[Home] [Databases] [World Law] [Multidatabase Search] [Help] [Feedback]
	Scottish Court of Session Decisions
You are here: BAILII >> Databases >> Scottish Court of Session Decisions >> Assuranceforeningen Skuld v. International Oil Pollution Compensation Fund & Ors [2003] ScotCS 153 (28 May 2003) URL: http://www.bailii.org/scot/cases/ScotCS/2003/153.html Cite as: [2003] ScotCS 153

[New search] [Help]

1. As a result of the grounding of the Braer at Garths Ness, Shetland on or about 5 January 1993 the claimants suffered loss due to the contamination caused by the discharge and escape of oil from the Braer. The loss can be categorised under three headings, namely (a) contamination of the cages at the claimants' fish farm, (b) contamination of fish which were already in the cages at the said fish farm and (c) alleged loss relating to the claimants' inability due to the oil pollution to introduce smolt from Terregles Hatchery into their fish farm. The dispute between the claimants (as pursuers) and the Braer Corporation and Assuranceforeningen Skuld (the defenders) was considered on the procedure roll by Lord Gill in Shetland Sea Farms Limited v The Braer Corporation 1999 SLT 1189. Head 1 of the claim in that case is outlined by Lord Gill at page 1191 A-E. Although the total sum claimed under Head (c) in the present claim proceedings is less than the total claimed under Head 1 in Shetland Sea Farms Limited v The Braer Corporation, the basis of the claim is essentially the same, namely a claim in two parts, as outlined by Lord Gill, for wasted expenditure and for loss of profit in respect of the smolt, which the claimants could not introduce into their fish farm and grow to harvest. Head 2 of the claim outlined by Lord Gill at page 1191 E-F, is equivalent to the total sum claimed under Head (a) in the present action and has been settled. The claim under Head (b) in the present action, namely compensation for loss of the fish which were in the water at the claimants' fish farm when the Braer grounded, has also been settled.
2. The proof before me was restricted to the issue of whether the claimants were entitled to any sum in respect of the claimants' inability to take smolt in January and March 1993 for which they had paid, whether such sum related to wasted expenditure or loss of profit which the claimants would otherwise have made on the January and March deliveries had the claimants been able to grow the smolt to harvest.

Background

3. Before considering the disputed evidence and the competing submissions of parties, it appeared to me that there was a measure of agreement about the relationship between the claimants and other companies with whom the claimants had dealings. There was also agreement about the general course of dealing between the claimants and those other companies.

The Group of Companies

4. The claimants and Summer Isles Salmon Limited (hereinafter referred to as "Summer Isles Salmon") were each wholly owned by Ettrick Trout Group Limited (hereinafter referred to as "Ettrick"). Summer Isles Salmon operated a fish farm on a site at the Summer Isles where smolt were grown to harvest. Smolt were delivered to the claimants and Summer Isles Salmon from hatcheries at Hollywood and Terregles in Dumfriesshire where eggs were hatched and the parr grown to smolt. The hatcheries were operated by Terregles Salmon Company Limited (hereinafter referred to as "Terregles"). Terregles had developed a technique which enabled smolt to be produced out of season, thereby enabling them to deliver smolt to the claimants and/or other fish farms, including Summer Isles Salmon, throughout the calendar year. Approximately 85% of the shares in Terregles were owned by Ettrick and the remainder were owned by Dr Elliott, who was the Managing Director of Terregles at the relevant time. When the fish were harvested at the sites operated by the claimants or by Summer Isles Salmon they were sold to Scotfish Supplies Limited (hereinafter referred to as "Scotfish"). Scotfish thereafter sold the fish to retail outlets. At the relevant date 76% of the shares in Scotfish were owned by Ettrick and the remaining 24% were owned by William Liston. William Baxter owned 8999 of the 9,000 shares in Ettrick.
5. The effect of the corporate structure described above was that Ettrick, through the various companies within the group, controlled the entire process from hatching the salmon eggs to the sale of farmed salmon to retail outlets. Moreover salmon could be supplied to retail outlets throughout the year by virtue of the techniques adopted by Terregles.

Course of dealing

6. Although prior to 1992 smolt had occasionally been sold by Terregles to fish farms operated by companies which had no connection with Ettrick, all of the smolt thereafter was sold to the claimants or Summer Isles Salmon. When smolt were sold by Terregles to companies unconnected with Ettrick, it was the practice of Terregles to have a written contract, which excluded liability for loss due to force majeure.
7. It was clear from the evidence that the relationship between the companies and the control exercised by Mr Baxter over the various companies was such that by 1992 all of the production at the hatcheries operated by Terregles was sent to a fish farm operated by a company within Ettrick, including the claimants and Summer Isles Salmon. The decision as to which farm would receive smolt at any given time was the sole responsibility of Mr Baxter, as was the price payable in respect of each smolt. The managers at the fish farms had no responsibility or power in respect of such matters. In particular, the managers at the fish farms operated by the claimants and Summer Isles Salmon did not have power to order smolts, far less to agree the price of them. Moreover, even although Dr Elliott was the managing director of Terregles, and had a minority shareholding in that company, he was unable to agree a price at which smolt would be sold to the fish farms within Ettrick. There were no written contracts between companies within Ettrick. The practice was that when smolt were available Mr Baxter would determine unilaterally their destination and would fix what he considered to be a fair price for the smolt. In doing so, he would have regard to the market value of smolt, the cost of production of the smolt at the hatchery, the need to protect the interests of Dr Elliott, who had an interest in the profit of Terregles, and the interests of Mr Gardiner, the manager of the claimants, who was entitled to bonuses depending upon the profits made by the claimants. The control exercised by Mr Baxter was readily accepted by him in evidence and can be illustrated by evidence given by Mr Gardiner to the effect that although the various companies were separate entities, they were all run by Mr Baxter and everybody worked for him. Mr Baxter took all the decisions. He decided where fish went. He decided the price. He could change his mind at any time. Even when fish were en route to one destination, theoretically Mr Baxter could re-route them assuming the necessary logistics permitted such a course of action although, in fairness, Mr Gardiner stated that as far as he was aware, this had never happened. Mr Pendred, the manager of the farm operated by Summer Isles Salmon described Mr Baxter as being in "complete charge of the group".
8. There was also a practice certainly within the group and perhaps within the industry as a whole that the fish farm only paid for such fish as survived after 28 days of delivery from the hatchery. The normal procedure for intra-group transactions was that the hatchery would advise Mr Baird and the fish farm of the number fish which left the hatchery. The manager of the fish farm, Mr Gardiner in the case of the claimants, would notify Mr Baird, a chartered accountant, and the secretary and a director of Ettrick, of the number of mortalities to enable an invoice to be raised in respect of the smolt which had survived 28 days after delivery. Once Mr Baird had the figures for mortalities, he would discuss the matter with Mr Baxter, who, in turn, would decide the number of fish to be invoiced to the fish farm. Even although Mr Baxter did not have any system of independently checking the mortalities claimed by the farm manager, it was for Mr Baxter to decide the number of fish to be paid for. As far as price is concerned, that too was the exclusive province of Mr Baxter. Although he received representations from Dr Elliott, in whose interests it was to have a higher price, Mr Baxter would fix a price which, in his opinion, reflected the production costs, plus an element of profit for the hatchery, while at the same time respecting the market price.
9. While there would be a plan that fish would be delivered from the hatchery to a particular fish farm in a particular month, that plan was subject to change because of uncertainties associated with the business of the various companies. There were times when the hatchery would not produce the desired number of smolt because of high mortality rates at the hatchery. In that event, the fish farm, which had been the intended destination for the smolt, would either receive a smaller batch of smolt or none at all. The latter situation would arise if it were not economical to send the available smolt to a particular fish farm because of the cost of transportation, in which case, the available smolt would be sent to another fish farm where the transportation costs made the growing and harvesting of the available smolt a more economic proposition.
10. Although no contractual documents were used in connection with intra-group transactions, it was accepted by the various companies that the 28 day rule applied and that there was no liability as a result of loss due to force majeure. Thus where the hatchery could not deliver the anticipated number of smolt to a fish farm within the group, the fish farm would have no claim against the hatchery. Equally, if the hatchery despatched smolt but a large number died in the course of transit, the hatchery would bear the loss because of the 28 day mortality rule.

Claim for wasted expenditure

11. The basis of the claim for wasted expenditure was two alleged contracts between Terregles and the claimants. The first contract was for delivery in January 1993 to the claimants by Terregles of 200,000 Atlantic salmon S1 smolts at a price of £1.40 per smolt delivered, payment to be made in full in 30 days from the date of invoice. The second contract was for the delivery in March 1993 to the claimants by Terregles of 300,000 Atlantic salmon S1 smolts and 100,000 Atlantic salmon S2 smolts at £1.40 per smolt delivered, payment to be made in full in 30 days from the date of invoice. These purported agreements were recorded in letters dated, respectively, 17 October 1992 and 4 November 1992 signed by Dr Elliott and addressed to Mr Gardiner. Copies of these letters were attached as Appendix 10 to the claim form submitted to the defenders by the claimants and signed by Mr Baird on 1 February 1993 (GG1 of process). The claim form had been prepared by Mr Baird in conjunction with Mr Baxter and Roderick McKenzie, the solicitor representing the claimants.
12. This aspect of the claim depended upon there being, as at 5 January 1993, a pre-existing obligation upon the claimant to pay the contract price within 30 days of the date of invoice for the specified number of smolts, without any allowance being made for loss due to force majeure or mortalities within 28 days of delivery. Initially the claim was formulated on the basis that the letters constituted a written contract but the position ultimately adopted by the claimants was that these letters merely recorded a decision made by Mr Baxter to the effect that all of the smolt produced at Terregles in January and March 1993 would be delivered to the claimants. It was alleged that this was equivalent to an agreement between the claimants and Terregles although the numbers were estimates of the likely availability of smolts during these months. In fact the figure for January was subsequently restricted to 166,659 after the grounding of the Braer following an assessment by Mr Baxter of the number which would have been available for transfer. At some date subsequent to the grounding of the Braer the claimants had paid Terregles £1.40 per smolt in purported implementation of the pre-existing obligation. Thereafter the claimants had resold some of the smolt to Summer Isles Salmon at a price of 0.70p per smolt resulting in the claim for wasted expenditure.
13. I considered that the success of the claim for wasted expenditure depended upon my concluding that the letters genuinely reflected a decision taken by Mr Baxter, which amounted to an agreement between the claimants and Terregles, and were not part of a fraudulent scheme to enable Ettrick to recover, through the claimants, loss which had been suffered by Terregles but which could not be recovered from the defenders. To determine this issue I required to evaluate the evidence relating to the letters.
14. These two letters had formed the basis of an ordinary action in the Sheriff Court at Glasgow in which Terregles sued the claimants for £729,008 representing alleged loss arising from the claimants' failure to implement the alleged contract between them and Terregles. The initial writ referred to the said letters and had copies of them appended to it. The action was raised on 15 December 1997 but was ultimately abandoned on the advice of counsel.
15. There was a significant difference between the various witnesses about these letters. Dr Elliott, the author of the letters, gave evidence on commission in Canada before Lord Gill to the effect that he had been asked by Mr Baird after the grounding of the Braer to create a written record of the decision taken by Mr Baxter in October and November 1992 relating to the destination of smolt to the claimants, and the price payable. Dr Elliott confirmed that, despite the terms of the letters, there had been no conversation with Mr Gardiner, agreeing the price of smolt and the number to be delivered in January and March. Mr Gardiner testified that the letters did not reflect any agreement between him and Dr Elliott and that, apart from anything else, he had no power to enter into such an agreement. He had been asked by Mr Baird to reply to the letters. He refused to do so. He confirmed that he had seen copies of the faxes after the grounding of the Braer but he had refused to be involved in the preparation of any documentation which might suggest that this was a legitimate agreement. He had been aware that it was the intention of Mr Baxter to send a well-boat of smolts to the claimants in January, and two well-boats in March. The numbers of smolt would be about 100,000 and 200,000 respectively and the figures suggested by the claimants were exaggerated. Mr Baird denied that he had solicited the documentation from Dr Elliott and that he had been party to any fraudulent scheme. Mr Baxter claimed that he first became aware of the documents when the claim was being prepared, and he also denied any involvement in any fraudulent scheme.
16. I preferred the evidence of Mr Gardiner to that of Mr Baird. Mr Gardiner impressed me as a credible and reliable witness who gave his evidence in a straightforward manner and had no reason to lie. On the other hand, Mr Baird appeared to me to be evasive and I found him to be an incredible witness. The original facsimiles of the letters from Dr Elliott to Mr Gardiner dated 17 October 1992 and 4 November 1992 (Y2 and Y3 of process) were not produced to the solicitors for the International Oil Pollution Compensation Fund (hereinafter referred to as "the Fund") until 3 September 1999 after a commission on 26 August 1999. It is clear from the original documents that the letter dated 17 October 1992 was faxed from Terregles on 21 January 1993 at 9.55am and that the letter dated 4 November 1992 was faxed from Terregles on 29 January 1993 at 10.03am. The copies of the letters which formed Appendix 10 to the claim (GG1 of process), and the copies which were appended to the initial writ in the process in Glasgow Sheriff Court (19/7 of process) had all been photocopied so as to exclude the fax header, thereby concealing the dates on which the facsimiles had been sent. By omitting the fax header on each of the letters, the impression was created that these letters were contemporaneous records of a contract between the claimants and Terregles. When he was asked for an explanation for this, Mr Baird stated that the facsimiles had been sent to his office at Bellshill, and that the fax paper was such that it curled up. Photocopying these documents in that condition would explain the omission of the fax header from the copies of the letters submitted with the claim and attached to the initial writ. Apart from being implausible, that explanation did not bear scrutiny. The document immediately before Appendix 10 in the claim submitted by Mr Baird, is a handwritten facsimile transmission from Shanks & McEwan (Northern) Ltd to Mr Baird. Although the document itself is undated, the fax header is clearly visible and it can be seen that it was sent on 29 January 1993 at 1321 hours. It appeared to me to be more than coincidental that the photocopier had failed to copy the fax header on the two documents, which were admitted to have been generated after the dates which they bear, whereas it had succeeded in copying the fax header of a genuine document.
17. Mr Baird was clearly uncomfortable in the witness box. He was evasive about accountancy questions. In particular, when he was asked hypothetical questions about who would bear the loss in a particular situation, he did his best to avoid the issue and sought to suggest that it would depend upon Mr Baxter as to which company should bear the loss. Although he endeavoured to hide behind Mr Baxter, he was forced to accept as an accountant that the loss, in the hypothetical situation being put to him, should be reflected in the books of Terregles. I did not accept his denial that he had asked Dr Elliott to send the faxes. Nor did I accept his denial that he had asked Mr Gardiner to reply to them. I preferred the evidence of Mr Gardiner and Dr Elliott on this matter. Mr Gardiner had no reason to lie about it. By acknowledging that the faxes were generated at a later date, Dr Elliott was making a statement against interest. I have no reason to disbelieve his evidence in that regard. Moreover, in so far as it supported Mr Gardiner's evidence implicating Mr Baird in the scheme to generate false documents, I accepted Dr Elliott's evidence.
18. I did not accept that Mr Baxter was unaware of the scheme to generate false documents. It was not the practice to have any such documents in the course of dealing between Terregles and the claimants or Summer Isles Salmon. When Mr Baxter saw these documents, he must have realised that they were not genuine. Apart from being unique in the context of transactions within the group, they purported to record an agreement between the managing director of the hatchery and the manager of the claimants. Neither of these people had any authority to agree the price of fish or the number of smolt to be delivered. Such matters were the exclusive responsibility of Mr Baxter. It was clear from the evidence that Mr Baxter jealously guarded his control over the various companies and dictated what was to happen in relation to the delivery of smolt to particular fish farms, and the price to be paid by the fish farm to the hatchery. I also thought it significant that it had been the original intention that Terregles would pursue the claim for the loss suffered by it as a result of the Braer grounding but that decision was altered within a short period of time, according to Dr Elliott, following discussions involving Mr Baxter and his legal advisers. It was in Mr Baxter's interests that Terregles should not bear the loss associated with its inability to sell smolt ready for delivery. Having regard to the control which he exercised over the various companies, including Terregles and the claimants, it is inconceivable that Mr Baxter was unaware that the documents were false. He must have known that they were part of a fraudulent scheme to recover money from the defenders to which the claimants were not entitled. The evidence disclosed that he was actively involved in the formulation of the claim (GG1 of process) and in pursuing it.
19. Furthermore, I was not impressed by Mr Baxter as a witness. He was evasive. He gave me the impression of someone who was prepared to go to any lengths to further his own ends. The fraudulent scheme was simply a manifestation of that. I did not find him to be a credible or reliable witness.
20. Various steps were taken in furtherance of the claim. The letters, to which I have referred, were backdated with the intention of deceiving the reader that they had been generated shortly after the non-existent agreement. They referred to non-existent telephone conversations. They recorded a purported agreement to purchase smolt at £1.40 per smolt. This price was higher than any price previously obtained by Terregles from the claimants or from Summer Isles Salmon and was almost double what Mr Gardiner considered would have been a reasonable price for the size and quality of smolt produced by Terregles. He considered that 80p per smolt would have been a reasonable price. Although Mr Gardiner had an interest at the time of advocating a lower purchase price for smolt, he had no such interest when he gave evidence at the proof, as he was no longer employed by the claimants. I accepted his evidence that smolt from Terregles was of poor quality and that he would have preferred to purchase smolt elsewhere, if he had been allowed to do so by Mr Baxter. Contrary to the practice within the group, no allowance was made for mortalities. The full price was to be paid within 30 days without any deduction for mortalities. The letters concealed the reality of the situation that Mr Baxter would determine price and destination of smolt, and could even alter the destination to another fish farm within the group, if he so wished. The omission of the fax headers from the copies submitted with the claim, and used for the purpose of the Sheriff Court action, confirmed me in the belief that this was an attempt to defraud the defenders. There was no agreement between Mr Gardiner and Dr Elliott.
21. I do not accept that the letters constituted a contract between Terregles and the claimants. Nor do I accept that they recorded decisions taken by Mr Baxter in October and November 1992 which imposed an enforceable obligation on the claimants to pay, within 30 days of invoice, £1.40 per smolt which was ready for delivery in January and March 1993. It was clear from the evidence that Mr Baxter had the ability to alter his decision at any time. I accepted the evidence of Mr Gardiner that the price of £1.40 per smolt was too high and was almost double what would have been a reasonable price. I have concluded that the price of £1.40 was an inflated price fixed after the grounding of the Braer. It was a device by Mr Baxter to maximise his alleged claim for wasted expenditure. Ironically by adopting this approach Mr Baxter reduced any claim for loss of profit by the claimants. Moreover the course of dealing did not require the claimants to pay for smolts until at least 28 days after delivery once mortalities had been ascertained. The subsequent payment by the claimants to Terregles in purported implement of the alleged enforceable obligation was a further device by Mr Baxter, and perhaps also Mr Baird, to add credibility to the claim for wasted expenditure.
22. I have reached the conclusion that the letters were part of a fraudulent scheme to enable Mr Baxter to recover the loss suffered by Terregles as a result of its inability to sell smolt to the claimants due to the grounding of the Braer. On the basis of Landcatch Ltd v International Oil Pollution Compensation Fund 1999 SLT 1208 Terregles could not recover any such loss. By alleging that there was an enforceable obligation between the claimants and Terregles and by the claimants making payment to Terregles ostensibly in terms of the alleged obligation, the claimants sought to recover from the defenders losses which would otherwise be borne by another company owned by Ettrick. By transferring the loss from Terregles to the claimants, Mr Baxter would benefit as the principal shareholder of Ettrick if the claimants could recover that loss.
23. I am of the opinion that those involved in the fraudulent scheme were Mr Baird, Mr Baxter and Dr Elliott. The reasons for my view concerning the involvement of Dr Elliott is that he conceded that there was no agreement between him and Mr Gardiner. He accepted that he had no power to enter into such an agreement. In fairness to him, his position seemed to be that the letters were intended to reflect what he understood Mr Baxter to have decided. Nevertheless Dr Elliott generated letters which were obviously false, signed them and sent them by facsimile to Mr Baird. Mr Baird's involvement is established by the evidence of Dr Elliott and Mr Gardiner. Moreover, he was responsible for the records of the companies within Ettrick. There was no equivalent document in relation to any other transaction between Terregles and any of the other companies in which by Mr Baxter had a direct or indirect interest. Mr Baird gave the distinct impression that he would do whatever Mr Baxter required him to do. He did not impress me as a trustworthy accountant, who would act lawfully and in accordance with the ethical standards of his profession, if it meant refusing to follow Mr Baxter's instructions. I am of the opinion that it is inconceivable that Mr Baird would have acted without Mr Baxter's knowledge. His demeanour in the witness box suggested to me that he was either extremely stupid, or that he knowingly became involved in the fraudulent scheme to further the ends of Mr Baxter. On balance I reached the view that he was not stupid and that he knowingly became involved in the fraudulent scheme. In relation to Mr Baxter, although he professed to be unaware of the falseness of the facsimile letters, I did not believe him. He ran each of the companies under his control as though they were his own businesses. He took all of the decisions about price and destination of smolt, after consultation about price, availability of smolt and the preparation of the necessary cages. Mr Baxter was aware of the facsimile letters before they were submitted as part of the claim to the defenders. It is inconceivable that Mr Baxter was unaware of the false nature of the documents. Despite that he allowed the documents to be submitted as part of the claim to the defenders (GG1 of process).
24. In all the circumstances, I have reached the view that there was no obligation on the claimants to pay for the smolt. Accordingly they have not suffered any loss recoverable from the defenders in respect of wasted expenditure. I shall, therefore, repel this aspect of this claim.
25. I shall instruct the Principal Clerk of Session to report this case to the Lord Advocate to enable him to consider whether any proceedings should be taken against any person or persons. In the meantime, I shall prohibit anyone from borrowing any parts of the process, including productions, without prior approval in an interlocutor of the Court.

Claim for loss of profits

Preliminary issue

26. Counsel for the objectors submitted that there was no basis in the pleadings for a claim for loss of profit other than a claim having as its foundation the existence of a contract or other enforceable obligation between the claimants and Terregles for the sale of smolt to the claimants in January and March 1993. On the other hand counsel for the claimants submitted that it was clear from the pleadings that the claim for loss of profit could succeed even if I concluded that there was no enforceable obligation upon the claimants to pay for the total number of smolt which were available for delivery from Terregles to the claimants. The objectors submitted that the claim for loss of profits was perilled upon the existence of a contract or other enforceable obligation between Terregles and the claimants. On the other hand the claimants maintained that the claim for loss of profits depended upon an assessment of the probability that, but for the grounding of the Braer, the claimants would have introduced smolt to their site, grown the smolt to harvest and consequently would have made a profit. It was this loss of profit which the claimants sought to recover in the second part of the claim with which I was concerned.
27. In considering this preliminary issue I was of the opinion that I should not adopt an approach to the pleadings which is too restrictive. The claim for loss of profits is potentially a substantial one and should not be dismissed for procedural reasons unless there is no basis whatsoever in the pleadings for such a claim. In Article 8 of Condescendence at paragraph (vii) (pages 13-22 of the Closed Record) the claimants aver that (a) they have suffered loss in relation to smolt. (p.13); (b) in August 1992 Mr Baxter determined on behalf of Terregles and the claimants that all smolt produced by Terregles in January and March 1993 would be delivered to and accepted by the claimants (page14); (c) as a result of the oil contamination the claimants were unable to take delivery of said smolt as pre-arranged (pages 14-15); (d) but for said oil contamination the claimants would have been able to take delivery of said smolt from Terregles (as had been pre-arranged) and they would have made a profit thereon. Although the averments could probably have been phrased more precisely, they give notice to the objectors that the claimants seek compensation for loss of profit due to the claimants' inability to introduce smolt from Terregles because of the oil pollution. In particular I consider that to interpret the phrase "said smolt from Terregles (as had been pre-arranged)" as confining the claimants' case to all of the smolt ready for delivery from Terregles in January and March 1993 is too restrictive.
28. I have concluded that on a fair reading of the pleadings the claimants have given notice to the objectors that they intended to seek compensation for loss of profit, as well as wasted expenditure, in respect of the smolt which Mr Baxter intended to send to the claimants' farm in January and March 1993. Although the pleadings refer to Mr Baxter's intention to arrange for the delivery of a total of 566,659 smolt, I consider that the claim is not perilled upon the claimants' ability to establish that intention. If the claimants are able to establish that they would probably have introduced smolt to their site during these months but could not do so because of the grounding of the Braer, there is sufficient notice to the objectors that the claimants are seeking compensation for loss of profit resulting from that inability. The claimants can still succeed in their claim for loss of profits to the extent that they establish the probable number of smolt which would have been introduced but for the oil pollution. The approach adopted by the objectors to the pleadings is too restrictive and I have concluded that there is sufficient notice in the pleadings of a separate claim for loss of profit based upon an intention to introduce smolt in January and March 1993 even although the claimants fail to establish the intention to introduce the numbers suggested by Mr Baxter. Accordingly I shall repel the preliminary objection of the objectors to this aspect of the claim.
29. I have also concluded that the claim for loss of profits is not dependent upon the existence of a contract or any other enforceable obligation upon the claimants to take delivery of smolt from Terregles. The grounding of the Braer resulted in the pollution of the waters which included the claimants' fish farm. If the claimants could establish that, but for the pollution, they would probably have introduced smolt, grown them to harvest and thereby made a profit, they are entitled to recover that loss of profit in compensation from the defenders.

Claimants' intention

30. As far as the claimants' intention to introduce smolt into their fish farm is concerned there was evidence from a variety of sources to that effect, although there was a dispute concerning the number of smolt which Mr Baxter intended to send to the claimants' site. I preferred the evidence of Mr Gardiner concerning the anticipated numbers. He was the manager at the claimants' site and was in the best position to know what was planned for that site. In particular he required to take steps to prepare for the delivery of smolt to his site and had done so in anticipation of a delivery in January. It was his understanding that approximately 100,000 smolt would be delivered to his site in January and 200,000 in March. This represented approximately half of the numbers suggested by Mr Baxter and Dr Elliott. Mr Baxter at least had an interest to inflate the claim and, as I have already determined, he was prepared to submit a fraudulent claim in respect of wasted expenditure. Accordingly in so far as Mr Baxter had formulated an intention to introduce smolt to the claimants' site, I considered that any loss of profit should be restricted in the first place to the number which the site manager was advised to anticipate.
31. In relation to the claim for loss of profit due to the inability to introduce smolt at the claimants' farm, it is not sufficient for the claimants' to satisfy me that Mr Baxter intended that a quantity of smolt would be delivered from Terregles to the claimants in January and March. Apart from establishing such an intention, the determination of liability, in my opinion, depends upon a number of factors which were canvassed in the evidence. These include whether any decision had been made by Mr Baxter to fallow the Summer Isles site, and if so when, the availability of smolt in sufficient numbers to be despatched from the hatchery to Shetland, the weather conditions in January and the ability of the claimants to mitigate their loss in March and the following months.

Fallowing of Summer Isles Site

32. There was evidence to the effect that it was Mr Baxter's intention to fallow the Summer Isles site and to that end he would not introduce smolt into Summer Isles in the early part of 1993. Various witnesses gave evidence about the intention to fallow the existing site at Summer Isles. These included Mr Baxter, Mr Baird, Mr Gardiner, Mr Anthony Wall, the veterinary surgeon responsible for the welfare of the fish at Summer Isles, and Mr Pendred, the manager of the site at Summer Isles.

The extreme position adopted by Mr Baxter was that he intended to fallow the site at Summer Isles and had taken that decision in the summer of 1992. He had taken a decision that no smolt would be transferred to the site at Summer Isles in 1993 until the new site was available. All of the production from the hatcheries operated by Terregles would be destined for the claimants' site. He accepted that a consequence of that decision was that he would require to transfer smolt to Shetland, even although it was uneconomic to do so. The only alternative would be to slaughter fish at the hatchery.

Mr Wall stated that he reached the conclusion that the site at Summer Isles should be rested and that he mentioned it mainly to Mr Pendred but Mr Baxter did not wish to hear this. Eventually Mr Baxter became more amenable to the idea and Mr Wall's impression was that Mr Baxter had reached the stage that fallowing was definitely going to happen. However Mr Wall was unaware of when fallowing was to take place.

Mr Pendred became the manager of the site at Summer Isles in October 1992 although he had worked there as an assistant manager for sometime before that. He recalled that at about the time of his introduction as manager of the site or perhaps sometime later, the question of fallowing the site was raised by Mr Baxter. Mr Pendred recalled that they had many conversations about this matter. It was his impression that Mr Baxter was hoping to fallow the site but Mr Pendred thought that the plan was to have another site available to ensure that production at Summer Isles was maintained.

Mr Gardiner's recollection was that he did not think that it was intended to put fish into Summer Isles in 1993. He recalled some talk about fallowing Summer Isles but did not know if fallowing of the existing site was to occur after the new site was established.

On balance I preferred the evidence of Mr Pendred. He was the site manager and was the only witness directly concerned with that site. As such he was in the best position to be aware of what was intended at the site. His understanding was that the intention was to have another site available to maintain production in the locality of Summer Isles. This was not inconsistent with Mr Gardiner. Moreover it appeared to me highly improbable that Mr Baxter would adopt a course of action which would result in loss to any of the companies within Ettrick. If the hatchery produced smolt ready for delivery in batches which were not economical to transfer to Shetland but which could be transferred economically to Summer Isles, I considered that it was unlikely that Mr Baxter would either send the batches of smolt to Shetland for the claimants to sustain a loss or that he would simply slaughter the fish resulting in loss to Terregles. I rejected his evidence in that regard. I have concluded that although Mr Baxter had progressed the plan to fallow Summer Isles by December 1992 and hoped to have a new site within 5 or 6 months, it was more probable that he would continue to use the existing site at Summer Isles pending the development of the new site than that he would take a course of action to his financial disadvantage. By continuing to use Summer Isles Mr Baxter would be able to ensure that he had within Ettrick the necessary flexibility to enable smaller batches of smolt to be transferred economically to one of the fish farms under its control. This would enable the smaller batches of smolt to be grown to harvest, resulting in profits in which Mr Baxter had an indirect interest. In fact the negotiations for the new site were more protracted than Mr Baxter had anticipated and, until that site was ready, batches of smolt were sent to Summer Isles where they were grown to harvest. According to Mr Pendred, it was only when they had the new site that the existing site at Summer Isles was cleared and the fish harvested although they were smaller than the normal harvesting size.

In all the circumstances I have concluded that while there was undoubtedly an intention to fallow the existing site at Summer Isles, the plan was to have another site available to ensure that production was maintained before fallowing of the existing site commenced. I do not consider that the issue of fallowing the Summer Isles site would adversely affect the flexibility available to Mr Baxter of determining to which site batches of smolt should be despatched. I consider that it is probable that, even without the grounding of the Braer, batches of smolt would have been sent to the farm operated at Summer Isles. Whether a particular batch would be sent there would depend upon a variety of circumstances, including the size of the batch, the relative cost of transport to that site as opposed to the claimants' site, any increased risk in the number of mortalities in selecting one site as opposed to another and the relative profitability of the sites.

Availability of sufficient numbers of smolt

33. Under reference to invoice 46 in BBB(2) of process, Mr Baxter explained that notwithstanding his decision in the summer of 1992 to fallow the Summer Isles site he sent 20,000 smolts there in October 1992. This situation had arisen because the numbers, which had been anticipated to be available for delivery to the claimants, had been drastically reduced by virtue of abnormally high mortalities at the hatcheries. Transferring smolt to Shetland involved chartering a well-boat for four days and hiring lorries to take the fish from the hatchery to the harbour. The economics of that exercise required a minimum of 80,000 smolt being available for despatch from the hatchery to make it worthwhile to transfer the smolt to Shetland. If there were fewer than 80,000 smolt, Mr Baxter stated that he could not make sense of the economics of shipping them to Shetland. It was more economical to transport them by lorries to Summer Isles. I accepted the evidence of Mr Baxter that the economics of the transfer of smolt from the hatchery to the claimants' site dictated that there should be at least 80,000 smolt available for despatch from the hatchery. Mr Baxter's evidence in that regard derived some support from the evidence of Mr Gardiner to the effect that the numbers of smolt shown on CCC(1) of process as having been delivered to Summer Isles on three separate occasions in March 1993 each represented deliveries, the size of which had never been received by the claimants. Indeed it was Mr Gardiner's opinion that, even if the three deliveries were combined to provide a total of 72,455 smolt despatched from Terregles, it was more probable that they would be sent to Summer Isles, as opposed to the claimants' site. He acknowledged that ultimately the determination of the destination of such fish would be for Mr Baxter alone.
34. I have concluded that any loss of profit is dependent upon the claimants being able to establish that batches of at least 80,000 smolt were available for delivery from Terregles to the claimants within the narrow window of opportunity for transfer. The evidence disclosed that once the parr smolted there was a period of between 7 and 10 days within which they had to be transferred from the hatchery to sea otherwise they would die. Thus in considering whether batches of 80,000 smolt were available at any given time, it is necessary for the claimants to establish that none of the parr had commenced smolting earlier than 10 days before despatch. The question of what numbers of smolt were available at any given time is a question of fact which the claimants will require to establish in any subsequent proof.

Quantification of loss

35. Although the question of quantification of loss is a matter for a later date, senior counsel for the claimants indicated that he would welcome comments about the approach to be adopted at any future proof. While the evidence at any future proof is a matter for counsel, I am able to advise parties that general evidence to the effect that sufficient smolt was available is inadequate. Moreover CCC(1) of process is of little assistance in relation to smolt available for delivery in January. That document discloses inter alia that three batches of smolt were despatched from Terregles to Summer Isles Salmon between 26 January 1993 and 1 February 1993. It does not disclose whether other batches were available in January or when particular batches had smolted. It appears from the evidence of Mr Pendred that some of the smolt delivered in January or February suffered exceedingly high mortality rates. He estimated that one or two of the intakes at that time had suffered 90% mortality when introduced into the water at the site at Summer Isles. In his opinion the abnormally high mortalities were attributable to delays in despatching the smolt from the hatchery. This illustrates the need for the claimants to establish when each batch of smolt was ready for delivery to enable an assessment to be made about the probable date of despatch. I noted that Mr Gardiner was asked about the total numbers of smolt despatched to Summer Isles Salmon in January and February 1993 and that he confirmed that "a batch of 121,713 would represent a good load for a well-boat" to the claimants' site. If the three batches contained in delivery notes 30, 31 and 32, totalling 121,713, and referred to in CCC(1) of process are to be treated together, in the absence of sound reasons to the contrary, allowance should be made in the calculation of loss of profits for mortalities, which are equivalent to those experienced at Summer Isles in respect of those deliveries.

Weather conditions in January

36. The evidence concerning the weather conditions was limited. There was evidence that there were constant gales during the first fortnight in January. Mr Gardiner confirmed that the weather was the worst which he had experienced but he was unable to state whether it would have been impossible to ship smolt to Shetland. He was certain that a well-boat could not have made the journey and this was confirmed by Mr Baxter. However Mr Baxter maintained that the smolt could have been transferred, even in bad weather, by using a purse seine fishing boat. On balance I am unable to conclude that it would have been impossible to deliver smolt

to the claimants during January when there were severe gales. There may have been a calm in the storm which would have enabled a fishing boat to deliver the smolt. Apart from the question of delivery, the significance of inclement weather is that it would probably have an effect on mortalities. The longer sea journey to Shetland was more arduous than transportation by road and helicopter to Summer Isles. There was evidence that, depending upon the weather conditions, the smolt might suffer from the equivalent of sea sickness resulting in higher mortalities. Accordingly while I am unable to conclude that the weather would have precluded delivery of smolt to the claimants in January 1993, evidence concerning the weather conditions within the limited window of opportunity available to transfer smolt to sea may be relevant in the subsequent proof as far as the probable number of mortalities are concerned.

Mitigation of loss

37. The question of mitigation of loss only arises in relation to deliveries which would probably have been made to the claimants' site in March and April 1993. Mr Gardiner confirmed that none of the claimants' competitors in Shetland were introducing smolt in January 1993 because of the oil pollution although one of their competitors was introducing larger fish. However, his evidence was that by March 1993 the Claims Office for the Fund had made it clear to all fish farmers in Shetland, including the claimants, that if new stock was introduced into the fish farms and subsequently damaged the operators of the sites would receive compensation in respect of that damage. He was also aware that some of the claimants' competitors introduced smolt as early as March 1993. I accepted that evidence and concluded that it would have been possible for the claimants to introduce smolt into their site as early as March 1993. If they ultimately sustained loss because of oil pollution affecting these fish the claimants would be

compensated for that loss. It appeared that the reasons for the claimants not introducing smolt in March 1993 were, firstly, their mistaken belief that they would not be covered by insurance and, secondly, the advice of Mr Wall. So far as the first of these reasons is concerned the claimants had not been advised by their underwriters that they would be covered for insurance. The failure of the underwriters to notify the claimants appears to have been related to the fact that some time before March 1993 the claimants withdrew from membership of a trade association. The underwriters had notified the trade association of the availability of insurance cover but the claimants did not become aware of that until discussions with representatives of the Fund in or about May 1993. Immediately after being advised of the availability of insurance cover the claimants introduced smolt to their site, despite the opinion of Mr Wall that no fish should be introduced until 1994. Mr Wall advised Mr Baxter against introducing smolt into the claimants' site in January due to the pollution and the lack of available space because the mature fish had not been culled. Mr Gardiner confirmed in cross-examination that the claimants had the necessary capacity to take the three well-boats of smolt which he anticipated, even if the mature fish had not been harvested. I accepted that evidence, which in any event was not challenged in cross-examination. Smolt would be introduced into different cages from mature fish. Thus I did not consider that there was any lack of available space to take the smolt even in January due to the inability of the claimants to cull mature fish. Mr Wall also advised Mr Baxter not to introduce smolt in March. Indeed it was his opinion that fish should not be introduced to the site until 1994. The reasons for his views in that regard were based upon the health of the fish, concerns for public health, public perception of oil levels in the fish and the attitude of the supermarkets as purchasers of the fish.

38. In determining the question of mitigation of loss I accept that the approach should be based upon what a reasonably prudent person would have done in the light of the available information. In the present case the issue is complicated by the fact that the claimants were wholly owned by Ettrick which was controlled by Mr Baxter. Unlike producers who only had sites in Shetland, Mr Baxter had the flexibility of an alternative site outwith the exclusion zone. I consider that the proper approach to the question of mitigation of loss in such circumstances is to determine what a reasonably prudent fish farmer in Shetland would have done had he been restricted to a site within the exclusion zone. By approaching the question in this way, I am able to give effect to the claimants' desire to maintain the separation between the various companies within Ettrick. In that situation I am of the opinion that, if the options available to a producer such as the claimants were either to cease production until 1994 for the reasons given by Mr Wall or to introduce smolt as soon as the Claims Office advised producers that smolt should be introduced and that compensation would be paid in the event of such fish being adversely affected by oil pollution, a reasonably prudent producer would have followed the latter course. By electing to follow such a course, a reasonably prudent producer would have been able to profit from growing smolt to harvest. If he were unable to make a profit because of the oil pollution, he would be compensated. I am reassured in my conclusion as to the course which a reasonably prudent producer would have adopted by the uncontradicted evidence of Mr Gardiner to the effect that at least three of the claimants' competitors introduced smolt as early as March 1993 following the assurances given about compensation by the Claims Office at that time. It is also significant, in my opinion, that despite the concerns of Mr Wall the claimants introduced smolt in May 1993 when they realised that insurance cover was available. Even although the claimants had not been advised of the availability of insurance cover prior to May 1993 I consider that a reasonably prudent producer would have made enquiries of the insurance underwriters at a time when the Claims Office were advising producers to introduce smolt and guaranteeing compensation in the event of loss. Alternatively and in any event I am of the view that he would have made such an enquiry as soon as he became aware of his competitors introducing smolt into waters within the exclusion zone following the assurances given by the Claims Office. If the claimants had made such an enquiry of their underwriters they would have been advised of the availability of insurance and could and should have introduced smolt at that time. Had they done so, their claim against the defenders in respect of these fish would have been restricted to any loss attributable to the effect, if any, on them caused by oil pollution. I have concluded that the claimants failed to mitigate their claim for loss of profit in respect of such smolt as were available for delivery from Terregles to the claimants following the assurances given by the Claims Office in March 1993 and the introduction thereafter of smolt into fish farms operated by competitors of the claimants. For reasons already explained any claim for loss of profit in respect of smolt which would probably have been introduced prior to that should be confined to batches in excess of 80,000 which were available at Terregles for despatch.

Decision

39. I shall allow a proof on quantum restricted to the loss of profit in respect of smolt which, but for the pollution caused by the Braer, would probably have been delivered to the claimants' site in January and in March prior to the assurances given by the Claims Office and the related actions of competitors of the claimants. Quoad ultra I shall dismiss this claim.