Ariela, The Owners of the Ship v Kamal XXVI, The Owners And/or Demise Charterers of the Dredger

A court order obtained through fraudulent concealment or fraudulent representations may be set aside where the court would not have made the order if the true position had been known. This applies whether the order is a consent order treated as a contract or an order made by the court without objection. A claimant induced by deceit to incur substantial costs defending an exaggerated civil claim may recover those losses. Contributory negligence and failure adequately to mitigate do not defeat a claim in deceit.

The claim arose from a collision between the ship Ariela and the barge Kamal XXIV, which allegedly caused damage to the barge and dredger Kamal XXVI. Kamal obtained judgment on liability and a costs order after claiming more than US$1.3 million. Following the quantum hearing, the claim was reduced to US$6,245, and the court found that the original claim had been grossly exaggerated.

Ariela sought to set aside the liability costs order on the ground that it had been procured by fraud, alternatively claiming damages for deceit. Kamal failed to comply with procedural orders and was debarred from defending the fraud claims. The central issues were whether the costs order could be set aside and whether the fraudulent claim caused recoverable loss.

1. The Liability Costs Order was set aside. The court had jurisdiction to intervene where an order, whether a true consent order or an order made without objection, had been procured by fraudulent concealment or representations. The relevant question was whether the court and the parties had been misled as to existing circumstances and whether the court would have made the order if the true state of affairs had been known.
2. The evidence established that Kamal had knowingly advanced a massively exaggerated claim. The alleged collision caused little or no relevant damage. Kamal attributed pre-existing deterioration, repair and maintenance costs, loss of use and other losses to the collision, and concealed material information. Had an honest claim been made, Ariela would have paid it without defending the liability proceedings. The liability costs order was therefore induced by fraud.
3. The order was replaced by an indemnity costs order in Ariela’s favour, subject to detailed assessment. Kamal was ordered to make an interim payment of US$170,000 and to return the £65,000 interim payment previously made by Ariela, with interest.
4. For completeness, the alternative claim in deceit would also have succeeded. The fraudulent valuation of the claim induced Ariela to incur the costs of defending the proceedings and to make the interim payment. Those losses flowed directly from the deceit. Contributory negligence and failure adequately to mitigate were unavailable as defences to deceit, and the fact that Ariela might have investigated the falsity of the claim did not defeat reliance.
5. The court distinguished the principle concerning false cases advanced in civil proceedings from the present claim. The claim was not merely for a tortious remedy arising from presentation of a false case; it was a direct claim in deceit based on fraudulent representations which induced expenditure.

First-instance decision. The judgment refers to earlier orders in the related proceedings, including the liability judgment of David Steel J and the quantum judgment dated 10 February 2009, [2009] EWHC 177 (Comm).