Versloot Dredging BV & Anor v HDI Gerling Industrie Versicherung AG & Ors (Rev 1)

These are my reasons for refusing the Underwriters’ application for permission to re-re-amend the Defence.

Following the conclusion of the evidence at trial, directions were given for the service of written closing submissions on Tuesday 19 March 2013, and for oral submissions to be delivered on Thursday 21 March. On the afternoon of 20 March 2013, the day before oral final submissions, the Underwriters served on the Owners a draft re-re-amended defence. A covering note sent to me indicated that the Underwriters did not wish to make the application for permission to amend prior to my giving judgment on the other issues. The suggestion was that the court deal with the issues already raised in the trial on the existing pleadings by way of declaratory relief only, and address the proposed amendment application after handing down judgment on those issues.

The draft amendment raised a new non-disclosure defence in the following terms:

“Non-Disclosure

2A The Claimants owed a duty, before entering into the Policy, to disclose to the Defendants all material facts known to the Claimants or which, in the ordinary course of their business, they ought to have known.

2B When entering into the Policy the Claimants knew or ought to have known in the ordinary course of their business the following circumstances:

(i)

the regular master of the vessel, Captain Loosman was unwilling and/or unable to properly implement the vessel’s Safety Management System (“SMS”) and/or to properly record the implementation of the SMS on board the vessel;

(ii)

the Claimants had reprimanded Captain Loosman repeatedly about these failings, yet Captain Loosman continued to be unwilling and/or unable properly to implement and/or to record the implementation of the SMS on board the vessel;

(iii)

as a result of Captain Loosman’s failings and/or the Claimants’ management failings, the vessel did not have an effective and/or functioning SMS that complied with the ISM Code.”

[Paragraphs 2C to 2G pleaded that these circumstances were material, that they were not disclosed, that the Defendant Underwriters were induced by the non-disclosures to enter into the Policy, that the Defendants “hereby” avoid the Policy for such non-disclosure, and that the remainder of the defence is to be without prejudice to “the Defendants’ primary contention that the Policy has been avoided”]

The note sent to me on behalf of the Underwriters suggested that this new defence of material non-disclosure

“related to the abilities of Captain Loosman and the state of the “DC Merwestone’s” SMS as set out in the attached draft. This defence was not apparent until the Kornet brothers and Kees Parel set out the problems with the vessel in evidence and so it was not possible to prepare this amendment any earlier.”

Two points are to be noted about this draft amendment and the covering note:

At the outset of the hearing of oral final submissions I made clear that I did not regard it as satisfactory that the application should await my judgment on the other issues in the case, and arranged for further time to be made available on Wednesday 27 March for the hearing of the application, with skeleton arguments to be exchanged in advance.

When the skeleton argument was served on behalf of Underwriters on Monday 25 March, it was accompanied by a recast draft of the proposed amendment. The difference came in paragraph 2B, which now read as follows:

“2B When entering into the Policy:

(i)

the Claimants and/or Managers knew that there had been an endemic and long-term failure by the officers and crew of the “DC Merwestone” to comply with the documentary requirements of their own SMS and that it considered such failure to be a long-term problem. In particular:

(a)

Documentation on board the vessel was not properly completed: documents which recorded safety drills and meetings on board the vessel were regularly cut and pasted.

(b)

Documentation was not sent back to the office from the vessel in accordance with the SMS procedures, and in particular in accordance with the requirements of Form OF02. By way of example in the 10 months prior to April 2009 (no disclosure having been made for the period before June 2008) the masters and/or crew had not completed or returned any CR06 Appraisal Forms, any NCRs the Captain’s Review under CA07 and any SA04 or SA09 critical alarm forms whilst other documentation (handover reports, maintenance documentation, record of safety drills) was only sent on an irregular basis.

(ii)

The Claimants and/or their Managers had discussed the failure by the officers and crew of DC MERWESTONE to comply with the documentary requirements of their own SMS with the officers and crew on many occasions.

(iii)

The Claimants and/or their Managers were aware that the failure by the officers and crew of DC MERWESTONE to comply with the documentary requirements of their own SMS the officers and crew (sic) had continued, and was a continuing problem, despite the discussions referred to in (ii) above.”

The application now made was that the issues raised by the amendment should be heard and determined at a further hearing before judgment was given in relation to all the issues in the case.

It will be noted that this second version of the draft amendment differed from the first in a number of respects namely:

There is a convenient summary of the relevant principles in the judgment of Mr Justice Hamblen in Brown v Innovatorone plc [2011] EWHC 3221 in the following terms:

“5.

I was referred to the often cited dictum of Lord Justice Peter Gibson in Cobbold v Greenwich Borough Council which has for some time been set out under the heading "General principles for grant of permission to amend" in the White Book at 17.3.5. It states as follows:

"The overriding objective of the CPR is that the court should deal with cases justly. That includes, so far as is practicable, ensuring that each case is dealt with not only expeditiously but justly. Amendments in general ought to be allowed so that the real dispute between the parties can be adjudicated upon provided that any prejudice to the other party [or parties] caused by the amendment can be compensated for in costs, and the public interest in the [efficient] administration of justice is not significantly harmed."

6.

In recent years the courts have been more willing to recognise that prejudice may be caused by amendments which cannot be compensated for by costs, particularly in the context of late amendments. As Lord Griffiths stated in Ketteman v Hansel [1987] AC 189 at page 220E "... justice cannot always be measured in costs ..."

7.

If, for example, an amendment requires an adjournment, that may well cause significant prejudice regardless of any award of the costs of the adjournment. Parties to litigation have a legitimate expectation that trials will be conducted on the dates fixed for trial by the court and that the trial will not be put back or delayed without good reason. The disruption caused thereby to other litigants is also now recognised as a relevant factor to take into account.

8.

As stated by Lord Justice Waller in the case of Worldwide Corporation v GPT Limited [1998] EWCA Civil 189 at pages 12 to 13:

"... in previous eras it was more readily assumed that if the amending party paid his opponent the costs of an adjournment that was sufficient compensation to that opponent. In the modern era it is more readily recognised that in truth the payment of the costs of an adjournment may well not adequately compensate someone who is desirous of being rid of a piece of litigation which has been hanging over his head for some time, and may not adequately compensate him for being totally (and we are afraid there are no better words for it) ‘mucked around’ at the last moment. Furthermore, the courts are now much more conscious that in assessing the justice of a particular case, the disruption caused to other litigants by last minute adjournments and last minute applications have also to be brought into the scales."

9.

A party against whom an amendment is sought to be made may well be reluctant to request an adjournment precisely because of the disruption and prejudice it will cause. Prejudice may nevertheless be suffered if, for example, the party will be significantly hampered in the preparation for, and conduct of, the trial.

10.

As Lord Justice Waller observed in the Worldwide case at pages 11 to 12:

"Equally when a case has been prepared with witness statements and experts’ reports on one way of putting the case, it is harsh to criticise advisors of the defendants for asserting that they would need some period in which to examine the extent to which the amendments affected them and their witnesses. The periods laid down for production of witness statements and experts' reports are there so that they can be served on the other side in good time and so that the conduct of a trial can be as expeditious as possible. Forcing a party to look again at those statements and the experts’ reports at the same time as conducting the trial is not fair or conducive to the efficient conduct of the trial."

11.

In the light of considerations of this kind, it has been stated that a heavy onus lies on a party making a very late amendment to justify it. Lord Justice Waller stated in the Worldwide case at page 21:

"We accept that at the end of the day a balance has to be struck. The court is concerned with doing justice, but justice to all litigants, and thus where a last minute amendment is sought with the consequences indicated, the onus will be a heavy one on the amending party to show the strength of the new case and why justice both to him, his opponent and other litigants, requires him to be able to pursue it."

12.

That passage was cited in the later Court of Appeal case of Swain-Mason v Mills & Reeve [2011] 1 WLR 2735, in which Lord Justice Lloyd stated as follows at paragraph 72:

"As the court said, it is always a question of striking a balance. I would not accept that the court in that case sought to lay down an inflexible rule that a very late amendment to plead a new case, not resulting from some late disclosure or new evidence, can only be justified on the basis that the existing case cannot succeed and the new case is the only arguable way of putting forward the claim. That would be too dogmatic an approach to a question which is always one of balancing the relevant factors. However, I do accept that the court is and should be less ready to allow a very late amendment than it used to be in former times, and that a heavy onus lies on a party seeking to make a very late amendment to justify it, as regards his own position, that of the other parties to the litigation, and that of other litigants in other cases before the court."

13.

He also observed at paragraph 104:

"The matters which need to be considered for this purpose include the terms of the amendment, the previous history as regards amendment, including the sequence of events in April 2010 which led to the first amendments, the absence of any evidence explaining why the re-amendment was sought to be made so very late, and the various factors relevant to prejudice to each side...."

14.

As the authorities make clear, it is a question of striking a fair balance. The factors relevant to doing so cannot be exhaustively listed since much will depend on the facts of each case. However, they are likely to include:

(1)

the history as regards the amendment and the explanation as to why it is being made late;

(2)

the prejudice which will be caused to the applicant if the amendment is refused;

(3)

the prejudice which will be caused to the resisting party if the amendment is allowed;

(4)

whether the text of the amendment is satisfactory in terms of clarity and particularity.”

The history of the amendment and the explanation for it being made late.

In his skeleton argument, and in oral argument on the application to amend, Mr Jacobs QC stated that the ability to allege the matters which were the subject matter of the amendment arose out of the evidence given by Mr Kees Parel. This was concluded on 11 March 2013. The new draft pleading was served on Monday 25 March. Accordingly there was a period of 14 days between the evidence said to have given rise to the amendment and the service of the reformulated amendment. No explanation has been given for this delay.

Even prior to that evidence, the Underwriters were in a position to advance a non-disclosure argument in relation to the implementation of the safety management system on the Vessel. In paragraph 26(i) of the existing Re-amended Defence, which reflects the original Defence served on 25 January 2012, the Underwriters allege that the casualty resulted from a failure by the Owners to provide any or any effective safety management system on board the Vessel. The allegation of an endemic and long term failure in paragraph 2B(i) relies upon specific alleged documentary failings which were addressed in detail in the expert report of Mr McFarlane dated 11 February 2013, and his subsequent evidence for, and at, the trial. They do not arise out of any new material which emerged at the hearing. The allegation that the Owners ought to have known of such failings could properly have been pleaded before hearing the evidence of Kees Parel, as Mr Jacobs QC was inclined to accept. So too, in my judgment, could an allegation or inference of actual knowledge. The Owners’ own witness statements, exchanged on 28 September 2012, contained allegations of poor record keeping by Captain Loosman, from which both the failings themselves and the Owners’ knowledge of them could have been pleaded. It was no doubt in recognition of this difficulty that the amendment was redrafted to refer to the crew generically rather than Captain Loosman. But the unparticularised reliance on other unidentified crew members can not disguise the ability of the Underwriters to advance these allegations before any oral evidence was given at trial. What was said by Kees Parel in evidence was, in my judgment, merely colour in relation to a state of affairs which the Underwriters could have alleged from a time well before the beginning of the trial.

The prejudice to the applicant if the amendment is refused

The prejudice to the Underwriters if the amendment is refused is the loss of an opportunity to advance a further ground of defence. The extent of such prejudice depends on whether their other defences succeed. It can now be seen that no such prejudice will arise unless my decision that the Underwriters’ fraudulent device defence has succeeded is overturned on appeal. Even then the degree of prejudice depends on the strength of the new non disclosure defence, on which there is a serious issue.

The prejudice to the Owners if the amendment is allowed.

There would have been very significant prejudice to the Owners in allowing the amendment. It would have necessitated a 3-4 day hearing. It would have required further particularisation, a responsive pleading (and possibly a rejoinder), disclosure, witness statements, further expert reports and witnesses being recalled. The issues could not have been ready for determination before June 2013 at the earliest and it was quite probable that a date would not be available until later in the year or 2014. That would have deprived the Owners of a judgment on their claim until the end of 2013 or quite possibly well into 2014. This would be unfair. The Owners had a legitimate expectation that all defences would be advanced at the trial which was fixed for March 2013, and that the Underwriters would not be granted a second bite at the cherry.

Moreover, allowing the amendment would have given rise to a real risk that the Owners would not have been able to survive as a going concern. The assured is a single ship company whose only asset is the Vessel. The evidence before me was that the Owners’ current indebtedness is a sum approaching the value of the Vessel; the Bremerhaven yard was still owed some €1.3 million and its patience was running out; the suppliers of the new engine were owed some €400,000 and their patience had pretty much run out; mortgage repayments will fall due on 1 October 2013; and that the Owners had borrowed money to fund the costs of the action to date, and could not readily afford the costs involved in a further hearing.

The form of the amendment

The form of the amendment is unsatisfactory. It gives only some particularisation of the documentary failings by way of example. It gives no particulars of the identity of the relevant crew against whom allegations are made, nor of the person having knowledge on behalf of the Owners, nor of his or their source of knowledge. It would require further refinement before it could properly be allowed, and before its full ramifications could be assessed. The Owners should be entitled to such details before considering their legal response, which might involve considering arguments of estoppel, waiver or affirmation, as well as their factual and expert evidential response.

This is a very late amendment. The above considerations lead to the conclusion that far from the Underwriters having discharged the heavy burden upon them of justifying it, allowing the amendment would be unfairly prejudicial to the Owners.