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England and Wales Court of Appeal (Civil Division) Decisions
You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> Arkin v Borchard Lines Ltd. & Ors  EWCA Civ 1873 (14 July 2004)
Cite as:  EWCA Civ 1873
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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)
London, WC2A 2LL
B e f o r e :
LORD JUSTICE WALLER
|(1) BORCHARD LINES LIMITED & ORS|
|(2) CAMOMILE LINES PLC|
|(3) FURNESS WITHY (SHIPPING) LTD|
|(4) MANCHESTER LINERS LTD||Defendants/Respondents|
Smith Bernal Wordwave Limited
190 Fleet Street, London EC4A 2AG
Tel No: 020 7404 1400 Fax No: 020 7831 8838
Official Shorthand Writers to the Court)
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
Crown Copyright ©
"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."
"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  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  2 Lloyd's Rep 179 at page 196 and approved by the House of Lords at  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."
(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).