C V Sheepvaartonderneming Ankergracht v Stemcor (A/sia) Pty Limited [2007] FCAFC 117 (3 August 2007)

Last Updated: 6 August 2007

FEDERAL COURT OF AUSTRALIA

C V Sheepvaartonderneming Ankergracht v Stemcor (A/sia) Pty Limited [2007] FCAFC 117

COSTS – costs on appeal – apportionment of responsibility between the parties – indemnity costs order based on settlement offer before pleadings amended – claim succeeded on amended pleadings – respondent succeeded on one basis but failed on another



Carriage of Goods by Sea Act 1991 (Cth) Art 3





















C V SHEEPVAARTONDERNEMING ANKERGRACHT v STEMCOR (A/SIA) PTY LIMITED AND TSUDA CORPORATION

NSD 23 OF 2006


C V SHEEPVAARTONDERNEMING ARCHANGELGRACHT v STEMCOR (A/SIA) PTY LIMITED AND TSUDA CORPORATION

NSD 24 OF 2006


RYAN, DOWSETT AND RARES JJ
3 AUGUST 2007
SYDNEY

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	NSD 23 OF 2006
IN ADMIRALTY

ON APPEAL FROM A SINGLE JUDGE OF THE FEDERAL COURT OF AUSTRALIA

BETWEEN:	C V SHEEPVAARTONDERNEMING ANKERGRACHT Appellant
AND:	STEMCOR (A/SIA) PTY LIMITED First Respondent TSUDA CORPORATION Second Respondent

JUDGES:	RYAN, DOWSETT AND RARES JJ
DATE OF ORDER:	3 AUGUST 2007
WHERE MADE:	SYDNEY

THE COURT ORDERS THAT:

1. The defendant pay the plaintiffs’ costs incurred up to and including 16 May 2003 on a party/party basis;
2. The defendant pay the plaintiffs’ costs incurred thereafter on an indemnity basis, save for those costs relating solely to the issue raised by the particular "failing to install dehumidifiers" in the further amended statement of claim;
3. The plaintiffs pay the defendant’s costs of and incidental to the issue referred to in paragraph 2 of this Order; and
4. The appellant pay four-fifths of the respondents’ costs of the appeal.

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	NSD 24 OF 2006
IN ADMIRALTY

ON APPEAL FROM A SINGLE JUDGE OF THE FEDERAL COURT OF AUSTRALIA

BETWEEN:	C V SHEEPVAARTONDERNEMING ARCHANGELGRACHT Appellant
AND:	STEMCOR (A/SIA) PTY LIMITED First Respondent TSUDA CORPORATION Second Respondent

JUDGES:	RYAN, DOWSETT AND RARES JJ
DATE OF ORDER:	3 AUGUST 2007
WHERE MADE:	SYDNEY

THE COURT ORDERS THAT:

1. The defendant pay the plaintiffs’ costs incurred up to and including 16 May 2003 on a party/party basis;
2. The defendant pay the plaintiffs’ costs incurred thereafter on an indemnity basis, save for those costs relating solely to the issue raised by the particular "failing to install dehumidifiers" in the further amended statement of claim;
3. The plaintiffs pay the defendant’s costs of and incidental to the issue referred to in paragraph 2 of this Order; and
4. The appellant pay four-fifths of the respondents’ costs of the appeal.

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	NSD 23 OF 2006
IN ADMIRALTY

ON APPEAL FROM A SINGLE JUDGE OF THE FEDERAL COURT OF AUSTRALIA

BETWEEN:	C V SHEEPVAARTONDERNEMING ANKERGRACHT Appellant
AND:	STEMCOR (A/SIA) PTY LIMITED First Respondent TSUDA CORPORATION Second Respondent

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	NSD 24 OF 2006
IN ADMIRALTY

ON APPEAL FROM A SINGLE JUDGE OF THE FEDERAL COURT OF AUSTRALIA

BETWEEN:	C V SHEEPVAARTONDERNEMING ARCHANGELGRACHT Appellant
AND:	STEMCOR (A/SIA) PTY LIMITED First Respondent TSUDA CORPORATION Second Respondent

JUDGES:	RYAN, DOWSETT AND RARES JJ
DATE:	3 AUGUST 2007
PLACE:	SYDNEY

REASONS FOR JUDGMENT (COSTS)

THE COURT:

1 We have previously dismissed appeals against judgments of Emmett J in two separate actions. The matters were heard together, both at first instance and on appeal. The same two plaintiffs (the respondents on appeal) sued in both actions. In each action, there was a different defendant. They are the appellants on appeal. In each action the respondents alleged that steel coils shipped on the relevant appellant’s vessel suffered corrosion as a result of contact with moisture. His Honour found that the damage was caused by each appellant’s failure to perform its duties pursuant to Art 3 rr 1 and 2 of the amended Hague Rules as defined in s 7 of the Carriage of Goods by Sea Act 1991 (Cth). On appeal this Court affirmed each judgment upon the basis of a breach of Art 3 r 2. However the majority (Ryan and Dowsett JJ) considered that there was insufficient evidence to justify the finding of breach of Art 3 r 1.

2 At first instance Emmett J, applying O 23 r 11(4) of the Rules of Court, ordered that each appellant pay the respondents’ costs incurred up to and including 16 May 2003, on a party-and-party basis, and costs incurred thereafter, on an indemnity basis. This order reflected the fact that on 16 May 2003 the respondents had offered to settle each action upon the basis that the respective appellants pay sums which were approximately 70% of the amount ultimately recovered in each action. In opposing such orders the appellants submitted that the respondents had succeeded upon different grounds from those originally pleaded. In para 11 of each original statement of claim, the respondents claimed breaches of Art 3 rr 1 and 2, relying on the particulars alleged in para 9 which stated:

‘In breach of the contract, contained in or evidenced by the Bills of Lading, the First Defendant, or alternatively the Second Defendant, failed to safely keep and deliver the Goods to the Port of Sydney in the same good order and condition as when shipped.
PARTICULARS
(a) Failed to adequately stow the Goods for carriage.

(b) Failed to properly protect the Goods whilst in their custody and control from rain and water exposure.
(c) Failed to take any or any adequate steps to prevent the said Goods from water exposure during carriage.
(d) Inappropriate stowage positioning of the goods on the Vessel.
(e) Failed to ensure that the holds of the Vessel were adequately ventilated or at all.
(f) The Goods incurred extensive rust damage during carriage or whilst in the Carrier’s custody and control and were delivered at the Port of Sydney rust damaged.

These are the best particulars that the Plaintiff can provide until further investigation and discovery has been conducted. The Plaintiff reserves the right to supplement these particulars at a later date.’

3 On 24 September 2004 the statements of claim were amended to allege failure to install dehumidifiers, and that the appellants had ventilated the holds contrary to accepted industry practice. Emmett J found that each appellant had, contrary to Art 3 r 1, failed to exercise due diligence to make its vessel seaworthy. This conclusion was based upon his Honour’s findings that water had probably entered the holds during loading, and that the vessels were not fitted with dehumidifiers which would have removed such water. Emmett J also found that, contrary to Art 3 r 2, each appellant had failed properly to care for the cargo in that ventilation had occurred during each voyage when the evidence indicated that the practice in the industry was not to ventilate steel cargoes on such voyages. On appeal the majority differed from Emmett J only in concluding that there was insufficient evidence that the circumstances of each voyage justified the inference that dehumidifiers ought to have been installed, given that there was no evidence of any such industry practice.

4 The appellants correctly assert that the respondents succeeded on grounds which were different from those originally pleaded. However the statements of claim always alleged failure by each appellant to protect the coils from contact with moisture. Each statement of claim made it clear that further particulars might be added. It seems that the amendments may have been in part prompted by ventilation records discovered by the appellants. Events which occurred on the voyages are more likely to have been known to the appellants than to the respondents.

5 Emmett J accepted that a change in the basis of a case might justify a party’s rejection of an offer. However he concluded that the claims upon which the respondents eventually succeeded were substantially those which had been originally pleaded. His Honour also took into account the absence of any evidence from the appellants as to why they had not accepted the offers.

6 Although the appellants seek to upset the orders for costs made by Emmett J, they do not, in their notices of appeal or elsewhere, suggest that his Honour’s discretion miscarried, having regard to his findings. The challenges to the costs orders in the notices of appeal assume success in each appeal on the substantive issues. Given the absence of any challenge to his Honour’s approach, it is appropriate that we consider only whether the majority view on appeal as to the issue of dehumidifiers should result in different orders for costs at first instance. We understand the parties to have adopted that approach in their submissions.

7 Where a plaintiff succeeds on one basis but fails on another, it is frequently necessary to consider whether that mixed result should be reflected in any order for costs. In many, perhaps most, cases the different bases will merely reflect different legal mechanisms by which the same result might follow from the same facts. In such a case the extent of the costs solely attributable to the unsuccessful ground will frequently be very limited. Generally, that situation does not lead to separate orders for costs in connection with separate issues or to reduction in the successful party’s costs. In other cases, the alternative bases for the case may be quite discrete, and the unsuccessful basis may take up substantially more time, and account for substantially more of the costs, than does the successful basis. In those circumstances justice may require that the unsuccessful defendant not be compelled to pay the costs of the issue upon which it has succeeded.

8 In the present case, the respondents shipped steel coils in vessels owned by the appellants. Water or water vapour entered the hold of each vessel and subsequently came into contact with the surface of the steel coils, thereby causing corrosion. Major issues included the source of the water, the availability of means for removing moisture, adequacy of wrapping and the mechanism by which moisture penetrated the wrapping.

9 It seems that water entered the holds during loading and/or as the result of ventilation of the holds during the voyages. Means for removing water from the holds included:

• mopping and wiping;
• use of dehumidifiers; and
• ventilation in appropriate climatic conditions.

10 The respondents alleged inadequate wrapping as a possible defence to the claim pursuant to Art 3 r 2 but failed on that issue. The dispute as to how moisture penetrated the wrapping arose in the course of considering adequacy of the wrapping. It was also relevant to proof of the sequence of events which caused the corrosion. The question was whether liquid water penetrated the wrapping or whether water vapour did so, and then condensed on the surface of steel coils. The defendants asserted the former mechanism, but Emmett J found that the latter was more probable.

11 At first instance it was virtually inevitable that, in connection with the claims pursuant to Art 3 r 1 and those pursuant to Art 3 r 2, the Court would consider all possible means by which water might have entered the holds. That matter was relevant to the issues of liability and causation in connection with both claims. It was also inevitable that the parties would address the circumstances in which ventilation might properly occur, if at all. The issue of methods for removing water from the holds was closely related to the ventilation issue. The only substantial issue which seems to have been virtually irrelevant to the Art 3 r 2 claim, upon which the respondents have ultimately succeeded, is the question of dehumidifiers. It seems to have been at the heart of the Art 3 r 1 case. Save for that issue, we see no clear distinction between that part of the trial which concerned the Art 3 r 1 claim and that which concerned the Art 3 r 2 claim. The claims were closely connected factually. As to the issue of dehumidifiers, we note that at one stage, the trial was adjourned to allow the parties to call further evidence on that question. We infer that significant costs probably attended that adjournment and the issue in question. As to the appeal we do not accept the appellants’ claim that at least half of the time in submissions and oral argument was spent in addressing the Art 3 r 1 claim. We consider that only a relatively small amount of time clearly related only to that claim rather than to both.

12 The appellants submit that the respondents, in the end, have succeeded only on the claim which alleged ventilation contrary to industry practice, and that it was raised by the amendment made on 24 September 2004, after the relevant offer. However that argument focuses on appearances rather than substance. The respondents’ case was always that the steel coils had been damaged as the result of contact with water. It is not surprising that the precise mechanism by which water entered the hold may have been unclear in the earlier stages of the proceedings. As we have said, the appellants probably knew more about such matters than did the respondents. We agree with Emmett J that a change in direction of the case may be relevant to the question of costs where there has been an offer pursuant to O 23 r 11(4). We also agree that it should not have led to different orders on his Honour’s view of these matters. However, on the view of the majority on appeal, we consider that the appellants, as unsuccessful parties below, ought not to have been ordered to pay the costs of the discrete, and apparently substantial, issue concerning dehumidifiers on which, ultimately, the respondents have failed.

13 We will vary the order made on 10 March 2006 in each action. Order 2 should be amended to read:

‘The defendant pay the plaintiffs’ costs incurred thereafter on an indemnity basis, save for those costs relating solely to the issue raised by the particular "Failing to install dehumidifiers" in the further amended statement of claim’.

14 There will also be an Order 3 as follows:

‘That the plaintiffs pay the defendant’s costs of and incidental to the issue referred to in paragraph 2 of this Order.’

15 The appellants submit that the respondents should have the costs of only one appeal. We see no justification for that course. There were two separate actions and two defendants. The claims involved damage to two different cargoes, on two different voyages and on two different vessels. There may have been some economies as a result of the two trials and appeals being conducted together. If so, then the taxation process will presumably identify them. To the extent that the appellants are ordered to pay the respondents’ costs, they will no doubt receive such benefit. However we see no justification for the proposal that we should allow the costs of only one appeal.

16 To upset the judgments on appeal, the appellants had to succeed on both issues raised pursuant to Art 3 rr 1 and 2. There was always an appreciable risk of the appellants’ not succeeding in relation to Art 3 r 2 in which event their success on the Art 3 r 1 ground would be available only to support a claim for partial relief from the award of costs at first instance. We accept that the costs involved in the preparation and hearing of the appeals were, to some extent, increased by the appeals in connection with the Art 3 r 1 claim. However it is difficult to imagine how the appeals could have been conducted other than by reference to all of the issues ventilated at first instance. As we have demonstrated the facts are not easily identifiable as relevant solely to either of the two causes of action pursuant to Art 3. However we consider that a moderate allowance should be made in the costs orders to reflect the appellants’ partial success. Taking into account the costs of all parties to the extent that they were increased by argument on appeal on the Art 3 r 1 issue, each appellant should pay four-fifths of the respondents’ costs of the relevant appeal.

I certify that the preceding sixteen (16) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justices Ryan, Dowsett and Rares.

Associate:


Dated: 3 August 2007

Counsel for the Appellant:	AW Street SC and JA Watson
Solicitor for the Appellant:	Ebsworth & Ebsworth
Counsel for the Respondents:	PH Greenwood SC and IG Roberts
Solicitor for the Respondents:	O’Reilly Sever & Co
Dates of Hearing:	1, 2 August 2006
	Appellant’s submissions on orders and costs filed 7 June 2007
	Respondents’ submissions on orders and costs filed 13 June 2007
	Appellant’s submissions in reply filed 14 June 2007
Date of Judgment:	3 August 2007