THE OWNERS OF CARGO LATELY LADEN ON BOARD THE SHIP "NEDLLOYD NASSAU" v. THE OWNERS OF THE SHIP "NEDLLOYD NASSAU" AND THE OWNERS OF THE SHIPS LISTED IN THE SCHEDULE TO THE STATEMENT OF CLAIM

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J U D G M E N T

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Clough, J.A.:

1. This is the judgment of the court.

2. Two third parties in these Admiralty proceedings appeal against an order for indemnity and costs made by Mayo J. at the trial of the issue of liability on the27th September 1991 in favour of the defendant ship owners (the ships being the "Nedlloyd Nassau" and other ships) against the two third parties, Paramount Hide & Leather (H.K.) Limited ("Paramount") and the Bank of China ("the Bank"). The defendants had joined the third parties in the main action brought against the defendants by the plaintiff owners of goods (4 pallets of leather hides) ("the goods") which had been shipped in the Nedlloyd Nassau from Montevideo to Hong Kong under a bill of lading (issued in three originals) dated the 29th September 1983.

3. The goods had arrived in Hong Kong in January 1984 ahead of the bill of lading and had been released by the defendants to Paramount (together with 9 other pallets of leather hide which had been consigned to Paramount under a separate bill of lading) without production of the relevant bills of lading In accordance with the accepted mercantile practice the defendants had released the goods upon execution by paramount of a printed contract of indemnity ("the indemnity contract") dated the 11th January 1984 which was backed by the Bank.

4. The main action was concerned with.the plaintiffs' claim against the defendants for US$33,478.16 representing the value of the goods which the plaintiffs claimed to have been wrongfully released by the defendants to Paramount. The third party proceedings were concerned with the defendants' consequential claim for indemnity against Paramount and the Bank in respect of the plaintiffs' claim. In circumstances hereinafter mentioned the plaintiffs discontinued their action against the defendant. In the third party proceedings separate trials of the issues.of liability and quantum (directed to be referred to the Registrar) were ordered by Barnett J. on the 8th March 1991. On the state of the pleadings, and without any evidence being adduced at the trial of the issue of liability on the 27th September 1991, Mayo J. made the order in favour of the defendants against Paramount and the Bank which has given rise to this appeal. Although the grounds of appeal purport to give the appeal a wider ambit the real issue, as Mr. Ronny Wong Q.C. representing the two third parties acknowledged, concerns the order for costs on an indemnity basis made by the judge in the third party proceedings.

5. The material undertakings by the third parties contained in the indemnity contract were in the following terms:

" We hereby undertake and agree to indemnify you fully against all consequences and/or liabilities of any kind whatsoever directly or indirectly arising from relating to the said delivery, and immediately on demand against all payments made by you in respect of such consequences and/or liabilities, including costs as between solicitor and client and all or any sums demanded by you for the defence of any proceedings brought against you by reason of the delivery afore-said........

    We also undertake and agree that immediately the original Bill (s) of Lading is/are received by us, we will deliver same to you duly endorsed."

6. The procedural events leading up to the trial of the issue of liability were as follows. The plaintiffs' writ against the defendants was issued on the 28th September 1989 and their statement of claim (the filing date of which is not apparent from the appeal papers) was dated the 21st December 1989. On the 10th February 1990 the defendants issued their third party notice claiming to be indemnified by the third parties under the indemnity contract in respect of the plaintiffs' claim and the costs of the main action, and adding the allegation that the third parties were in breach of their undertaking to deliver the original bills of lading duly endorsed. The defendants' defence in the main action, denying liability for the plaintiffs' claim was dated the 15th February 1990.

7. Paramount was minded to settle tie plaintiffs' claim in the main action and by the 19th starch 1990 Paramount's solicitors had agreed terms for discontinuance of that action with the plaintiffs' solicitors. Before that, on the 14th February 1990 Paramount's solicitors had approached the defendants' solicitors by telephone on a without prejudice basis with a view to acnieving an overall settlement and had sought an indication from the defendants' solicitors of their clients' estimated costs. By their letter dated the 19th February, addressed to Paramount's solicitors and copied to the Bank's solicitors, the defendant's solicitors indicated that their estimate of the relevant costs and expenses incurred by their clients to date amounted to $116,270.41 in respect of fees and disbursements of their clients' claims consultants and advisers ("the defendants' consultants") together with $56,776.30 in respect of solicitors' fees and disbursements. Payment of these sums by the third parties was formally demanded in the same letter. On the 27th February Paramount's solicitors replied that the sums in question were disputed.

8. Pursuant to leave granted by an order of Kaplan J. made on the 25th March 1990 the plaintiffs filed notice of discontinuance on the 29th March. Leave to discontinue the main action had been given to the plaintiffs on the footing that they were ordered to pay the defendants' party and party costs of the main action. However Mr. Wong made it clear to this court on appeal that the third parties were not contending in the third party proceedings that the defendants' claim against them in the third party proceedings for indemnity in respect of their costs incurred in the main action was to be treated as pro tanto reduced by the amount of party and party costs thus recoverable by the defendants from the plaintiffs.

9. Attempts at settlement of the third party proceedings having unfortunately failed in February in the circumstances already mentioned, the usual order for third party directions was made by Kaplan J. on the 29th march 1990 on the defendants' application. Pursuant to that order the defendants filed their third party statement of claim on the 10th April. For reasons upon which I refrain from speculation this pleading seems to have been filed without regard to the fact that the main action had already been discontinued so that there was no longer any question of the defendants being held liable to the plaintiffs' claim. Nevertheless the third party statement of claim was in the following terms:

"1. The Defendants repeat their Defence herein by way of a Third Party Statement of Claim.

2. Further, by a joint indemnity dated 11th January 1984 the First and Second Third Parties undertook and agreed to indemnify the Defendants fully against all consequences and/or liabilities of any kind whatsoever arising out of the delivery to toe First Third Party of the goods referred to in the Statement of Claim herein under Bills of Lading Numbers 3001 and 3001A.

3. If, winch is in any event denied, the Defendants are found liable to any extent or at all in respect of the delivery of the said goods the Defendants seek to be fully indemnified by the First and Second Third Parties and each of them against any said liability pursuant to the said joint indemnity including all costs and expenses arising from defending the Plaintiffs' claims on an indemnity basis.

4. Further, or in the alternative, pursuant to the said joint indemnity the First and Second Third Parties agreed to deliver original Bills of Lading to the Defendants duly endorsed. In breach of such express agreement the First and/or Second Third Parties have, despite request, failed to deliver the same.

AND the Defendants claim against the First and Second Third parties.

(1) A declaration that tine Defendants are entitled to an indemnity;

(2) An order that the Defendants be fully indemnified by the First and/or second Third Parties.

(3) Alternatively, damages;

(4) Further an/or other relief;

(5) Interest; and

(6) Costs."

10. On the 26th April 1990 Paramount and the Bank (woo were represented by different solicitors but the same counsel) filed separate defences to the third party statement of claim. Paramount's pleading was as follows:

" 1. Paragraph 2 of the Third Party Statement of Claim is admitted.

2. Of paragraph 3 of the Third Party Statement of Claim, the first third party admits that the defendants are entitled to full indemnity by the first third party against liability towards the plaintiffs in respect of delivery of the said goods including all costs incurred in defending the plaintiff's claim on solicitor and client basis. Save as aforesaid, it is specifically denied that the defendants are entitled to any general declaration of indemnity against the first third party.

3. The first sentence of paragraph 4 of the Third Party Statement of Claim is admitted. The second sentence is denied. The first third party had never received the said original bills of lading [prior to 10th April 1990 when the Third Party Statement of Claim was served. The first third party has recently received the said original bills of lading from the plaintiff and the same will be sent to the defendant shortly.]

4. Pursuant to the admission under paragraph 2 hereof, the first third party will pay such costs of toe defendants as are reasonably incurred in defending the plaintiff's claim. The first third party requires the defendants to state specifically with full particulars as to gate, description and amounts for each and every item of cost or expenditure incurred in defending the plaintiff's claim. The defendant complains that costs have been unreasonably and unnecessarily incurred by the defendants [in failing to inform the first third party of the plaintiff's claim until 10th February 1990 when the third party notice was served, thereby depriving the first third party of the chance of dealing with the plaintiff's claim expeditiously and economically at an early stage. The first third party is unable to give further particulars as the defendants had exclusive knowledge of the history of the plaintiff's claim prior to the said date."]

(Square brackets supplied)

The Bank's third party defence was in the same terms as that of Paramount save that the words enclosed above in square brackets were omitted.

11. As a result of applications by each side in respect of the other's pleadings orders were made on the 26th July 1990 by Kaplan J. requiring further and better particulars of both sides' pleadings. The order relating to the defendants' third party statement of claim (which does not appear to have been perfected) evidently (according to a fax dated the 26th July and a letter dated the 3rd October 1990 from the defendants' solicitors to each of the third parties) required the defendants to furnish within 28 days particulars of all costs and expenses arising from defending the plaintiffs' claim. The order relating to the third parties' defences was made by reference to the defendants' previous formal requests for further and better particulars. The third parties were required by the order to serve on the defendants on or before the 1st October, (by which time the defendants' particulars should have been served) further and better particulars of their complaint in their respective defences that costs had been unreasonably and unnecessarily incurred by the defendants. The third parties were required to "state the precise nature of the alleged complaint, identifying with sufficient particularity each item of cost (sic) which it is alleged has been unreasonably and unnecessarily incurred by the Defendants."

After agreed extensions of time the defendants complied with the order by serving on the third parties, on the 18th September 1990:

(1) An itemised bill of the defendants' costs in the main action. This bill was drafted on an indemnity basis (as stated in item 72 at p.13 of the bill) and amounted to a total of $94,269.80 comprising disbursements of $3,146.30 and $91,123.50 costs.

(2) An itemised bill of the defendants' costs in the third party proceedings. This bill was also drafted on an indemnity basis (as stated in item 106 at p.17 of the bill) and amounted to a total of $123,651.50 comprising disbursements of $2,400 (not including counsel's fee for the trial subsequently incurred) and $121,251.50 costs.

(3) A schedule of time spent by the defendants' consultants. This schedule, which comprised 25 pages, related to the period between the 22nd May 1986 and the 15th September 1990. It set out the dates upon which specified items of work were carried out and the time (in minutes) taken by the consultants in executing the work. The total time was 9,489 minutes. The amount claimed under this head was not specified in the schedule.

12. On the 28th September and the 2nd October 1990 Paramount and the Bank respectively served and filed further and better particulars in purported compliance with the order of Kaplan J. Paramount alleged that all the costs under the schedule of times spent by the defendants' consultants had been unreasonably and unnecessarily incurred for the reasons already pleaded in paragraph 4 of Paramount's defence (i.e. failure to inform Paramount of the plaintiff's claim until the 10th February 1990). Paramount also alleged (without prejudice to its right to challenge any item, as a matter of evidence) that various (specified) descriptions of items of work in the schedule had been unreasonably or unnecessarily incurred because they related to matters where (1) the employment of the defendants' consultants amounted to duplication of internal administrative duties of the defendants' claims department, or of lawyers' work, or (2) the work in question was part of the consultants' own administration and not the subject matter of time costs payable by the defendants.

13. As regards costs claimed by the defendants in the main action and the third party proceedings, Paramount relied in its particulars on the matters already pleaded in paragraph 4 of its defence and alleged (but now no longer alleges) that, as the taxed costs of the main action were payable by the plaintiffs, the defendants were not entitled to double recovery from Paramount, but only to the difference "between party and party basis and solicitor-client basis". Finally Paramount asserted that it would "further dispute on hearing evidence at the trial such items of the said costs as might appear to be unreasonable or unnecessary having regard to the history and all the circumstances of this case." The Bank's further and better particulars of its defence were in the same terms mutatis mutandis.

14. On the 3rd October 1990 the defendants' solicitors wrote to the third parties' solicitors contending that the third parties' further and better particulars did not sufficiently comply with the order of Kaplan J. and indicating that the defendants were being advised to make further application to the judge. However no further action was taken by the defendants regarding the third parties' particulars.

15. The action had been directed, under the third party directions given by Kaplan J. on the 29th March 1990, to be set down for trial within 56 days after completion of discovery and inspection. However, on the 16th January 1991 the defendants issued a summons under Order 75 rule 25 applying for the determination of questions of liability at a one day trial before a judge in the Admiralty Court sitting without a jury or assessors and for questions of quantum to be referred to the Registrar at a later date. Having issued the summons the defendants' solicitors served each of the third parties with it and with an accompanying letter in which they commented:

" We assume your clients are still disputing their liability under the letter of indemnity, but please confirm. Assuming that liability is in issue, we believe it would be sensible to have it determined first and that quantum be resolved subsequently. Do you agree with this proposal?"

16. Neither of the third parties replied specifically to the defendants' solicitors' request for confirmation that they were still disputing liability under the letter of indemnity, but they both consented, albeit belatedly (on the 7th March, the day before the hearing date of the defendants' summons) to the order sought by the defendants. Accordingly, on the 8th March 1991, Barnett J. made a consent order in terms if the defendants' summons. The action was directed to be set down for trial within 28 days for the determination "of questions of liability" in a one day trial. He further directed that "questions of quantum" be referred to the Registrar at a later date "after the determination of questions of liability at the trial."

17. On the 7th March 1991 the defendants' solicitors had, in letters to the third parties' respective solicitors reminded them that the defendants' solicitors had, by their earlier letter dated the 16th January 1991, sought confirmation from the third parties whether they were still "disputing liability under the letter of indemnity". Confirmation was again sought by the defendants' solicitors in their letter to the third parties' solicitors dated the 2nd April 1991. On the 3rd April the Bank's solicitors replied that "our position was clearly stated in our Defence dated the 26th April 1990." No reply was received from Paramount's solicitors.

18. On the 25th September 1991 (2 days before the trial) Barnett J. made an order by consent giving the defendants leave to amend the third party statement of claim. The amendment was confined to paragraph 3 which was in the following terms by the date of the trial:

3. If which is in any event denied, the Defendants are found liaole to any extent or at all in respect of the delivery of the said goods. Pursuant to an Order of the Honorable Mr. Justice Kaplan dated 28th March 1990 by which the Plaintiffs were granted leave to discontinue their action by filing a Notice of Discontinuance within 14 days the Plaintiffs filed a Notice of Discontinuance dated 29th March, 1990 and the Defendants seek to be fully indemnified by the First and Second Third Parties and each of them against any said liability pursuant to the said joint indemnity including all costs and expenses arising from defending the Plaintiffs' claims on an indemnity basis.

PARTICULARS

Full particulars have been served on the First and Second Third Parties on 18th September, 1990."

19. Unfortunately of judge's notes of the trial on the 27th September have not been made available. As sometimes happens, counsel have disagreed about what was said at the hearing. This court was supplied with a copy of the opening skeleton argument of the defendants' counsel. He appears to have begun by saying hat the matters in dispute at the nearing fell within a very narrow compass, namely (following the terms of the indemnity contract), did the third parties undertake and agree to indemnify the defendants fully against all consequences and/or liabilities of any kind whatsoever arising out of the delivery to the third parties of the goods? Counsel acknowledged that in paragraph 1 of their defences of third parties had admitted that this undertaking had been given, but submitted that liability could not be decided on that admission because they had indicated that they intended to contest the proceedings and paragraph 2 of their defences (which denied the defendants' entitlement to a "general declaration of indemnity" against the third parties) appeared to contradict the general admission in paragraph 1 of their defences. According to counsel for the defendants the "question of the operation and application of the contractual indemnity is reserved for later argument (presumably this was a reference to the reference to the Registrar by the order of Barnett J.).

20. On the question of liability, counsel for the defendants submitted in his skeleton submissions that, the execution of the contract of indemnity having been admitted, the question of liability turned only on the construction of the contract. The construction of the third parties was, he submitted erroneous, because the indemnity was a general indemnity, there was no burden of proof upon the defendants and the obligation to indemnify arose immediately. Counsel said he did not understand the "complaint" in paragraph 4 of the third parties' defences, adding that the "question of quantum is separate to the question of liability". Having submitted that no evidence was needed because of execution of the indemnity contract was admitted, counsel went on to say that the defendants were not pursuing their claim for failure by the third parties to deliver up the original indorsed bills of lading.

21. In his skeleton submissions counsel for the defendants set out the terms of the order for substantive relief sought by the defendants, which the judge later made. Counsel sought an order for the costs of the hearing on liability in favour of the defendants, contending that those proceedings were "pointless on the basis of the 1st and 2nd Third Parties own pleaded case and should have been disposed of by a judgment by consent on liability." The judge was referred by counsel to the correspondence (which I have mentioned above) between the parties' solicitors regarding the question whether the third parties were contesting liability under the indemnity.

22. Mr. Wong (who did not appear below) informed the court that his understanding from his junior was that at the hearing below counsel for the third parties had asked the judge to determine (1) whether the indemnity contract covered the defendants.' consultants' expenses and (2) whether those expenses were of a reasonable nature or otherwise. Mr. Michael Thomas Q.C. (who did not appear below) informed the court that it was not accepted by his junior that any such submissions had been made.

23. The judge was understandably puzzled by the situation. His extempore judgment was as follows:

" I have been puzzled why this matter should have created such problems between the parties. What is very clear from the Third Party proceedings is that there has been an admission that the 1st & 2nd Third Parties are liable under the indemnity dated 11th January, 1964. This indemnity is termed in very wide terms and includes solicitors and own client costs. I note that the plaintiffs in the main action have withdrawn their claim. Costs have not yet been taxed so the amount therein is still unknown. The solicitor and own client bill has been prepared but not yet taxed.

        Mr. Lai for the Third Parties has persuaded me that in the circumstances of this case and in particular in the light of the undertakings made by his clients that it would be inappropriate for me to make a declaration as prayed in the relief sought. I do not however see any reason why I should not make an order pursuant to prayer 2 and I propose making an order as drafted by Mr. Scott for the defendants in para (7) of his skeleton. As I have said this is to be in the form if an order rather than a Declaration. The mandate to the Registrar is sufficiently clear to enable him to proceed with the assessment of damages which will ensure that this long outstanding matter can finally be resolved.

Costs to of defendants on an indemnity basis.''

24. The order made by the judge, which is the subject of this appeal was in the following terms:

" Upon hearing Counsel for the Defendants and Counsel for the 1st and 2nd Third Parties and pursuant to of Order of the Honorable Mr. Justice Barnett dated 8th March, 1991 IT IS ORDERED THAT: -



1. That the Defendant is entitled to be fully be indemnified by the 1st and 2nd Third Parties against all consequences and/or liabilities of any kind whatsoever directly or indirectly arising from or relating to the delivery of the cargo referred to in the Statement of Claim herein, and forthwith upon the determination of the amount of such sum by the Registrar (such amounts to include costs of the defence of main action on a solicitor and own client basis) the 1st and 2nd Third Parties do pay the same to the Defendants together with interest thereon.

2. Costs be awarded to the Defendants on an indemnity basis."

25. It is at once apparent that, apart from determining the basis upon which the defendants' costs of the main action are to be assessed (as to which there was never any real issue on the pleadings), this order leaves for determination by the Registrar all questions whether any item of expenditure claimed by the defendants under the indemnity contract is within the ambit of that contract. The trial was proved to be a non-trial, because paragraph 1 of the order is simply an incantation of the principal terms of the indemnity contract which were common ground on the pleadings of the parties in the third party proceedings. For all practical purposes the parties were at the end of the trial of the liability issue in the same position as if the defendant had obtained an order for reference of their claim to the Registrar on the basis of the admission by the third parties of their obligation to indemnify the defendants in the terms of the indemnity contract. Nevertheless both sides claim that they succeeded at the trial and that for costs purposes the "event" was favourable to them.

By their notice of appeal filed on the 15th November 1991 the third parties seek to have the whole of the judge's order rescinded and to obtain an order directing an inquiry by a Master in almost identical terms as the judge's order. The objections to the judge's order in the grounds of appeal are not that the judge has not determined the issues between the parties as to whether and, if so, to what extent the defendants are entitled to be indemnified by the third parties under the indemnity contract in respect of any head or item of the defendants' claim. Apart from the order as to the costs of the third party proceedings the objections were wholly technical, including the question whether the judge had in effect wrongly granted the defendants a declaration regarding admitted matters, disguised as an order.

26. Mr. Wong acknowledged during the hearing of the appeal that the order he sought was not materially different from the judge's order (save as to the costs of the third party proceedings) and that the real purpose of introducing grounds of appeal relating to the form of the order was for the defendants to avoid having to apply for leave under section 14(3)(e) of the Supreme Court Ordinance (Cap. 4) to appeal only against the judge's order as to the costs of the third party proceedings In view of this frank acknowledgment by leading counsel there can be no proper basis for dwelling on the technical objections to the form of paragraph 1 of the judge's order which are of no practical merit.

We mention that on the 6th January 1992 the defendants had applied for leave to serve out of time a respondents' notice under Order 59 rule 6(1)(b) to enable the defendants to contend that the judge's decision should be affirmed on the additional or alternative ground that the judge had been wrong in holding that it would be inappropriate to make a declaration in the terms of paragraph 1 of his order. At the invitation of the court Mr. Thomas withdrew this application (subject to the question of costs) when Mr. Wong indicated, in the course opposing the application, that it was unnecessary and that he did not object to Mr. Thomas arguing that a declaration would have been proper.

Ultimately, therefore, the real issue in the appeal concerned the order for indemnity costs made in favour of the defendants in paragraph 2 of the judge's order. Mr. Wong did not apply for leave to appeal on this issue but relied on the principles laid down in Scherer v. Counting Instruments Ltd. (Note) [1986] 1 WLR 615 (C.A.) (approved in Bankamerica Finance Ltd. v. Nock [1988] AC 1002 (H.L.)) and contended that, in making the order for costs on an indemnity basis against the third parties, the judge had failed to exercise his discretion at all or had not exercised it judicially. No reasons had been given for this order and, Mr. Wong argued, no thought process was indicated in the judgment as the basis for it.

On the footing that the discretion as to costs was therefore available to be exercised by this court on appeal, Mr. Wong contended that it was the third parties who had been successful at the trial hearing. First he relied on the fact that the terms of the declaration sought by the defendants in paragraph (1) of the prayer in their amended third party statement or claim had been too wide, as had their claim in paragraph 3 for costs on "an indemnity basis". This had, Mr. Wong submitted, been confirmed by the terms of the order eventually sought and obtained at the trial. Secondly Mr. Wong emphasised that at the trial the defendants had abandoned their claim for damages pleaded in paragraph 4, and in paragraph (3) of the prayer in their amended pleading. These matters which, Mr. Wong contended, had been ignored by the judge, entitled the third parties to the costs of the third party proceedings for the period between the 26th April 1990 (when the third parties defences were served) and the end of the trial hearing on the 27th September 1991.

27. If the court were against him regarding the incidence of costs, Mr. Wong contended, citing the observations of Godfrey J. in Overseas Trust Bank Limited v. Coopers & Lybrand [1991] HKLR 177 on the practice regarding orders for costs on an indemnity basis, that there could be no grounds for an order for costs against the third parties on an indemnity basis in the circumstances of this case.

28. For the defendants Mr. Thomas contended that the defendants had come to the trial expecting the third parties to raise the issue of liability under the indemnity. Such issues, he submitted, would concern matters such as enforceability, implied terms (e.g. the question of reasonableness), notice of claims and ambiguity. But in the event no such issues were raised by the third parties. He contended that the pleadings of the third parties were obscure. The onus was, he submitted, on the third parties to make it clear what it was that they were contesting, but it was difficult to ascertain what issue of liability the third party were raising.

29. As to the event at the trial, for purposes of costs, Mr. Thomas contended that the defendants had been predominantly successful and that the incidence of costs had been rightly determined on that basis. He accepted that there was a very minor point against the defendants in that they were in terms entitled to solicitor and client costs of the main action rather than costs on an indemnity basis but added that the correspondence gave no inkling that the third parties would accept that the defendants were entitled to their costs of the main action on the basis of solicitor and client.

30. Mr. Thomas made light of the abandonment of the defendants' claim for damages for failure to deliver the original bill of lading and the alternative claim for damages under that head. He pointed out that all recoverable damages had to be within the scope of the indemnity and submitted that there had never really been any live issue on the claim in respect of the non-delivery of the bill of lading.

31. Regarding the grounds for the order for costs on an indemnity basis, Mr. Thomas contended that the judge had acted properly within the exercise if his discretion under order 62 rule 28(1)(2) and (3). The relevant available grounds were the nature of the contract between the parties and the fact that, as the correspondence (to which counsel for the defendants had referred at the trial) showed, the third parties had been in abuse of the process of the court in allowing the issue of liability to go to trial and then raising no issue when the hearing occurred. It was not therefore, Mr. Thomas submitted, for this court to substitute its own discretion for that of the judge.

32. In our opinion there is something to said for both sides in this case - and it has been said by their leading counsel on their behalf - but in the end we agree with the observation made from the bench to Mr. Wong at the conclusion of this appeal to the effect that the abortive trial hearing in this case is really ultimately attributable to misunderstanding between the two sides as to the nature of the effective issues between them. This misunderstanding was handsomely contributed to by the pleading on both sides.

33. Thus the terms of the indemnity contract expressly entitled the defendants to "costs as between solicitor and client". This was highly material but in the third party statement of claim it was not pleaded in compliance with Order 18 rule 7(2). If this had been pleaded and if a claim for costs of the main action on a solicitor and client basis had been pleaded instead of costs on a indemnity basis in paragraph 3, we apprehend that (by reason of the third parties' admission as to the basis of costs in paragraph 2 of the third parties' defence) one sterile issue between the parties would have been eliminated.

34. The claim in paragraph 4 in respect of the non-delivery of the bill of lading alleges breach of the indemnity contract but makes no allegation that the defendants have suffered damage by reason of the breach. It is therefore hardly surprising that the claim for damages under this head was resisted. Moreover paragraph 4 is pleaded "Further, or in the alternative". whereas the claim for damages in paragraph (3) of the prayer is made "Alternatively".

35. By the 18th September 1990 when the defendants had delivered their further and better particulars of their alleged costs and expenses claimed under paragraph 3 of the third party statement of claim it was clear, on the pleadings, as particularised, that the defendants were claiming their costs of the main action on an indemnity basis and their expenses incurred in respect of the services of their consultants. They were making no other claims apart from claiming the costs if the third party proceedings. Accordingly the vacuous claims for relief in paragraphs (1) and (2) of the prayer should have been amended to claim specific relief in compliance with Order 18 rule 15(1): c.f. the precedent in Form 27 in Atkin's court Forms, 2nd edition, Vol. 37 (1990 Issue) at p.389. Under the circumstances the third parties were, in our opinion, fully entitled to deny in paragraph 2 of their defences that the defendants were entitled to the wide form of relief sought in paragraphs (1) and (2) of the prayer to the third party statement of claim.

36. The third parties, on the other hand contrived to complicate the issues by their pleadings. Thus in paragraphs 1 and 2 of their defences they admitted their liability to the defendants in terms of the indemnity contract but in paragraph 4 they pleaded that pursuant to their previously admitted liability they would "pay such costs of the defendants as are reasonably incurred in defending the plaintiff's claim" and went on in paragraph 4 as particularised to elaborate on reasons why all or some of the items of costs and expenditure were not reasonably or necessarily incurred in defending the plaintiff's claim. On one view the reasons given, to which we have referred above, relate to quantum only, but on another view it can be said that they relate to the ambit of the third parties' obligation under the indemnity contract because they do not relate to the amount of all or some of the items but to the question whether the items were unreasonably or unnecessarily incurred (e.g. because of alleged late notice to one or other or both of the third parties or because the item was a duplication of other work which would have had to be done outside the scope of the indemnity).

37. The situation seems to us to have been one in which the distinction between liability and quantum was not easy to define on the pleadings and where (as Jenkins L.J. warned in Polskie, etc. v. Electric Furnace Co. Ltd. [1956] 1 WLR 562 (C.A.) cited in the notes on O.33 rules 3 and 4 in the Supreme Court Practice, Vol. 1 p.573 para 33/4/7) it was undesirable to make an order for separate trials of liability and quantum. In the present case the court file shows that the order for reference of questions of quantum to the Registrar was evidently made under the inherent jurisdiction of the court, exercising its Admiralty jurisdiction, on a summons issued under Order 75 rule 25, so that rules 41 to 45 would apply, but the principle enunciated in the Polskie case seems to us to be equally applicable.

38. With the benefit of hindsight the admissions contained in paragraphs 1 and 2 of the third parties' defences were sufficient to enable the defendants' claim to be referred to the Registrar exercising Admiralty jurisdiction. In the end the order made by the judge, at the instigation of the defendants, at the trial has in effect produced that result, but by an expensive and devious route. The defendants maintained below and on appeal that this was all to be laid at the door of` the third parties who had persistently refused to admit liability under the indemnity contract.

39. We are unable to accept that the third parties should bear all the responsibility for what has occurred. The initiative for the reference of quantum to the Registrar came from the defendants, not the third parties. The relevant summons was issued by the defendants without first consulting the third parties. The correspondence, previously mentioned, shows this and that the third parties consented to the proposed order without any discussion or agreement between the parties as to what the issue or issues or liability were on the pleadings. In our judgment it is clearly wrong in the circumstances of this case to say that the third parties have been solely responsible for the wasted costs incurred in the abortive trial because they persisted in disputing "liability", particularly when paragraph l of the order made by the judge (1) is consistent with the admissions contained in paragraphs 1 and 2 of the third parties' defences, (2) grants relief in terms which were not pleaded in the prayer to the defendants' statement of claim and (3) was made after the defendants had abandoned, without prior notice to the third parties, their claim in respect of the non-delivery of the bill of lading. In our opinion both sides were equally responsible for the abortive trial.

40. Considered in this light and in all the relevant circumstances the order for costs and on an indemnity basis made against the third parties by the judge is unsustainable as an exercise of judicial discretion. The indemnity basis cannot be supported by any of the arguments advanced by Mr. Thomas. The judge did not have cited to him the passage in the practice notes on Order 62 rule 2 in the Supreme Court Practice 1991, Vol. 1, p.1014 para 62/2/87 where the decision of Salter J. in Simpson v. British Industries Trust (1923) 39 TLR 286 is cited in support of the statement that in third party proceedings to enforce a claim to indemnity a successful defendant's costs of those proceedings will normally be payable on the standard basis (party and party in Simpson's case) by the third party. In the absence of any special factor justifying a higher scale of costs, party and party costs are therefore appropriate notwithstanding the nature of the indemnity contract between the parties.

41. The only other matter relied upon by the defendants was the alleged abuse of the process on the part of the third parties in not conceding the liability issue and causing a pointless trial. We have already given our reasons rejecting the contention that the third parties were solely responsible for the wasted costs incurred at the trial of the liability issue. For the same reasons it seems to us to be wholly wrong to contend that the third parties had abused the process of the court. Furthermore, in the absence of any other stated or discernible reason for the judge's decision to burden the third parties with the incidence of costs in the third party proceedings, we consider that his order as to costs should be set aside as not having been made in judicial exercise of the judge's discretion.

42. It therefore becomes the duty of this court to exercise the court's discretion as to the costs of the third party proceedings. Having held that both sides were equally responsible for the costs wasted in the abortive trial of the liability issue we consider that justice will be done if they are left to bear their own costs. We therefore make no order in respect of the costs of and directly incidental only to the trial hearing on the 27th September 1991 on the basis that the trial resulted, for practical purposes, in a non-event on the issue of liability. This will leave the incidence of the balance of the costs of the action to be determined upon the outcome of the reference to the Registrar.

43. Before parting with this matter we invite the parties, as we did in the course of the hearing, to consider whether the preferable course would not be to agree to submit the defendants' bill of costs in respect of the main action to taxation (rather than reference to the Registrar) in accordance with the normal practice in third party indemnity proceedings. This would leave only the defendants' claim for expenses in respect of their consultants' services and the appropriate order for the costs of the reference to the Registrar to be determined in that reference. We add that the direction in paragraph 1 of the judge's order requiring the third parties to make payment "forthwith" to the defendants of the sum determined by the Registrar seems to conflict with the procedure laid down in Order 75 rule 42(4) and the right of objection conferred by rule 43.

44. For these reasons we allow the appeal, but only to the extent that we have indicated with regard to the order for costs.

45. Thus, although the third parties have achieved a substantial degree of success in this appeal on the issue concerning the costs of the abortive trial in these third party proceedings, nevertheless an appreciable amount of time had been taken up with the sterile issue raised in the notice of appeal regarding the question whether or not the judge's order was in substance a wrongly made declaration. There will therefore be an order nisi that the third parties are to have three quarters of the costs of the appeal.

46. As to the costs of the defendants' respondents' notice, the defendants' solicitors wrote to the third parties solicitors on the 2nd January 1992 asking for their consent to the filing of the respondents' notice out of time. No consent was forthcoming and on the 6th January the defendants issued their summons for leave returnable on the date of the hearing of the appeal. The granting of the application would have caused no prejudice to the third parties. Moreover the belated concession by their leading counsel at the hearing, that the defendants could argue the point raised by the respondents' notice without any need for leave, demonstrated that the defendants' opposition to the extension of time sought in the respondents' notice was unreasonable. In accordance with the practice note to Order 59 rule 6 in the Supreme Court Practice, Vol. 1, p.925 (59/6/6) there will therefore be an order nisi awarding the costs of the respondents' notice to the defendants.