On 20 August 1990, the respondents' ship, the Alanfushi, was manoeuvring in Chittagong, Bangladesh, when it collided with the stationary ship of the appellants, the Al Tabith. This collision was reported to the appellants' P&I club, Steamship Mutual Underwriting Association Ltd (Steamship Mutual), which arranged for the Alanfushi to be arrested. Steamship Mutual also contacted the respondents' P&I club, West of England Ship Owners Mutual Insurance Association (West of England). West of England provided a club letter of guarantee to secure the release of the Alanfushi. They undertook, when called upon to do so, to instruct solicitors in London, UK, to accept service of proceedings. Repairs were completed in October 1990, but communication between Steamship Mutual and West of England did not resume until 25 June 1992. Steamship Mutual's evidence was that they did not receive details of the claim from the owners of the Al Tabith until May 1992.

On 4 August 1992, a six-month extension of time was agreed on a reciprocal basis due to s 8 of the Maritime Conventions Act 1911 (UK) (MCA), which provided for a two-year limitation period. Thus, the time for the issue of the writ expired on 20 February 1993 instead. But Mr Dawson of Steamship Mutual was in charge of the matter and had mistakenly written down on a file cover that the time bar was 20 March 1993.

On 27 November 1992, Mr Dawson submitted a detailed claim to the West of England which was not acknowledged despite subsequent reminders (also unacknowledged). On 15 February 1993, Mr Dawson sent a fax to Mr Salsbury of West of England stating that unless he received a positive reply by 19 February he would take instructions from his clients with a view to instructing solicitors. On 18 February, Mr Salsbury responded, saying that he was making enquiries in view of the increased claim quantum. It was accepted that Mr Salsbury was unaware of the 20 February time bar at that juncture. On 22 February, Mr Dawson sought a further six month extension, and having received no reply, followed this up with a further request on 4 March. On 9 March, Mr Salsbury replied that the matter became time-barred after 20 February unless the necessary steps were taken. The writ was only issued on 9 March 1993, 17 days out of time.

The appellants applied for an extension of time under MCA s 8, which provides:

No action shall be maintainable to enforce any claim ... against a vessel or her owners in respect of any damage ... to another vessel, ... caused by the fault of the former vessel ... unless proceedings therein are commenced within two years from the dates when the damage ... was caused.

Provided that any court having jurisdiction to deal with an action as to which this section relates may, in accordance with the rules of court, extend any such period, to such extent and on such conditions as it thinks fit.

The application was dismissed by Sheen J at first instance: The Al Tabith and Alanfushi [1993] 2 Lloyd's Rep 214 (QB). Sheen J found that:

(i) Mr Dawson did not seek instructions to issue a writ in February because he erroneously thought the time limit extended to 20 March, but that even then he was intending only to ask for a further extension of time.

(ii) Mr Dawson was endeavouring to deal with the claim in a manner which would save costs.

(iii) However, what Mr Dawson has not explained is why a writ was not issued during the previous 2.5 years; service of the writ would not have created any problems.

(iv) There was no conduct on the part of the respondents which either caused Mr Dawson to refrain from instructing solicitors to issue a writ, or caused him to make an error or even contributed in any way to that error.

(v) The respondents were not prejudiced by the 17 day delay.

(vi) Mr Dawson obviously thought he had a cast-iron case.

Sheen J found that the proper test is that '[t]he Court will only extend the period of limitation if in all the circumstances of the case there is good reason for doing so'. Sheen J concluded:

[The appellants] must show that their failure was not merely due to their own mistake. It cannot be a good reason for extending the time limit that the [respondents] are unable to show that there would be any specific prejudice to them in conducting their defence. At the end of two-and-a-half years, it would be virtually impossible to show such prejudice. [The appellants argued that] the balance of hardship [should be considered]. If balance of hardship could constitute good reason for extending a time limit, that time limit would always be extended. ...

Mr Dawson took a deliberate decision not to instruct solicitors ... until shortly before he thought [time] expired. By reason of his own mistake he failed to give instructions in time. [There is] no good reason to extend that time limit.

Sheen J stated that the circumstances of the casualty probably speak for themselves. Sheen J noted that the respondents were not admitting liability and were suggesting that the cause of the collision was not negligence but a breakdown in the steering gear of their vessel, even though such a suggestion had never been made in the two-and-a-half years of correspondence.

The appellants appealed, but accepted that Sheen J stated the 'good reason' test correctly. They argued that Sheen J was wrong in refusing to consider the 'balance of hardship' when considering whether 'good reason' existed. Parties accepted that the same 'good reason' test applies under MCA s 8 as is regularly applied when deciding whether or not to extend the validity of a writ under RSC O 6 r 8: The Owenbawn [1973] 1 Lloyd's Rep 56, 59; The Zirje [1989] 1 Lloyd's Rep 493, 497. The appellants argued that Sheen J misapplied the 'good reason' test; that the correct approach was to apply one single comprehensive test as a unitary process, taking into account all relevant factors (including balance of hardship), and not a two-stage process.

The appellants relied on The Zirje [1989] 1 Lloyd's Rep 493, where time was extended due to a deficient office telex system preventing proper communication. The appellants argued that the present case was similar: (1) There is an open and shut case on liability; (2) Had Mr Salsbury replied promptly to the claim submitted on 27 November 1992 discussion would have ensued and in all probability a further extension would have been granted; (3) The extension sought is only 17 days; (4) Mr Salsbury's office inefficiency prevented Mr Dawson's error coming to light and thus led to the failure to preserve the time limit.

The appellants challenged Sheen J's view that Mr Dawson had not explained in his affidavit his failure to issue a protective writ. The delay until the August 1992 extension was due to absence of information from Steamship Mutual's client as to details of the claim. The gap between the August extension and the November 1992 claim was due to continued discussions with Steamship Mutual's client, and was not serious. The final three months' delay was accounted for by Mr Dawson's mistake as to the date of the expiry and his wish to negotiate rather than to litigate and thus save costs, which the Court should encourage.

The appellants argued that Mr Dawson's failure was contributed to by Mr Salsbury's repeated failure to respond, conduct which could, in itself, properly be relied upon as a good reason.

Held: Appeal dismissed.

The time limit under MCA s 8 was laid down under the Collision Convention 1910, which did not, by its terms, confer any discretion for the grant of an extension. However, by inserting the proviso into MCA s 8, the UK Parliament gave such power to the Court.

Order 6 r 8 implies that the power to extend time 'shall only be exercised for good reason': The Myrto (No 3) [1987] AC 597 (HL) 622. It is impossible to define 'good reason': ibid. Whether 'good reason' exists depends on the circumstances of the case: ibid. The decision whether an extension should be granted is a discretionary one: ibid. The Judge 'is entitled to have regard to the balance of hardship': ibid. The Judge may 'need to consider whether allowing an extension will cause prejudice to the defendant': ibid. The Judge's exercise of discretion 'should not be interfered with by an appellate court except on special grounds': Waddon v Whitecroft Scovell Ltd [1988] 1 WLR 309 (HL) (Waddon). 'Difficulty in effecting the service of the writ may well constitute good reason but it is not the only matter which is capable of doing so': ibid. 'The balance of hardship between the parties can be a relevant matter to be taken into account in the exercise of the discretion': ibid. Waddon 317H explained that Myrto (No 3) 622 had stated that 'where there were matters which could, potentially at least, constitute good reason for extension, balance of hardship might be a relevant consideration in deciding whether an extension should be granted or refused'. Baly v Barrett [1988] NI 369 (HL) (Baly) 417A explained that 'if no matters amounting to good reason for extension, or capable of so amounting, have been established, ... there is no room for the exercise of discretion at all, and the question of the balance of hardship ... does not therefore arise'. See also Dagnell v Freedman [1993] 1 WLR 388 (HL).

The Court rejected the appellants' arguments mainly for the reasons advanced by the respondents. The appellants' argument that there is a one-stage and not a two-stage process is contrary to authority: Waddon 317; Baly 417. At stage one the Court must consider whether good reason for an extension has been demonstrated by the appellants, which is essentially a question of fact. If, and only if, the appellants succeed at stage one in establishing good reason does the Court proceed to stage two, which is a discretionary exercise involving value judgments including, where appropriate, the balance of hardship, which then enters the arena for the first and only time.

The appellants must demonstrate that their failure was not merely due to their own mistake. Mere carelessness has never been a good reason for an extension. The Zirje is distinguishable. It is a borderline case specific to its own special facts and should not cited as authoritative.

This is a case where a valid explanation for the failure to issue a protective writ was imperative. An explanation is required of the whole period (here, two-and-a-half years) and not just of the last few weeks or months. The appellants took two years to formulate and submit their claim to the respondents. This is no excuse, let alone a valid explanation. Repairs were completed in October 1990. A preference for negotiation is no impediment to the simple and straightforward step of issuing a protective writ. Negotiations have never constituted good reason. The respondents' silence and failure to respond did not constitute conduct which contributed to Mr Dawson's failure. The failure was entirely due to Mr Dawson's own mistake. This is no good reason for an extension. Consequently, any discretionary considerations, including the balance of hardship, do not arise: Baly 417, 419.

Rose LJ added that this appeal was unarguable. The want of any realistic defence is in the absence of an admission of liability, an obvious reason for starting proceedings within time. Besides, steering gear failure as a possible defence had been intimated to the appellants in August 1990.

Mistakes on the part of those representing the appellants as to when the limitation period expired is the sort of fault or carelessness which is unlikely to give rise to good reason: Baker v Bowketts Cakes Ltd [1966] 1 WLR 861 (CA). The respondents are prima facie entitled to the limitation defence which has accrued to them and ought not to be deprived of it merely because of the carelessness of those representing the appellants. The fact that those representing the respondents were unaware that time had expired is irrelevant. Their ignorance affords no good reason.

The respondents did not mislead the appellants. The delays by the respondents in correspondence do not afford good reason for extending time. Likewise for mere silence on the part of the respondents. The respondents' delay should have instead provided a spur for the institution of proceedings.

A negotiation in progress is unlikely, in the absence of any express agreement as to extension of time, to amount to a good reason: Easy v Universal Anchorage Co Ltd [1974] 1 WLR 899 (CA); The Mouna [1991] 2 Lloyd's Rep 221 (CA).

Russell LJ added that mere forgetfulness is not legally excusable. The balance of hardship is irrelevant because the first hurdle of good reason is not overcome.