New South Wales Supreme Court CITATION : Pacific Carriers Ltd -v- Banque Nationale de Paris [2001] NSWSC 963 CURRENT JURISDICTION: Equity Division Admiralty List FILE NUMBER(S) : SC 8/99 HEARING DATE(S) : 17.10.01, 24.10.01 JUDGMENT DATE : 24 October 2001 Pacific Carriers Limited - Plaintiff PARTIES : Banque Nationale de Paris - First Defendant Swiss Singapore Overseas Enterprises - Cross Defendant New England Agricultural Traders - Cross Defendant JUDGMENT OF : Hunter J Pacific Carriers Ltd: A Street SC, G Nell COUNSEL : Banque Nationale de Paris: B Rayment QC, P King, I Davidson, M Pesman New England Agricultural Traders: M McHugh Swiss Singapore Overseas Enterprises: F Douglas QC & G Rich Pacific Carriers Ltd: Norton White SOLICITORS : Banque Nationale de Paris: Corrs Chambers Westgarth New England Agricultural Traders: Withnell Hetherington Swiss Singapore Overseas Enterprises: Phillips Fox CATCHWORDS : Supplementary reasons to principal judgment - determination of currency in which judgment sum expressed - factors determining date of conversion and conversion rates for the currencies - factors determining applicable rates of interest to judgment - whether factors existed to depart from usual order as to costs - indemnity costs refused. Brown Boveri (Australia) Pty Ltd v Baltic Shipping Co (1989) 15 NSWLR 448 CASES CITED : Miliangos v George Frank (Textiles) Ltd No 2 (1977) 1 QB 489 Helmsing v Malta Dry Docks (1977) 2 Lloyds Rep 444 BP Exploration v Hunt (No 2) (1979) 1 WLR 783 DECISION : In terms of pars 50 - 56. THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION ADMIRALTY LIST HUNTER J WEDNESDAY 24 OCTOBER 2001 8/99 - PACIFIC CARRIERS LIMITED v BANK NATIONALE DE PARIS RE THE SHIP M V NELSON SUPPLEMENTARY REASONS FOR JUDGMENT 1 When this matter was before me for the purposes of giving further directions in accordance with my reasons for judgment on 16 October 2001 (referred to in these supplementary reasons as the principal reasons for judgment), it was drawn to my attention that, in addition to the two items of claim listed under the heading , "Plaintiff's claim" in item 38(u) which were dealt with in paragraph 768 in the principal reasons for judgment, a further amount is claimed, namely, "Calcutta legal costs" in the sum of 10,128. 2 That calculation of costs has been addressed in paragraphs 775 to 777 inclusive of the principal reasons for judgment and for the reasons given in paragraph 768 of those reasons, the amount of 10,128 should be allowed to Pacific. I also confirm that the amount conceded by BNP in relation to item 38(x) should be expressed in Singaporean dollars and not US dollars as set out in paragraph 771 of the principal reasons for judgment. 3 In the course of further submissions on behalf of NEAT, Mr Hetherington sought clarification from me in relation to the finding in paragraph 536 of the principal reasons for judgment which concerned the fourth cross-claim by BNP against NEAT: in particular, my reference to the absence of any liability in negligence by NEAT to SSOE. 4 The finding is essentially an unnecessary one. It was intended to remove any possible area of contribution between BNP and NEAT as joint or concurrent tortfeasors, there being no issue of negligence before me as between Pacific and NEAT in these proceedings. 5 In order to permit further submissions and calculations as to the allowance of interest on the sums found to be due to Pacific, the matter was adjourned to today. On 22 October 2001 I received further written submissions on behalf of BNP, together with a further affidavit of Mr Ian Dallen sworn 22 October 2001, providing schedules, comparable interest rates and calculations on the amount to which Pacific has been found entitled in the principal reasons for judgment. In the course of those calculations, Mr Dallen has included schedules based upon different rates of conversion to United States dollars than those adopted by Pacific. 6 In addition, on 23 October 2001, senior counsel for BNP forwarded the following further submissions by facsimile as follows: "1. The first defendant submits that the two central findings made against it, in paragraphs 290 and 344, depend upon a case which was not pleaded, not argued and in respect of which it had no opportunity to lead evidence or cross-examine, in particular about whether the representation about credit-worthiness was made, reliance and causation. For example, evidence could have been led that it was notorious that bankers never give representations about credit-worthiness without a disclaimer. The plaintiff's experience of bankers' credit references may have make (sic) such evidence critical. As to reliance, the plaintiff seems not to have believed that NEAT was a company of substance. 2. Therefore it is submitted with respect that no orders ought to be made against the first defendant upon the basis of those findings, and that since the case which was made against the first defendant was unsuccessful, the proceedings ought to be dismissed with costs against it." 7 I will deal first with those submissions of senior counsel. In my view, those submissions misconceived the reasoning process in the principal reasons for judgment and to a certain extent Pacific's case in negligence, particularly that contended for in paragraphs 45 (in particular subparagraphs (e) and (f)) and 46 which are repeated for ease of reference: "45. In breach of the said duty of care, the first defendant was negligent. Particulars of negligence The first defendant by itself, its servants and agents was negligent by: (a) failing to provide any or any proper instructions for the execution or signing of agreements in its documentary credit department; (b) failing to provide any or any proper instructions for differentiating between execution or signing of an agreement and verification of an agreement; (c) failing to supervise the execution or signing of agreements being letters of indemnity by the first defendant; (d) failing to implement any or any proper system in relation to the execution or signing of agreements in its documentary credit department for the purpose of verification only by the first defendant; (e) executing or signing the agreement dated on or about 28 January 1999 and/or the agreement dated on or about 19 February 1999; (f) executing or signing the agreement dated on or about 28 January 1999 and/or the agreement dated on or about 19 February 1999 without express qualification as to the purpose for which the defendant was executing or signing the same; (g) failing to provide any or any proper instructions in its documentary credit department for the execution or signing of letters of indemnity; (h) failing to instruct Ms Era Dhiri not to execute or sign the agreement dated on or about 28 January 1999 and/or the agreement dated on or about 19 February 1999; (i) failing to instruct Ms Era Dhiri not to countersign letters of indemnity without express qualification; (j) failing to issue any or any proper instructions to Ms Era Dhiri as to her authority to execute or sign agreements. 46. The plaintiff says that but for receipt of the said agreement dated on or about 28 January 1999 and/or the said agreement dated on or about 19 February 1999 executed or signed by the first defendant, the plaintiff would not have permitted delivery and continuation of delivery of the cargo from the MV Nelson, without surrender of the original bills of lading." 8 The gravamen of the contentions on behalf of BNP is that the principal reasons for judgment in particular at paragraphs 290 and 344 are findings which depend on a case which was not pleaded and, in effect, constituted a finding of a representation case that was never made. Clearly, I think those submissions misunderstood the principal reasons for judgment. 9 In that respect, I have been assisted by senior counsel for Pacific in providing references to the case which was in fact made by Pacific during the course of the hearing and in the closing addresses which I will simply identify, but which I think support the approach which I have adopted in this case, and which reflect no element of the error that BNP attributes to the principal reasons for judgment. 10 The passages referred to are at pages 18 and 19 of the transcript, in paragraphs 219 to 223 and 230 to 231 of Pacific's principal written submissions, the transcript at page 1517 in the course of oral submissions and to a lesser extent the written submissions in reply in paragraphs 1 and 4. 11 The central ingredient in Pacific's case was made out by the findings in the principal reasons that upon the proper construction of the NEAT LOI's, the execution of those LOI's on behalf of BNP was not that of a verifier of the NEAT LOI's. However, in order to examine the reasonableness of Pacific's reliance upon the execution of the NEAT LOI's, on behalf of BNP, it was necessary, in my view, to properly construe the LOI's as executed by BNP. Pacific's evidence of reliance was upon the basis that it understood the BNP execution of the LOI's to be that of an indemnifier. 12 In considering Pacific's case in contract I reached the conclusion that on the proper construction of the LOI's, BNP was not a co-indemnifier. It was then necessary to consider what was the proper construction of the LOI's in determining the reasonableness of Pacific's conduct in acting upon the bank's execution of the LOI's in proceeding to give its own indemnity to Bolton. 13 BNP has not been found liable to Pacific in contract. Its liability lies in negligence as pleaded, the damages consisting of those suffered by Pacific in relying upon the execution of the LOI's on behalf of BNP, namely, by Pacific, itself, indemnifying Bolton. The principal reasons for judgment, I think, in some detail, evidence the reasonableness of the reliance by Pacific on BNP's execution of the NEAT LOI's, notwithstanding the erroneous understanding by Pacific of the legal nature of the execution by BNP of those LOI's. It is in that context that the findings as to the nature of that execution were made in order to examine the reasonableness of Pacific's conduct. 14 It is not a finding made on a representation case, as has been suggested by senior counsel for BNP, and for these reasons I decline to accede to the submissions, earlier quoted, of 23 October 2001. 15 Returning then to the question of the currency in which judgment should be expressed. I think, clearly, it should be in the United States currency, as contended for on behalf of Pacific. It was the currency which dominated the subject transactions and a great majority of the items of claim which go to make up Pacific's entitlement for judgment. In my view, one would have to find most persuasive reasons why a currency other than United States currency should be awarded, and there is no such material before me. 16 In my view, a judgment in United States currency will express most appropriately Pacific's loss as recovered in these proceedings. See Brown Boveri (Australia) Pty Ltd v Baltic Shipping Co (1989) 15 NSWLR 448 at 464. 17 The principal submission on behalf of Pacific as to the appropriate method of conversion of other currencies to United States dollars is that the rate of exchange should be dictated by the date of payment of the other currency or where there is no direct evidence of that payment the date should be taken as from the time the "... loss [was] likely to have been suffered", and when neither of those two methods was available to the Court, then to take a rate of conversion at the date of judgment. Upon those principles of calculation, counsel on behalf of Pacific has provided me with a schedule of amounts awarded to Pacific for reimbursement of expenses expressed other than in United States currency, setting out the conversion of that currency into United States currency on the basis I have just identified. 18 In relation to that method of conversion, reliance has been placed upon the evidence as adduced during the course of the proceedings and the affidavit evidence of Mr Robert Reginald Wilson sworn respectively, 5 October and 17 October 2001. In aid of submissions presented on behalf of BNP, BNP has relied upon the affidavit evidence of Mr Ian Dallen. In relation to his affidavit of 22 October 2001, Mr Dallen has proffered calculations of interest to which I will come, based upon principal sums as adduced on behalf of Pacific, in addition to sums calculated as at 16 October 2001 using the United States Federal Reserve Bank Certified Customs rate, and, alternatively, accepting the dates of conversion adopted by Pacific, but again applying the United States Federal Reserve Bank Certified Customs rate. 19 In my view, the approach adopted on behalf of Pacific is clearly the correct one, both as to the timing of the conversion and as to the rate, it being extracted from the evidentiary material to which I have referred. 20 As to interest, it is proposed on behalf of Pacific that interest should be calculated at the rate described as the Singapore Inter Bank Offer Rate referred to as SIBOR, plus a margin of 1.5% as representing the borrowing rate in Singapore for United States currency. On the face of it, that appears to be the appropriate rate of interest to be applied. 21 Mr Dallen offered an alternative rate in his first affidavit of 10 October 2001 based upon the Hong Kong Interbank Offer Rate plus a margin varying between .40% and .50%, and, on that basis, presenting a margin of .45% as the appropriate one. 22 The difference in that approach from that of Pacific is that that would yield a rate of 2.78% per annum as distinct from the 3.83% per annum as contended for on behalf of Pacific. 23 In his second affidavit of 22 October 2001, Mr Dallen proffered an alternative basis of approach based upon the Singaporean bank debt market for short term borrowings of one to three years which expressed the view that the margin "… over SIBOR would be of the order of 1%. 1.5% would be very much at the high end ". The adoption of that rate would result in an annual rate of 3.33%. 24 Mr Dallen then provided three schedules which, briefly described, were as follows: The first calculated interest at each of those three rates, namely, the 2.78%, the 3.83%, and 3.33% on the principal sum in the United States currency as calculated by Pacific. That was the principal sum of US$4,237,207.47. 25 The comparable interest rates were then calculated up to and including today. The difference reflected could not be described as a highly significant sum unless one took the extremes. The calculation of interest by Pacific resulted in an interest component of US$141,581.13. That, based on a 2.78% rate, yielded a figure of US$102,802.44, and interest calculated at 3.33% resulted in the figure of US$123,138.66. 26 The second calculation was based upon the adoption of a rate at 16 October 2001, and using the United States Federal Reserve Bank Certified Custom rate. For the reasons given, I think that that approach should not be adopted, at least so far as the date of calculation. 27 The final calculation proffered by Mr Dallen adopts the two interest rates of 2.78% and 3.83%. That was applied to a principal sum calculated at the time that Pacific contends the loss occurred, but using the United States Federal Reserve Bank Certified Custom rate. As an indication of the consequence of that, the principal sum so derived is US$4,218,850.74 as compared with the sum as calculated on behalf of Pacific of US$4,237,207.47 and interest rates so calculated appear not to change markedly the interest components calculated by Mr Dallen in his first schedule. 28 Again, for the reasons I have given, I think the method of calculation on behalf of Pacific is to be preferred, geared as it is to the date of incidence where applicable of the payment and the exchange rate applicable at that time, not ignoring the areas that fell outside that description of the calculation. Accordingly, the calculation of the conversion and of the interest should be that as adopted on behalf of Pacific in its revised submissions of 17 October 2001. 29 One matter I think needs to be specifically referred to in relation to interest. Under the February settlement between SSOE, Pacific and others, an interest rate of 7.75% was agreed upon as payable in relation to the principal sum payable under that settlement. That is in strong contrast to the rate of interest which I have allowed on the sums to which Pacific has been found entitled in the course of the principal reasons. 30 However, the reconciliation of the two rates may be found in a perhaps rough fashion in the fact that the rate of interest or the interest component in respect of the February settlement covers interest entitlements of SSOE from date of conversion. Viewed in that way, I see no disparity in the rate of interest allowed in the course of supplementary reasons and the rate of interest claimed by Pacific as part of the February settlement. 31 In the course of my principal reasons for judgment, I deferred a finding as to the reasonableness of that calculation of interest and for the reasons now given, I think that interest component payable under the February settlement should be allowed, noting that Pacific does not claim interest upon that interest component in its calculations for the purpose of making final orders for judgment. 32 In referring to the adoption of the interest rates as outlined in the course of these supplementary reasons, I would adopt what was observed by Bristow J in Miliangos v George Frank (Textiles) Ltd No 2 (1977) 1 QB 489 at 495, namely, that the Court is concerned in an exercise of this kind with fixing a rate applicable for plaintiffs in general and not identifying a rate at which that particular plaintiff may be able to obtain borrowed funds in a particular case. See also Helmsing v Malta Dry Docks (1977) 2 Lloyds Rep. 444 at 449 and BP Exploration v Hunt (No 2) (1979) 1 WLR 783 at 850. I think those observations are particularly pertinent to Mr Dallen's approach in relation to the Hong Kong Interbank Offer Rate referred to earlier in these reasons. 33 As to costs, except in relation to what has been, in effect, an exchange of cross-claims between SSOE and NEAT, I see no reason to depart from the usual order as to costs. In the case of SSOE and NEAT, I think the appropriate order is that each party pay their own respective costs of the cross claims, save for the costs the subject of my judgment of 26 July 2000. 34 In the case of the proceedings between Pacific and BNP, although I have dismissed the summons, save for the cause of action in negligence, I do not see that as any reasonable basis for apportioning costs in any way. The various causes of action relied upon by the parties have overlapped substantially and in viewing the result of the main proceedings I think it is plain that Pacific has succeeded on most factual issues. The judicial exercise involved an identification of what cause of action, if any, those facts may have established. Subject to the order as to the costs of 26 July 2000, BNP is ordered to pay Pacific's costs of the proceedings. 35 It has been submitted on behalf of Pacific that those costs should be assessed on an indemnity basis, having regard to an exchange of communications between the parties as support for that. That refers to an exchange of communications between the solicitors for Pacific and BNP in mid 2000, the effect of which was an offer on behalf of BNP of $100,000, in settlement of Pacific's claims, and on the basis that SSOE paid its own costs. That offer was rejected and a counter offer made which called upon BNP to indemnify Pacific in terms of NEAT's letters of indemnity, with Pacific bearing its own costs of the proceedings. That offer was rejected and although there were other communications, that was the substance of the exchange. 36 In my view, that formed no reasonable basis for ordering costs on an indemnity basis. While BNP's position represented no reasonable offer, the response of Pacific could not be regarded as a true compromise and, in the circumstances as stated, I see no reason to depart from the usual order as to costs. 37 As between BNP and NEAT, it has been submitted on behalf of NEAT that its cross-claim against BNP was purely defensive. There is some substance in that. The history of NEAT's involvement in these proceedings began with its joinder as second defendant by Pacific. Those proceedings were discontinued on 18 June 1999 and NEAT was only brought into the proceedings by BNP's cross-claim on 13 August 1999. NEAT did not respond by way of cross-claim until 10 March 2000, the same date as its cross-claim against SSOE, who had initiated the fifth cross-claim against NEAT on 7 October 1999. 38 Having regard to that sequence of events, I think it is reasonable to treat NEAT's cross-claim as one which would not have been brought had not BNP brought NEAT into the proceedings by way of its cross-claim. Notwithstanding, I think NEAT's claim in negligence went beyond a mere defensive claim, in particular, in relying upon NEAT's case of negligent advice by BNP. While both BNP and NEAT's cross-claims have been dismissed, I think the appropriate order in the circumstances I have outlined is that BNP should pay two-thirds of NEAT's costs of those cross-claims. 39 In the case of BNP's cross-claim against SSOE, BNP must pay SSOE's costs. 40 It has been submitted on behalf of SSOE that a special order as to costs should be made on an indemnity basis, having regard to BNP's failure to make any substantial admissions of fact, notwithstanding the service of a notice to admit by SSOE on 2 June 2000. It was also submitted that it should have been known by BNP that its cross-claim against SSOE would fail, that it raised time wasting defences which were unjustified: in particular, that BNP alleged illegality of the switches of the subject bills of lading, that BNP was unaware of the switch and that BNP conducted a large part of its case in assisting NEAT in its claim against SSOE. In that respect, it was noted that BNP was NEAT's secured creditor. 41 Further, it was contended that BNP have unreasonably rejected settlement overtures as evidenced by the affidavit of Elizabeth Jacqueline Rusiti sworn 5 October 2001. That affidavit evidenced a more significant attempt at settlement between BNP and SSOE than that between BNP and Pacific. 42 In the case of BNP's cross-claim against SSOE, by facsimile of 19 May 2000, which it may be noted shortly preceded the notice to admit of SSOE, its solicitors outlined, at length, matters of fact on the basis of which it contended that the proceedings by BNP against SSOE were misconceived. Those turned largely around the details surrounding the circumstance in which the bills were switched. They are matters of fact in respect of which I made findings in the principal submissions of judgment which were favourable to SSOE. 43 There was a further facsimile to like effect of 23 June 2000, which noted an offer on behalf of BNP to discontinue the cross-claim on the basis that each party bore its own costs, but that offer was rejected and BNP was invited to reconsider its position as to costs. 44 The solicitors for BNP responded by a facsimile of 27 June 2000 which offered to discontinue the cross-claim with no order as to costs. However, it offered to pay $70,000 towards SSOE's costs. That offer was also rejected. 45 By facsimile of 27 June 2000, SSOE's solicitors responded with an offer of settlement upon payment of $150,000 by BNP by way of a contribution to SSOE's costs. That offer involved a discontinuance of BNP's claim against SSOE, together with a further term that BNP procure a discontinues of NEAT's cross-claim against SSOE, on the basis that NEAT and SSOE bore their own respective costs. It appears that settlement negotiations broke down at that level. 46 While I think it is abundantly clear that the illegality contention of BNP proved to have no substance, I shared BNP's need to be convinced that the relationship between Royal and SSOE was completely at arms length and more particularly, that SSOE had taken appropriate action to protect its own interest in respect of the subject cargo, consistently with its obligations in that respect. I think the principal reasons for judgment show considerable hesitation in reaching firm findings as to SSOE's conduct pre-mid February 1999, in considering what I have described as an issue of novus actus. 47 Moreover, although it may not be a strictly legal consideration, I doubt that SSOE may consider itself as covered in glory in the way in which it appeared to me to treat NEAT as a pawn in SSOE's attempts to resolve its commercial exposure to Royal, particularly in relation to transactions unconnected with the NEAT/ Royal contracts. Although BNP may see itself significantly worse off as a result of the findings in the principal reasons for judgment, than had it accepted SSOE's offer of 27 June 2000, making the assumption that it was within its power to effect such a settlement, I am not disposed to treat BNP's refusal to settle as a reason for awarding costs on an indemnity basis against it. 48 That conclusion is emphasized by an analysis of the interchange of communications between the respective solicitors and which towards the end of those negotiations, required BNP to effect resolution of all outstanding disputes, involving the cooperation of all parties. Accordingly, in relation to the second cross-claim, the appropriate order is that BNP pay SSOE's costs of that cross-claim assessed in the usual way. 49 For the purpose of understanding the final orders for judgment, which follow, I attach to the supplementary reasons, the plaintiff's revised schedules entitled "Quantum Interest and Currency Conversion" as at 24 October 2001, and I make the following final orders and judgment. 50 Judgment for the plaintiff in the proceedings against the first defendant in the sum of US$4,378,788.49, being damages in the sum of US$4,237,207.47, together with interest thereon up to the date of judgment in the sum of US$141,581.02, such judgment to take effect from 24 October 2001. 51 I order the first defendant to pay the plaintiff's costs of the proceedings, subject to the order for costs of 26 July 2000. 52 Each of the first, second, fourth, fifth, sixth and seventh cross-claims are dismissed. 53 In the case of the first cross-claim, the cross-claimant is to pay the cross-defendant's costs of the cross-claim. 54 In the case of the second cross-claim, the claimant is to pay the cross-defendant's costs of that cross-claim. 55 In the case of the fourth and seventh cross-claims, the cross-claimant in the fourth cross claim is to pay two thirds of the cross-defendant's costs of the fourth cross claim, and two thirds of the cross-claimant's costs of the seventh cross claim, subject to the order for costs of 26 July 2000. 56 In the case of the fifth and sixth cross-claim, the parties are to pay their own respective costs of those cross-claims, subject to the order for costs of 26 July 2000. ********** Last Modified: 11/28/2001 DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. 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