22 October 2018

Background

A collision took place on 11 February 2005 between two vessels, ALEXANDRA 1 and EVER SMART. The owners of the vessels, the parties, claimed against each other for damages. On liability, there was no dispute that the dredged channel, in which the collision had taken place, was a narrow channel for the purposes of the narrow channel rule in r 9a of the International Regulations for Preventing Collisions at Sea 1972 (the Collision Regulations). The respective alleged faults of each vessel then fell to be determined in order to determine whether the crossing rule in r 15b of the Collision Regulations applied. It was held that the crossing rule was inapplicable because ALEXANDRA 1 was not on a sufficiently constant direction or heading to be on a course; she was waiting to embark a pilot rather than herself being on a course at the relevant time. The judge went on to hold that EVER SMART was at fault in respect of: (i) breaching the narrow channel rule by not keeping to the starboard side of the narrow channel; (ii) keeping a defective radar and visual lookout and making assumptions on the basis of scanty information; (iii) proceeding at an excessive speed, a direct consequence of her failure to keep a good lookout. 

In turn, ALEXANDRA 1 had been at fault by failing to keep a good aural lookout, with the result that, following a misheard or misunderstood VHF conversation, she did not turn to starboard towards the channel and instead headed so as to cross the approaches to the channel. Turning to the apportionment of liability, the judge found that the faults of EVER SMART were much more culpable than those of ALEXANDRA 1. As to causative potency, no marked difference in quality was found between the contribution which each vessel made to the fact that the collision occurred. However, due to unsafe speed, EVER SMART had contributed far more to the damage resulting from the collision than the very much lower (and safe) speed of ALEXANDRA 1. It followed that the causative potency of EVER SMART’s fault was greater than that of ALEXANDRA 1. In the light of these conclusions, the judge held held that EVER SMART should bear 80% of the liability for the collision and ALEXANDRA 1, 20%. EVER SMART appealed. 

Appeal dismissed. 

Issues and decisions

(1) Whether the crossing rules in in r 15b of the Collision Regulations applied.

The Collision Regulations were practical rules, having, as their primary object, the prevention of collisions at sea (see [57] of the judgment). 

The reality of the situation supported the view taken by the Judge. The case centrally concerned a narrow channel with its entrance and exit in the pilot boarding area of the port (not the open sea) (see [59] of the judgment). 

At all material times, ALEXANDRA 1 was already in the pilot boarding area. She was there with a view to embarking a pilot and entering the narrow channel. That was the only ‘reasonable inference’ to be drawn by EVER SMART as to ALEXANDRA 1’s future course. That the entrance and exit from the narrow channel were in the pilot boarding area was also relevant to a consideration of the navigation and speed of EVER SMART. An obvious concern would be, two rules potentially requiring different actions applying at the same time. The crossing rules required the stand-on vessel to keep her course and speed. The narrow channel rule required a vessel proceeding in the channel to keep to its starboard side, so far as was safe and practicable. The potential for conflicting requirements was apparent (see [60]-[63] of the judgment). 

There was authority that suported the inapplicability of the crossing rules in the present situation  (see [74] of the judgment). 

Normandie (Owners of Norwegian SS) v Pekin (Owners of British SS), The Pekin [1897] AC 532 applied; Kulemesin v Hksar [2013] 2 Lloyd’s Rep 367 applied.

(2) Whether, if the crossing rules would otherwise have applied, they were to be disapplied because ALEXANDRA 1 was ‘a vessel restricted in her ability to manoeuvre’ within r 18 (a)(ii) of the Collision Regulations. 

The term ‘vessel restricted in her ability to manoeuvre’ meant a vessel which from the nature of her work was restricted in her ability to manoeuvre as required by the rules and was therefore unable to keep out of the way of another vessel. The term ‘vessels restricted in their ability to manoeuvre’ included a vessel engaged in …..transferring persons…while underway (see [98] of the judgment). 

ALEXANDRA 1 was not a vessel restricted in her ability to manoeuvre within the meaning of r 18 and 3(g)(iii). ALEXANDRA 1 was not required to embark the pilot at the precise place chosen. Further had the crossing rule applied and ALEXANDRA 1 been obliged to keep out of the way of EVER SMART she could have done so, by putting her engines astern and so permitting EVER SMART to cross ahead in safety or by turning to starboard. She was not restricted in her ability to take such action by reason of embarking the pilot because that work had not commenced (and never did commence) (see [98] of the judgment). 

Bulk Atlanta (owners) v Forest Pioneer (owners) [2007] All ER (D) 228 (Jan) distinguished.

(3) Whether for the purpose of apportioning liability, the Judge erred in taking into account, the extent of the damage sustained by ALEXANDRA 1.

It was settled law that in assessing fault for the purpose of apportioning liability, both the relative culpability and the causative potency of each vessel’s faults had to be assessed (see [108] of the judgment). 

Liability for damage in a collision case was  to be apportioned under s 187 of the 1995 Act having regard to the degree of fault of each vessel. Both the culpability and the causative potency of the faults established were relevant to the apportionment of liability. Causative potency had two aspects; the first related to the extent to which the fault contributed to the fact of the collision occurring; the second, to the extent to which the fault contributed to the damage or loss resulting from the collision. Excessive speed was a prime example of a fault likely to contribute to the extent and severity of the damage or loss suffered. A judge was amply entitled to take into account the propensity of excessive speed to increase the damage suffered when undertaking the exercise of apportionment – and thus to have regard in broad terms to the magnitude of the damage sustained. That the correlation between the extent of physical damage and ultimate financial loss might well be less than perfect, was neither here nor there. Two caveats applied: first, the Judge needed to keep in mind that a detailed assessment of the damage and loss had to await the reference; secondly, the judge could not engage in speculation – faults and their causative potency needed to be proved. Approached in that manner, the apportionment of liability would constitute, ’a broad, commonsensical and qualitative assessment of the culpability and causative potency of both vessels (see [124] of the judgment). 

The Judge has not fallen into error in his approach to the causative potency of EVER SMART’s excessive speed. Having regard to that fault both in relation to the fact of the collision occurring and the severity of the collision, amounted to the separate counting of two different (and cumulative) aspects of the same fault. Nor had the judge either strayed into the proper territory of the Reference on the one hand or engaged in speculation on the other. The views he expressed reflected an unimpeachable broad qualitative assessment of the impact of excessive speed (see [125] of the judgment). 

Abadesa, The (Owners) v The Miraflores (Owners), The Abadesa (No 2) [1968] 2 All ER 726 applied; Owners and/or demise charterers of the vessel ‘Nordlake’ v Owners of the vessel ‘Sea Eagle’ now named MV Elbella [2016] All ER (D) 95 (Jan) applied.

Decision of Mr Justice Teare [2017] EWHC 453 (Admlty) affirmed.

Nigel Jacobs QC and James Turner QC (instructed by Ince & Co LLP) for the appellant.

Vasanti Selvaratnam QC and James Shirley (instructed by Clyde & Co LLP) for the respondent.

Tara Psaila - Barrister.

The Trial judge’s decision that r 9a of the International Regulations for Preventing Collisions at Sea 1972 (the Collision Regulations) did not apply to the collision between the two vessels, ALEXANDRA 1 and EVER SMART was correct. The Court of Appeal, Civil Division, further held in dismissing the appeal that the judge had not erred in the apportionment of liability. 

Background

In 2012, the respondent, W, died following an accident suffered by him on a motor vessel chartered and operated by the appellant (SFC). W’s widow, Mrs W, brought an action against SFC in negligence. She sought damages both as an individual and as guardian of their young son. SFC lodged a defence that the action was time-barred under the Athens Convention (the Convention) which, in the case of a death occurring during carriage, imposed a time bar of two years from the date on which the passenger would have disembarked. The Athens Convention had the force of law in the United Kingdom. Section 183 of the Merchant Shipping Act 1995 and the Carriage of Passengers and their Luggage by Sea (Domestic Carriage) Order 1987; SI 1987/670 extended the application of the Athens Convention to contracts for the domestic carriage of passengers by sea. It was agreed that W would have disembarked no later than 18 August 2012. 

SFC’s time bar defence was upheld by the Lord Ordinary. Mrs W appealed to the Inner House. The Inner House upheld the Lord Ordinary’s opinion in relation to her claim as an individual, but reversed his order in relation to her claim on behalf of her son, finding that her claim as guardian of her son was not time barred as art 16(3) of the Convention applied and extended the period. Article 16(3) of the Convention provided that ‘the law of the court seized of the case shall govern the grounds of suspension and interruption of limitation periods, but in no case shall an action under this Convention be brought after the expiration of a period of three years from the date of disembarkation of the passenger or from the date when disembarkation should have taken place, whichever is later’ (see [6] of the judgment). SFC appealed. 

Appeal dismissed.

Issues and decisions

Whether Mrs W’s claim, on behalf of her son, was subject to the two-year time bar in art 16(1) or whether art s 16(3) applied to extend that period. 

SFC contended, first, that the natural meaning of the words ‘grounds of suspension and interruption of limitation periods’ in art 16(3) meant that they were grounds which gave rise to a break in a period or course of events which was already in train. Alternatively, the words had a technical meaning derived from certain civil law systems, which drew a distinction between a ‘suspension’ and an ‘interruption’. The former referred to the situation in which a limitation period, which had started to run but had been paused by an event such as the onset of mental incapacity, resumed its running when the incapacity ceased with the rest of the period remaining. The latter term, ‘interruption’, referred to a circumstance in which the limitation period, having been halted by an event, commenced afresh when the halting event ceased and the time which had expired before the halting event did not count towards the running the limitation period. Whichever contention was correct, SFC submitted that a suspension or an interruption operated only if the limitation period had begun to run before the pausing or halting event occurred. 

SFC further submitted that the Scots law of limitation enacted in s 18 of the Prescription and Limitation (Scotland) Act 1973 did not contain such ‘grounds of suspension and interruption’ as to extend the limitation period as s 18 postponed the start of the limitation period instead of interrupting or suspending it as the Athens Convention envisaged. SFC contended therefore that Mrs W’s claim her son’s guardian was barred by the two-year time bar of article 16(1) of the Athens Convention (see [8]-[10], [12] of the judgment). 

Mrs W’s claim as guardian was not time barred by the Athens Convention (see [40] of the judgment). 

Applying the approach adopted by courts in relation to interpretation of international conventions, the court should not give a technical meaning to the words ‘suspension and interruption’ which, SFC asserted, could be derived from certain civil law systems (see [13]-[20] of the judgment). 

First, it was not appropriate to look to the domestic law of certain civil law systems for a technical meaning of the words in an international convention which was designed to be operated in many common law systems as well (see [21] of the judgment). 

Secondly, even within civil law systems and mixed legal systems which were strongly influenced by the civil law there was no uniformity in the use of the expression ‘suspension’ in 1974 when the  Convention had been adopted (see [22] of the judgment). 

Within civil law systems there was no international consensus - that ‘suspension’ occurred only after the prescription period had commenced (see [27] of the judgment). 

Thirdly, an interpretation of art 16(3) of the Convention as excluding domestic rules which had the effect of postponing the start of a limitation period would give rise to serious anomalies (see [28] of the judgment). 

The words in art 16(3) of the Convention, ‘the grounds of suspension … of limitation periods’ were sufficiently wide to cover domestic rules which postponed the start of a limitation period as well as those which stopped the clock after the limitation period has begun. The word ‘suspension’ was also apt to include the deferment or suspension of something which had not yet started (see [30] of the judgment). 

Fothergill v Monarch Airlines Ltd [1980] 2 All ER 696 applied; Stag Line Ltd v Foscolo, Mango & Co Ltd [1931] All ER Rep 666 applied; Buchanan (James) & Co Ltd v Babco Forwarding and Shipping (UK) Ltd [1977] 3 All ER 1048 applied; Sidhu and Others v British Airways plc; Abnett (known as Sykes) v British Airways plc [1997] 1 All ER 193 applied.

Robert BM Howie QC and Ruth Charteris (instructed by BTO Solicitors LLP) for SFC. 

Robert Milligan QC and Richard Pugh (instructed by Digby Brown LLP) for Mrs W. 

Tara Psaila - Barrister.

In a personal injury case where limitation was in issue, the words in art 16(3) of the Athens Convention, ‘the grounds of suspension … of limitation periods’ were sufficiently wide to cover domestic rules which postponed the start of a limitation period as well as those which stopped the clock after the limitation period had begun. The Supreme Court, in agreement with the Inner House also held that the word ‘suspension’ was also apt to include the deferment or suspension of something which had not yet started. 

Background

In her working life, S built up a company with her husband. She was a director of the company. S and her husband divorced and, as part of the settlement, the company granted her a pension in the form known as a ‘section 32 buyout policy’: namely, that s 32 of the Finance Act 1981 applied to it. In October 2006, S transferred the s 32 policy to a personal pension policy (the PPP) issued by AXA.

In December 2006, S died. A dispute arose as to whether the pension scheme transfer, and her omission to take income benefits which had then been payable, had constituted, or were to be treated as constituting, for the purposes of the Inheritance Tax Act 1984 (IHTA 1984), a ‘disposition’ which was a ‘transfer of value’ in favour of her sons, who were to have been the beneficiaries of the death benefit. The right to receive the death benefit had been assessed as worth a considerable proportion of S’s pension funds.

The first-tier tribunal (the FTT) held that S’s sole motive for the transfer had been to avoid the possibility of any part of her pension funds reverting to the company, and hence her former husband. It expressly found that it had been very important to S that her sons received a benefit. It considered whether the transfer had been intended to confer a gratuitous benefit in the sense of an inheritance tax advantage on her sons by transferring her pension funds to a PPP, but rejected that as S had thought that the transfer had been inheritance tax-neutral in relation to the death benefit.

The Revenue and Customs Commissioners (HMRC) appealed to the Upper Tribunal (the UT). It contended that the FTT had been wrong in law in the meaning that it had given to ‘confer any gratuitous benefit’. The UT agreed with that. However, it held that the FTT had not misdirected itself regarding the meaning of ‘associated operations’ in IHTA 1984 s 268, and that, on the facts, the no-income benefit decision had been made in June 2006. By implication, it had never been revoked or revisited, and had not formed part of the transfer to the PPP. Therefore, it had not been an ‘associated operation’.

HMRC appealed.

Appeal allowed.

Issues and decisions

(1) Whether the FTT had been correct to hold that IHTA 1984 s 10(1) applied. S 10(1) IHTA, sometimes called ‘the purchase exemption’, removed from the charge to inheritance tax a disposition which was not made with the intention of conferring a gratuitous benefit on any person and met some further conditions by providing that it was not a ‘transfer of value’. That entailed three further questions: (i) what findings the FTT had made on intention to confer such a benefit in relation to the death benefit; (ii) whether the words in s 10(1) ‘it was not intended… to confer any gratuitous benefit’ meant that the purchase applied if it had been intended to make a gift but that gift had been the same gift as the donor had previously made and, if so, how was the question of whether a gift was the same gift as a prior gift determined; and (iii) if HMRC failed on (i) and/or (ii), and the mere transfer of funds to the PPP had been taken outside s 3(1) IHTA by s 10(1), whether the omission to take income benefits had been an ‘associated operation’ which meant that the omission had caused the transfer to be a transfer of value to which s 10(1) had not applied.

The FTT had found as a fact that conferring on S’s sons a greater benefit than otherwise had been one of the factors in her decision not to access her pension fund. That, moreover, had been her intention at the time of the transfer to the PPP. Further, as at 30 October 2006, when S had applied to transfer the s 32 policy to the PPP, her intention in respect of the omission had been the same as at June 2006 and that intention had been in part to confer gratuitous benefit. Furthermore, S’s failure to take pension benefits had thus, to have been both an ‘operation’ within the meaning of IHTA s 268 (since ‘operation’ ‘included an omission’) and one ‘intended … to confer a gratuitous benefit’. The failure to take pension benefits and the transfer to the PPP would, on the face of it, have been ‘operations which affect the same property’ within the meaning of s 268(1). There was no question of each individual operation and/or transaction in ‘associated operations’ having to have been intended itself to confer a gratuitous benefit. It was good enough that a scheme of which an operation formed part was intended to confer a gratuitous benefit.

The FTT had erred in considering that there had been no intent linking the omission to take pension benefits and the transfer to the PPP. It followed from the FTT’s findings that the omission and transfer had been motivated by a desire on S’s part that her sons should have the death benefits that would be payable if she did not draw a pension in her lifetime.

It could not matter that S’s death had not been a ‘transaction’ or an ‘operation’, but rather the point at which the right to draw lifetime benefits had been lost. In the circumstances, the failure to take pension benefits and the transfer to the PPP were each to be seen as forming part of and contributing to a scheme intended to confer gratuitous benefits (see [103] of the judgment).

Inland Revenue Commissioners v Macpherson [1989] 1 AC 159 considered; Rysaffe Trustee Co (CI) Ltd v IRC [2002] All ER (D) 520 (May) considered.

(2) Whether the omission by S to exercise her right to take any income benefits from the PPP after the date of transfer and before she had died ought to be treated as a further transfer of value under IHTA 1984 s 3(3).

For s 3(3) to be applicable, a person’s estate had to have been increased ‘by’ the omission in question. In the present case, the sons’ estates were to be regarded as having been increased ‘by’ the omission of S to have taken benefits before she died. That would not have happened but for the omission. Moreover, the exercise of discretion in the sons’ favour by the scheme administrator had not involved any break in the chain of causation. The administrator had been doing no more than it had been obliged and could have been expected to do in the period immediately following S’s death. It could have been that the increase in the sons’ estates could also be said to have been brought about ‘by’ the exercise of the administrator’s discretion, but that by no means made it inappropriate to see the estates as having been increased ‘by’ the omission. The one did not preclude the other (see [109] of the judgment).

HMRC’s appeal would be allowed on the second issue (see [112] of the judgment).

Elizabeth Wilson (instructed by HM Revenue and Customs Solicitor’s Office) for HMRC.

David Rees QC and Hugh Cumber (instructed by Farrer & Co LLP) for the respondents.

Toby Frost - Barrister.

The appeal of the Revenue and Customs Commissioners (HMRC) against findings of the Upper Tribunal succeeded. The Court of Appeal, Civil Division, held that the pension scheme transfer by S, and her omission to take income benefits that had then been payable, had not constituted for the purposes of the Inheritance Tax Act 1984, a disposition was that a transfer of value in favour of her sons.