approved judgment · (“cameron”), provides well control by preventing formation fluids reaching...
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Neutral Citation Number: [2014] EWHC 4260 (Comm) 2012 FOLIO 1560 IN THE HIGH COURT OF JUSTICE QUEEN'S BENCH DIVISION COMMERCIAL COURT
Royal Courts of Justice 7 Rolls Building, Fetter Lane
London, EC4A 1NL
Date: 19/12/2014
Before :
THE HON. MR JUSTICE POPPLEWELL - - - - - - - - - - - - - - - - - - - - -
Between :
TRANSOCEAN DRILLING U.K. LIMITED Claimant - and - PROVIDENCE RESOURCES PLC
THE ARCTIC III Defendant
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
Lionel Persey QC & Lucy Garrett (instructed by Ince & Co LLP) for the Claimant
John McCaughran QC & Laurence Emmett (instructed by Herbert Smith Freehills LLP) for the Defendant
Hearing dates: 9, 13-16, 20, 21, 23, 27-30 October 2014
- - - - - - - - - - - - - - - - - - - - - Approved Judgment
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated
as authentic.
.............................
THE HON. MR JUSTICE POPPLEWELL
The Hon. Mr Justice Popplewell :
Introduction
1. This is a dispute about the financial consequences of delays which occurred to
the drilling of an appraisal well in the Barryroe Field off the south coast of
Ireland between November 2011 and March 2012. The Claimant
(“Transocean”) provided the rig GSF Arctic III (“the Rig”) to the Defendant
(“Providence”) pursuant to a drilling contract dated 15 April 2011 (“the
Contract”). The Rig is a six-leg semi-submersible drilling unit built in 1984.
The delays occurred following problems with the Blow Out Preventer (BOP)
stack. The main problems arose out of (1) a stinger misalignment with the Blue
POD receptacle on the lower BOP and (2) the inoperability of the wedgelocks
on the lower BOP due to a plug blowing out. Additionally there were problems
caused or allegedly caused by (3) a mini collet gasket falling out, (4) an issue
with the upper annular preventer and (5) other control POD problems.
2. The delays occurred between 18 December 2011, when operations were first
interrupted as a result of Blue POD misalignment problems, and 2 February
2012 when the Rig was in a position to resume operations from the same point
as when work was suspended on 18 December 2011. This period was described
by the parties as “the Disputed Period”. Transocean claims remuneration of
US$13,035,083.97 and £3,516,758.45 in accordance with the rates provided for
in the Contract together with reimbursables. Only a minority of this arises in
respect of the Disputed Period. Providence contends that (1) in respect of the
remuneration claim for the Disputed Period, it is not liable for periods of delay
caused by breaches of contract by Transocean and (2) in respect of most of the
balance of the remuneration claim, it is entitled to set off its counterclaim, which
is for wasted costs comprising sums payable to personnel, suppliers and service
providers for the periods of delay within the Disputed Period caused by
Transocean’s breaches of contract and/or misrepresentation. Even on
Providence’s case, there is a balance due to Transocean of something over US$1
million.
The BOP equipment
3. The BOP stack, designed and built by Cameron International Corporation
(“Cameron”), provides well control by preventing formation fluids reaching the
surface through the well bore. It comprises two sections. The upper section is
the Lower Marine Riser Package (LMRP); the lower section is the lower BOP,
sometimes referred to simply as the BOP (which is also an expression
sometimes used to describe the combined stack). The lower BOP is latched
directly to the wellhead which is cemented to the seabed by the cement pumped
into the annular gap between the sections of casing and the drilled hole. The
LMRP and BOP are hydraulically operated and controlled from the surface
through Points of Distribution (PODs). There are two PODs which are located
on the LMRP, coloured blue and yellow. Each is sufficient to control the entire
hydraulic system necessary to operate the whole BOP stack. In other words,
having two PODs allows for 100% redundancy. The complete BOP stack is
about 13.5 m high and weighs about 200 tons.
4. The well control mechanisms within the stack comprise (1) preventers and (2)
choke and kill lines. The preventers come in one or other of two forms, namely
ram preventers and annular preventers. In simple terms the ram preventers close
the hole by rams moving to close off the pipe (or in the case of a shear ram, to
shear the pipe); annular preventers seal the well bore by closing the drill pipe
using an elastomer packing like a doughnut. When the ram preventers are
deployed they are locked tight by wedgelocks, whose function is to hold them in
place mechanically so as not to rely on the maintenance of hydraulic pressure.
The BOP stack on the Rig had six preventers. On the LMRP there was the
upper annular preventer. On the lower BOP there was the lower annular
preventer, below which sat four ram preventers. The choke and kill lines lead to
valves which may be used to prevent the escape of formation fluids. Kill lines
seek to cut off fluids flowing out of the well bore, whereas choke lines are used
to enable fluids to be pumped into the well bore to achieve the same purpose.
5. The LMRP sits on top of the lower BOP and when latched is connected to it as
follows. There is a hydraulically operated riser connector through which the
well bore runs. The choke and kill lines connect via two mini collet connectors.
On the underside of the connector on the LMRP there is a gasket held in place
by four dogs screwed to the assembly, designed to achieve a tight seal. One of
these gaskets fell out in the course of the events giving rise to the dispute. The
PODs connect through two shallow cylindrical receptacles, one each for the
Blue and Yellow POD, which sit on the top of the lower BOP plate. These
receptacles have an internal diameter of 17″ and are connected to the lower BOP
plate by four feet comprising welded mounts to each of which the receptacle is
attached by an elastomer “spring” bolted to the receptacle. On the inner surface
of the receptacle are holes of different sizes which connect to hoses attached to
the outer side of the receptacle in order to carry the hydraulic fluid to the various
valves required for the operation of the lower BOP. The PODs make a
connection with these holes by a stinger which comes down from the lower side
of the LMRP. Before latching, the stinger sits in a test receptacle, a shallow
cylinder also of 17″ internal diameter, which is on the LMRP. The stinger
comprises a cylindrical assembly with ports in its outer perimeter which are
designed to line up with the holes in the lower BOP receptacle as the means by
which the hydraulic fluid passes to operate the lower BOP. The stinger has four
extendable segments which in its retracted mode sit flush with the four fixed
sections on each of which is mounted a Teflon guide strip. The guide strip is
designed to fit exactly into the internal 17″ diameter of the receptacle, whereas
the stinger segments when first lowered are designed to sit slightly shy of the
internal diameter of the receptacle. The stinger is then deployed by being
“energised”, that is to say the segments are moved outwards so that the ports,
which have rubber seals round the holes, are pressed tight against the inner
diameter of the lower BOP receptacle to form a sealed connection through
which the hydraulic fluid can pass. This energising is achieved by pulling up an
activator cone which is located within the centre of the stinger behind the
segments. The activator operates by pressing against the segments internally
pushing them outwards and holding them in place. When the LMRP is unlatched
from the lower BOP, the stingers are “de-energised” by the lowering of the
activator cone which should cause the segments to retract.
6. Lining up these connections in the latching process is achieved with four aids.
(1) On the top of the lower BOP stack are four posts which rise above the
plate. These fit through gates on the LMRP (also referred to as
funnels) which extend below the floor plate of the LMRP.
(2) The process of locating the gates over the posts is assisted by
guidelines which run internally through the posts, and through the
gates. The guidelines are connected to the wellhead at the bottom and
to the Rig at the surface.
(3) On the underside of the LMRP there are four alignment pins which fit
into recesses on the lower BOP. These extend downwards from the
underside of the LMRP plate. Because they do so by considerably less
than the height of the guide posts on the lower BOP, the alignment pins
will only engage once the posts are part way through the gates on the
LMRP.
(4) The fine alignment of the POD stingers in the POD receptacles is
designed to be assisted by:
(a) the test receptacle cylinder on the underside of the LMRP sitting
concentrically on the lower BOP receptacle to form a cylindrical
whole with a common diameter of 17″; and
(b) 45 degree bevelling to the receptacle lip and stinger base; and
(c) the Teflon strips on the stinger assembly which are intended to
slide against the inside of the LMRP receptacle.
Chronology of events
7. The Rig had been laid up in cold store in Sicily in 2009. It was recommissioned
in the summer of 2010 to be let to ExxonMobil under a contract dated 2 August
2010 for work on a field in Scottish waters. For these purposes the BOP stack
was sent for overhaul and repair to Yardbury Engineering and Oil Products Ltd
(“Yardbury”), a mechanical and engineering contractor based in Aberdeen. The
PODs themselves were not sent to Yardbury, but remained on the Rig in a
shipyard in Rotterdam where they were the subject matter of repair and renewal
by Transocean personnel under the supervision of a representative from West
Engineering Services (“West”), which was appointed by ExxonMobil.
8. Providence is a small company and accordingly engaged the services of NRG
Well Management Ltd and NRG Holdings Ltd (together “NRG”) to assist in
relation to the sourcing of a rig, negotiation of contract terms with Transocean,
and the drilling operation itself. Providence had hoped that the Rig would be
able to commence drilling in the summer or early autumn of 2011, but in the
event delays were experienced in completing the ExxonMobil contract and it
was not until 5 November 2011 that the Rig was mobilised from Scottish waters
and came into service under the Contract. She arrived at the drilling location at
Barryroe at 1630 on 15 November 2011.
9. The Rig sat about 335 feet above the seabed. The drilling of the appraisal well
was intended to be achieved to a total depth of 7645ft TVD (TVD is true vertical
depth measured from the rotary table) by five sections of hole/casing of
decreasing diameter as follows:
(1) A 36″ hole lined by a 30″ conductor pipe to a depth of about 545 ft.
The deployment of the BOP stack was not necessary for this operation.
(2) A 26″ hole lined by a 20″ casing to a depth of about 1,000 ft. This
casing would be cemented so as to fix the well head connector to the
seabed. The deployment of the BOP stack was not necessary for this
operation.
(3) The BOP stack would then be connected to the well head for the third
string, which involved drilling a 17½″ hole with a 13⅜″ casing to a
depth of about 4,195 ft. This would pass through an existing operating
gas field, the Kinsale Energy Seven Heads field, which comprised a
reservoir between 2,886 ft and 4,086 ft.
(4) A 12¼″ hole would then be drilled with a 9⅝″ casing to a depth of
about 7,225 ft, where data logging would take place.
(5) Finally a further string comprising an 8½″ hole and 7″ casing would be
drilled to about 7,645 ft for further data logging.
10. The well was spudded on 20 November 2011 when the top hole was drilled.
Drilling and casing of the first two sections was completed on 26 November
2011. On that day the BOP stack was successfully function and pressure tested
in preparation for deployment. It was latched to the wellhead on 28 November
2011 and again successfully function and pressure tested that day. Drilling of
the next section commenced.
11. On the morning of 30 November it was observed that there was excessive
movement of the wellhead. The observation was taken from the bullseye on the
wellhead and the Remote Operated Vehicle (“ROV”) captured footage of the
movement of the BOP stack. It was recognised by those involved at the time
that it was greater than the +/- 1° which was the operating parameter provided
for by Section IV of the Contract and the relevant section of the Well Control
Handbook. As a result the parties entered into an agreement in the form of a
side letter signed by both parties under which Transocean agreed to continue
drilling in return for Providence accepting responsibility for the consequences of
doing so. Although Transocean contends that the well head movement was
causative of subsequent problems and delays, it advances no claim or defence in
reliance on the terms of this side agreement.
12. The weather conditions deteriorated and on 1 December 2011 a decision was
taken to recement the well head. The BOP stack was unlatched from the well
head and raised at about 1800 that day.
13. The recementing was successfully completed on 2 December 2011, which
prevented any subsequent excessive well head movement. Operations were then
delayed by bad weather.
14. At 0730 on 4 December 2011 the BOP stack was relatched to the well head.
Again it was successfully function and pressure tested. During the relatching
operation No 2 guideline broke. Drilling of the 17½″ hole commenced on 5
December 2011 and was completed at 0315 on 10 December 2011, following
which Providence started running the 13⅜″ casing.
15. On 11 December 2011 the 13⅜″ casing run was suspended because of bad
weather. Providence took the decision to hang off the 13⅜″ casing, using the
emergency drill pipe hang off tool, and to unlatch the LMRP from the lower
BOP, because of the existing and forecast weather conditions. The lower BOP
remained latched to the well head. Between 12 and 16 December 2011 bad
weather prevented operations.
16. On 17 December 2011 two unsuccessful attempts were made to relatch the
LMRP to the lower BOP. During the course of the attempts guideline No 4
parted and guideline No 3 was found damaged. It is Transocean’s case, disputed
by Providence, that in the course of these relatch attempts there was contact with
the lower BOP Blue POD receptacle which was causative of the subsequent
misalignment problems.
17. On 18 December 2011 the LMRP was successfully latched to the lower BOP at
about 1200 after two new temporary guidelines had been attached, following
which pressure and function testing occurred. The function testing of the BOP
started to reveal problems at about 1600 hours. This marks the commencement
of the period of delay which is in issue in these proceedings.
18. Function testing anomalies with both PODs continued until 20 December 2011.
In the light of the POD function testing failures it was decided to unlatch the
LMRP from the lower BOP to enable the ROV to survey the POD receptacles.
When this occurred at 2030-2245 it was observed that one of the mini collet
gaskets had come out of the LMRP and was lying on top of the lower BOP, and
that one of the retaining dogs was loose. Accordingly a decision was taken to
lift the LMRP to surface to enable a replacement gasket to be fitted. It would
not have been possible to unlatch the whole BOP stack and recover it to surface
at this time: the 13⅜″ casing was hung off in the well and two physical barriers
(a cemented shoe and a packer) would have had to have been set to replace the
physical barrier provided by the lower BOP stack with its closed preventers in
order to satisfy safety requirements before the lower BOP could have been
raised.
19. On 21 December 2011 the LMRP was recovered to surface at about 1000,
following which function testing of the PODs resumed. Function and pressure
testing took place between 21 and 26 December 2011, but was not completed
until the early hours of 27 December 2011. Providence contends that during this
time a number of defects and malfunctions affecting the BOP stack were
discovered, including the problems with the Yellow as well as the Blue POD.
The majority of these deficiencies are disputed by Transocean. In addition, on
the evening of 22 December 2011, a leak was discovered coming from the upper
annular weep hole. It was agreed between the parties that given the protection
available from the lower annular preventer and ram preventers, if operative, this
was not a problem which required immediate remedy.
20. When function testing was completed on 27 December 2011, preparations were
made to relatch the LMRP, but by 2015 weather conditions prevented further
operations before the operation could be completed. Weather prevented
relatching operations until 2100 on 29 December, when preparations started for
relatching which was successfully completed at 0600 on 30 December 2011.
21. Following relatch on 30 December 2011 the function and pressure testing of the
BOP stack revealed a pressure loss affecting the closing of the wedgelocks. The
cause was identified on 31 December 2011 when it was discovered that a
blanking plug had blown out from the forward cylinder head housing the
wedgelock for the upper pipe ram. This broke the hydraulic circuit and so
compromised the ability to apply all the wedgelocks. It affected the
functionality of the entire BOP stack in this safety critical way and necessitated
the recovery of the BOP stack to surface to remedy the defect. This first
required an effective packing of the hole before the lower BOP could be
unlatched, in order to maintain a sufficient hole barrier. Because the 13⅜″
casing had been left hung off since 11 December 2011, this required recovery of
the hung off casing, rerunning and cementing the 13⅜″ casing and then inserting
a packer to complement the barrier at the shoe.
22. Meanwhile between 30 December 2011 and 1 January 2012 operations had
already started to recover the 13⅜″ casing and run a partial wiper trip of the hole
to assess its condition in order to rerun the casing and cementing operation.
23. On 2 January 2012 weather conditions required the LMRP to be unlatched from
the lower BOP and operations remained suspended due to bad weather until 6
January 2012 when the LMRP was relatched.
24. On 7 January 2012 a wiper trip of the hole was completed revealing problems
with the integrity/stability of the hole. On 8 January 2012 at 1115 the 13⅜″
casing run commenced, reaching the required depth at 0930 on 9 January 2012.
At 1200 on 9 January 2012 cementing of the 13⅜″ casing commenced but at
1630, towards the end of the operation, the casing floated up 34 ft into the well
head.
25. After a number of unsuccessful attempts to cut the casing and set the packer,
those operations were completed on 14 January 2012 at 2030, following which it
then became possible to lift the BOP stack to the surface to remedy the problem
caused by the wedgelock plug blow out.
26. Bad weather again held up operations and the BOP stack was recovered to
surface at about 1430 on 16 January 2012. Before splitting the LMRP from the
lower BOP it was observed that the Blue POD receptacle was cocked: the
spring on one of the mounts was compressed by approximately 6 mm. When
the LMRP was unlatched, this spring regained its form. It was concluded that
this cocking of the receptacle had caused a misalignment between the stinger
segment ports and the holes in the receptacle which had compromised the
functionality of the Blue POD control system. A picture taken of the receptacle
shows the marks left by the stinger segment seals on the receptacle which
suggest that the stinger ports were out of line with the receptacle ports both
vertically and rotationally.
27. Between 16 and 24 January 2012 repairs were carried out to cure the two
identified problems with the BOP stack, namely the Blue POD misalignment
and the missing plug on the wedgelock cylinder head. The BOP stack was
relatched to the well head at 0545 on 24 January 2012.
28. Following successful testing of the BOP stack, operations resumed on 25
January 2012 at 2115 with washing and reaming out of the cement in the 13⅜″
casing. Conditions in the hole led Providence to conclude that it was necessary
to side track the well, which reached the same depth which had been reached
prior to the problems encountered in December at 1830 on 2 February 2012.
29. Thereafter drilling continued without giving rise to dispute, and the programme
was completed on 25 March 2012. The Rig remained on hire until 1 April 2012.
The claims and issues
30. Transocean’s claim is for remuneration and reimbursables in the total amount of
US$13,035,083.97 and £3,516,758.45. Of these sums US$5,761,675.25 and
£1,257,083.33 are referable to the period between 18 December 2011 and 2
February 2012 (the “Disputed Period”). The Contract provides for different day
rates to be applied according to the functions the Rig is performing at any given
time. Transocean’s remuneration claim is calculated by applying one of four
such day rates to constituent parts of the Disputed Period as set out in the
Appendix to this judgment. The four rates are the Operating Rate, the Standby
Rate, the Repair Rate, and the Waiting on Weather (“WOW”) Rate. Periods are
calculated to the nearest ¼ hour for the purposes of allocating the appropriate
rate.
31. Providence disputes Transocean’s entitlement to any remuneration for the
Disputed Period. It contends that:
(1) the delays in the Disputed Period were caused by Transocean’s
breaches of contract in respect of (a) the Blue POD misalignment (b)
the wedgelock plug blow out (c) the mini collet gasket (d) the upper
annular preventer and (e) other Yellow POD control problems and
miscellaneous defects; the periods of delay allegedly caused by each
breach are:
(a) Blue POD misalignment: the entirety of the Disputed Period;
(b) the wedgelock blanking plug: from 30 December 2011 to 2
February 2012;
(c) the mini collet gasket: from 20 to 24 December 2011;
(d) the upper annular preventer: 72 hours;
(e) Yellow POD and miscellaneous defects: Providence did not invite
me to attribute any specific additional delay to these deficiencies,
but relied on them as evidence of a poor maintenance regime when
considering the Blue POD misalignment issues;
(2) as a result, none of the day rates apply because upon a true construction
of the Contract the rates are not recoverable for periods of delay caused
by Transocean’s breach; and/or such remuneration constitutes damage
suffered as a result of such breach and the remuneration claim fails for
circuity of action;
(3) in any event, in respect of certain periods within the Disputed Period
Providence contends that the day rates which Transocean has allocated
and applied do not apply.
32. Further, Providence claims a sum equivalent to about US$10 million at current
exchange rates for what were referred to as its “spread costs”, namely the costs
of personnel, equipment and services contracted from third parties, which it says
were wasted as a result of the delay. Under the Contract Providence is
responsible for directing drilling operations, and for the provision of various
services which include amongst other things, well logging, well testing and
cementing, mud engineers and mud logging services, geological services, diving
and ROV services, weather services, directional drilling services, and running
casings. Providence seeks to set off these wasted spread costs against
Transocean’s claim for remuneration both for the Disputed Period and the other
periods for which Transocean’s claim to remuneration is otherwise undisputed.
The spread costs claim is advanced by way of set off because it is accepted that
even on Providence’s best case there is a balance due to Transocean in a sum in
excess of US$ 1 million. In relation to its spread costs claim, Providence
contends that:
(1) the costs were wasted for the Disputed Period by reason of
Transocean’s breaches of contract in the five respects identified above;
(2) as an additional and alternative basis of liability, Providence advances
a claim under s. 2(1) of the Misrepresentation Act 1967 for alleged
misrepresentations by Transocean in the tender document submitted
prior to the Contract.
33. In relation to its remuneration claim, Transocean contends that:
(1) on the true construction of the Contract, Transocean is entitled to
remuneration in accordance with the day rates irrespective of whether
it committed breaches of contract which were causative of delays; the
day rate payment regime laid down in the Contract is a complete code
for remuneration due to repairs falling within its terms and comprises
an agreed allocation of risk irrespective of breach;
(2) alternatively, if breach is relevant, Transocean was not in breach of
contract in any of the five respects alleged;
(3) alternatively, any such breach was not causative of delays for particular
periods within the Disputed Period;
(4) if and to the extent that Transocean is correct in its construction
argument or breach arguments, Providence’s argument that the day
rates have been incorrectly allocated and applied by Transocean should
be rejected because the argument is not open to Providence and/or the
rates have been correctly allocated and applied by Transocean.
34. In relation to Providence’s spread costs claim, Transocean’s case is that:
(1) it was not in breach of contract in any of the respects alleged;
(2) it is not liable in misrepresentation;
(3) alternatively the spread costs claim is excluded in its entirety by
Section II clause 20 of the Contract;
(4) alternatively there are certain spread costs which are irrecoverable
because:
(a) they were incurred during certain periods within the Disputed
Period which were not delays caused by Transocean’s breach;
and/or
(b) such spread costs would have been incurred by Providence in any
event and so were not wasted.
35. In response to Transocean’s reliance on Clause 20, Providence alleges that:
(1) on its true construction Clause 20 does not apply to the spread costs
being claimed; and/or
(2) Clause 20 does not apply to the claim in misrepresentation;
alternatively
(3) if the effect of Clause 20 would be to prevent Providence recovering its
spread costs, nevertheless it does not on its true construction exclude
the right of set off.
36. It is convenient to address the issues in the following order.
(1) How are the remuneration provisions in the Contract to be construed,
and in particular, do the day rates apply irrespective of any breach of
contract by Transocean?
(2) Was Transocean in breach of contract in respect of:
(a) the Blue POD misalignment?
(b) the wedgelock blanking plug blow out?
(c) the mini collet gasket falling out?
(d) the upper annular problem?
(e) Yellow POD control problems and miscellaneous deficiencies?
(3) Causation: if Transocean was in breach of contract (if relevant), for
what part of the Disputed Period, if any, can:
(a) Transocean recover remuneration; and
(b) Providence recover its allegedly wasted spread costs.
In this context I will deal with whether Providence can challenge
Transocean’s application and allocation of the day rates, and if so to
what extent such allocation is erroneous.
(4) Does Clause 20 preclude set off of Providence’s spread costs claims in
contract?
(5) Does Providence have a claim for the spread costs in
misrepresentation?
Issue 1: Construction of the remuneration provisions
37. The relevant remuneration provisions in the Contract provide as follows:-
“… SECTION II – CONDITIONS OF CONTRACT
…
13. TERMS OF PAYMENT
13.1 For the performance and completion of the WORK, [Providence] shall pay or cause to be paid to [Transocean] the amounts provided in Section III – Remuneration at the times and in the manner specified in Section III and this clause.
…
13.2 [Transocean] shall submit to [Providence] an invoice within thirty (30) days of the end of each calendar month. [Transocean] shall not be entitled to receive any payment on any invoice received by [Providence] after [four months after the completion of the WORK]. Nevertheless [Providence] may, at its sole discretion, make payment against any such invoice.
…
13.4 Each invoice shall show separately the individual amounts under each of the headings in Section III – Remuneration …
13.5 Within thirty (30) days from receipt of a correctly prepared and adequately supported invoice by Providence]….[Providence] shall authorise payment in respect of such invoices ….
13.6 If [Providence] disputes any items on any invoice in whole or in part or if the invoice is prepared or submitted incorrectly in any respect, [Providence] shall return a copy of the invoice to [Transocean] advising [Transocean] of the reasons and requesting [Transocean] to issue a credit note for the unaccepted part or whole of the invoice as applicable. [Providence] shall be obliged to pay the undisputed part of a disputed invoice in accordance with the provisions of Clause 13.5.
If any other dispute connected with the CONTRACT exists between the parties [Providence] may withhold from any money which becomes payable under the CONTRACT the amount which is the subject of the dispute. [Providence] shall not be entitled to withhold monies due to [Transocean] under any other contracts with [Providence] as set off against disputes under the CONTRACT, nor shall it be entitled to withhold monies due under the CONTRACT as set off against disputes under any other contract.
On settlement of any dispute [Transocean] shall submit an invoice for sums due and [Providence] shall make the appropriate payment in accordance with the provisions of Clause 13.5.
SECTION III – REMUNERATION
…
1.1 General
Subject to the terms of the CONTRACT and as full compensation for performing the scope of work and for complying with the obligations of the CONTRACT, [Providence] shall pay [Transocean] in accordance with the format outlined hereunder.
…
3.0 EQUIPMENT PRICES AND RATES
3.1 General DRILLING UNIT Rates
…
All dayrates shall be applied on the basis of a twenty-four (24) hour day and shall be pro rata to the nearest quarter hour for part days.
Only one dayrate shall apply at any one time. Determination of the rate to apply shall be by mutual agreement, having due regard to the circumstances prevailing and the operations intended to be covered by the following rates.
The rates are to include for the provision of the DRILLING UNIT as specified in Section IV(B), all equipment materials and services detailed in Section IV(c) Checklist … and for all DRILLING UNIT personnel specified in Section IV(d) …
…
3.2 Daily Operating Rate $250,000
This rate will apply from when the last anchor has been dropped, is anchored on location, that all anchors have been pre-tensioned and that the DRILLING UNIT is ballasted to drilling draft at [Providence’s] well location designated hereunder and is ready to start the WORK, and through until the DRILLING UNIT is ready with the last anchor racked, to commence tight tow to [Providence’s] next drilling location.
The following provisions shall also apply:
…
(ii) Rate offered is for the DRILLING UNIT “as is”...
(iii) Although the rates herein are presented in US$ [Transocean] requests a split US$/£Sterling payment. A portion of the day rate equivalent to £40,000.00/day shall be paid to [Transocean] in £Sterling with the remainder payable in US Dollars. [The clause goes on to fix a mechanism for calculating the exchange rate to be used] ...
3.5 Standby Rate $245,000
The Standby Rate shall apply to Drilling Unit when [Providence’s] operations are not being progressed for any period of the following
(a) During the conduct of any inspection by [Providence] whether before or after where the COMMENCEMENT DATE [5 November 2011], where actual stand-by is incurred as a result of such inspection being carried out.
(b) Any period of Force Majeure in excess of 14 days where [Providence] has NOT terminated the CONTRACT;
(c) Periods when operations are delayed waiting on any member of COMPANY GROUP;
(d) Any period of repairs or inspection either on location or in sheltered water/dock facility where repairs or inspection are required due to damage or suspected damage caused by any member of COMPANY GROUP or in the circumstances provided for in the CONTRACT or where due to an act or omission of the COMPANY GROUP. Cost of towing the DRILLING UNIT from/to drilling location in such circumstances shall also be to COMPANY’s account;
(e) Delays in granting of necessary Government approvals and/or licences or delays in providing site specific details which delays the DRILLING UNIT from moving to drilling location;
(f) Waiting on the instructions of [Providence];
(g) Delays due to failure, loss, destruction or damage of COMPANY GROUP equipment and materials or failure to supply or delay in supplying such equipment and materials as required to be provided by [Providence] in terms of the CONTRACT;
(h) Waiting on [Providence] provided vessels or helicopters;
(I) Periods during upgrades or modifications (and reinstatement thereof, if required, by [Transocean]) to the DRILLING UNIT to meet [Providence’s] specifications, to meet Irish regulatory requirements, or as a result of change in law as set out in the CONTRACT which period shall include tow time and cost of all anchor handling and towing vessels, fuel (DRILLING UNIT and boats) and all ancillary services if such upgrades or modifications are required to be carried out in sheltered waters, port, dry dock or similar locations;
(j) Periods during waiting on access to [Providence’s] location(s), during loading/unloading of COMPANY GROUP materials and equipment including where the COMMENCEMENT DATE is delayed;
(k) Periods when the DRILLING UNIT is required to undergo any scheduled or other periodic inspection whether for class or otherwise together with attendant repairs as a result of such inspection identified during the term of the CONTRACT. [Providence] shall remain responsible for the provision of towing and anchor handling vessels with all other services to be provided by it or at its expense as set out in the Schedule IV(c).
(l) Periods spend (sic) inspecting top drive before, after and, if required, during jarring operations.
(m) Periods spent repairing top drive resulting from jarring operations.
(n) When the DRILLING UNIT’s drilling equipment is not being utilised due to [Providence] or any other Contractor of [Providence] conducting speciality operations such as drill stem testing, electrical logging etc.
(o) Further periods as may be specifically described in this CONTRACT.”
[“COMPANY GROUP” is defined as any of Providence, its co-venturers, service companies and affiliates, directors, officers or employees of any of them]
…
3.7 Fishing Rate $245,000
The Fishing Rate will apply if the fishing is due to, or arises out of negligent acts or omissions of [Transocean] or its PERSONNEL
3.8 Redrill Rate $225,000
Applicable for any period of redrilling a lost or damaged hole or drilling a substitute hole caused by the negligence of [Transocean] in accordance with the provisions of Clause 18.6 of the CONTRACT
3.9 Repair Rate $245,000
Except as otherwise provided, the Repair Rate will apply in the event of any failure of [Transocean’s] equipment (including without limitation, non-routine inspection, repair and replacement which results in shutdown of operations under this CONTRACT including the time up to recommencement of [Providence’s] operations at the same point (including any trip time, eg “drill to drill”) as when the failure occurred excluding any period when the failure has been remedied but operations cannot proceed due to adverse weather or sea conditions, or while waiting on [Providence’s] instructions, materials or services or any period of time when the failure or repair has been caused due to an act or omission of any member of COMPANY GROUP or a Force Majeure Event…
In such circumstances the Standby Rate shall apply subject to the following:
(a) for the time not exceeding twenty-four (24) hours cumulative per month (provided however that the twenty-four (24) hours per month allowance cannot be carried forward) when operations are suspended due to failure of CONTRACTOR’s equipment at the Repair Rate;
(b) for any repair time in excess of twenty-four (24) hours cumulative per month the day rate will be reduced to zero (0).
Notwithstanding the foregoing, for Subsea equipment (as described in Clause 18.5 of Section II), when Subsea Downtime (defined below) results in suspension of operations whereby activities cannot be conducted as a result the Repair, then CONTRACTOR shall be entitled to an allowance of seventy two (72) hours to be paid at the Repair Rate. All Subsea Downtime in excess of the allowable hours per calendar month shall be at the Zero Rate.
“Subsea Downtime” is defined as any period of time elapsing between the suspension of operations and the time when normal operations may resume (excluding weather delay as aforesaid), where operations are suspended to facilitate the recovery, deployment, repair or replacement of Subsea Equipment that is lost, damaged, or not functioning as required. Subsea Downtime does not include periods of shutdown or delay for CONTRACTOR’s scheduled maintenance of Subsea equipment including tripping and running time associated therewith.
The Repair Rate SHALL NOT apply to the time required for routine DRILLING UNIT maintenance which shall include (but not be limited to) slipping and cutting of drill lines… routine inspection, surface maintenance and testing of BOP and well control equipment including tripping time …
The Repair Rate shall apply to re-testing BOP well equipment when testing is to confirm the integrity of equipment which has replaced in its entirety failed equipment.
3.10 Force Majeure Rate $225,000.00
Applicable in respect of any period during which operations are suspended as a result of force majeure in accordance with Clause 12 of the CONTRACT.
3.11 Waiting on Weather Rate $245,000.00
The Waiting on Weather (WoW) rate will be applicable per twenty-four (24) hour day or pro rata for part thereof from COMMENCEMENT DATE, for any period of delay when CONTRACTOR’s DRILLING UNIT is unable to proceed because of adverse sea, or weather conditions, this includes time consumed in shutting down and starting up operations before and after period of weather downtime …”
38. Transocean submits as follows. These provisions contain a complete code for
one of the rates to be applicable in all eventualities irrespective of breach by
Transocean, and involve an allocation of risk irrespective of fault. Only one day
rate can apply at any one time (Clause 3.1). The default position is that the
Operating Rate of US$250,000 applies throughout the period unless one of the
other identified rates applies (Clause 3.2). This is expressed to apply by
reference to a period of time rather than the function being performed by the
Rig. It is not expressed to be applicable simply when the Rig is operating. The
other lower rates cover periods of standby (when there is delay for a series of
identified causes most of which are attributable to Providence: Clause 3.5),
moving (Clause 3.6), fishing (Clause 3.7), redrilling (Clause 3.8), repairs
(Clause 3.9), force majeure (Clauses 3.10 and 3.5(b)), and adverse weather
(Clause 3.11). These are a detailed list of events which may affect the working
of the Rig and involve a careful allocation of risk in the form of differential
rates. The allocation of rates to these identified causes is not fault based: there is
a reduced rate for waiting on weather; force majeure has its own regimen; there
are periods for which Transocean gets a reduced rate notwithstanding that delays
are due to Providence’s actions or fault, for example when the Standby Rate
applies under Clause 3.5; and there are periods when a substantial rate applies
notwithstanding that delays are caused by negligent acts or omissions of
Transocean, for example the Redrill Rate under Clause 3.8 and the Fishing Rate
under clause 3.7 (fishing is the process of retrieving anything which has been
left in a wellbore, whether it be junk metal, a hand tool, a length of drill pipe, a
measurement tool or other equipment). There is therefore no presumption that
the parties did not intend any of the rates to apply where delays were due to the
fault of Transocean. Such a presumption is not in any event appropriate in a rig
contract where it is common to have “knock for knock” provisions which
allocate risk to one party for losses caused by the other party’s breach of
contract or negligence, as is the case with the indemnities in clause 18 of the
Contract. The Repair Rate does not by its terms apply where the repair is due to
acts or omissions of Providence, its co-venturers or service companies, or to
force majeure, or to routine rig maintenance. Its scope might therefore be
expected to extend to repair delays caused by breaches of contract on the part of
Transocean. The Repair Rate is weighted strongly in favour of Providence. For
repairs to equipment other than Subsea equipment, Transocean is only entitled
to the US$245,000 rate for a maximum of 24 hours in any month, and receives
nothing for any further period of delay. For subsea equipment it receives
nothing after 72 hours delay of subsea downtime, as defined. Clause 3.9 is
drafted in terms which suggest application to all repairs however caused. The
natural meaning of the word “failure” itself encompasses breakdowns due to
default as well as non-culpable breakdowns. The clause expressly refers to
“any” failure which is defined to include “without limitation” non-routine repair
and replacement. There is good commercial sense in an allocation of risk for
periods of delay arising from the repair of rig equipment which does not depend
upon an investigation into the cause of the equipment failure and whether it
results from a breach of contract by Transocean. As the circumstances of this
case demonstrate, such investigation may be complex, involving an analysis of
maintenance history, and its outcome may be the subject matter of dispute. The
simple allocation of risk provided for by the clause provides clarity and
certainty.
39. Despite the cogency and attraction of these arguments, I am unable to accept
this construction. The starting point is to consider three well known lines of
authority on the approach to construction which afford helpful guidance in the
present case. First there are the cases which stand for the proposition that unless
a contract contains clear language to the contrary, it will not be construed as
enabling a party to take advantage of his own breach of contract: see Alghussein
Establishment v Eton College [1988] 1 WLR 587 and the cases there
considered. Secondly there is the line of authority emanating from the threefold
test expounded by Lord Morton in Canada Steamship Lines v The King [1952]
AC 192, 208 to the effect that where an exemption clause is capable of applying
to negligent and non negligent breaches, which are not fanciful, one should
approach the clause on the basis that it was not intended to exclude liability for
negligence unless the clause makes such an intention clear. Thirdly there is the
approach to clauses relied on to exclude the right of abatement captured in the
speech of Lord Diplock in Gilbert-Ash (Northern) Ltd v Modern Engineering
(Bristol) Ltd [1974] AC 689. At p. 717B-G Lord Diplock explained that
abatement is a remedy which enables a person who buys goods, or who
contracts for work or labour, to defend a claim for the contractual remuneration
by showing how much less the goods or services are worth by reason of the
breach of contract of the other party; and that it is remedy which exists by way
of a defence at common law to the claim for remuneration, separately from any
equitable right of set-off or procedural arguments based on circuity of action.
He went on at p. 717H:
“It is, of course, open to parties to a contract for sale of goods or for work and labour or for both to exclude by express agreement a remedy for its breach which would otherwise arise by operation of law or such remedy may be excluded by usage binding upon the parties (cf. Sale of Goods Act 1893, section 55). But in construing such a contract one starts with the presumption that neither party intends to abandon any remedies for its breach arising by operation of law, and clear express words must be used in order to rebut this presumption.”
40. In Sonat Offshore SA v Amerada Hess [1998] 1 Lloyd’s Rep 145, these
principles were applied to a claim for remuneration under a rig contract where
arguments similar to those in the present case arose. In that case there had been
a fire on a rig as a result of the rig owner’s failure to maintain equipment, which
led to the vessel going into Peterhead for repairs. Saville J, as he then was, held
that the owner was entitled to remuneration under the rig contract for the period
during which the rig was out of service, notwithstanding that the delay was
caused by its own breach and negligence. The Court of Appeal reversed the
decision. The remuneration terms in the rig contract in that case followed the
same structure as those in the Contract, although they were by no means
identical. The payment obligation at the beginning of article 8 in that case was
to pay “for the work performed services rendered and materials equipment and
supplies furnished by” the rig owner at the rates set out thereafter in the clause.
Article 8.3 provided for an operating rate expressed to be payable for the term of
the agreement except when other specific rates applied. Article 8.6 provided for
an Equipment Breakdown Rate, article 8.7 for a Rig Repair Rate and article 8.8
for a Force Majeure Rate.
41. The leading judgment was given by Purchas LJ. Having cited the Canada
Steamship line of authorities and the dictum of Lord Diplock from Gilbert-Ash
which I have quoted above he went on at p. 157 col 1:
“From the authorities just cited in cases involving clauses excluding or exempting a party from liability for his own negligence or wilful default some general principles may be derived which are applicable to the construction of a term providing for payment for “work performed, services rendered and materials, equipment and supplies furnished”. They are as follows:
(1) Contracting parties in a commercial world are not likely to agree to pay for work performed, services rendered, etc in circumstances in which the other party does not perform the work or render the services. Put bluntly they are unlikely to contract to pay something for nothing, particularly if the failure to perform by the payee is due to his own negligence or default.
(2) Applying principle (1), if the stipulation is to make continuing and regular payments throughout a defined period of time whether or not the work is being performed the services being rendered or materials, equipment and supplies being furnished, one would expect to find an express term which provided for such payments related to the period during which the payments were to continue, rather than one related to the work etc for which the payment is to be made.
(3) In the absence of an express stipulation to pay in the circumstances in principle (2) then r.3 in the Canada Steamship Lines case is applicable in the sense that an obligation to pay in the absence of work being performed etc. will only be inferred if there is no other reasonable alternative. The Court will not, of course, look for remote or fanciful avenues in order to construe the clause contrary to the sense of principle (1) above.
(4) In construing clauses of an agreement providing for payments for work performed, services rendered or materials, equipment and supplies furnished, express words or necessary intentions proven are required before the scope of such clauses can be extended to
exclude rights and liabilities arising under other clauses in that agreement. This will particularly be the case where the agreement contains numerous clauses dealing in detail with such rights, duties and liabilities.”
42. In a concurring judgment Parker LJ said at p. 161 col 2:
“[The main issue] is whether the company, having been deprived of all benefit from the rig for one month due to the negligence and breach of contract of the contractor, is nevertheless obliged to pay, during that period, the equipment breakdown rate without any right of reduction, set-off or counterclaim. Unless the terms of the agreement are such as to exclude such a right, the company is clearly not so obliged.”
And at p. 162 col 2:
“The express provisions for the exercise of care coupled with - i) express provision as to the consequences of lack of care in certain cases; ii) the absence of any such provision in arts. 8.6 and 8.7; and iii) the inherent unlikelihood that the company would have intended to pay, or the contractor to exact, payment when due to the contractor’s lack of care whether the duty of care was contractual or tortious particularly payment in excess of that recoverable when the rig was out of action due to force majeure all reinforce the conclusion that Cll 8.6 and 8.7 were not intended to apply if the eventualities which would otherwise bring them into force were due to the contractor’s negligence.”
43. Stocker LJ in a concurring judgment said at p. 162 col 2:
“As Lord Justice Purchas has pointed out, if it was the intention of the parties that one party should make payments to the other for services not in fact carried out due to the negligence of that other, one would expect such an intention to be expressly stated in the contract. No such intention is expressed and if on its proper construction this is the effect of the contract then that construction can only have arisen, if essential, to give effect to the contractual terms in fact expressed.”
44. The contract terms in that case were not identical to those in the Contract in this
case and a number of the construction arguments in that case are of no relevance
in this. In particular one striking feature which influenced the Court in that case
and is absent in the present is that if the rig owners were correct they would
have been entitled to be paid more for downtime caused by their own wilful
default than if caused by force majeure.
45. Nevertheless three important points emerge. First, the applicable principles
governing the approach to construction apply as much to a rig contract as to any
other contract for goods and services. It does not assist Transocean to say that
such contracts may commonly contain knock for knock clauses (as this one does
in Clause 18) or allocates to one party liability for the financial consequences of
the other party’s negligence (as this one does in Clauses 3.7 and 3.8). Where the
Contract does so, it is because the parties have chosen to use clear words to that
effect in fulfilment of the principles of construction, not because the principles
of construction do not apply to such contracts. It may fairly be said that where
there is a willingness to agree to such provisions covering particular events or
situations, there is less potency in an approach to construction which takes as its
starting point the inherent unlikelihood of one party agreeing to bear the
financial consequences of the other party’s negligence or breach. But the
potency is not altogether removed. Outside the specific situations covered by
the knock for knock regime to be found in Clause 18 of the Contract, which is
not uncommon, hirers of a rig are no more likely than any other person who
contracts for the provision of goods and services to agree to pay something for
nothing, particularly if the failure to perform is due to the negligence or default
of the payee. This is the point made by Purchas LJ at (1) in the passage quoted
above, specifically in the context of a rig contract.
46. Secondly the framing of the remuneration obligation as being in return for the
work, rather than by reference to a particular period of time, is indicative that
the right of abatement is preserved and the obligation is only to pay for work
being performed: this is Purchas LJ’s point at (2). It applies to Clause 13 of
Section II and Clause 1 of Section III of the Contract in this case, just as it
applied to the opening words of article 8 of that contract. Moreover, Transocean
is a large and experienced rig owner who might be expected to be aware of
standard forms and Court decisions on particular wordings when entering into
an English law contract. If it had wished to make remuneration payable
irrespective of the work being performed and exclude the right of abatement, it
might have been expected to adopt the solution suggested by Purchas LJ in (2)
rather than entering into a contract in which Clause 13 of Section II and Clause
3 of Section III were drafted to follow the same structure as in Sonat.
47. Thirdly, the four factors identified by Parker LJ in the passage at p. 162 quoted
above apply equally to the provisions of this Contract, with the exception only
of the comparison with a force majeure event. There is an express provision for
the exercise of care: Clause 4.2 of Section II; there is express provision for the
consequences of lack of care in certain cases: Clauses 3.7 and 3.8 of Section III;
there is the absence of such express provision in the clauses in question: Clauses
3.2, 3.5, 3.9 and 3.11; and there is the inherent unlikelihood that Providence
would have intended to make, or Transocean exact, payment when payment
would only become due as a result of Transocean’s lack of care, whether the
duty of care was contractual or tortious.
48. Applying these principles, there is nothing in the wording of Clauses 3.2
(Operating Rate), 3.5 (Standby Rate), 3.9 (Repair Rate) and 3.11 (WOW Rate)
which makes clear that Transocean is to be paid at the day rates it is seeking to
apply when the rig is not performing the work required of her due to
Transocean’s breach. There is no express language to that effect, by contrast
with the express language which is employed to achieve that result in clauses
3.7 and 3.8. Mr Persey QC did not identify any such language save for reliance
on the words “any failure” and “without limitation” in Clause 3.9. The words
“without limitation” cannot enhance the effect of the words “any failure”: they
mean “including”, and are intended to ensure that the list of enumerated events
or causes which follow are not to be construed as narrowing “any failure”. The
entire weight of Mr Persey’s argument of a clear contrary intention therefore
falls on the word “any”, a weight it will not bear to express a clear intention to
pay for work not performed, to give up a right of abatement or to accept an
obligation to pay for the consequences of Transocean’s negligence. In this latter
respect, it is true that repair delays may be caused by non negligent breaches of
contract or duty by Transocean, as for example a breach of warranty of
condition or breach of statutory duty resulting from a latent defect. But neither
side contended for a distinction to be drawn between breaches of warranty and
breaches comprising negligence in construing the remuneration provisions. If
Transocean’s argument were correct, it would be entitled to be paid
remuneration for periods where delays were caused by its own negligence or by
a breach of contract which was deliberate.
49. There is no difficulty in giving content to Clause 3.9 if construed as Providence
suggests. It would apply, for example, in the event of heavy weather damage,
which would not fall within clause 12 as a force majeure event. It would apply
to a subsea mishap which was not due to the act or omission of Providence, as
Transocean alleges happened in this case by an impact during relatching on 17
December 2011.
50. Providence’s construction is further supported by Clause 20 of Section II which
provides:
“20. CONSEQUENTIAL LOSS
For the purposes of this Clause 20 the expression “Consequential Loss” shall mean:
(i) any indirect or consequential loss or damages under English law, and/or
(ii) to the extent not covered by (i) above, loss or deferment of production, loss of product, loss of use (including, without limitation, loss of use or the cost of use of property, equipment, materials and services including without limitation, those provided by contractors or subcontractors of every tier or by third parties), loss of business and business interruption, loss of revenue (which for the avoidance of doubt shall not include payments due to [Transocean] by way of remuneration under this CONTRACT), loss of profit or anticipated profit, loss and/or deferral of drilling rights and/or loss, restriction or forfeiture of licence, concession or field interests,
whether or not such losses were foreseeable at the time of entering into the CONTRACT and, in respect of paragraph (ii) only, whether the same are direct or indirect. The expression “Consequential Loss” shall not include
[Transocean’s] losses arising in connection with (1) failure by [Providence] to provide the letter of credit as required by Clause 3.13 of Section III or resulting termination of this CONTRACT or (2) any termination of this CONTRACT by reason of [Providence’s] repudiatory breach.
Subject to and without affecting the provisions of this CONTRACT regarding (a) the payment rights and obligations of the parties or (b) the risk of loss, or (c) release and indemnity rights and obligations of the parties but notwithstanding any other provision of the CONTRACT to the contrary [Providence] shall save, indemnify, defend and hold harmless [Transocean] from the COMPANY GROUP’s own consequential loss and Transocean] shall save, indemnify, defend and hold harmless the COMPANY GROUP from the CONTRACTOR GROUP’s own consequential loss.”
51. This is an exclusion as well as indemnity clause (see Farstad Supply A/S v
Envirico Ltd [2010] 2 Lloyd’s Rep 387). I shall return to the losses which this
clause covers in the context of Providence’s spread costs claim. But the
important aspect for present purposes is that in a clause whose effect is to
exclude Transocean’s liability for certain losses suffered by Providence as a
result of Transocean’s breach of Contract, there is saving wording which carves
out of the exclusion the right to rely upon such losses in relation to claims for
remuneration. This is to be found both in the body of subclause (ii) (“loss of
revenue which for the avoidance of doubt shall not include payments due to
[Transocean] by way of remuneration under this CONTRACT”) and in the final
paragraph (“subject to and without affecting the provisions of this CONTRACT
regarding (a) the payment rights and obligations of the parties”).
52. It does not assist Transocean to rely upon the fact that the Operating Rate in
clause 3.2 is defined by reference to a period of time, and to argue that because
only one rate can apply, the various rates in Clause 3 are a complete code. The
same was true of article 8 in Sonat. The Operating Rate does indeed operate as
a default rate where other rates do not apply, even where the events in question
might otherwise fall within the subject matter of the other clauses. So, for
example, clause 3.9 does not apply to repairs which are caused by acts or
omissions by Providence; nor does it deal with all other delays due to repairs or
breakdowns in the Rig and equipment: it applies only to failures which result in
a shutdown or suspension of operations, not those which may slow down
operations. Clauses 3.7 and 3.8 do not address fishing or redrilling arising
otherwise than from Transocean’s fault, in which case the Operating Rate
potentially applies. The force majeure events in Clause 12 of Section II which
trigger the Force Majeure Rate in Clause 3.10 of Section III are specifically and
relatively narrowly confined. They do not comprehend events which might be
treated as force majeure in other contracts. But this does not alter the fact that
all the clauses enumerating the day rates are to be interpreted in accordance with
the principles of construction identified above.
53. Nor does Transocean’s construction promote contractual certainty by avoiding
the need to investigate the cause of breakdowns or failures. Clause 3.9 excludes
from its scope failures which are due to acts or omissions of Providence or its
affiliates, co-venturers or subcontractors.
54. For these reasons, none of the day rate provisions are to be interpreted as
entitling Transocean to remuneration if and to the extent that such entitlement
would arise from Transocean’s breach of the Contract or from Transocean’s
failure to perform the Work in a way which would give rise to a defence of
abatement. I will return to consider the effect of such construction on particular
periods of delay when considering causation under Issue 3.
Issue 2: Breach
Blue POD misalignment
(a) Cause
55. Both parties have espoused theories of the cause of the Blue POD misalignment
which have changed over time, and shifted during the course of the proceedings.
Each party supported its case with the evidence of an expert, Mr Lewis for
Transocean and Mr O’Donnell for Providence. Both were well qualified and
seeking to assist the Court.
56. In an internal investigation report, Transocean concluded that the two root
causes were (1) excessive well head movement between 29 November 2011 and
1 December 2011 resulting in movement of the PODs and the hoses hanging
from the BOP receptacle; and (2) a build up of debris in the POD stinger
segment cavities preventing full retraction and resulting in uneven downward
pressure on the receptacle. Its pleaded case until 25 July 2014 was that the
wellhead movement was the sole cause. By an amendment of that date it added
a new allegation that the misalignment resulted from damage caused by the
relatching attempts on 17 December 2011 due to adverse weather conditions.
By the conclusion of the hearing, its case was that the primary cause was
physical damage caused by the relatching attempts in bad weather on 17
December; and that an alternative or contributory cause was one which it had
not pleaded but which Providence had advanced, namely that the misalignment
was due to the hoses on the receptacle being too heavy and exerting a vertical
and rotational force. The allegation of well head movement being causative was
relegated to a suggestion that it “may have” exacerbated the effect of the hoses
being too heavy.
57. Providence’s case advanced in the first report of its expert, Mr O’Donnell, was
that the primary cause was that the hoses exerted an uneven loading on the
receptacle over time; they were too heavy, exerting a vertical force; they also
exerted a rotational force because they did not hang vertically all the way from
the valves on the receptacle to their various connections on the lower BOP; they
ran roughly vertically down through a cut out in the plating but then attached to
their respective positions on the lower BOP with some lateral deviation; and so
each time each hose was used, the pressure would exert a rotational loading on
the receptacle. Additional contributory causes were (1) the overtorquing of the
retaining bolt on the relevant spring mount which weakened the elastomer
spring by overcompressing it; (2) the build up of debris in the stinger cavities
which caused it to physically depress the receptacle on one side; (3) the bolt on
the energising activator cone being loose. By the conclusion of the hearing,
Providence’s case was that the primary cause was the build up of debris in the
stinger cavities; and that an alternative or additional contributory factor was the
weight and effect of the hoses.
Rotational effect of the hoses
58. The photograph of the inside of the receptacle following the dismantling of the
assembly reveals the circular marks left by the stinger seals. These are out of
concentric alignment with the holes in the receptacles both vertically and
rotationally. Two potential causes were canvassed for the rotational
misalignment. One was that it may simply have been the result of the stinger
ports and receptacle holes not being perfectly lined up when the receptacle was
mounted; the diameter of the seals is large enough that it is not critical that the
hole in the receptacle is lined up exactly with the centre of the circle of the
stinger segment seal. The other was that the receptacle had moved rotationally
as a result of the rotational force exerted by the configuration of the hoses. My
conclusion is that it is more likely that this degree of rotational misalignment
arose from the original assembly rather than as a result of any subsequent
rotational movement. There is little scope for significant lateral movement in
the spring mount, and the problems were not encountered in the Yellow POD
which had the same weight and configuration of hoses as the Blue POD. But
whichever is the correct explanation, the rotational displacement was not
causative of the problems in this case. It was the vertical displacement,
evidenced by the 6mm compression of the spring which was observed and
photographed when the stack was pulled to surface, which prevented the stinger
segment seals and the receptacle ports lining up properly. Any rotational
misalignment did not prevent full functioning and was not causally significant.
Weight of hoses
59. I am not persuaded that the weight of the hoses played any significant part in the
Blue POD misalignment for the reasons explained by Mr Lewis in paragraph 3
of his second report, which I find compelling. First, an engineering bulletin
dated 22 March 1993 produced by Cameron and known as EB 729C provides
that the hoses will compress the springs by 1.6mm, that the landing of the
LMRP will compress them by 10.2mm, and that the maximum compression
allowed is 17.8mm. It was agreed by the experts that this envisaged hoses of an
earlier design and that modern hoses would be heavier. But it is most
improbable that they would be so much heavier as to produce 6 mm rather than
1.6 mm of compression, which is the amount necessary both to reach the
maximum compression tolerance and to cock the receptacle in way of the hoses
by the amount observed on this occasion. Secondly, if the weight of the hoses
were responsible for compression of the spring mount, the spring would not
have regained its profile when the LMRP was unlatched. Thirdly, there was no
prior or subsequent vertical displacement of the Yellow POD receptacle, which
had the same weight and configuration of hoses. Fourthly, the PODs were
successfully function and pressure tested on a number of occasions since
installation of the hoses, most recently on 26 and 28 November 2011 and 4
December 2011. This supports the conclusion that “something happened”, as
Mr Persey put it, rather than that the receptacle suffered from a chronic problem.
It is more likely that the receptacle was subjected to some particular physical
force.
Wellhead movement
60. For similar reasons, I am not persuaded that wellhead movement between 29
November and 1 December played any causative part in the Blue POD
misalignment. There was some conflicting evidence of the exact extent to
which the BOP stack deviated from the vertical. It was at times as much as 3°
from vertical and 4½° in total range. This exceeded the +/- 1° which was the
operating parameter provided for in the Contract and Well Control Handbook,
but that parameter was designed to protect against key seating damage, that is to
say damage caused by the drilling string against the housing. The BOP stack
itself formed a rigid structure, so that there would have been no movement of
the LMRP relative to the lower BOP irrespective of the deviation from the
vertical of the whole stack caused by the insecure cementing of the casing and
the movement of the well head at the sea bed. The only potential effect on the
BOP receptacle could have been increased movement of the hoses swaying as a
result of the movement of the stack. I accept the view of Mr O’Donnell that this
is unlikely to have had any significant effect on the receptacle.
Impact during relatching
61. There were two attempts to relatch the LMRP to the lower BOP on 17
December, one of which commenced at about 1330 and the second at about
2115. Neither was successful. The LMRP was successfully relatched on 18
December.
62. I reject the argument that the misalignment was caused or contributed to by a
physical impact between the LMRP and the BOP receptacle during those
relatching operations for a number of reasons.
63. First the evidence from those on board at the time does not support the
suggestion that there was such an impact. Neither side called any witnesses who
had been on board at the time. The contemporaneous written records of events
during the two unsuccessful relatch attempts on 17 December comprised the
following:
(1) The daily drilling report prepared by NRG on behalf of Providence
recorded the first attempt in these terms: “With LMRP position fine
tuned over BOP post tops…prepared to lower LMRP over top of BOP
posts. Rig roll and yaw causing LMRP to “pendulum” over post tops.
Whilst lowering LMRP, bottom edge of funnel made contact with the
top of post #3 (under observation with ROV camera) as LMRP swung
to one side. GL operator reported all tension lost on #4 GL. ROV
confirmed GL #4 parted. With only two guidelines remaining, decision
made to lift clear of posts and prepared to winch off well centre and
wait on sea states.” The relevant record of the second attempt is “With
LMRP position fine tuned over BOP post tops. Prepared to lower
LMRP over top of BOP posts. Unable to engage LMRP to BOP.
LMRP still heaving circa 1m with lateral displacement.”
(2) The IADC daily drilling report prepared by NRG’s representative and
countersigned by Transocean’s representative records the first attempt
thus: “Attempt to lower LMRP over guide posts. Tag post-pick up on
LMRP. Observe guideline #4parted at post.” The report of the second
attempt is “Attempt to land out LMRP to BOP. Rig heave too much for
operation. Suspend same and formulate forward plan.”
(3) The ROV Dive Log prepared by Subsea7 records that gate 1 was
“broken” in the first attempt, and that the second attempt had the
“LMRP lowered 5 foot over guide posts”. It is not clear whether this
means that it was 5 feet above the guide posts when the operation was
abandoned or that the guides had engaged the guideposts to an extent
of 5 feet.
64. Although the first two reports refer to contact between one of the funnels and a
guidepost during the first relatch attempt on 17 December, neither record any
damage to the funnel and none was recorded as found when the LMRP was
pulled to surface on 20 December, despite the Subsea7 report of it as “broken”.
Whatever the state of the funnel, these reports do not suggest an operation in
which there could have been contact with the BOP receptacle or any physical
damage caused. Normal operations would involve monitoring the relatch
attempts by using the ROV to observe the underwater events, and the above
reports confirm that this is what happened. If there had been a significant
collision it would likely have been observed by those watching the ROV footage
at the time and recorded.
65. Similarly, the contemporaneous records for the successful relatching on 18
December do not record anything untoward.
66. Secondly the evidence gathered by Transocean in its investigation does not
support the collision theory. In January 2012, Transocean conducted an
investigation into the causes of the problems on the Rig. The investigative team
was led by Mr Scott, Transocean’s Operational Integrity Manager, with Mr
Clyne, the North Sea Division General Manager, having overall responsibility.
The day to day conduct of the investigation was in the hands of Mr Leslie who
held the title Rig Manager Performance. Mr Leslie went out to the Rig and
interviewed five individuals who held the titles of Offshore Installation
Manager, Senior Toolpusher, Senior Subsea Supervisor, Maintenance
Supervisor and Subsea Supervisor. He also obtained further information from,
amongst others, Mr Hugo who was the NRG representative who compiled the
daily log for 17 December. Transocean called Mr Scott and Mr Clyne as
witnesses but chose not to call Mr Leslie, and did not disclose any notes or other
records of Mr Leslie’s interviews with those on the Rig. The terms of reference
for the investigation specifically included establishing the weather conditions
and operational activities at the time of unlatching and relatching the LMRP
between 11 and 18 December and establishing any “equipment issues”
encountered during this latching and unlatching. One of the principal purposes
of the investigation was to establish the cause of the Blue POD misalignment.
The resulting report went through a number of drafts and was considered by
senior management. It had been agreed that the results would be sent to
Providence. In fact what was sent to Providence was a version which had been
deliberately doctored to remove references to stinger segment debris and lack of
maintenance as a cause, despite that being Transocean’s internal view as one of
the root causes. This deception reflects no credit on Transocean’s senior
management, and in particular on Mr Scott and Mr Clyne, whose evidence
sought to explain the change in an unconvincing way. The kindest thing I can
say about their evidence is that they did not do themselves justice.
67. What is most significant for present purposes about Transocean’s internal
investigation is that initial and final drafts recorded that during the relatch
attempts on 17 December, the LMRP only got as far as moving above the
guideposts before being aborted; and no version of the report or any of its drafts
referred to any untoward incident during relatching attempts on 17 December
(or indeed during the successful relatching operation on 18 December). There
was no reference in any of the findings of the investigation, at any stage, to any
collision or impact as a cause of the problem; on the contrary the final internal
report concluded that the loss of the guidelines during the first relatch attempt
was not considered to be a contributory cause of the problems experienced with
control of the lower BOP. The clear inference to be drawn is that Mr Leslie
carefully investigated with those on board the Rig at the time whether there had
been any incident during the relatching attempts on 17 December which could
have caused the misalignment problem, and concluded that it could be ruled out
as a cause.
68. Thirdly, as Mr O’Donnell explained in a passage of his report on which he was
not challenged in cross examination, a lateral impact between the bottom of the
LMRP and the receptacle on the lower BOP is impossible given the physical
configuration of the two parts of the stack. When the LMRP is being relatched,
the first potential point of contact between the LMRP and the lower BOP is for
the LMRP gates to slide over and down the BOP guidepost. The gates cannot
miss the posts completely because of the guidelines running through them, and
this would be so even if only two opposing corners had guidelines in tact. When
the gates engage with the guide posts, the LMRP plate is 5ft 6 ins above the top
of the BOP receptacle. The LMRP alignment pins extend below the bottom of
the LMRP plating by 22 ins. Accordingly they could not reach the level of the
BOP receptacle until the LMRP gates were 3 ft 8 ins down the guide posts. This
would prevent sufficient lateral movement to allow a side impact with the
receptacle. Under cross examination, Mr Lewis was unable to advance any
explanation of how any lateral collision between part of the LMRP and the
receptacle could have taken place.
69. Mr Lewis advanced an alternative theory that there had been a heavy vertical
impact. This was raised for the first time at the experts’ meeting and was
something of an afterthought. This new theory is not supported by the
contemporary evidence about what happened on 17 December, the gravamen of
which suggests that the LMRP never got below engagement of the funnels on
the guideposts, nor with the results of Mr Leslie’s investigations with those on
the Rig.
70. Mr Lewis also posited a heavy landing when the relatch was successful on 18
December. This formed no part of Transocean’s pleaded case, and Providence
was thereby deprived of the opportunity of adducing potentially relevant
evidence, such as ROV footage of the operation. In any event it was not
supported by any evidence from those on the Rig at the time or any
contemporaneous record. Again it must have been considered and ruled out by
Mr Leslie’s investigation with those on board at the time.
71. Fourthly, it is likely that had there been a lateral impact, it would have left some
sign of such impact on the outside of the receptacle, and would have affected
more than a single spring on the mount. The LMRP is a heavy unit, and had it
been swaying in a way which could have collided laterally with the BOP
receptacle, it is unlikely that the damage would have been confined to the slight
lateral movement of the receptacle by the compromise of a single spring mount.
72. Fifthly the evidence of debris in the stinger cavities makes it a much more likely
cause than a relatching impact, for the reasons explained below.
73. Mr Lewis relied on a photograph of a mounting bolt, assumed to be that which
had secured the receptacle to the welded mount on the plate through the middle
of the spring which collapsed. It showed signs of bending which Mr Lewis
attributed to a lateral impact. The small bolt also shows signs of necking as well
as having been bent. Mr Lewis’ view was that the necking was the result of it
being bent. Mr O’Donnell’s view was that the necking suggests overtightening
and that the weakening of the bolt by overtorquing could have led to it bending
as a result of the cocking taking place when the stinger segment failed to de
energise and caused downward pressure on the receptacle. I regard the evidence
about the bolt as of little assistance in determining the cause of the
misalignment. There is no direct evidence that this was the bolt which was in
the spring which collapsed. In any event the experts’ views had to be based on a
photo of a small bolt where the bending is of a few millimetres at most. No
secure conclusions can be drawn from that evidence of the condition of the bolt
even if the assumption be correct that it was securing the spring which
collapsed.
74. Mr Lewis also relied on the condition of one of the Teflon strips shown in one
of the photographs and an apparent vertical mark on the receptacle as
demonstrating that there must have been previous lateral movement of the
receptacle causing the Teflon strip to become deformed by dragging against that
part of the receptacle which was above the spring mount which failed. The
Teflon strip shows signs of having deformed by dragging against the receptacle
when the stinger retracted upward: the deformation of the strip is downwards.
However it emerged in evidence from Mr O’Donnell that the mark could not
have been made by the Teflon strip shown in the photograph because of the
configuration of the stinger ports. If the apparent mark was in way of the mount
which failed, the Teflon strip was not. Accordingly the wear on the Teflon strip
could not have been caused by the same displacement as caused the
misalignment which led to the collapse of the spring mount. In any event Mr
O’Donnell’s view, which I accept, is that the wear shown on the Teflon strip
could have been caused by the stinger being dragged out of the cocked
receptacle after the event. If so, it sheds no light on what caused the cocking of
the receptacle in the first place.
Stinger segment cavity debris
75. When the stack was pulled to surface on 16 January 2012, the receptacle was
observed to be cocked by being vertically depressed on one side with the spring
compressed by about 6mm. When the LMRP was unlatched, the spring
resumed its uncompressed shape and the receptacle returned to the horizontal.
The stinger and receptacle were examined and disassembled for inspection. A
number of photographs were taken.
76. The only witness to give evidence about that examination of the stinger
assembly and receptacle was Mr Thompson, a subsea engineer and consultant
employed by Hands On Subsea Engineering International Ltd (“HOSE”).
HOSE was engaged by Providence to carry out an inspection and audit of the
well control equipment on the Rig after the problems emerged in December
2011. Mr Thompson attended on the Rig between 9 and 25 January 2012. He
took photographs and kept a daily log, which he sent to his managing director in
Aberdeen, Mr Campbell, as well as to NRG. He supplemented these written
logs with intermittent oral contact with Mr Campbell.
77. Also present on board on Transocean’s side were, amongst others, the senior
figures of Mr Stuart, the North Sea Division Subsea Superintendent, and Mr
Mike Smith, owner of Raisepower Ltd, a specialist subsea well control
contractor which had been engaged by Transocean to assist in troubleshooting
the POD issue in January 2012.
78. I assessed Mr Thompson as a truthful and generally reliable witness, although
inclined at times to argue Providence’s case. His evidence was that when the
LMRP was detached, the stinger was initially inspected by Mr Smith and
another Raisepower engineer who confirmed to him that the inboard segments
of the stinger had not retracted but were protruding; that he, Mr Thompson, then
inspected the stinger and found that one of the four segments was still in an
energised position and protruding so as potentially to catch the BOP receptacle
and cock it; that when the stinger was disassembled on 17 January 2012 he
observed that it was generally suffering from a severe level of rust, that there
was a level of “crud” which had built up in the segment cavities, and that it was
this crud which had hardened and prevented the stinger segment from de
energising. By “crud” he meant loose material or debris of the kind that occurs
from electrolysis and from fine particles of mud and cement which have
combined and hardened. He described the level of rust that he saw as being
“severe, and not simply rust that you could brush off with a cloth or a wire
brush.” A photo taken by him shows something filling the segment cavity and
supports his evidence, as does his contemporaneous note for 17 January 2012
which records: “we have dismantled the stinger and it is very dirty with a lot of
crud and rust.” Mr Thompson’s view was that the crud which was present, and
had hardened in the gaps between the stinger segments, must have been building
up over a sustained period of time.
79. Transocean’s own internal investigation confirmed that there was a build-up of
debris in the POD segment cavities and that periodic clearing of debris from the
segments and the cone cavity was not captured in the Transocean maintenance
schedule. The author of this passage, Mr Leslie, must have seen the stinger
while he was on the rig between 16 and 19 January 2012 and this must reflect
his views.
80. Transocean sought to rely upon an attachment to an email from Mr Campbell to
Mr O’Brien and Mr Roe dated 18 January 2012, which contains the statement
that the POD stinger segments look to be in good condition and that the
corrosion stated is only surface corrosion and the normal state of the stingers
and sliding surfaces. Mr Campbell was not in fact talking about the surfaces of
the areas between the segments. In any event he was not present on the rig to
see the stinger, and did not give evidence. Mr Thompson’s evidence is a surer
guide to the condition he personally observed.
81. Mr O’Donnell’s view, expressed in his second report and his evidence to me,
was that this failure of the segment to de energise was the primary cause of the
cocking of the receptacle and the consequent misalignment. The segment
pressed against the side of the receptacle causing asymmetrical downward
pressure on the receptacle which in turn caused it to cock and the elastomer
spring mount to deform. This evidence represented the elevation of this theory
from a contributory cause in his first report to a primary cause in his second
report and evidence to me. Despite this shift in his position, I regard it as by far
the most likely cause of the misalignment problem for a number of reasons.
82. First, this is a coherent and feasible explanation which fits the narrative of
events on the Rig. The Blue POD was functional when function and pressure
tested on 26 and 28 November 2011 and again on 4 December 2011. Something
must have happened to cause the misalignment by 18 December 2011, when it is
common ground that the anomalies found on testing were the result of the
misalignment. If this was not lateral movement of the receptacle, which I have
rejected for the reasons given earlier, it must have been something which
exerted a new force on the receptacle. The stinger is the obvious candidate,
especially in the light of the subsequent discovery that one of the segments was
not retracted. The stinger segment was said by Transocean at the time to be
“flush with the wear guide” (i.e. the Teflon strip) and it was this very segment
which was adjacent to the spring which collapsed. A seizure of the segment
because of a build up of material in the cavity is just the kind of event which
could explain the difference between the state of the assembly when last
successfully tested and its condition on 18 December 2011. The explanation is
consistent with damage to the stinger seals which was observed when the LMRP
was pulled to surface in December, which as Mr O’Donnell explained, can be
caused by the segments being pressed against the walls of the receptacle when
being inserted or retracted.
83. I reject Mr Lewis’ suggestion, and Transocean’s case, that this theory is
technically impossible. It is said to be disproved by the fact that the stinger sits
in the test receptacle in the LMRP and when extended into the BOP receptacle
slides down what is in effect a single combined cylinder, such that the stinger
cannot extend beyond the extent of the Teflon strips which will prevent the
stinger applying any downward pressure. The Teflon strips are designed to be
relatively frictionless in comparison to the sides of the stinger segments with
their metal surfaces punctuated by circular rubber seals. I see no technical
objection to Mr O’Donnell’s theory that if a stinger segment has failed to de
energise, and so is as hard up against the test receptacle after its last retraction as
it would be when energised, it is capable of forming downward pressure on the
BOP receptacle when next inserted, both indirectly whilst dragging against the
wall of the test receptacle and directly by dragging against the wall of the BOP
receptacle.
84. That such a mechanism is technically feasible is amply borne out by it being
espoused as a possible explanation by Transocean itself (as well as by Mr
Thompson and Mr Campbell). The Transocean internal investigation concluded
that this explanation was a root cause for the misalignment. There was also a
conference call set up for 15 February 2012 with Mr Quintero, Transocean’s
Senior VP Operations to discuss the lessons to be learned from the problems
with the Rig. Mr Milne prepared and Mr Scott presented a number of slides.
One slide identified as a potential cause of the misalignment “Pod stinger not
fully de-energised during pod engagement into receptacle leading to side
loading of pod receptacle when extending into the stinger”. If it were
technically impossible, that could not realistically have been overlooked by the
experienced and expert investigative team, and it would not have been being
considered as even a potential cause by senior management.
85. Secondly the alternative explanations for the misalignment put forward by
Transocean do not bear scrutiny for the reasons I have identified.
86. Thirdly the conclusion of the Transocean investigation provides positive support
for this as the likely explanation. In its final draft of the investigation report of
31 January 2012, Transocean concluded that this was one of the two root causes
for the misalignment, the other being well head movement, which I have
rejected. It is of course possible that Transocean was mistaken: the opinions of
the parties and experts on both sides have to some extent shifted over time, and
my task is to decide the causation issue by reference to all the evidence before
me, not just by reference to what Transocean initially concluded. Nevertheless I
have not had the benefit, which the Court sometimes has, of a more rigorous
investigation by reference to a fuller range of primary evidence. Mr Leslie and
his team had access to those who were on the Rig at the time and who witnessed
both the events in question and the state of the parts when they were
disassembled and inspected; by contrast, I have heard only from Mr Thompson
and have had argument on what can or cannot be seen from a few photographs
which are neither clear nor comprehensive, without the benefit of evidence from
those on board at the time to whom Mr Leslie and his team had access. This
was a significant incident for Transocean and it sought to learn lessons from a
thorough investigation. It not only had access to a fuller range of primary
evidence than has been available to me, but was also able to apply a level of
collective experience and expertise of subsea equipment and operations which
exceeds that available to me.
87. Fourthly this was the immediate contemporaneous view of Mr Thompson, the
only witness to the condition of the stinger and receptacle from whom I heard.
He has considerable experience with subsea equipment and had been involved,
at an early stage of his career, in assisting on the between wells maintenance on
this very rig, before its acquisition by Transocean. He recorded this conclusion
in his daily log.
88. Fifthly, Raisepower identified this at the time as the cause of the misalignment,
both in conversation with Mr Thompson and in Mr Smith’s report to
Transocean. The Raisepower personnel were specialists in subsea well control,
and had the benefit of having seen the stinger and the assembly when it was
removed and dismantled.
89. Sixthly, this was the explanation supported by Mr O’Donnell, whose evidence I
found generally to be more persuasive than that of Mr Lewis where it was
possible to test it by reference to its underlying reasoning and technical
evidence.
Conclusion on cause of Blue POD misalignment
90. For these reasons I conclude that the sole effective and proximate cause of the
Blue POD misalignment was the debris in the stinger segment cavities.
(b) Breach
91. Providence relied on the following terms of the Contract:
“SECTION II CONDITIONS OF CONTRACT
4. [TRANSOCEAN’S] GENERAL OBLIGATIONS
4.1. On the COMMENCEMENT DATE …..[Transocean] shall provide the DRILLING UNIT fully equipped as set out in section IV(b) – Rig Specification. Subject to its design limitations, the DRILLING UNIT the Drilling Unit shall be adequate to conduct the WORK at the location(s) specified by [Providence] and contemplated by this CONTRACT. The DRILLING UNIT and all other equipment, materials and supplies hereinafter specified as being provided by [Transocean] shall be in good working condition and together with the personnel, shall be provided and maintained by [Transocean].”
[Transocean] shall carry out all of its obligations under the CONTRACT and shall execute the WORK with all due care and diligence and with the skill to be expected of a reputable contractor experienced in the types of work to be carried out under the CONTRACT.”
“[Transocean] shall take full responsibility for the adequacy, stability and safety of all its operations and methods necessary for the performance of the WORK...”
SECTION IV(a) SCOPE OF WORK
…
1.2 DRILLING UNIT Requirements
Provision of a suitable mobile offshore drilling unit to meet both the projected well timing and also location (water depth) requirements.
…
4.0 POLICIES AND PROCEDURES
…
Transocean must ensure that the DRILLING UNIT can operate efficiently and to recognised API and IADC industry standards and is therefore capable to conduct the Work at [Providence’s] locations as specified in the Scope of Work….
5.0 WORK SCOPE
…
5.10 [Transocean] shall install, operate, test, repair and maintain its well control equipment, in good condition at all times and shall use all reasonable means to control and prevent fires and blowouts and to protect the hole.
7.0 EQUIPMENT
[Transocean] shall ensure that all tools, equipment, facilities and other items for use by [Transocean] in the performance of the WORK, however and by whoever provided, are maintained in a safe, sound and proper condition, are certified and are capable of performing the functions for which they are intended.”
The nature of Transocean’s obligations
92. Providence contended that the terms upon which it relied were warranties as to
the state of the Rig and its equipment which were broken if there was any
deficiency. Transocean contended that the terms imported a duty to maintain
the Rig and equipment which was not an absolute obligation, but one to exercise
due diligence or reasonable care; that there could be no breach of the terms
unless Providence established that there had been a failure to have in place or
implement a proper maintenance plan.
93. The first part of Clause 4.1 is addressed to the condition of the Rig and all other
Transocean supplied equipment at the Commencement Date which was 5
November 2011. It requires the Rig and her equipment (1) to be adequate to
conduct the WORK (which by section 1.2 of Section IV requires it to be suitable
for meeting the projected well timing) and (2) to be in good working condition.
This is a warranty as to the condition of the Rig at 5 November. It is not an
obligation to use due diligence to provide the Rig in this condition.
94. A Rig which at the time of delivery has equipment in such a state that it is
susceptible to breakdown or malfunction during normal use in the projected well
operation is not then in good working condition or in a state which is “adequate
to conduct the WORK”. The effect of this warranty is that it will be broken if
there is a subsequent breakdown or malfunction of the Rig during the projected
work which is not caused by some abnormal operation of the rig or some
supervening causative event.
95. Clause 4.1 also contains an obligation on Transocean to “maintain” the Rig and
her equipment. A maintenance obligation may be interpreted as an obligation to
exercise due diligence to maintain, or as a warranty that its subject matter will
remain in the stated condition. In the New York Produce Exchange form of
time charter, the obligation to maintain the vessel in a thoroughly efficient state
in hull machinery and equipment throughout the charter is generally to be
construed as an obligation to exercise due diligence, in the context of
incorporation of the Hague Rules. But depending on its terms, it may amount to
a warranty that the vessel will remain in a thoroughly efficient state: see
Adamastos Shipping v Anglo-Saxon Petroleum (The Saxon Star) in the Court
of Appeal reported at [1957] 1 Lloyd’s Rep 271. As Parker LJ observed at p.
280, the nature of the obligation to maintain must depend upon the exact words
used.
96. In this case the natural reading of the final words in clause 4.1 is that the Rig
and equipment shall be maintained in the condition described earlier in the
clause, not merely that there shall be an obligation to “maintain” in a general
and undefined sense. This means that it must be maintained as adequate to
conduct the “WORK”, whose scope is defined in Section IV. Clauses 4, 5.10
and 7 make clear that this is a continuing warranty, not a due diligence
obligation. Clause 4 imposes an obligation that Transocean must ensure that the
Rig and her equipment are capable of conducting the WORK. This is the
language of achieving a stated result, not of following a process of due diligence
in order to seek to achieve it. Clause 5.10 provides that Transocean must
maintain its well control equipment in good condition at all times; this is
expressed in absolute terms in contrast to the second half of the clause which
imports an obligation to use all reasonable means to prevent fires and blow outs
and protect the hole. Where the parties wished to identify a due diligence
obligation, they did so in terms. By contrast the obligation to maintain in clause
5.10 is not so qualified. Clause 7 imposes an obligation to ensure that the
equipment is maintained in a sound and proper condition and is capable of
performing its intended function. This again is the language of warranting a
result, not following a due diligence process.
97. Accordingly the deficient state of the stinger on 18 December 2011 is such as to
put Transocean in breach of the Contract, irrespective of its condition on 5
November 2011 or the maintenance history of the PODs.
Maintenance: PODs
98. That is sufficient to conclude the issue of Transocean’s breach. But in case I be
wrong in my construction of the Contract, I should record my findings in
relation to the POD’s condition on 5 November 2011 and the adequacy of
Transocean’s maintenance of it. I conclude that the debris in the stinger
segment cavities was of long standing, and was already present on 5 November
2011; that it was as a result of a failure by Transocean to implement an adequate
maintenance programme on the PODs; and that the condition of the stinger on 5
November 2011 rendered it liable to seize in the course of the well project,
which is what I have found occurred and caused the misalignment. I can state
my reasons for these conclusions briefly.
99. The maintenance procedure for the stingers and receptacles which is
recommended by Cameron is contained in its 1993 engineering bulletin EB
729C. This bulletin recommends a semi-annual inspection which, if performed,
would involve removing the cones and cleaning inside the segment areas and
around the hydraulic actuator cylinders with a high-pressure washer.
100. In 2010 Transocean’s planned maintenance programme had a 90 day task for the
PODs which required, amongst other things, that those performing the task
should “thoroughly wash the POD internally and externally with potable water”
and should then “de-energise and extend LMRP and BOP stingers”.
101. In the summer of 2010 the BOP was overhauled by Yardbury at Yardbury’s
facilities. This overhaul did not include the PODs. At around the same time, the
PODs underwent a servicing programme carried out in Rotterdam. Transocean
called no witness who was involved in that overhaul, which was supervised by
West. The documentary records refer to considerable work, but do not contain
any reference to the stinger segments being disassembled and internally cleaned.
There is an RMS record for 18 August 2010 which identifies the relevant 90 day
SPM task (and its requirement for internal washing) tags the task as “complete”.
However in listing the work done it does not refer to washing. This was not
“reporting by exception” listing only what was not done out of what the task
required; it was a listing of what was done, albeit not complete. Although the
other documentary records of work on the PODs at Rotterdam record
considerable work, none records any internal washing of the stingers. In the
absence of any documentary record or witness evidence supporting any such
washing, I conclude that none was carried out on this occasion.
102. In December 2010, Transocean carried out some further maintenance work on
the stingers pursuant to the 90-day task. Transocean called no witness to speak
to what occurred at that stage. The work recorded as done in December 2010
includes “cleaned both stinger [sic] and replaced damaged seals sa [sic]
required”. There is no evidence that this included cleaning the inside of the
stinger segments as recommended by Cameron.
103. There followed a change in Transocean’s maintenance programme which in
March 2011 involved replacing this 90-day task with a combination of the
Between Wells Maintenance Plan (VPM-0869) and a 360-day programme
(VPM-0867). The Between Wells Maintenance Plan included the requirement
to “remove and service the PODs”. VPM-0867 did not require any washing of
the POD stinger assemblies. VPM-0867 is expressed to be in addition to the
Between Wells Maintenance Plan. It is apparent from this, and the
documentation produced in the context of Transocean’s internal investigation,
that Transocean considered the 90-day task to be a more comprehensive task
than that which replaced it.
104. In 2011, there is no record of any maintenance work being done on the stingers
prior to 5 November 2011, which is the Commencement Date under the
Contract.
105. However work was carried out on the PODs by Mr McLean, the senior subsea
supervisor on board the Rig, on 20 November 2011 prior to deployment of the
BOP stack. The nature of the task which Transocean’s amended maintenance
plan required to be carried out on this occasion was a combination of the 360-
day task for PODs (VPM-0867) and its Between Wells Maintenance Plan for the
Arctic III (VPM-0869).
106. Transocean did not call Mr McLean to explain what he had done on 20
November 2011. What was done was addressed in the witness statement of Mr
Scott, but I did not feel able to rely on his evidence which was based on, but
traduced, the documentary records. There are three sets of documents which
cast light on what was done. The first is the RMS Work Done Report which
records that the VPM-0867 360 day task was “complete”, but sets out the tasks
actually performed which do not extend to all those required by VPM-0867.
The time recorded as having been spent on the work done is three hours, which
is to be contrasted with the scheduled time of 12 hours per POD. The work as
recorded describes only an exterior cleaning; it did not include cleaning the
interior of the stingers and between the segments as recommended by Cameron.
Such cleaning (involving dismantling and reassembling the stingers) would take
well in excess of three hours.
107. The second is the Subsea Engineer’s daily log which records for the nightshift of
20 November 2011 the following:
“Extended, cleaned and retracted blue and yellow pod BOP stingers. Cleaned LMRP connector sealing faces and C+K flanges. Cleaned BOP stinger receptacles.”
This too seems to refer to an external cleaning only.
108. The third set of documents casting light on what occurred arises out of a
telephone call 24 November 2011 referred to as the “pre-deployment call”, in
which one of the two senior subsea supervisors, Mr Ingram, was questioned by
senior management as to the work that had been carried out. Prior to this call,
Mr Ingram had sent an email to Mr Malcolm setting out a list of the required
tasks and their status. This list records both VPM-0867 (the 360-day task) and
the task of removing and servicing both PODs (the between wells maintenance)
as being “complete”. Mr McLean had been the senior subsea supervisor on the
Rig when the work was carried out; Mr Ingram had just taken over from Mr
McLean; and it was Mr Ingram who was being required to answer for what had
been done and not done. An account of what took place on the call on 24
November 2011 is contained in an email from Mr Ingram to Mr McLean that
evening which records:
“Then we got to the Pods and when they asked if they were removed as described on the list, I said they had only been inspected and visually checked. They then asked why they were not removed and I couldn’t answer due to lack of sufficient info, regards why”
109. A subsequent call was held on Saturday morning, 26 November 2011 in which
Mr McLean said that the PODs had been removed and serviced during the
previous end of well maintenance procedure. Seemingly on this basis, the list of
work done that had previously been sent to Mr Malcolm was amended on 26
November 2011 so that the status of the task for removing both PODs and
servicing them was recorded as follows: “removed and inspected last EOW.”
There is no record in any of Transocean’s documentation of this task in fact
having been carried out “last EOW”. It is clear, however, that Mr McLean was
saying that the PODs had not been removed and serviced on 20 November 2011.
This was a failure to implement the task required by the Between Wells
Maintenance Plan.
110. I have already referred to the evidence of Mr Thompson, which I accept, that the
level of rust which he saw in the stinger was severe, his contemporaneous note
that it was “very dirty with a lot of crud and rust” and his view that the crud
which was present, and had hardened in the gaps between the stinger segments,
must have been building up over a sustained period of time.
111. The final version of Transocean’s internal investigation report of 31 January
2012 concluded that a root cause was that “periodic cleaning of debris from the
Segments and the Cone Cavity was not captured in the Transocean maintenance
Schedule.”
112. On 10 February 2012, Mr Doug McEwan, Transocean’s Operations Manager
Performance, said in an email: “Looks like no maintenance had been done on
the POD’s [sic] for years, in that the stinger locking mechanism and extend
functions where [sic] in a very poor state.”
113. The BOP was inspected by Subsea Solutions on behalf of Nexen in March and
April 2012 for the purposes of the Rig’s next employment. Mr Frizell of Nexen
said in an email of 19 April 2012:
“To say I am disappointed in the condition of the BOP is an understatement! The condition does not reflect only recent problems but a much longer term lack of maintenance, care and improvement of the whole system – the poor condition of the BOP didn’t happen overnight”
114. Mr Clyne’s reaction to this is set out in his email dated 20 April 2012 to Mr
Doug McEwan, in which he said:
“Extremely disappointing reading and backs up what Providence were saying …
We need to turn this around as the report is shocking.”
115. This history shows that the stingers had not been properly washed and cleaned,
as Cameron recommended as a semi-annual task, since the Rig went into cold
storage in 2009. The poor condition of the stinger segment cavities which
caused the Blue POD misalignment in December 2011 was a longstanding
deficiency, resulting from the inadequacy of Transocean’s planned maintenance
programme, which was not in any event implemented by Transocean.
Maintenance: hoses
116. Had I concluded that the weight and configuration of the hoses had played a
causative part in the misalignment, I would have held that Transocean did not
fail to exercise due diligence in this respect, because this was not known
generally within the industry as a problem and was not previously known as a
problem on this Rig. Nevertheless Transocean would have been in breach of
Contract because the relevant terms were warranties, not due diligence
maintenance obligations.
Wedgelock blanking plug blowout
(a) Cause
117. The blanking plug was never found. It is very rare for such a plug to blow out.
It blew out because it had not been properly tightened, and had worked itself
loose during service to a point where, as could be observed from the threads on
the cylinder head, it had blown out when retained only by the last few threads.
118. Other plugs in the same vicinity were observed to have recessed heads so as to
be tightened with a hexagonal allen-key type tool, whereas the Cameron
recommended type was a plug having a proud hexagonal head for tightening. I
do not regard this as a significant factor. Recessed head plugs would be capable
of being properly tightened to the required torque so as not to be susceptible to
working loose during service. Nor do I regard as significant the fact that other
plugs in the vicinity were engaged to the extent of 0.375 to 0.4 inches which is
less than the recommended extent of 0.5337 inches. The well head movement
did not play any part in causing the plug to blow out. Nor did the relatching
attempts on 17 December 2011, or any other aspect of the Rig’s operational
functions.
119. The sole effective cause of the plug blowing out was human error in failing to
tighten it properly and sufficiently when it was installed, which rendered it
susceptible to working loose and blowing out during normal service.
120. A blanking plug was installed by Yardbury during the overhaul in the summer
of 2010. The weight of the evidence suggests, however, that it had been
replaced by Transocean personnel prior to the casualty, and that it was they who
had not properly installed the plug which blew out.
(b) Breach
121. Consequently Transocean was in breach of the Contract because in this respect
the Rig and her equipment were not in good working condition and adequate to
conduct the work at the Commencement Date (5 November 2011); nor were
they maintained in good condition so as to be capable of doing so.
Maintenance
122. Transocean contended that there was no failure to maintain because the blowing
out of plugs is such a rare event that the exercise of due diligence would not
require the checking of blanking plugs for tightness. The factual premise is
correct but the legal conclusion flawed and in any event insufficient to prevent
Transocean being in breach of contract because:
(1) there was a breach of the warranty of condition at the Commencement
date;
(2) the maintenance obligation is not a due diligence obligation but an
obligation to achieve a stated result;
(3) Transocean did not exercise due diligence because the plug was not
properly installed. This is so whether the plug was installed by
Yardbury, as Transocean’s chosen contractor, or (as I have concluded)
by Transocean itself.
Mini collet gasket
123. By the conclusion of the evidence it was clear that the gasket had fallen out
because the retaining dog had not been properly screwed in and was loose; it
was not as a result of any damage to the retaining dog. Transocean had replaced
the mini collet gaskets on 20 November 2011. Its subsea engineer failed
properly to tighten the retaining dog. Accordingly Transocean was in breach of
contract in this respect.
Upper annular preventers
124. The weeping from the upper annular preventer weep hole observed on 22
December 2011 was the result of a design defect. It constituted a breach of the
warranty of the condition of the Rig and her equipment at the Commencement
date.
Yellow POD and miscellaneous deficiencies.
125. In the light of my findings on the other issues, it is not necessary for me to make
any findings on the numerous disputes which arose in this category, which were
not in the forefront of Providence’s case.
Issue 3: delays and causation
126. Transocean contends that even if it cannot claim at the relevant day rates for
periods of delay caused by its breach, certain periods within the Disputed Period
do not come within this category because of what occurred during these periods
and/or what would have occurred but for the breach; and that for the same
reasons spread costs are not recoverable for such periods. This applies to the
following periods:
(1) 2100 on 27 December 2011 to 0600 on 30 December 2011 when the
Rig was waiting on weather;
(2) 0600 to 1715 on 30 December 2011 when the LMRP was being
relatched and function testing took place for a period of 11 hours 15
minutes;
(3) 1715 on 30 December 2011 to 0230 on 31 December 2011 when the
hung off casing was being recovered;
(4) 0230 to 2215 on 31 December 2011 when the Rig was carrying out a
wiper trip until abandoned for bad weather;
(5) 2215 on 31 December 2011 to 0130 6 January 2012 when the rig was
waiting on weather to continue the wiper trip;
(6) 0130 to 2400 on 6 January 2012 when the Rig was relatching and
function testing the LMRP, which had had to be unlatched as a result
of the bad weather between 3 and 6 January 2012;
(7) 0630 on 8 January 2012 to 1645 on 9 January 2012 when the Rig was
conducting 13⅜″ casing operations which would have occurred in any
event.
(8) 1900 12 January 2012 to 2030 14 January 2012 when the rig was
setting the packer in order to allow the BOP to be pulled to surface.
(9) 0245 to 2400 on 15 January 2012 when the Rig was waiting on
weather to pull the BOP stack to surface.
(10) a period (disputed) on 26 January 2012 when the Rig was waiting
on weather;
(11) 2330 on 28 January 2012 to 0045 29 January 2012 when a function
integrity test was being undertaken.
127. It is convenient first to identify the periods of delay which prima facie resulted
from the breaches of contract, before considering the parties’ arguments by
reference to particular periods and operations which Transocean contended
should be excepted.
Prima facie delays
128. Prima facie the Blue POD misalignment problem caused delays for the whole of
the Disputed Period, that is to say from 1600 on 18 December 2011 to 1830 on 2
February 2012. It is common ground that the delays from 18 to 27 December
2011 were so caused. Thereafter the problem could only be rectified by
bringing the whole BOP stack to the surface, which could not occur until the
13⅜″ casing, which had been left hung off on 11 December 2011, had been
cased and fitted with a packer so as to provide the double barrier to the hole
which was required before the lower BOP could be unlatched. Once that had
occurred and the lower BOP recovered to surface on 16 January 2012, the
problem was identified and rectified, but it was then necessary to side track the
well because of the length of time for which the hole had been open. The well
was not at the same depth and ready to continue drilling from the equivalent
position to that reached on 18 December 2011 until 2 February 2012.
129. Prima facie the wedgelock blanking plug problem caused delay from 1500 on 30
December 2011, when the leak on the upper pipe ram which it was causing was
discovered, until the end of the Disputed Period. Again the problem could only
be rectified after it became possible to unlatch the lower BOP and recover the
stack to surface, which was not possible without a functioning lower BOP until
the packing of the 13⅜″ casing, following which the stack was recovered to
surface on 16 January 2012, and following its remedy thereafter, the works were
not back to an equivalent point to that reached on 18 December 2011 until 2
February 2012. However Mr O’Donnell’s evidence is that had the blanking
plug been the only problem it would only have taken two days to repair.
Accordingly 6 of the 8 days between 16 and 24 January 2012 whilst repairs
were also being made to cure the Blue POD misalignment problem, cannot be
attributed to this breach.
130. Prima facie the mini collet gasket problem caused delay from 1930 on 20
December 2011, when the gasket fell out at the time of unlatching the LMRP. It
continued until 24 December 2011 when the retainers were ready to be
reinstalled. Thereafter what prevented the relatching were the Blue POD
misalignment problems, not the bad weather which intervened on 27 December
2011. Had the retainers been reinstalled and the gasket replaced on 24
December 2011 and the relatching operations then undertaken, this would have
taken an additional 28.75 hours through to completion of function testing.
131. The upper annular problem was not causative of any delay. Following its
discovery on 22 December 2011, the parties agreed that it did not need to be
remedied immediately. When the stack had been recovered to surface on 16
January 2012, the opportunity was taken to repair it whilst other work was being
carried out. The repairs took something of the order of 72 hours. Providence
contended that this was undertaken in parallel with other work. If so, it does not
appear that this breach was causative of any additional delay. Transocean, on
the other hand, contended that the repair to the annular extended the delay by a
period of 72 hours. This would only assist Transocean if, contrary to my
findings, the upper annular problem occurred without breach on the part of
Transocean. On either view, therefore, no separate causation point arises in
relation to this breach. Had it mattered I would have found that the period was
not extended by the repairs, which were only undertaken at this time because
they were not going to cause any additional delay; and accordingly that the
breach had no significant causative effect on the timing of works.
132. Providence did not seek to ascribe any period of delay to the Yellow POD and
other miscellaneous problems.
Excepted periods
(1) 2100 on 27 December to 0600 on 30 December: WOW
133. Transocean has claimed at the Standby Rate for this period up to 2100 on 29
December 2011, and thereafter at the Repair Rate (now zero) for the remaining
9 hours. As I understood Transocean’s case, it was that the Standby Rate
applied not under the terms of Clause 3.5 but by operation of Clause 3.9, the
Repair Rate clause, which expresses the rate to be the standby rate in certain
circumstances. Transocean contends that during this period:
(1) the Rig was ready to perform the operations required of it; and/or
(2) no drilling or casing operations would have been possible due to the
adverse weather, and so this time was not lost as a result of the
misalignment problem.
134. Providence contends that:
(1) the Rig was not ready to perform the operations required of it: the Blue
POD misalignment problem had not yet been resolved, or its causes
discovered, and the Rig was waiting to lift the LMRP to surface to
investigate and seek to resolve that problem;
(2) the delay whilst waiting on weather was a delay caused by
Transocean’s breach of contract; if operations are delayed due to a
breach of contract, the consequent delay includes any period of bad
weather which extends the time before which operations can take up
where they have left off; the delay due to bad weather is the result of
the breach.
(3) alternatively, the time was lost because although the weather was
sufficiently bad to prevent the relatching in that period, it was not so
bad that it would have prevented the drilling and casing operations
which would have been occurring but for Transocean’s breach;
(4) alternatively certain of the spread costs for this period relating to the
17½″ section and the drilling of the 12¼″ section, totalling some
£72,000, were wasted as a result of the breach because had operations
continued normally from 18 to 27 December 2011, those operations
would have been completed and equipment in relation to those
operations would have been landed from the Rig prior to the bad
weather on 27 December 2011, with the result that Providence would
not have had to pay for them thereafter.
135. These arguments raise legal and factual issues. It is convenient to state my
conclusions on the factual issues first.
Would bad weather have prevented casing/drilling operations in this period?
136. Providence’s case that drilling and casing operations would have been
undertaken during this period if the Rig had been ready to do so was supported
by the evidence of Mr Roe and based on records of the weather during the
period. I reject it for the following reasons. Mr Roe accepted that the decision
was one for the OIM in the light of the existing and forecast weather conditions,
a decision making process of which he had no personal experience. His opinion
was therefore of no greater value than what could be concluded from the
documentary record. The Operating Manual contains recommended limitations
on operations for various categories of operation by reference to wind and sea
state. The parameters for heave are 2.4m for drilling, 0.9m for BOP handling,
1.2 m for running casing and 1.5m for cementing. As appears from the weather
records the heave was outside the operating parameters of the Rig for drilling
from 2000 on 27 December and for the vast majority of 28 December. The
weather forecast was poor for the 29 December and Transocean’s OIM was
concerned about starting operations given the time needed to unlatch. The
heave conditions exceeded those recommended for running casing throughout
27, 28, 29 and the early hours of 30 December and exceeded the parameters for
drilling operations from 2000 on 27 December, the vast majority of 28
December and the small hours of 29 December. I conclude that this period
would have been lost to bad weather had the Rig been ready for, and required to
undertake, drilling and casing operations.
Would certain spread costs have been saved as a result of drilling operations which
would have been concluded by 27 December 2011?
137. Mr Roe’s evidence was that certain of the spread costs would have been saved
had drilling reached the anticipated stage by 27 December, in particular all
equipment and services associated with the 17½″ section and the drilling of the
12¼″ section. His analysis was based on the “lookahead” programme prepared
by NRG on 18 December. That document envisaged some equipment leaving
the Rig on 20 December following completion of the 13⅜″ casing but recorded
no other planned removal of equipment prior to 27 December, even though it
anticipated that by 27 December the 13⅜″ casing would have been run and
cemented, and the next 12¼″ section drilled and cased, with logging of that
interval under way. Mr Roe’s evidence depended upon two assumptions. The
first was that the weather on 23 December would not have interrupted
operations. This is not borne out by the records. One of the four hourly
observations records heave of 2.9m which exceeds the recommended limit for
drilling, and all heave recorded for that day exceeded by a considerable margin
the limits of 0.9m for BOP handling, 1.2 m for running casing and 1.5m for
cementing. The second is that upon completion of the casing of the 12¼″
section, the equipment and personnel associated with it would have been
promptly landed so as to bring to an end the obligation to pay for it. This was
not justified for the 12¼″section: it was not envisaged in the lookahead that it
would be landed by 27 December, and there were in practice delays by
Providence in landing equipment and bringing to an end their periods of hire. I
am not persuaded that had operations run as planned from 18 December
Providence would have got the relevant equipment off the Rig and avoided
paying for it for the period 27 to 30 December, save for that scheduled for
landing in the lookahead document on 20 December.
The legal issues
138. One approach to the effect of weather on causation might have been to look at
the whole of the remainder of the project, including that after the Disputed
Period, and to determine the length of time by which the total period was
extended by reason of the breaches by identifying the date by which the work
would have been completed in the absence of breach, including bad weather
during that period, and comparing it with the period by which the project was in
fact completed, taking account of bad weather over the whole period, including
that occurring after the date on which work would have been completed but for
the breach. However neither side suggested such an approach or analysed the
weather during periods subsequent to the Disputed Period.
139. Different considerations may potentially apply to Transocean’s remuneration
claim from those which apply to Providence’s wasted spread costs claim. In
relation to the former, Transocean must bring itself within the scope of one of
the day rates which are to be interpreted as I have set out above. In relation to
the spread costs claim it is for Providence to establish that the breach caused the
loss claimed. A loss will not be so caused if the time would have been incurred
during the relevant period in non productive operation even had Transocean not
been in breach. In those circumstances the claim for wasted costs would not
satisfy a but for test of causation.
The remuneration claim for this period
140. So far as concerns Transocean’s remuneration claim, Providence’s argument
that weather delays following from other delays caused by the breach
automatically fall outside the right to remuneration fails properly to give effect
to the true construction of the remuneration provisions. If those provisions
would otherwise apply upon their terms, the effect of breach is, as a matter of
construction, that they will not allow Transocean to recover if and because such
breach would either give rise to a right of abatement, or to an equivalent sum as
damages for breach of contract which would defeat the remuneration claim for
circuity of action. The doctrines of abatement and circuity each depend upon
the breach having causative effect. The paying party is only entitled to abate the
price if and to the extent there has been a diminution in the value of the
contractual services: see for example Lord Simon in Aries Tanker Corporation
v Total Transport Ltd [1977] 1 WLR 185 at p. 192. If no work would have
been done on that day even if there had been no breach of contract, there has
been no diminution in the value of the services rendered as a result of the breach
of contract. There is a similar test of causation underlying the concept of
circuity of action: remuneration is not recoverable because the entitlement to
remuneration would only arise as a result of the breach of contract which
Providence would be entitled to claim back as damages. It is because the
remuneration provisions are to be construed as not entitling Transocean to claim
in circumstances where the amounts claimed would either be subject to
abatement or recoverable as damages so as to engage the doctrine of circuity,
that remuneration is irrecoverable in such circumstances. That arises for periods
of delay if, but only if, they are caused by Transocean’s breach. Where such
payments would have fallen due had Transocean not been in breach of contract,
they are not caused by the breach and there would be no argument that the claim
should fail for circuity or that the doctrine of abatement would apply. There is
no presumption or canon of construction that a party should not pay that which
he would have had to pay for in any event, irrespective of the breach or
negligence of the payee.
141. Transocean’s point that the Rig was ready to perform the operation immediately
required of it, namely the relatching, is misplaced. The Rig was not ready to
perform the operation required of it, namely casing and drilling, because it had
to undergo a prior exercise of retrieving the lower BOP before it could do so, an
exercise which was only necessary because of Transocean’s breach of contract.
But this is not sufficient to bring the doctrines of abatement or circuity into play.
The effect of the Contract is that Transocean is not entitled to be paid under
clause 3.9 for periods during which the Rig is not operating as a result of
Transocean’s breach. Such periods include periods of bad weather which
prolong the time taken to remedy the breach if, but only if, normal drilling and
casing operations would have occurred during that period in the absence of
breach. If there would have been no drilling or casing in the absence of breach,
the breach has not prolonged the operation for that period; and the delay for that
period has caused no diminution in the value of the services as a result of the
breach.
142. The remaining question for Transocean’s remuneration claim for this period is,
therefore, whether Transocean is entitled to claim at the Standby Rate by virtue
of the operation of the Repair Rate clause for 48 hours from 2100 on 27
December 2011 to 2100 on 29 December 2011, which raises two issues. Is it the
correct rate? If not, should Providence be allowed to take the point?
143. Providence argued that the Repair Rate clause, Clause 3.9, did not apply, and
that there was no claim based on the WOW Rate clause which might otherwise
apply. The argument under Clause 3.9 was that the Repair Rate/Standby Rate
only applied “when the failure has been remedied” and the failures had not been
remedied at this time. I do not so read the clause. The Repair Rate is expressed
to apply where there is a shutdown of operations as a result of any failure in
Transocean’s equipment, until the operations are at the same point as when the
failure occurred. There is excepted from this any period after remedy of the
repairs whilst waiting on weather, or sea conditions or Providence’s instructions.
For so long as the shutdown in operations continues and the failure has not been
remedied there is no room for that exclusion to come into play and the Repair
Rate applies, subject to the other conditions and qualifications in the clause.
Transocean is correct in its contention that the Repair Rate clause governs this
period. The way Clause 3.9 is structured is that once the Repair Rate has been
triggered by a failure of equipment resulting in a shut down of operations, the
Repair Rate/Standby Rate of $245,000 per day applies until the failure has been
remedied and the Rig recommences operations at the same point as when the
failure occurred subject to two relevant qualifications. The first is that periods
of delay resulting from bad weather, sea conditions or Providence’s instructions
between the time of remedy of the failure and commencement of operations is
not to count. This is of no application to this period because the failure had not
been remedied. The second qualification is that the rate is the Repair Rate for
the first 24 hours per month when operations are suspended “due to” the failure
and thereafter the (same) Standby Rate reduced to zero for repair time in excess
of 24 hours, subject to the application of the Subsea Downtime provision. If the
latter does not apply, the reduction of the rate to zero occurs “for any repair time
in excess of 24 hours per month”, an expression in subparagraph (b) of the
clause which must take its colour from subparagraph (a) and introduce the same
causative concept that the repair time must be “when operations are suspended
due to [the] failure”. The period of bad weather here being addressed does not
fulfil those conditions because the suspension of operations was not caused by
the failure but by the bad weather, which would have precluded operations in
any event. The Subsea Downtime provision does not apply either: it is
expressed to be confined to circumstances when Subsea Downtime as defined,
which includes the suspension of operations “to facilitate the recovery,
deployment, repair or replacement of subsea equipment” gives rise to a
“suspension of operations whereby activities cannot be conducted as a result of
the Repair”. The italicised words again introduce a causative requirement which
is not fulfilled for the period of bad weather here under consideration. The
Subsea Downtime provision is inapplicable. The Standby Rate is therefore
correctly claimed for this part of the period.
144. Had it been necessary to decide the issue, I would have held that this point was
open to Providence. Providence’s Defence put Transocean to proof of the
applicability of the day rates claimed. The point raises no factual issues which
caused prejudice to Transocean in seeking to meet it.
Spread costs claim for this period
145. So far as concerns Providence’s spread costs claim for this period, Providence
must show that the costs incurred in this period would not have been incurred
but for the breach. They have not done so. But for the breach, the operations
would still have been delayed by bad weather and the costs incurred.
(2) 0600 to 1715 on 30 December 2011
146. This was the period after relatching in which the LMRP was being function
tested for a period of 11 hours 15 minutes. This delay was caused by
Transocean’s breach. Had the Rig been functional on 18 December 2011 it
would not have been necessary to unlatch the LMRP from the BOP on 20
December 2011, and the bad weather between 27 and 30 December would not
itself have necessitated it.
147. Transocean contended that the decision to hang off the casing on 11 December
was causative of delay from 30 December 2011, because it was that which
prevented the BOP stack being immediately recovered to surface; it was
necessary to leave the lower BOP in place whilst barriers were put in the hole,
which required running and cementing the 13⅜″ casing and setting a packer.
There are two answers to this point. First, no criticism can properly be levelled
at Providence for hanging off the casing on 11 December; it was a normal and
routine rig operation in the circumstances. In this respect the state of the Rig
when Transocean’s breaches took effect was the foreseeable condition of a rig in
normal service. Transocean is responsible for the effect of its breaches on a rig
in a normal and foreseeable condition. Secondly, even if the casing had not
been hung off, it would still have been necessary to complete the casing and set
a packer before the lower BOP could have been brought to surface.
(3) 1715 on 30 December 2011 to 0230 on 31 December 2011
148. During this period the hung off casing was being recovered. That is work which
would have had to be undertaken on 18 December had there been no breach of
contract because the casing had been left hung off on 11 December 2011. The
Rig was operating for that period; accordingly Transocean is entitled to be paid
at the Operating Rate, as it has claimed for this period. The Repair Rate clause,
clause 3.9, is not the governing clause because there was not a shutdown of
operations. Conversely, Providence is not entitled to its spread costs claim for
this period because the costs were not wasted. They would have been incurred
in any event.
(4) 0230 to 2215 on 31 December 2011
149. During this period the Rig was preparing for and carrying out a wiper trip until
abandoned for bad weather. A wiper trip would in any event have had to be
conducted had there been no problems encountered on 18 December 2011. It
took longer, on 31 December and when resumed after bad weather on 7 January
2012, than was anticipated on 18 December. The anticipated time for the wiper
operation was 18 hours. The additional time included an hour on 31 December
when the wiper met with an obstruction and further delays on 7 January.
Providence contended that the additional time taken was caused by the length of
time the hole had been left open consequent on the delays caused by
Transocean’s breach, which I accept. Accordingly I conclude that 18 hours of
the period here being considered on 31 December was a period for which
Transocean is entitled to charge at the Operating Rate and Providence not
entitled to claim wasted costs. Otherwise it is not an excepted period, and nor is
any of the period for conducting the wiper trip when it was resumed on 7
January 2012.
150. There were periods within (3) and (4) above when, as Transocean concedes,
there were delays for troubleshooting caused by the wedgelock problem. These
are 3 hours on 29 December, 6 hours on 30 December and 1.5 hours on 31
December. Transocean cannot claim remuneration for these periods (they have
been charged at the Zero Repair Rate), and Providence’s spread costs for these
periods were caused by Transocean’s breach.
(5) 2215 on 31 December 2011 to 0130 6 January 2012:
151. During this period the Rig was waiting on weather to continue the wiper trip.
On 3 January 2012 the weather was serious enough to require unlatching of the
LMRP from the lower BOP. It was relatched at 0130 on 6 January 2012. The
weather would have prevented drilling and casing during this period in any
event. Accordingly, for the same reasons as apply to the WOW period between
27 and 29 December 2011, Transocean is entitled to claim remuneration for this
period and Providence is not entitled to all its spread costs for the period.
Providence is however, entitled to claim some of its spread costs for the period.
Providence advanced the argument, based on Mr Roe’s evidence, that for this
period it would not have incurred the costs associated with the 13⅜″ casing and
cementing operation, and the drilling and casing of the 12¼″ hole, because the
equipment would have been landed and off hire by late on 31 December 2011
when the bad weather set in. As I have explained, I am not satisfied that if
operations had proceeded normally from 18 December the equipment would
have been landed before the bad weather set in on 27 December 2011; I am,
however, satisfied that such is the case by before 1 January 2012, given the good
weather window of over 36 hours on 30 and 31 December 2011. Mr Roe’s
evidence is to be accepted on this point. Providence has established that such
costs were wasted as a result of Transocean’s breach of contract. There is to be
excluded from this category the Halliburton “safety joint” and “mechanical
settings” items.
(6) 0130 to 2400 on 6 January 2012
152. During this period the Rig was function testing the LMRP which had had to be
unlatched as a result of the bad weather between 3 and 6 January 2012. It is
common ground that the weather between 3 and 6 January 2012 was sufficiently
severe that the LMRP would have had to be unlatched even if the Rig were
waiting on weather to resume drilling and casing operations. Accordingly this
period falls to be treated in the same way as the WOW period between 31
December 2011 and 6 January 2012.
(7) 0630 on 8 January 2012 to 1645 on 9 January 2012
153. There is a period of 34.25 hours over these two days during which the 13⅜”
casing string was made up, the casing was run, and the casing was cemented
into position. Providence accepted that was operational work which would have
been incurred in any event and was not a delay caused by the breach.
Accordingly Transocean is entitled to remuneration and Providence is not
entitled to its spread costs for the period.
(8) 1900 12 January 2012 to 2030 14 January 2012
154. During this period the Rig was setting the packer in order to allow the BOP to
be pulled to surface. This would normally be expected to take 6 hours, but on
this occasion required four attempts and took much longer. The first attempt
took from 1900 on 12 January to 0415 on 13 January and failed because the
clamps could not be removed from the packer; the second attempt undertaken
between 0415 on 13 January and 0345 on 14 January failed because there was
not enough room for the packer in the wellhead and an additional piece of
casing had to be cut; the third attempt between 0345 and 1000 failed because the
packer did not inflate properly; the successful fourth attempt took from 1000 to
2030 on 14 January. None of these difficulties were of Transocean’s making or
attributable to its breach. Mr Roe attributed them to “human error”, which is
Providence’s responsibility. Accordingly only 6 hours of this period is to be
excluded from Transocean’s remuneration claim and included within the spread
costs claim.
(9) 0245 to 2400 on 15 January 2012
155. After completion of setting of the packer on 14 January, the Rig was waiting on
weather to pull the BOP to surface. The weather conditions during this period
were severe enough to prevent BOP handling, running casing and cementing,
but not so severe that they would have interrupted drilling. Whether
remuneration and spread costs are recoverable for this period depends on what
operation the Rig would have been performing had there been no problems in
respect of which Transocean was in breach. Neither party addressed me in
argument on the evidence on that question. I will invite the parties to address
me by way of further argument (but not further evidence) when handing down
this judgment.
(10) 26 January 2012
156. The Rig was waiting on weather for a period on 26 January. Transocean has
calculated a period of 17.25 hours, but it appears, as Providence contends, that
the period is between 0415 and 1500 amounting to 10.75 hours. This falls to be
dealt with in the same way as the WOW period between 31 December 2011 and
6 January 2012.
(11) 2330 on 28 January to 0045 29 January 2012
157. During this period a function integrity test was undertaken which Providence
accepts would have been undertaken in any event. The period of 1.25 hours is
therefore to be included in Transocean’s remuneration claim and excluded from
the spread costs claim.
Issue 4: Does clause 20 preclude set-off of Providence’s spread costs claim in
contract?
158. It is common ground that the indemnity provisions of Clause 20 also operate by
way of exception to exclude recovery of a claim for costs falling within the
definition of consequential loss. Providence contends that the clause does not
preclude set-off of its spread costs claim because they do not fall within the
definition; or alternatively that the clause only precludes recovery of
consequential loss as damages; it does not preclude set-off.
What is covered by “consequential loss” as defined in the clause?
159. Certain matters were common ground:
(1) Subparagraph (i) was framed against the background of well
established case law establishing that “indirect loss” and
“consequential loss” is confined to losses falling within the second
limb of Hadley v Baxendale (1854) 9 Exch. 341, but not the first; that
is to say that it does not cover losses occurring naturally in the ordinary
course of things from the breach, but only losses which would be
recoverable because the special knowledge of the parties put such
losses within the reasonable contemplation of the parties at the date of
contract as the probable result of a breach: see for example Saint Line
v Richardsons Westgarth & Co Ltd [1940] 2 KB 49, Deepak
fertilisers v ICI Chemicals and Polymers Ltd [1999] 1 Lloyds Rep
387 at pp. 402-3.
(2) The spread costs fall within the first limb of Hadley v Baxendale and
so were not consequential loss by virtue of subparagraph (i) of the
definition.
(3) Subparagraph (ii) widens the scope of the exclusion to cover some
losses within the first limb of Hadley v Baxendale.
(4) The critical wording in Clause 20 is “loss or deferment of production,
loss of product, loss of use (including, without limitation, loss of use or
the cost of use of property, equipment, materials and services
including without limitation, those provided by contractors or
subcontractors of every tier or by third parties), loss of business
and business interruption, loss of revenue (which for the avoidance of
doubt shall not include payments due to [Transocean] by way of
remuneration under this CONTRACT), loss of profit or anticipated
profit, loss and/or deferral of drilling rights and/or loss, restriction or
forfeiture of licence, concession or field interests.”
(5) Of potential relevance are the provisions of Clause 18 which include
the following:
“18. INDEMNITIES
18.1 The CONTRACTOR shall be responsible for and shall save, indemnify, defend and hold harmless the COMPANY GROUP from and against all claims, losses, damages, costs (including legal costs) expenses and liabilities in respect of:
(a) loss of or damage to property of the CONTRACTOR GROUP whether owned, hired, leased or otherwise provided by the CONTRACTOR GROUP arising from or relating to the performance of the CONTRACT,
(b) personal injury including death or disease to any person employed by the CONTRACTOR GROUP arising from or relating to the performance of the CONTRACT,
(c) personal injury including death or disease or loss of or damage to the property of any third party to the extent that any such injury, loss or damage is caused by the negligence or breach of duty (whether statutory or otherwise) of the CONTRACTOR GROUP. For the purposes of this Clause “third party” shall mean any party which is not a member of the COMPANY GROUP or CONTRACTOR GROUP.
18.2 The COMPANY shall be responsible for and shall save, indemnify, defend and hold harmless the CONTRACTOR GROUP from and against any claims, losses, damages, costs (including legal costs) expenses and liabilities in respect of:
(a) loss of or damage to property of the COMPANY GROUP arising from or related to the performance of the CONTRACT located at the WORKSITE,
(b) personal injury including death or disease to any person employed by the COMPANY GROUP arising from or relating to the performance of the CONTRACT,
(c) personal injury including death or disease or loss or damage to the property of any third party to the extent that such injury, loss or damage is caused by the negligence or breach of duty (whether statutory or otherwise) of the COMPANY GROUP. For the purposes of this Clause “third party” shall mean any party
which is not a member of the CONTRACTOR GROUP or COMPANY GROUP.
(d) loss of or damage to any permanent third party oil and gas exploration/development/production infrastructure and pipelines and Consequential Losses therefrom (as defined in Clause 20) where such loss or damage arises from, relates to or is in connection with the CONTRACT. The provisions of this Clause 18.2(d) shall apply irrespective of Clause 18.1(c). The foregoing indemnity shall only apply from the date and time that DRILLING UNIT enters the territorial waters of Ireland or the Irish Continental Shelf whichever shall be the earlier and shall cease to apply when the DRILLING UNIT has completed the WORK and has exited from the territorial waters of Ireland or the Irish Continental Shelf whichever is the later.
(e) notwithstanding the provision of Clause 18.1 any losses, damages, costs (including legal costs) expenses and liabilities incurred by the CONTRACTOR GROUP in respect of:
(i) loss of or damage to property of the CONTRACTOR GROUP whether owned, hired, leased or otherwise provided by the CONTRACTOR GROUP; or
(ii) personal injury including death or disease to any person employed by the CONTRACTOR GROUP;
arising from or relating to the provision of air and sea transportation services by any SERVICE COMPANIES for any claims in respect of the matters in sub-paragraphs (i) and (ii) provided however, the COMPANY’S liability under this Clause 18.2(e) will be no greater then $10 million.
18.3 Notwithstanding the provisions of Clause 18.1(c) and except as provided by Clauses 18.1(a), 18.1 (b) and 18.4 the COMPANY shall save, indemnify, defend and hold harmless the CONTRACTOR GROUP from and against each and every claim, demand or cause of action, liability or expense (including but not limited to
all related legal expenses), containment and clean up costs, damages or losses of every and any kind arising from pollution and/or contamination including without limitation such pollution and/or contamination emanating from the reservoir or from the property of the COMPANY GROUP including oil based muds or similar materials used on the instruction of the COMPANY, the discharge of contaminated cuttings or storage, use or disposal of radioactive sources arising from or related to the performance of the CONTRACT.
18.4 Notwithstanding the provisions of Clause 18.2(c) and except as provided by Clauses 18.2(a) 18.2(b) and 18.2(d), the CONTRACTOR shall save, indemnify, defend and hold harmless the COMPANY GROUP from and against each and every claim, demand or cause of action, liability or expense (including but not limited to all related legal expenses), containment and clean up costs, damages or losses of every and any kind arising from pollution originating from the hull of the DRILLING UNIT located above or below the surface of the water and/or the other property and equipment of the CONTRACTOR GROUP located above the surface of the water (excluding oil based muds or similar materials used in the instruction of the COMPANY, the discharge of contaminated cuttings or storage, use or disposal of radioactive sources).
18.5 Notwithstanding the provisions of Clause 18.1(a) the COMPANY shall reimburse the CONTRACTOR in respect of loss of or damage to property, materials or equipment of the CONTRACTOR GROUP which occurs whilst in-hole and/or below the rotary table, unless due to fair wear and tear, except if such loss or damage is caused by the negligence of the CONTRACTOR, or those SUBCONTRACTORS used by CONTRACTOR to fulfil its obligations to provide equipment detailed in Section IV (b) - Rig Specification or to provide personnel detailed in Section IV(d) - Personnel (but not any other SUBCONTRACTORS).
The COMPANY’s liability for such loss or damage shall, subject to the depreciation provision hereunder, be either the actual repair or replacement cost, whichever is the lesser, as
substantiated by the CONTRACTOR to the COMPANY REPRESENTATIVE. Where repair is possible, the COMPANY shall, at its sole option, reimburse the CONTRACTOR in respect of either the foregoing repair or the foregoing replacement costs.
Any replacement cost for which the COMPANY is liable hereunder shall be reimbursed to the CONTRACTOR subject to the deduction of depreciation which shall be calculated as set out in Appendix 1.1 to Section I - Form of Agreement. For the purposes of this Clause 18.5, “fair wear and tear” shall not include abnormal wear and tear, such as excessive wear by reason of exposure to corrosive or otherwise destructive elements which are introduced into the drilling fluids from subsurface formations (including without limitation H2S), or which are caused by the use of corrosive additives in the fluid or caused by abrasive formations, excessive pressures or unusual drilling or testing procedures, including excessive deviation of the hole from vertical or dog-leg severity which shall be the responsibility of the COMPANY to reimburse.
Further, COMPANY acknowledges that CONTRACTOR’s operating practices require the blowout preventer stack to be set at one degree or less from vertical to avoid abnormal wear and damage. Thus in the event the stack angle exceeds one degree from vertical and COMPANY instructs CONTRACTOR to continue with the WORK, COMPANY agrees to assume all responsibility for the full replacement cost or full repair cost for any Sub-sea Equipment damaged as a result. In the event that COMPANY instructs CONTRACTOR to continue operations with the BOP stack outwith the operational tolerances as stated above the Standby Rate as set out in Section 111 - Remuneration shall apply to any downtime associated with any such damage and/or loss referred to herein and COMPANY shall not be entitled to terminate the CONTRACT utilising any of the provisions of this CONTRACT relating to shutdown or CONTRACTOR’s failure to provide the DRILLING UNIT.
18.6 Subject to Clauses 18. 1(a), 18. 1(b) and 18.4 and any additional clauses identified in Appendix 1.1
to Section 1 - Form of Agreement, but notwithstanding anything contained elsewhere in the CONTRACT to the contrary, the COMPANY shall save, indemnify, defend and hold harmless the CONTRACTOR GROUP against all claims, losses, damages, costs (including legal costs) expenses and liabilities, including without limitation liability to third parties, resulting from:
(a) loss of or damage to any well or hole provided however, in the event that such loss or damage to any well or hole is caused by the negligence of the CONTRACTOR or those SUBCONTRACTORS used by CONTRACTOR to fulfil its obligations to provide equipment detailed in Section IV (b) - Rig Specification or to provide personnel detailed in Section IV(d) - Personnel (but not any other SUBCONTRACTORS), the CONTRACTOR shall, at the request of the COMPANY as its sole remedy and provided the DRILLING UNIT is still on that location, either redrill the same or an equivalent hole to the same depth as such lost hole had been drilled previously, or repair such damaged hole or well to its original state. During such drilling and/or repair operations the CONTRACTOR shall be paid as detailed in Section 111 - Remuneration:
(b) blowout, fire, explosion, cratering or any uncontrolled well condition (including the costs to control a wild well and the removal of debris):
(c) damage to the reservoir, geological formation or underground strata or the loss of oil or gas therefrom:
18.7 The CONTRACTOR shall be responsible for the removal and when appropriate the marking or lighting of any wreck or debris of the CONTRACTOR GROUP’s property or equipment or any part thereof provided by the CONTRACTOR GROUP in relation to the CONTRACT, where required by law, or government authority or where such wreck or debris is interfering with the COMPANY’s operations is a hazard to fishing or navigation and shall, except as provided for in Clauses 18.2 and 18.3, save, indemnify, defend and hold harmless
the COMPANY GROUP in respect of all claims, liabilities, costs (including legal costs), damages and expenses arising out of or in connection with such wreck or debris.
18.8 All exclusions and indemnities given under this Clause (save for those under Clauses 18.1(c), 18.2(c), 18.5 and 18.6(a)) and Clause 20 shall apply irrespective of cause and notwithstanding the negligence, breach of duty (whether statutory or otherwise) or other failure of any nature of the indemnified party or any other entity or party and shall apply irrespective of any claim in tort, under contract or otherwise at law.
18.9 If either party becomes aware of any incident likely to give rise to a claim under the above indemnities, it shall notify the other and both parties shall co-operate fully in investigating the incident.
18.10 The indemnities given by the parties are full and primary, even if the indemnified party is required to carry insurance.”
160. On behalf of Transocean Mr Persey submitted that the spread costs were “loss of
use” and within the particularisation in the parenthesis in subparagraph (ii) on
three alternative bases. His primary argument was that these were claims for
loss of use of the property, equipment, materials and services provided by
contractors, subcontractors and third parties. His alternative case was that the
claim was for was loss of use of property, namely the Rig or was for business
interruption. In each case this was, he submitted, the natural and straightforward
meaning of the words used. He relied on the adoption of such an approach by
Mrs Justice Carr in Fujitsu Services Ltd v IBM United Kingdom Ltd [2013]
EWHC 752 (TCC) at paras [32]-[38]. He also relied upon the approach adopted
by Mr Justice Morison in Smit International (Deutscheland) GmbH v Josef
Mobius Bau-gesellschaft mbH & Co [2001] CLC 1545 applying a knock for
knock clause as a “crude but workable allocation of responsibility”.
161. I prefer the submissions of Mr McCaughran QC on behalf of Providence on this
issue which may be summarised as follows.
162. The clause falls to be construed contra proferentem against Transocean,
notwithstanding that it is a bilateral clause with mutual exclusions and
indemnities. Parties in commercial contracts are entitled to apportion risk of
loss as they see fit and provisions which limit or exclude liability in such
contracts are in general to be construed according to the same principles as other
terms: Tradigrain SA v Intertek Testing Services (ITS) Canada Ltd [2007]
EWCA Civ 154 per Moore-Bick LJ at para [46]. Knock for knock provisions in
a rig contract (as with clause 18 of the Contract) or in tug and tow contracts (as
in Smit) are examples of such an approach. Nevertheless a party relying on an
exclusion clause must establish that the words show a clear intention to deprive
the other party of a remedy to which he would otherwise be entitled, because
one starts with the presumption that neither party intends to abandon any
remedies for breach by the other arising by operation of law, and clear words
must be used in order to rebut that presumption: Gilbert-Ash v Modern
Engineering per Lord Diplock at p. 717H. That applies to commercial contracts
such as a rig contract, and to both parties to the contract even where the
exclusion is mutual and is to be found in an indemnity clause: see EE Caledonia
Ltd v Orbit Valve Co Europe Plc [1994] 1 WLR 1515 at p. 1523B-D.
163. Sub paragraph (ii) must be construed in the context of it being a specifically
defined incursion into the territory of the first limb of Hadley v Baxendale, and
should therefore be approached by treating the enumerated types of loss as
incremental incursions into that territory, construed narrowly to limit the scope
to specific categories narrowly defined rather than a widespread redefinition of
excluded loss.
164. In that context “loss of use” is more naturally to be read as connoting the loss of
expected profit or benefit to be derived from the use of property or equipment.
165. This construction gains strength and colour, by application of the eiusdem
generis principle, from the other identified types of loss. The body of the
subparagraph identifies seven other types of loss apart from loss of use, namely
(i) loss or deferment of production (ii) loss of product (iii) loss of business and
interruption (iv) loss of revenue, which is defined to exclude for the avoidance
of doubt remuneration due to Transocean (v) loss of profit or anticipated profit
(vi) loss/deferral of drilling rights and (vii) loss/restriction/forfeiture of licence,
concession or field interests. Subject to possible debate in the case of loss of
product, these are all loses of income or benefit. This is consistent with the
approach of Mr Justice Andrew Smith in Ease Faith Ltd v Leonis Marine
Management Ltd [2006] 1 Lloyd’s Rep 673, in which at paragraphs [142]-[143]
he determined that an exclusion of loss of profit by a tug or tow did not cover
loss comprising diminution of the price when construed eiusdem generis with
“loss of use” and “loss of production” which were directed to future use of the
tug or tow.
166. “Cost of use…..” is an example given within the parenthesis of a loss of use. It
covers the cost of hiring in equipment or services, or replacing property the
benefit of which has been lost, in order to mitigate the loss of benefit. It has no
application to the spread costs where the costs are for equipment and services
which were provided. Providence did not lose the use of that equipment or
those services, which remained available to it, which is why Providence incurred
wasted expenditure in paying for them.
167. If the clause were to be construed as Transocean contends, the exclusion would
cover all losses which Providence might conceivably suffer by way of damages
for which Transocean would otherwise be liable. Losses involving damage to
the parties’ own property or injury to their own employees are allocated to that
party, irrespective of cause or fault, under clauses 18.1, 18.2, 18.5 and 18.8.
Liability of Providence to third parties for personal injuries suffered by third
party employees as a result of Transocean’s breach of tortious or statutory duty
is allocated to Transocean by Clause 18.1(c) and the converse position dealt
with similarly in Clause 18.2(c). Pollution risks are allocated by Clause 18.4.
The final paragraph of clause 20 makes clear that it is not to apply to the
allocation of risk in clause 18. Mr Persey could not identify any head of loss
which Providence might suffer for which Transocean would be liable as
damages for breach of its contractual obligations, outside the specific
indemnities in clause 18, if consequential loss were to be construed as widely as
he suggested. This is a clear indication that it cannot bear such a construction.
The Court will not readily construe a clause as having this effect because to do
so is to render the primary performance obligations in the contract effectively
devoid of contractual content, there being no sanction for non performance: see
Tor Line AB v Alltrans Group of Canada Ltd [1984] 1 WLR 48, 58-9, Kudos
Catering (UK) Ltd v Manchester Central Convention Complex Ltd [2013] 2
Lloyd’s Rep 270 at para [19], AstraZeneca UK Ltd v Albemarle International
Corporation [2012] 2 CLC 252 at para [313]. As Lord Wilberforce put it in
Suisse Atlantique Societe d’Armement Maritime SA v NV Rotterdamsche
Kolen Centrale [1967] 1 AC 361 at p. 432B:
“One may safely say that the parties cannot, in a contract, have contemplated that the clause should have so wide an ambit as in effect to deprive one party’s stipulations of all contractual force; to do so would be to reduce the contract to a mere declaration of intent”.
168. In this Contract there are detailed warranties and other terms as to the condition
of the Rig which can only have been intended to have the force of obligation on
Transocean’s part, such that liability in damages would at least in some
circumstances attach to their breach. Mr Persey submitted that a breach of such
obligations would not be without consequence or reduce them to a statement of
intent: if, as I have held, the remuneration provisions are to be construed as not
extending to delays caused by Transocean’s breach, the obligations are given
substance and consequence through Providence’s relief from the obligation to
make payment. This does not meet the point. Clause 20 is plainly designed to
cover damages claims by a party, and if a construction of the clause gives it no
content in relation to damages claims, that is a powerful indication that the
construction is not what the parties intended. Mr Persey also drew attention to
clause 22.1(d) which entitles Providence to terminate the Contract if a
breakdown in Transocean’s equipment which is not caused by Providence’s
actions results in 15 or more consecutive days of inability to perform the work.
This too gives no content to clause 20 in its application to a damages claim if
Transocean’s construction were correct. Moreover, the remedy in Clause
22.1(d) is not dependent on breach of any obligation by Transocean, but merely
on a breakdown of the Rig or equipment for a defined period. It cannot
therefore give content to contractual warranties and terms as imposing
obligations on Transocean where a construction of clause 20 would otherwise
deprive such terms of any contractual content.
169. I have derived no assistance from the cases of Smit and Fujitsu. Those are
cases concerning different terms and different facts. The approach in those
cases is entirely consistent with the approach to Clause 20 advocated by
Providence in this case.
170. Accordingly Clause 20 affords no answer to Providence’s set-off of its spread
costs claim.
Application of clause 20 to set off.
171. Mr McCaughran’s alternative submission, that if the spread costs were
consequential loss the effect of clause 20 was to preclude recovery of a damages
claim but not to preclude the right of set-off against remuneration, does not
arise. If it did, I would reject it. A set-off cannot arise where there is no
recoverable claim to set off. A damages claim which is excluded by contract is
no claim at all. There is no legal entitlement to a sum of money and nothing to
set off. If authority were needed for this self evident proposition it is to be
found in Aries Tanker Corporation v Total Transport Ltd [1977] 1 WLR 185
per Lord Wilberforce at p. 188E-F. Nor could any set off in such circumstances
be equitable. Equity lies in enforcing the parties’ bargain, which would be (if I
were wrong in my construction of what constituted consequential loss) that
Providence would save and hold Transocean harmless from the spread costs. If
a set off were allowed, Transocean would not be saved or held harmless from
such loss, but made to feel it.
172. Mr McCaughran relied on the fact that clause 20 is expressed to be subject to,
and not to affect, the provisions of the Contract regarding “the payment rights
and obligations of the parties”, which include clause 13. He relied in particular
on clause 13.6 which entitles Providence to withhold from payment of
remuneration sums which are the subject matter of a dispute under the Contract.
This does not assist the argument. Clause 13.6 provides for a temporary right to
withhold sums claimed as remuneration when invoiced, pending resolution of
the dispute. The clause goes on to provide that once the dispute is resolved, any
sum due must be paid. If the Court determines that there is no valid deduction
to be made, Clause 13.6 does not confer a right of deduction.
Issue 5: The Misrepresentation Claim
173. Given my findings on breach of contract and Clause 20, the claim in
misrepresentation cannot affect the result. I can deal with it briefly.
174. Providence engaged NRG to conduct the tender process. NRG drafted an
invitation to tender (“the ITT”) which was sent to four rig contractors, one of
whom was Transocean on 7 February 2011. The ITT was a lengthy document.
Amongst other things it identified the scope of work and contained detailed
terms which would form the terms of the contract. They included warranties of
the fitness for purpose of the rig, and of its maintenance in good condition.
175. Transocean’s tender (“the Tender”) was submitted to NRG on 18 February
2011. It too is a lengthy document. At section 8 which was headed
“EQUIPMENT FITNESS FOR PURPOSE” it included the following passage (I
have highlighted in bold the statements relied on as misrepresentations):
“1. GENERAL
Transocean maintain the rig and associated hardware fit for purpose. All necessary certification requirements are complied with. A programme of surveys and inspections is in place to maintain this compliance. MODU compliance, maintenance and modification processes are detailed in the Transocean Maintenance Manual.
The RIGNAME Rig Manager (supported by Technical Field Support as required) is the focal point for all matters related to equipment fitness for purpose and the certification process.
Third Party Equipment refers to all equipment supplied by the client, client Third Party Contractors and Transocean Third Party Contractors.
For further guidance on what is defined as Work Equipment (see Figure 8.2.)
2. MODIFICATION CONTROL PROCEDURES
Prior to commencing significant MODU modification, the appropriate safety and engineering analysis shall be performed in accordance with the Transocean Maintenance Manual. Any modifications requested by CLIENT must likewise follow the same procedures.
3. MAINTENANCE
Transocean shall be responsible for ensuring that all tools, equipment, facilities and other items for use in the performance of the operations are maintained in a safe and proper condition and are capable of performing the functions for which they are intended. The Transocean Planned Maintenance System ensures that standards are in place and equipment is suitably maintained.”
176. The tenders were evaluated by Mr Walsh of NRG. An evaluation document was
sent to Providence on 4 March 2011. This was the document on which those at
Providence relied in choosing which rig to hire. It made no reference to the
representations. It recommended that another rig operated by Awilco Drilling
Ltd be chosen. It soon became apparent that that rig was unavailable to meet the
projected timing for the Barryroe drilling programme and on 14 March 2011
Providence instructed NRG to secure the Rig from Transocean. That process
took until 15 April 2011, when the Contract was signed with an effective date of
21 March 2011. The negotiation of the detailed terms was largely left to the
judgment of NRG.
177. Transocean disputed the misrepresentation claim on the grounds that:
(1) the statements relied on were true;
(2) Transocean had reasonable grounds to believe and did believe that the
statements were true;
(3) Providence did not rely on the statements;
(4) Providence has not proved any loss;
(5) Liability is excluded by Clause 20.
Statements untrue
178. The statements were untrue by reason of the deficiencies in the LMRP stinger
which were of long standing and resulted from an inadequate maintenance
programme. It is only in this respect that they were untrue. I cannot safely
conclude that there was at the time of the Tender an inadequately screwed in
blanking plug; it is equally possible that that occurred when replaced
subsequently by Transocean personnel. There was no system maintenance
failure in relation to the blanking plug.
Statements negligent
179. The statement was not made with reasonable grounds for belief in its truth given
the inadequacies in the stinger maintenance programme I have identified above.
Reliance
180. Providence sought to rely on the evidence of its Commercial Manager, Mr
O’Brien, to establish reliance. However he did not see or know of these
provisions in the Tender at the time. It was clear from his evidence that
Providence relied on NRG to assess the reliability of the rig operators in relation
to the condition of the rigs and made its decision based on the evaluation
prepared by NRG and relying on its advice.
181. There is nothing in the evaluation prepared by NRG for Providence to suggest
that the statements had been taken into account in framing it. There was no
evidence from anyone at NRG, including in particular Mr Walsh. In the absence
of evidence I am not prepared to infer that he or anyone else at NRG read or
relied on the two particular sentences upon which the misrepresentation claim
focuses in framing the evaluation document or NRG’s advice to Providence.
These are two sentences in a lengthy document. There were to be contractual
terms, already identified, under which the successful bidder would give
warranties as to fitness for purpose and maintenance. In the evaluation for
Providence there was a focus amongst other things on NPT (Non Productive
Time) of each of the rigs, suggesting that condition, maintenance and reliability
of the rig equipment were being assessed by the historical record of downtime.
The ITT had called, at paragraph 1.5 of Attachment 1, for tenderers to submit
details of their Safety Management System including a copy of the contents list
of each system. Transocean did not provide those details with its Tender and
there is no suggestion that Mr Walsh either noticed or cared. Transocean was a
well known and substantial rig operator whose reputation would have been
known to Mr Walsh and it was Transocean’s reputation, coupled with his own
knowledge and experience of Transocean and records of downtime for this rig
which are likely to have been of weight in any judgments on maintenance and
rig condition, rather than any self serving statement from Transocean itself, in
circumstances where rig condition and maintenance were to be addressed as
contractual warranties with the contractual consequences which would follow
from any breach.
182. Mr McCaughran sought to rely on a principle that once a misrepresentation is
established as being material there is a presumption that it was relied upon, by
reference to Cartwright on Misrepresentation, Mistake and Non-Disclosure 3rd
Edn 3-53 and the cases there cited, including Matthias v Yetts (1882) 46 L.T.
497, 502 and Smith v Chadwick (1884) 9 App Cas 187, 196. This is to
mischaracterise the principle. Materiality is not itself a necessary ingredient of
the cause of action, but is relevant as informing the issue of whether the
representee in fact relied upon the misstatement. There may arise an inference
of fact, not a presumption of law, that the representee did so rely if the
misstatement is material in the sense that it is of such a nature as is likely to
have induced someone in the representee’s position to enter into the contract.
The strength of the inference of fact will vary depending upon all the
circumstances of each case. These principles do not assist Providence. It cannot
establish that the misstatements were read or focussed on prior to entering into
the Contract. In those circumstances no inference of factual reliance can be
derived from the materiality of the statements. Moreover on the facts of this
case, even if I were satisfied that Mr Walsh, or someone else at NRG, had read
or focussed on them, I would not be prepared to infer that he relied on them for
the reasons given in the previous paragraph.
183. Accordingly Providence has not established reliance, which is fatal to the claim
in misrepresentation.
Loss
184. Providence claimed the same loss pursuant to its misrepresentation claim as in
contract, namely the wasted spread costs. It contended that once a claimant had
established that it had been induced to enter into an agreement by a
misrepresentation which the representee failed to establish was made with a
reasonable belief in its truth, the representee’s damages pursuant to s. 2(1) of the
Misrepresentation Act 1967 were to be calculated on the same basis as if the
representation had been made fraudulently and covered all losses flowing from
entry into the agreement. The damages are those which will put the representee
in the position he would have been in if he had not entered the agreement, not
the position he would have been in had the misrepresentation been true. See
Chitty on Contracts 31st edn paras 6-074, 075 and the cases there cited.
Accordingly the damages to which Providence is entitled are to be calculated by
taking all the expenditure incurred by reason of having entered into the Contract,
including its wasted expenditure, and deducting the amount of expenditure that
it would have incurred under a notional contract at the same rates, properly
performed, without interruption to remedy the problems which arose under the
Contract. It was not necessary, so Providence submitted, to allege or prove that
it would actually have entered into a different contract at the same rates.
185. I am unable to accept this last submission. If the misrepresentation claim were
established, Providence would be entitled to be put in the same position as if it
had not entered into the Contract, which in the circumstances of this case posits
achieving the same benefit by entering into an alternative contract for
performance of the work. That is not a “notional contract” in the sense of one
which may or may not have been available. If, for example, any other available
rig contract involving no breakdowns would have cost Providence the same, in
terms of remuneration and costs incurred, as the cost to Providence under the
Contract taking into account the delays which occurred, Providence would have
suffered no loss from entering into the Contract. All depends on the capabilities
of the rig and the terms of the contract in respect of an alternative rig available
to Providence at the time. It is clear from the tenders that to the extent that
alternative rigs were available at all, they were being offered on different terms.
In the absence of any attempt to calculate the difference in cost between the
Contract and an alternative available contract, Providence has not proved what if
any loss was suffered as a result of entering into the Contract.
Clause 20
186. Clause 20 applies to a claim in misrepresentation to the same extent as a claim
for breach of contract, as is made clear by clause 18.8. If Providence had
established reliance and loss, the latter would not have been excluded by clause
20.
Conclusion
187. It was agreed between the parties that they would seek to calculate and agree the
financial consequences of my findings. In the absence of agreement, I will
resolve any further issues which may arise.
Appendix
TRANSOCEAN DAILY RATES AS INVOICED DURING THE DISPUTED PERIOD: A1/5/74
PERIODS OF DELAY CAUSED
DATE DAILY OPERATIN
G RATE (100%)
US$240K per 24-hour day
REPAIR RATE (1st 24 hours) (98%)
US$235.2k per 24-hour
day
REPAIR RATE (0%)
STANDBY RATE (98%)
US$235.2k per 24-hour
day
WAITING ON
WEATHER RATE (98%)
US$235.2k per 24-hour
day
SUBSEA REPAIR
RATE (98%)
US$235.2k per 24-
hour day
Caused by misalignment of Blue POD
receptacle
Caused by
wedge lock
blanking plug
WOW in any event
WOW to carry out
operations would have
carried out in any
event
Other repairs
not caused by any breach
Rig carrying out operations
which would have carried out
in any event
Dec-11
18 11 13 13 11 19 24 24 20 24 24 21 14.8 9.25 24 22 24 24 23 24 24 24 24 24 25 24 24 26 24 24 27 21 3 21 3 3 28 24 24 24 29 3 21 3 21 21 30 18 6 11.25 6 6.75 31 22.5 1.5 1.5 22.5
Jan-12 1 5.5 18.5 18.5 5.5 2 24 24 3 24 24 4 24 24 5 2 22 22 6 22.25 1.75 1.75 22.25 7 24 24 8 24 4.75 19.25 9 18.75 5.25 7.5 16.5
10 6.5 17.5 24 11 24 24 12 19.8 4.25 24 13 24.0 1 23
14 3.0 21.0 3 21 15 2.5 21.5 21.5 2.5 16 2.5 0.5 21.0 23.5 0.5 17 24 24 18 24 24 19 24 24 20 24 24 21 24 24
22 24 24
23 24 24 24 24 24 25 11 13 24 26 6.75 17.25 6.75 17.25 27 24 24 28 24 24 29 20.5 3.5 20.5 3.5 30 24 24 31 24 24
Feb-12 1 24 24 2 23.5 0.5 23.5 0.5