Pacific Carriers Ltd v BNP Paribas [2005] HCATrans 850 (7 October 2005)

--

Pacific Carriers Ltd v BNP Paribas [2005] HCATrans 850 (7 October 2005)

Last Updated: 18 October 2005

[2005] HCATrans 850

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
Sydney No S247 of 2005

B e t w e e n -

PACIFIC CARRIERS LIMITED

Applicant

and

BNP PARIBAS

Respondent

Application for special leave to appeal

GLEESON CJ
GUMMOW J

TRANSCRIPT OF PROCEEDINGS

AT SYDNEY ON FRIDAY, 7 OCTOBER 2005, AT 10.07 AM

Copyright in the High Court of Australia

MR D.F. JACKSON, QC: If the Court pleases, I appear with my learned friends, MR A.W. STREET, SC and MR G.J. NELL, for the applicant. (instructed by Norton White)

MR B.W. RAYMENT, QC: May it please your Honours, I appear with my learned friend, MR I.E. DAVIDSON, for the respondent. (instructed by Corrs Chambers Westgarth)

GLEESON CJ: Yes, Mr Jackson.

MR JACKSON: Your Honours, two issues arise in the application. They are, first, the principles to be applied in determining the question of reasonableness of settlement, or the relevance of it, for the purpose of recovery under contractual letters of indemnity and, secondly, the issue as to costs in the Court of Appeal. I will deal with the first matter immediately if I may.

May I take just a moment to identify where the case was in the Court of Appeal. This Court’s earlier judgment in this matter held that the respondent was liable to us in contract under letters of indemnity. Your Honours will find that in volume 2 at page 566.

GLEESON CJ: By the time the case came to us Justice Hunter had already decided the question of damages, had he not?

MR JACKSON: Your Honour, he had decided a question of damages.

GLEESON CJ: And there were some unresolved appeal issues.

MR JACKSON: I am sorry, your Honour, with respect, what he had decided was a question of damages based on causes of action other than contract. Your Honours will recall that he had, if I may say so with respect, a somewhat idiosyncratic view about how the letters of indemnity were to be construed and so on. The result was in this Court at page 569 of volume 2, in the three paragraphs on that page and particularly at paragraph 45, that we were “entitled to succeed” in our case “based on contract”. Your Honours will see what was to happen in paragraphs 45 and 46.

The letters of indemnity which gave rise to the contractual issue appear relevantly at page 555. May I go particularly to clause 1 of them at the bottom of that page. Your Honours will see at line 40 that it was an agreement “To indemnify . . . and to hold all of you harmless in respect of”, and your Honours will see what is set out there. There was an indemnity and an agreement to hold harmless in respect of any liability brought about by delivering the cargo to Royal Trading Company in circumstances where the bills of lading had not been produced.

Could I pause to say this, your Honours. The contractual obligation was to indemnify and hold harmless in respect of liability to others. It was not an obligation limited to indemnify in respect of the amount for which settlement might reasonably be arrived at with those others. That is reflected in what was said by Justice Giles in two passages in his reasons. May I go first to page 647 of volume 2, paragraph 231. Your Honours will see that he said:

My assessment of the defence available to Bolton –

and we were in the position of Bolton –

therefore, is that it would fail.

That is, that our defence in effect to the claim by SSOE would fail. Your Honours will see two lines further on he said:

I do not accept BNP’s contention that Bolton had a good defence in the London arbitration.

That is the first point, your Honours.

The second point is at page 658, paragraph 259, where his Honour records in the first sentence:

So far as BNP –

the present respondent –

submitted that damages were recoverable according to the court’s assessment of the result in the London arbitration, it contended that Bolton would succeed in the arbitration. On the view I have taken that Bolton was likely to fail in the arbitration, the whole of the loss would be recoverable, with the settlement amount acting as a ceiling because no more than the actual loss could be recovered.

Your Honours, the quantification of the loss had been undertaken by the primary judge. Your Honours will see that in volume 1 at page 411 where a summary of his conclusions appears in paragraphs 731 through to 734. What he is saying is that the settlement figure, the amount which was ultimately settled, whilst near the amount of the entitlement that SSOE had, was in fact less than that and, therefore, it was recoverable.

When one went to the Court of Appeal – I am sorry to keep going from volume to volume – when one goes to Justice Giles’ reasons at page 658 in the passage which contains paragraphs 260 through to 263, what his Honour did there was, having made the observations in paragraph 259, then adopted conceptions from dicta in Unity Insurance Brokers which were appropriate to loss which might be occasioned by breach of contract to do or refrain from doing acts or perhaps to damages in tort. But they are not appropriate, in our submission, to a contract to indemnify of the kind presently in question. That is thrown up, your Honours, if I may say so with respect, by paragraph 263 where his Honour says:

In the present case a reasonable settlement was foreseeable. The burden was on BNP –

the present respondent –

to prove the level at which it became unreasonable for PCL to fail to settle the London arbitration, but on the view that . . . Bolton was likely to fail in the arbitration.

I will not read out the remainder of the paragraph but your Honours will see that there was then an assessment of that at in effect 70 per cent.

Could I say in relation to that approach the amount for which the respondent was liable to us was the amount for which we were liable to Bolton and thus the SSOE. It was not the amount for which, reasonably or unreasonably, we could bargain our way out of that obligation.

GLEESON CJ: Can you take me back to the clause again.

MR JACKSON: Yes, your Honour, it is in a couple of places. It is at page 555.

GLEESON CJ: The controlling word is “indemnify”, is it not?

MR JACKSON: Yes, your Honour, “indemnify . . . and to hold . . . harmless”.

GLEESON CJ: If as a matter of fact Justice Giles was right in his opinion that PCL could reasonably have settled the London arbitration for $2 million, then how do you relate that to the clause, or is that simply irrelevant?

MR JACKSON: It is irrelevant, your Honour. The obligation was to indemnify us and hold us harmless in respect of the amount we were, to put it shortly, liable to pay SSOE.

GLEESON CJ: Loss which you sustained.

MR JACKSON: Yes, your Honour. If we settle for less than that, then we cannot get more, but the loss we have sustained is our obligation to SSOE. There is no particular reason if we suffer a loss to SSOE why we then have to go – if we incur an obligation of a particular amount, we then have to go to SSOE and endeavour to bargain our way to a lesser amount with a view before we are able to say this is the loss. The loss is sustained at an earlier point. That is why we would seek to say, your Honours, if one goes back to the paragraph to which I referred in his Honour’s reasons, the essential thing was that the amount for which they were liable to us – “they” meaning the respondent – was the amount for which we were liable.

GLEESON CJ: Which you say is the amount for which we settled.

MR JACKSON: No, I am sorry, your Honour.

GLEESON CJ: You say, do you not, that you are entitled to 2.9 million because that is the amount for which you settled?

MR JACKSON: Your Honour, we say we are entitled to 2.9 million because we were liable for more than that sum but 2.9 million is the amount for which we in fact settled, so we cannot recover more than the 2.9 million. That is the way I put it, which is slightly different, I think, from the way your Honour was putting it to me.

GLEESON CJ: If the measure of your loss becomes the amount for which you settled, do you say that considerations of the reasonableness of the settlement then become irrelevant?

MR JACKSON: Indeed, your Honour. It would be different of course if we were talking about a sum above the amount which might have been recovered. Why this is an issue of importance is that the Court of Appeal’s approach has, in our submission, in a real way transformed the nature of commercial obligations of indemnity of this kind into an obligation not to pay the amount that the person indemnified is liable to pay but to pay the amount which they could have negotiated as the amount they are liable to pay.

GLEESON CJ: This whole issue only arises because the settlement intruded, as it were. If there had never been any settlement, if this had all
been worked out before any settlement of the London arbitration, or if there had simply been no London arbitration - - -

MR JACKSON: The answer would have been, your Honour, that the amount arrived at by the primary judge, because he made his own assessment of it, are subject of course to any appeals in relation to particular aspects of it. That is the point we seek to make. What it has done is to convert the nature of commercial obligations of indemnity in a subtle way perhaps that made them into obligations to pay the amount that you can bargain your way out of. Obligations of this kind are of international application. That is what I wanted to say on the first point.

May I say just something about the question of costs. We are aware of course, your Honours, the Court’s reluctance to deal with an issue of costs. This case does, in our submission, although it is perhaps difficult to identify precisely where it occurred, demonstrate an error of principle. May I say just this about it. This case was in the Court of Appeal twice. First there was the appeal by the respondent against the primary judge’s decision and our cross-appeal. We failed on the first occasion in the Court of Appeal.

In this Court we succeeded on matters the subject of the cross-appeal. May I give your Honours two brief references. The first is volume 2 at page 471. You will see in paragraphs 7, 8, 9 and 10 our cross-appeal which resulted in the matters in contract. I have taken your Honours to the court’s observations in relation to it. The matter then went back to the Court of Appeal, amongst other things, to have the damages for breach of contract assessed. We succeeded as to a very large part of the original assessment, yet we have to pay 75 per cent of the other side’s costs of the appeal. Somewhere, in our submission, your Honours, there has been error.

GLEESON CJ: Thank you, Mr Jackson. Yes, Mr Rayment.

MR RAYMENT: Your Honours, as my learned friend had put this matter in writing, the question propounded was whether the settlement was reasonable. As he has argued it, the question is not whether the settlement was reasonable; the question is what the consequence would be if it is unreasonable. That is, my learned friend, if you read his written submissions and you read his notice of appeal, directs attention to one matter; his argument directs attention to another.

GUMMOW J: Well, he cannot be stopped. What is the answer?

MR RAYMENT: In our respectful submission, if you are to focus on the question of reasonableness, no error is really argued orally to affect the reasoning of the Court of Appeal and there ought to be no grant of special leave. In our respectful submission, if one is to look at a question, which we accept is a question of principle, that is the consequence of holding that the settlement is not reasonable – we have in our own argument accepted that as being a matter of general public importance – then, in our respectful submission, if the Court is to grant leave to look at that issue, then we have submitted in writing and we wish to maintain before your Honours that it would be appropriate for both aspects, as it were, of the underlying merits to be considered on an appeal. So that we would ask your Honours to grant leave to cross-appeal now to raise, as it were, the respondent’s view of the underlying merits of the matter, that is that there was consent to the delivery of the goods.

So far as the question of costs is concerned, we would respectfully submit that that would not be appropriate as a matter for the grant of special leave to appeal. It is a matter of - - -

GLEESON CJ: Coming back to the first issue, what is your response to the merits or the substance of Mr Jackson’s argument?

MR RAYMENT: Your Honour, we ourselves submitted in the Court of Appeal that if the settlement was unreasonable, the question for the court was what were the underlying merits of the matter? We submitted that that was the effect of your Honour Justice Gummow’s minority view in Rocco which became, as it were, more relevant to the - - -

GLEESON CJ: The approach of Justice Giles was to say, “They settled for 2.9 million but they did that in forensic circumstances which distorted the settlement as an indicator of their true liability, and therefore I’m not prepared to make a decision on the basis that the settlement is the indicator of liability”, so he decided the case on the basis of what he thought was the fair measure of the loss that was sustained.

MR RAYMENT: Yes, and we would only contend for that as a last resort if this was the subject of a grant of special leave.

GUMMOW J: But how do construe these words at page 555, which is where Mr Jackson started?

MR RAYMENT: The question of liability?

GUMMOW J: The question of the indemnity, what those words mean.

MR RAYMENT: We submit the question for the court was what was the underlying liability of Bolton to Swiss? That is our primary submission on
the matter. It was that which was the subject of this indemnity, in our submission.

GLEESON CJ: The expression “liability” is qualified by the words “which you sustain”.

MR RAYMENT: Yes, and that therefore means that the settlement was an upper limit but no more than that – our primary submission.

GLEESON CJ: Getting away from the facts of the present case but applying that clause, if for some reason somebody in the position of Bolton got out of this, if I can use that expression, for less than they could have been made liable, that represents the upper limit of the obligation to indemnify.

MR RAYMENT: Yes. That was our primary submission below and that would be our primary submission here. We would seek to support what Justice Giles says only in, as it were, the third alternative. Our position in the case is no liability at all, we submit, for reasons that are largely supported by Justice Handley in the Court of Appeal. If liability, then no more than was indicated by Justice Handley. Finally, we would say in the third alternative, Justice Giles was right. That is if special leave were granted in the case.

GLEESON CJ: Thank you. Yes, Mr Jackson.

MR JACKSON: Your Honours, may I deal first with our learned friend’s submission about the cross-appeal and just say in relation to it that there was a finding by the trial judge which your Honours will see at page 341 of volume 1 that neither Bolton nor Pacific acted on any communication from SSOE. It is in paragraphs 521 and 522. That would seem to lie at the heart of any potential claim based on the giving of the facsimile.

The second point about it, your Honours, if I may say so briefly, was that the position was that the facsimile was not given at a time when SSOE was the owner of the cargo. Your Honours will see at page 589 in volume 2 that Justice Handley had concluded that the facsimile was a delivery order given by it as the owner of the cargo. At that stage it was not the owner of the cargo and that had not occurred, or it could only acquire title by acceptance of the documents, on or prior to 13 January 1999. That had not occurred, page 135.....paragraph 71. In our submission, the fundamental basis for such a case just does not exist.

The third feature about it, your Honours, is that the construction of a facsimile is purely a question of construction of a particular document. In our submission, there is nothing to suggest that the approach taken by the majority in the Court of Appeal was in error.

GLEESON CJ: Could I take you back to the sentence on page 659, line 25. That proposition, “PCL could reasonably have settled” for about $2 million is only another way of saying, is it not, that from the point of view of both parties to the arbitration, a reasonable settlement would have been $2 million? It was not that there was anything about the bargaining position of the parties except the forensic disadvantage that had arisen by reason of the litigation here, but putting that to one side, it was not that there was anything about the bargaining position of the respective parties that would have made them settle for less or more than was reasonable.

MR JACKSON: What the judge is saying is that if you have a party who has an entitlement to recover X dollars, then that party may well settle and the other party may well settle for 70 per cent of that and that would be a reasonable thing to do when an arbitration is in prospect or in contemplation. What it does not say though, your Honours, is what the liability was and the liability was a liability to pay a sum larger than that. No doubt the liability under the indemnity became less at a time when that claim was settled but the liability under the indemnity was not prior to settlement to pay the lesser 70 per cent amount.

GUMMOW J: What is the outcome in terms of authority for future cases of the Court of Appeal’s decision?

MR JACKSON: It is this. May I speak about subject matter first of all. The terms of the indemnity are ones which are in fairly common terms. This aspect was discussed in the earlier judgment, but whether the particular one be exactly the same as others, it is clear that they provide an indemnity and in respect of the subject matters there. That is what it says in quite general and not unusual terms. That is the first thing.

The second thing, your Honours, is that one sees in paragraphs 258 through to about 263 the way in which the Court of Appeal says terms of that kind are to be ones that are to be worked out in the way set out there. It is at that point that one sees the case rising above the particular document because it assumes it is an indemnity and then says this is how you work it out. In particular, when you see paragraphs 258, 259 and 260, they adopt a course of reasoning resulting in the consequence of paragraph 263. It would be difficult, in our submission, for judges in the hierarchy below the Court of Appeal to adopt a different course in dealing with provisions which are sufficiently simple.

Your Honours, I cannot put it differently from that. Your Honours, those are our submissions.

GLEESON CJ: We will adjourn for a short time to consider the course we will take in this matter.

AT 10.30 AM SHORT ADJOURNMENT

UPON RESUMING AT 10.44 AM:

GLEESON CJ: The outcome of this case in the Court of Appeal turned on the application to its complex and its unusual facts of the words of clause 1 of the document of indemnity discussed in our earlier decision in this matter. Without necessarily accepting all aspects of the reasoning which led to that outcome, we think there are insufficient prospects of disturbing the outcome to warrant a grant of special leave. As to the question of costs, we consider that the case does not raise an issue suitable for the grant of special leave to appeal. The application is dismissed with costs.

AT 10.45 AM THE MATTER WAS CONCLUDED