but that misunderstands the nature of the claim made, which is for general damages

It seems to me those two are linked. That is to say, Mr Jacobs QC is right to contend, and I find, that the reason the disclosure as to the vessel's trading during the year leading up to the casualty is not what one would normally expect is because there was substantial Iranian trading involved. I am not in a position to find whether, and do not find that, this was known to Nautical Challenge or only to its commercial managers, Transland. It does not follow though that Nautical Challenge is not entitled to substantial general damages for loss of use measured by reference to the earnings that would have been available to Alexandra I on normal, lawful markets. This is not a case of a finding that although net earnings of US$X would have been available to a vessel of the relevant type, the particular vessel would not have earned as much, or anything at all, because of some peculiarity about her or her owners, or her owners' trading intentions. It is a case where net earnings of US$X would have been available through trading on normal markets, the options for which are restricted, but therefore clear and narrowly defined, and if those earnings would not have been achieved, it is because in fact the owner would have made exceptional profits greater than those earnings, the loss of which is not visited upon the tortfeasor. I therefore do not

Before turning to the resulting claim amount to be allowed, three particular points

Firstly, on Mr Pearce's evidence, including a convincing analysis derived from comparing reported TCE earnings on AG-India voyages as between West Coast India and East Coast India, I am satisfied that it is right in any assessment of available net earnings to make an allowance for security guards to deal with the threat of piracy in the Gulf of Aden that would be for owners' account; in Mr Pearce's calculations and assessments he makes that allowance.

Secondly, again based on Mr Pearce's evidence, in my judgment the correct assumption to make as to idle time, so as to derive overall lost profits from market TCE rates for employment, assessed on a round voyage basis, is 50%. In that regard, Mr Jacobs QC sought to rely upon an analysis that during the vessel's Iranian trading her idle time was higher, but so were her earnings and, again in

Thirdly, to derive an effective daily loss of profit, from daily net lost earnings derived in turn (adjusting for idle time) from market TCE rates, account must be taken of the fact that, as explained by Mr Pearce, the use of TCE rates to measure the loss of earnings would effectively assume that the vessel's standing costs, for example crew wages, were the same under repair as they would have been whilst trading. Mr Pearce therefore adjusted his TCE rates (adjusted for idle time) to a more relevant daily operating profit (or loss) for the claim assessment by deducting operating expenses saved of US$10,550. That figure was agreed as representative of the full daily operating expenses of the vessel whilst trading. Mr Lawrie, the expert whose reports were served by Clyde & Co for Alexandra I, gave evidence with which Mr Pearce agreed that there would not have been a full saving on operating expenses. Mr Pearce offered no evidence of his own as to the likely level of residual operating expenses at the yard. Mr Lawrie's view was that they would have been 20% or so of normal operating expenses. True it is that Nautical Challenge ought to have been in a position to provide chapter and verse through disclosure, but the exercise here is an assessment of recoverable general damages for loss of use and a pretence of precision should be avoided. It seems to me that Mr Lawrie's 20% is a reasonable assessment and likely to be conservative, if anything, as to the residual cost incurred. Thus, I shall deduct 80% of the agreed full operating expenses, that is to say US$8,440 from the daily figures derived by Mr Pearce initially from TCE earnings rates, rather than the

Applying all these conclusions, with the assistance of Mr Pearce's extremely helpful assessments, I judge the proper amount to allow by way of compensation for loss of use to be as follows:

The recoverable basic loss, as I have called it, resulting from the collision and

I fear I shall do a disservice to the earnestness with which Mr Sokolenko pursued the suggestion that every financially adverse circumstance affecting Alexandra I after the collision was caused by the collision and should be for Ever Smart's account, subject to apportionment. Likewise, to the range and detail of Mr Jacobs QC's and Mr Henton's contrary submissions. For it seems to me that there is a simple, but clear and sufficient, answer to all of the elements of claim beyond the basic loss as I have labelled it, and which I have now assessed at a little over US$9 million.

Before stating that answer, it is right that I should record one of Mr Jacobs QC's particular arguments since it raises a point of principle. He submitted that for the consequences of Nautical Challenge's impecuniosity to be visited upon Ever Smart under Lagden v O'Connor, the relevant impecuniosity had to be foreseeable. Here, the relevant impecuniosity is an inability to pay for the collision repairs in cash. It is nothing to the point that, up to and immediately prior to the collision itself, Nautical Challenge would not have regarded itself as impecunious, but, to the contrary, profitable and with net assets of perhaps

In his submission, Mr Jacobs QC invited me to disapprove the following view expressed in McGregor on Damages, 20th Ed, at 8-113:

It will not be necessary to express a final view on Mr Jacobs' submission. Provisionally, however, I think it reads too much into the sentence in question and

I do not read McGregor as suggesting that there is no need for a finding that relevant impecuniosity must be foreseeable, only that so long as relevant impecuniosity is foreseeable there is no call for an enquiry into precisely how or why the particular claimant came to be materially impecunious. Thus, as Mr Sokolenko observed, the House of Lords did not sanction or suggest a need for any enquiry into how and why Mr Lagden came to be impecunious for the purpose of rendering recoverable the charges he agreed with a credit hire company for a replacement car since he could not afford to hire a replacement car at normal hire rates available to someone who had immediate means to pay. He had to prove that he was indeed impecunious in that way, and that he therefore had no choice but to agree those hire charges, else his claim would fail as a matter of causation anyway. That might or could involve some exploration of his individual circumstances, but that fact-finding had been done in the lower courts

I am prepared to assume, in favour of Ever Smart, that it must be shown to be reasonably foreseeable that the owner of a commercially trading Suezmax tanker might be unable to fund collision repairs absent a prompt payout or acceptance of liability to pay by hull underwriters. But then, provisionally, I would be minded to find in favour of Alexandra I (a) that that is indeed reasonably foreseeable, and (b) that it is also reasonably foreseeable that an owner may or may not be able to achieve a prompt payout or acceptance of liability from his hull underwriters. That latter in particular was very contentious between the parties, and if the extended loss claims would otherwise have succeeded, I would have wanted to

As it is, however, the extended loss claims do not succeed anyway, in my judgment. That is for the simple reason that I am not persuaded that causation has been made out on the facts. For that purpose, it is not necessary to examine

The sufficient point for present purposes is that it was perfectly obvious to Nautical Challenge that it would be receiving neither a prompt payout, nor even a prompt acceptance of liability to indemnify from hull underwriters. On its own case, as to its financial position in those circumstances, Nautical Challenge's only realistic option for repairing Alexandra I was to conclude the sort of agreement it did eventually conclude with DDW, for credit to be extended by the yard secured against the ship. That that was the position is to my mind supported by the factual evidence, contrary to a submission by Mr Jacobs QC that I should find that Nautical Challenge was or should have been readily able to raise funds by other means, or at all events that its inability so to do had not been established. But then Nautical Challenge ought reasonably to have acted promptly so to agree with DDW and, in my judgment, there is simply no reason why its need for credit from the yard should have delayed the vessel at the yard beyond the reasonable time

There is no basis upon which I could find that if repairs had been completed in orderly time, as they should have been, including the concluding of necessary credit terms with DDW, any of the extended consequences would have resulted

I do not find it particularly surprising that a severely cash-strapped owner, as Nautical Challenge claims to have been, found it impossible, in the event, to trade its way out of its financial difficulties on that collapsed market; that being in essence what Nautical Challenge says ultimately occurred. But then, even assuming in Nautical Challenge's favour the prior steps in the claim logic, in my judgment the collision in combination with Nautical Challenge's impecuniosity did not cause the extended consequences for which claims are made. That impecuniosity did not cause Alexandra I to spend an extended time at DDW or therefore to become exposed at what was then the critical time to a collapsed

It is unnecessary in the circumstances, therefore, to deal with the separate point, perhaps strictly even a logically prior point, whether because of Teare J's unless order the extended claims for loss were open to be pursued in any event. I shall therefore not lengthen this judgment significantly by dealing with that in detail. Suffice it to say that there was no answer apparent to me to the compelling submissions developed in detail by Mr Henton on behalf of Ever Smart for the conclusion that the unless order had indeed not been complied with. No application for relief from sanctions was made and, in my judgment, that cannot be explained simply by the fact that at the hearing itself Alexandra I was no longer legally represented. Her cause was being advanced until the beginning of the hearing, when Clyde & Co finally came off the record, by very experienced solicitors, who made a tentative suggestion in correspondence on 27 December 2018 that some limited relief from sanctions might be considered but made no application, and for detailed reasons that were set out in a helpful written closing note from Mr Jacobs QC and Mr Henton, and dealt with in closing by Mr Henton, I am quite clear that an application for relief from sanctions could not have

Strictly and finally before concluding, everything I have thus far said as to what

For all the reasons I have endeavoured to state: the recoverable loss suffered by Ever Smart resulting from the collision, inclusive of ‘agency’ at 1%, is

I shall ask the parties for assistance as to the form of order to be drawn up, given that there are two separate claims, one in each direction, rather than a single claim in which a counterclaim was made, and given that as things stand (i.e. subject in due course to any different result in the Supreme Court if their Lordships were to grant Ever Smart permission to appeal) those losses fall to be apportioned 80:20 in favour of Alexandra I.