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You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> Arkin v Borchard Lines Ltd. & Ors [2004] EWCA Civ 1873 (14 July 2004) URL: http://www.bailii.org/ew/cases/EWCA/Civ/2004/1873.html Cite as: [2004] EWCA Civ 1873

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IN THE SUPREME COURT OF JUDICATURE
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT DIVISION
(MR JUSTICE COLMAN)

		Royal Courts of Justice Strand London, WC2A 2LL
		14 July 2004

B e f o r e :

THE MASTER OF THE ROLLS
(Lord Phillips)
LORD JUSTICE WALLER
____________________

	YEHESKEL ARKIN	Claimant/Appellant
	-v-
	(1) BORCHARD LINES LIMITED & ORS
	(2) CAMOMILE LINES PLC
	(3) FURNESS WITHY (SHIPPING) LTD
	(4) MANCHESTER LINERS LTD	Defendants/Respondents

____________________

(Computer-Aided Transcript of the Stenograph Notes of
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____________________

MR NICHOLAS GREEN QC and MR ROGER MASEFIELD(instructed by Singletons) appeared on behalf of the Claimant
MR PETER IRVIN AND SARAH LEE (instructed by Constant and Constant) appeared on behalf of the 1st Defendant
MR STEVEN GEE QC and MR HUGH MERCER (instructed by Davies Arnold Cooper) appeared on behalf of the 2nd, 3rd, 4th, Defendants and the 3rd, 5th, 8th and 10th Part 20 Defendants
MISS VASANTI SELVARATNAM QC and MR FERGUS RANDOLPH (instructed by Berwin Leighton Paisner) for the 1st and 6th Part 20 Defendant
____________________

HTML VERSION OF JUDGMENT
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Crown Copyright ©

1. LORD PHILLIPS: Lord Justice Waller will give the first judgment.
2. LORD JUSTICE WALLER: This is an application for permission to appeal a judgment of Colman J delivered after a 50-day trial on 10 April 2003. The applicant is Mr Arkin. He is the assignee of such claims in the company, BCL Shipping Line Limited ("BCL") might have had or might have as against the member of certain shipping Conferences, CONISCON and UKISCON. He and his wife were the only shareholders in that company and he was the only director of that company.
3. The proceedings were launched in April 1997, alleging breaches of Articles 81 and 82 of the Treaty of Rome. It is common ground that in relation to any unlawful activities prior to April 1991 BCL's claim was statute-barred. BCL accordingly asserted unlawful activities contrary to Articles 81 and 82, which it was alleged to have caused BCL losses from April 1991.
4. Three categories of loss were asserted. The first loss is between April 1991 and October 1991 at which date BCL withdrew from the relevant market. The second loss was said to flow from the fact that the group to which BCL belonged collapsed in May 1992; it was asserted that that was caused by the unlawful trading. Third, it was asserted that, but for the unlawful trading, business would have continued for a period of ten years or so and losses and profits for that period were also claimed in damages. There was further a claim for exemplary damages on the basis that the defendants' conduct was calculated to make profits in excess of the damages they would have to pay.
5. The judge dismissed the claim, holding that there were no breaches of Articles 81 or 82; but in addition he held that even if there had been established breaches of Articles 81 and 82, from April 1991 BCL was the author of its own misfortune by virtue of the fact that, for the period from April 1991, it irrationally chose to be in the market and pursue a policy of aggressive undercutting, when, as the judge held, a rational trader would have got out of the market altogether and relocated to some other market.
6. The judge was asked for permission to appeal. He refused permission expressing the view that if his findings in relation to Articles 81 and 82 were the only issues he would have been inclined to grant permission; but he refused permission because in his view there was no real prospect of success on the causation issue.
7. The application was then renewed to this court. I dealt with the matter on paper. I was prepared to accept Colman J's view as to Articles 81 and 82 but adjourned the question as to whether there was a reasonable prospect of success on the causation aspect to an oral hearing.
8. I thought that one aspect of the criticism of Colman J was unjustified, but acknowledged the possibility that there might appear to be an arguable point on the other. If there appeared to be an arguable point, I also thought that those opposing permission should have the right to be heard as to whether an appeal should be allowed to take place on terms. In the result, the matter was set down for a day, and we have heard argument today both from Mr Green QC representing Mr Arkin, and from those who oppose permission to appeal being given. The arguments against permission being given have come from three counsel: Mr Irvin, who represents the first defendant, Borchard; Mr Steven Gee QC, who represents certain of the defendants in the main action and certain Part 20 defendants; and from Miss varatnam QC, who represents two of the Part 20 defendants. Part 20 defendants have been brought into the action by Borchard.
9. It is not in dispute that Mr Arkin does not have the means to meet any order for costs. It should be said that an order for costs was made against him at the end of the action and one of his applications before this court is for a stay of that order.
10. The action was in large part financed by Managers and Processors of Claims Limited ("MPC"), and following judgment issues were argued out before the judge, first as to whether an order for costs should be made against MPC under section 51 of the Supreme Court Act 1981; and secondly, as to whether the Part 20 defendants should be limited to an order for costs directly against Mr Arkin or whether the order should be against Borchard leaving Borchard with the problem of recovering from Mr Arkin.
11. The judge ruled that there should be no recovery against MPC and that is the subject of an appeal to this court. He also ruled that the Part 20 defendants should be entitled to an order against Borchard. That is also the subject of an appeal before this court. We are not concerned with those appeals today other than to give directions. The critical issue for us is whether in the main action Mr Arkin should have permission to appeal and, if so, whether terms should be imposed. We have heard arguments at this stage simply on the question of whether permission to appeal should be granted.
12. The background can be taken from the judge's judgment, particularly paragraphs 2-29. The key points are first, that BCL had built up a share of the Relevant Market by 1988/1989; the Conferences partook in activities which were anti-competitive as the judge thought, although on the basis of the trial, "plainly unlawful". That is the view he expressed in relation to activities prior to the coming into force of a Block Exemption in July 1987; but for today's purposes we can assume was unlawful following that event.
13. BCL complained to the Commission in January 1989. In 1990 Mr Arkin's niece and nephew left BCL and six months later were recruited to join another operator in the market, MSC. This had a dramatic effect in that MSC obtained 30 per cent of the market. Between September 1990 and March 1991 BCL made rate reductions with the object of charging less than MSC and the Conferences. Only in December 1990 and January 1991 did the Conferences move to lower their rates to compete with MCL. Coleman J said:

"17. In the meantime, the European Commission was still considering BCL's complaint. On 19 November 1990 BCL wrote to the Commission asking for its complaint against the Conferences to be advanced with urgency but also mentioned that the "cartel" had started a price war. Having received from the Commission a request for information about the price war BCL replied on 9 January 1991 that because they wanted their original complaint dealt with, they did not want to go into the question of the price war.

"18. On 15 January 1991 the Conferences decided, on legal advice, to abandon the NCR system and so to inform the Commission. This was made public in February when the Conferences' solicitors, Lovell White Durrant also informed the Commission. Differential rating was also abandoned.

"19. These proceedings were begun six years after 18 April 1991 and it is accepted by the Claimant that it is not entitled to rely on any conduct of the defendants occurring before that date as giving rise to a cause of action for breach of the Conference members' duty in respect of which this claim can be pursued.

"20. Between 18 April 1991 and the end of September 1991 there developed between the Conferences, MSC and BCL a rate war of some ferocity and of unusual length. This saw the Conference rates on the North Continent-Israel southbound route fall from DM 1525/1675 per TEU (twenty foot container equivalent unit) to DM 975/1050 and BCL's rates fall from DM 1500/1600 to DM 750 in the same period. I shall have to consider the details and purposes of the Conferences' rate-cutting policy and the reaction to it of MSC and BCL later in this judgment. A fundamental issue on the question of liability is whether the Conferences reduced their rates with the intention of eliminating or distorting competition in the Relevant Market.

"21. The collapse in the rate levels severely reduced BCL's freight revenue. It was eventually forced to withdraw from the Relevant Market at the beginning of October 1991. At that point, it was charging such low rates that freight income was making no contribution to its operating costs and was not even enough to cover its average variable costs. Conference members were also suffering substantial losses. CIS subsequently went into administration. Furness Withy and DNOL gave notice of withdrawal from the Conferences in September 1991.

"22. BCL went on trading, providing liner services on the South Africa-Israel and other routes. BCSL also continued providing liner services on the United States route. There was also the liner service between Brazil and West Africa. The shipowner companies sold a number of vessels and attempts were made to re-finance outstanding loans.

"23. On 4 November 1991 the European Commission issued its Statement of Objections. That put forward the prima facie view that the Conferences were in breach of Article 81 by reason of the NCR and of differential rates between Conference members.

"24. The exercise of refinancing the Multifleet group was pursued during January to May 1992. This in part involved a German bank called Marcard Stein. The negotiations were complex and the detail does not matter for present purposes. They were the background to an earlier trial in this court, which I heard: Ocarina Marine Ltd and Others v. Marcard Stein, Judgment (Unreported) 13 February 1998. The trial was largely concerned with whether the indebtedness of Multifleet Marine Ltd as it existed in April/May 1992 had been guaranteed or secured by three one-ship companies which had owned three of the vessels in the group. The evidence in that trial has been admitted as evidence in this trial. It leaves no doubt that by May 1992 the Multifleet group was insolvent. Having sold almost its entire fleet of 15 vessels by September 1991 its debts exceeded the remaining net equity in its two remaining unsold vessels. The group then ceased trading, having no further funds and no further ability to refinance the outstanding debts. BCL and BCSL were thereupon also obliged to cease trading. They could not continue if the group stopped trading.

"25. BCL failed to file accounts for 1991 and 1992 and on 7 September 1993 it was struck off the Companies Registry and a week later it was dissolved.

"26. The European Commission held a hearing of BCL's complaint on 30 April 1992. In the course of that hearing BCL's counsel informed the Commission that the Conferences' conduct complained of came to an end after February 1991 and further that what happened as from January 1991 was irrelevant for the purposes of BCL's complaints. Although BCL kept open its right to bring a separate complaint in respect of later conduct, it was not requesting that such conduct should be considered for the purpose of the instant complaint. No such complaint was ever made. Eventually by letter dated 19 September 1993 the Commission informed BCL's lawyers that there was an insufficiently strong Community interest in proceeding to a Decision on BCL's complaint in view of the fact that the Conferences had amended their agreements in early 1991. By ceasing to operate the NCR system and differential rate system those Conference agreements appeared to be entitled to the benefit of the Block Exemption.

"27. There the matter rested for two and half years until, in February 1996, Mr Arkin consulted his present solicitors. On 2 October 1996 BCL was restored to the Register and put into liquidation and on 20 March 1997 took an assignment from the liquidator of the choses in action for claims for damages and costs "for breach of Article 85 and/or under any similar provisions". I subsequently decided that this wording was wide enough to cover claims for breach of Article 86(now 82). Half of the amount recovered was to go to the Liquidator and the other half to Mr Arkin.



"28. Legal aid was first granted to Mr Arkin, thereby enabling the writ to be served on 18 April 1997.

"29. In 1997 legal aid was first granted to Mr Arkin and then withdrawn. Counsel and solicitors subsequently represented him under conditional fee agreements. Mr Arkin had no funds except his state pension. The provision of expert accountancy and tax evidence on behalf of Mr Arkin and the cost of organisation of documents on his behalf has been financed by MPC, Managers & Processors of Claims Limited (MPC) on a conditional basis."

14. As indicated, the judge found in the defendantS' favour as to whether there were breaches of Articles 81 and 82. His findings on causation are the important findings. In my view the findings from paragraph 536-545 provide the key. Coleman J said:

"536. There is no question but that the burden of proving that the defendants' unlawful conduct caused the claimed loss rests on the Claimant. In Galoo Ltd v Bright Grahame Murray [1994] 1 WLR 1360 the Court of Appeal highlighted the need to distinguish in some causation cases between conduct on the part of the defendant which caused the loss and conduct which gave the opportunity for the loss to be sustained. Where the issue is whether there was a break in the chain of causation by conduct on the part of the claimant, that is to say whether the effect of the defendant's conduct was more than to provide the opportunity for the claimant by his own deliberate act to cause himself loss, the approach must be one of common sense, there being in each case on overarching concept that the chain of causation can be broken only if it is concluded that the claimant's own conduct displaced that of the defendant as the predominant cause of the claimant's loss. The claimant's so-called 'duty' to mitigate is a misnomer rendered respectable only by age. In reality the concept is that, if the claimant's conduct is such that it breaks the chain of causation between the claimed breach of duty on the part of the defendant and the loss, the claimant is not entitled to be compensated, for the claimant has failed to discharge the legal burden of proving the essential causal link between his loss and the defendant's breach of duty. There has been an intervening dominant cause engendered by the claimant himself.

537. In order to ascertain whether the claimant's conduct is such as to break the chain of causation, as I have described it, it may assist to test the causal effect of that conduct by reference to the extent to which it is the result of the exercise of a choice of action substantially independent of the breach of duty. In this connection, the Claimant's reliance on the passage from Clerk & Lindsell para 2-51 cited above, needs qualification. In cases to which the Law Reform (Contributory Negligence) Act 1945 applies the availability of the power to reduce damages by reference to the extent to which the claimant is responsible for his own loss introduces a means of reducing damages by reference to a consideration of relative fault up to the point where there is just less than 100 per cent responsibility. At that point it may well be that in most cases the claimant's conduct could aptly be described as reckless, as suggested in the passage cited. However, the 1945 Act does not apply to a claim under Articles 81 or 82. That is because, adopting the approach identified by Hobhouse J in Forsikringsaktieselskapet Vesta v Butcher [1986] 2 Lloyd's Rep 179 at page 196 and approved by the House of Lords at [1989] AC 852 at page 860, in the absence of the Articles and the duty imposed by them, there would be no co-extensive duty of care on the Conferences to avoid doing that which is rendered unlawful by those provisions. In this kind of case of breach of statutory duty it can Confidently be taken that the broader approach of simply asking whether the breach of duty was predominant cause of the loss likely to be more helpful. The extent, if any, to which the claimant's conduct was unreasonable and the extent of the effect of what he has done on the claimed loss will usually prove to be sufficient yardsticks for resolving this issue.

538. Translated into the facts of this case, the issue is essentially whether BCL's response to the price setting policies of the Conferences was so unreasonable that it represented an intervening cause of such losses as may be proved to have been stained by BCL. 539. The categories of loss said to have been caused by these breaches of duty are

1. loss of profits during the relevant period;

2. loss of profits up to the time in May 1992, after the relevant period when BCL ceased trading;

3. loss of profits after BCL ceased trading.

540. In substance, this involves the Claimant establishing that, the breaches of duty by the defendants during the relevant period prevented BCL from trading profitably or increased its losses during the relevant period and between the end of that period and May 1992 and eventually caused BCL to cease trading.

541. On the whole of the evidence in particular including that which I have outlined in the course of setting out the parties' respective submissions, I have reached the following conclusions.

542. BCL could have maintained a small but relatively stable market share in competition only with the Conferences, both on the North Continent and UK routes. Its customers were reasonably loyal to it because they preferred its rates which were kept well below those of the Conferences' and were prepared to accept a slower, less predictable and less convenient service on vessels partly used for bulk cargoes. It is extremely improbable that BCL could have continued to trade profitably or maintained even the modest market share that it had by August 1990 if it had not maintained a substantial differential between its rates and those of the Conferences.

543. Mr Arkin's expertise in the shipping industry consisted in the use of his experience as a marine engineer in the selection and purchase of old tonnage at cheap prices for the purpose of operating relatively inexpensive container and bulk services slower and less regular than could be obtained from liner operators using more modern vessels and in re-selling such vessels at a profit. Consistently with this purpose Mr Arkin well understood that BCL's ability to trade profitably in the relevant market depended heavily on the maintenance of rates offering a substantial discount to those of the Conferences.

544. Internal financial management and control and office organisation was extremely poor in all Mr Arkin's companies. When the auditors of BCL, Harris Kafton, prepared the 1990 accounts in September 1991 they recorded that the accounting system was 'a complete shambles' with no proper procedures for filing documents to support and substantiate accounting entries and no periodical review of ledger balances. There had been a lack of internal control and supervising relapses.

545. It was widely known in the shipping community by April 1992 that Mr Arkin and Mr Sofianos lacked business ability. The evidence in the Ocarina case and in this case indicates that Mr Arkin lacked the ability to relate the demands of capital debt servicing to the realistic ability of his liner operating companies, such as BCL, to earn profits. It also indicates that his determination to succeed in the shipping industry led to his taking a quite unrealistic view of the financial viability of his companies. His unwillingness to accept in May 1992 that the Muktifleet group was insolvent when it had been in acute financial difficulties, if not insolvent, for months before that illustrates a stubborn lack of realism with regard to his companies."

15. This case is not, as I would see it, really concerned with some issue of principle as to the correct test to apply to cases where the argument is whether there has been a break in the chain of causation by the conduct of the claimant. This case has special features on which it is important to concentrate which, once analysed, provide, as I see it, the answer.
16. The defendants, if they were in breach of Article 81 or Article 82, were in breach from a period prior to April 1991. But, as already said, BCL's cause of action in relation to damages flowing from that breach was statute-barred. That, as it seems to me, is a critical feature of this case. To succeed in the only claim they could bring, BCL had to show that damage separate and distinct from that flowing from breaches prior to April 1991 had been suffered as a result of breaches from 18 April 1991 onwards.
17. What the judge is saying in the above paragraphs is that if one assumes breaches by either defendant of Articles 81 and 82 before April 1991, then BCL, before April 1991, should, if acting reasonably and rationally and in mitigation of their loss, have stopped trading in the relevant market. BCL was insolvent, losses were massive and they were likely to continue; and no reasonable trader would have continued.
18. Mr Green has sought to argue that the judge's approach was wrong and that the court should not go further back than 18 April 1991 and should assume a hypothetical market in which abuse only takes place from 18 April 1991. Then he seeks to apply to that concept first of all the notion that rating wars are usually short-lived, and the concept that the Conferences who were acting in breach were actually obliged to restore their prices to at least costs. He submits that in those circumstances a finding that it was irrational to stay in the market could not be sustained.
19. He also argued that the European Court would be horrified at the possibility of this court, denying to a person seeking to compete, a finding that he should be entitled to compete and remain in the market, when the whole object of Articles 81 and 82 is to enable companies such as BCL to compete.
20. This argument, although superficially attractive, seems to me false. To start from 18 April 1991 with some hypothetical market is to take the benefit, in effect, of being out of time to sue for breaches pre-18 April 1991. There is no reason why the overall position should not be looked at. If there was an obligation to restore prices to some level, that was an obligation which had existed from late 1990; and by 18 April 1991 it was plain that this rating war was not short-lived.
21. Mr Green's submission involves a fundamental attack on the judge's finding of fact that it was irrational to stay in the market from 18 April 1991. In my view, the judge's approach cannot be criticised and I see no prospect of the Court of Appeal reversing that finding.
22. If a claim could still have been brought for the pre-1991 conduct, then BCL would of course have had a claim to loss of profits for the period following the moment when they left the Relevant Market. There were all sorts of steps that BCL might have taken in order to continue to compete - that is to say applying for interlocutory relief or interim measures or complaining to the Commission in the hope that they might take some action which would enable them to do so. Furthermore there is no reason why they should not stay and compete if it was reasonable and rational to do so. But if there comes a time when no rational trader would continue to trade then their obligation to mitigate may require them to come out of their market and trade if they can in another. They cannot be entitled to keep on irrationally throwing money away simply because the tortfeasor is in breach of his duty. BCL would, as I have already said, have had a claim to the loss of profits that they would have made in the Relevant Market from which they had been forced to withdraw if they had brought it in time. Indeed the very claim BCL made in this case was for all their loss of profits through 18 April, through until after the fall and for a period of 10 years. But the way that BCL are now seeking to put their claim, which is that they were entitled to stay in the market, cannot disguise the fact that any loss of profit claim actually flows from pre-April 1991 conduct.
23. If one stands back for a moment and ignores limitation, the finding would be that by 18 April 1991 BCL should in fact acting reasonably have withdrawn from the market. BCL on that basis would have had a claim for all their losses, including those profits flowing from being excluded from the market, when acting reasonably they should have withdrawn, but not losses flowing from having acted unreasonably and staying in the market. The duty to act reasonably in mitigation is not unknown in European law. Mr Gee showed us the authority referred to as FMC.
24. Once one restores to the picture the fact that limitation prevents recovery of losses flowing from conduct pre-18 April 1991, then the question becomes: what losses could they properly recover? The answer is certainly not the losses caused by unreasonably remaining in the market. The answer could possibly (I suppose) be those losses, if any, which they would have sustained by being excluded from the market by the Conferences' continuing unlawful conduct.
25. However that latter claim is not a claim that BCL has ever made. In my view, it is not one that a Court of Appeal would allow them to make now at this stage. That is because, first they set their hand to the plough, and they should not be entitled to change now. Furthermore, the material is simply not available on which such a claim could be calculated because no disclosure has been given of what profits or losses were made in the market to which certain of the vessels were relocated or could have been relocated. Finally, it is just fundamentally unfair that BCL should be allowed to change at this stage, having advanced their claim in the way they did initially and because costs would be simply disproportionate to any likely recovery. This is of particular significance where the claimant is impecunious.
26. In my view, there is no reasonable prospect of persuading a Court of Appeal to reverse the judge's finding that it was BCL's irrational conduct which was the cause of the additional losses that flowed from continuing in the market after April 1991. There is, furthermore, no prospect of persuading the Court of Appeal that this case should be remitted for damages to be assessed on any other basis. I would therefore refuse Mr Arkin permission to appeal.
27. LORD PHILLIPS: The fundamental issue on causation in this case is when, as a matter of law and fact, BCL should have cut their losses. Colman J held that they should have cut their losses by withdrawing from the market before April 1991. Mr Green QC for the claimant has sought to persuade us that the claimant has a reasonable prospect of upsetting that finding on grounds of both fact and law. I do not consider that there is a reasonable prospect of success on that issue on either ground.
28. Where does that leave this case? The huge losses claimed, in so far as they have any nexus with the defendant's conduct, can only be the result of BCL having failed to cut their losses before April 1991. It might have been open to the claimant, as assignee of BCL's right, to allege and prove damages flowing from BCL being shut out of the market, as had they acted reasonably they would have been, by the defendants' continuing wrongful conduct after April 1991. Those damages would have been relatively modest. Indeed Miss Selvaratnam QC submitted that the evidence indicated that there would have been no such damage proved at all as BCL could not have traded profitably in the market that would then have prevailed, always assuming that the Conference was acting lawfully.
29. We cannot rule on that submission. There is not the evidential foundation for an assessment of damages on that basis. I do not consider for the reasons given by my Lord that it would be just to remit this case for damages to the claimed on a new basis. I can see no prospect that if an appeal were permitted the claimant could achieve such a result.
30. For these reasons I agree that permission to appeal should not be granted.

(Application refused; Claimant to pay the Defendants' costs; costs to be the subject of an assessment if not agreed; other questions of costs reserved to the Court of Appeal dealing with the costs appeal).

31. SPEAKER: Can I mention one point on the judgment given by Waller LJ. I apprehend that the transcript will come back for correction. Waller LJ mentioned MCL; it was DeMillo who tried trading on the route. The company that came in and ran the market share was MSC.
32. LORD JUSTICE WALLER: I am sorry ...
33. SPEAKER: It is purely a typographical error were it to appear in the judgment.
34. LORD JUSTICE WALLER: Thank you very much.