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You are here: BAILII >> Databases >> England and Wales High Court (Commercial Court) Decisions >> Global Process Sytems Inc & Anor v Syarikat Takaful Malaysia Berhad [2009] EWHC 637 (Comm) (31 March 2009) URL: https://www.bailii.org/ew/cases/EWHC/Comm/2009/637.html Cite as: [2009] Lloyd's Rep IR 511, [2009] EWHC 637 (Comm), [2009] 2 All ER (Comm) 795, [2009] 2 Lloyd's Rep 72 |
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QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Royal Courts of Justice Strand, London, WC2A 2LL |
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B e f o r e :
____________________
(1) GLOBAL PROCESS SYTEMS INC |
Claimants |
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(2) GLOBAL PROCESS SYSTEMS (ASIA PACIFIC) SDN BHD - and - |
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SYARIKAT TAKAFUL MALAYSIA BERHAD |
Defendant |
____________________
Mr Luke Parsons QC and Mr Stewart Buckingham (instructed by Hill Dickinson) for the Defendant
Hearing dates: 2nd, 3rd, 4th, 5th, 9th, 10th, 11th and 25th February 2009
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Crown Copyright ©
Mr Justice Blair:
The facts
The acquisition of the rig
The policy of insurance
"Cover Note
Period of Cover 20th July 2005 to 30th November 2005
Description of Risk On Cendor MOPU …
For commencement of loading operations in Galveston Texas until completion of discharge in Lumut Port, Perak, Malaysia.
Total sum covered: RM38 million (Equivalent to USD10 million)
Placement Slip
…
ENDORSEMENTS 9. Institute Cargo Clauses (A) 1.1.82
…
DEDUCTIBLE USD1,000,000 or equivalent to RM3,800,000 …"
"RISKS COVERED
1. This insurance covers all risks of loss of or damage to the subject- matter insured except as provided in Clauses 4, 5, 6 and 7 below.
...
EXCLUSIONS
4. In no case shall this insurance cover:
…
4.4 loss damage or expense caused by inherent vice or nature of the subject matter covered."
The policy was therefore an "all risks" policy, excluding (among other things) "inherent vice".
Pre-shipment preparations
"1 The ODIN LIBERTY legs have been the subject of a simplified fatigue analysis. Taking into account the fact that some of the fatigue life has already been used in the rig's previous history, and the uncertainty associated with the simplified fatigue analysis for the wet tow from Galveston to Lumut, it is possible that the legs in way of the pinholes may not have sufficient fatigue life to undertake the full tow to Lumut.
2 Since the fatigue analysis shows possible damage, it is required that the legs be re-inspected at Capetown for crack initiation in way of the six levels of 'pinholes' above the mat. Capetown is, broadly speaking, the half way point and remedial work could be undertaken should it be found necessary. Inspection should be using eddy current or equivalent NDT [non-destructive testing] technique."
With approval from Noble Denton thus in hand, the tow sailed away from Galveston on the same day.
The passage from Galveston to Saldanha Bay
The stopover at Saldanha Bay
The loss of the legs
The parties' pleaded cases on causation
14.1.1.4 The repairs at Saldanha Bay being inadequately performed and/or inadequately engineered as particularised in the expert reports of John Aston and Robert Andrews. Specifically:
14.1.1.4.1 The object of the stop over at Saldanha Bay was to ensure that they would survive the second leg of the passage. Self evidently, that object was not achieved and the repairs were in fact inadequate to achieve that purpose; alternatively
14.1.1.4.2 The repairs were inadequately performed in that they did not succeed in removing all cracks and/or were not painted or dressed or coated with a temporary protective compound or grease and/or did not achieve DNV Class C and/or had the features particularized in sub-sub-sub-paragraphs 27.2(b)(ii) to (iv) of the Amended Defence and/or did not achieve the shape designed by Viking and/or did not "re-set" the fatigue life of the legs and/or did not return the legs to at least as good a condition as they were on departure Galveston; alternatively
14.1.1.4.3 The repairs were inadequately engineered in that, in so far as in known, they were not engineered to achieve the level of a "machined" curve.
The claimants' case is further that had adequate repairs been carried out, the loss of the legs was not inevitable.
The expert evidence
Fatigue life
The timing point
"When we have these fatigue cracks, they're 100 or 200 millimetres long – that's 4 or 8 inches – but remember that we have a leg which is 12 feet in diameter, a circumference of about 40 feet. So even quite a lot of these little cracks still leave a very large amount of good steel an inch and a half thick. This isn't light plate; this is very heavy steel, and that's an enormously strong structure. So you've got to catch it just right, if you want to make it actually fail all the way round. I'm not surprised that it takes special event to make it go, but I think it was very lucky to have survived the first leg, as indeed the speed with which it failed during the second leg showed".
"Just right in terms of roll angle, the direction of the motion and the amplitude of the motion and the presence of a crack of the right orientation in the right place, I suppose. Perhaps it's worth bearing in mind that the legs aren't just rolling from side to side or pitching backwards and forwards. They're getting a combination of those motions. So they're going around in great circles, or ellipses in different directions, and the stressing that is caused by that is complex. So somewhere all of the ingredients have to come together, but I think once you have used up a lot of fatigue life and you have cracks everywhere, then all you need is probably the 2, 3, 4-metre sea states that the Cape waters can provide."
The agreed range of wave heights demonstrates that waves in excess of 3 metres were in fact regularly experienced during the second stage of the voyage as the rig navigated the waters of the Cape.
Conclusions as to fatigue life
Q. But if we compare whatever the right figures are, Viking had 2.13; I think you are now at 2.9 for the original voyage; Mr Colman is much higher than that?
A. Correct.
Q. But each of those would not comply with the DNV rule, would they?
A. No.
Q. Indeed, they're so far away from it that you would not, as a warranty surveyor, have approved this tow would you?
…
A. I would like to think I wouldn't have approved it.
MR JUSTICE BLAIR: Would you or wouldn't you?
A. I wouldn't.
MR PARSONS: The reason for that is it is so far away from the DNV rule that one could predict damage in this case, couldn't one.
A. You could predict damage but it doesn't necessarily mean that damage -- sorry, you could predict damage and you might expect damage, but it doesn't necessarily mean that catastrophic loss would necessarily occur.
Q. You would be expecting cracks of the order that catastrophic loss is likely to occur?
A. You would be expecting cracks and they could lead to catastrophic loss, but I don't think they would inevitably lead to catastrophic loss.
Q. We'll come back to inevitability later, but you certainly would agree you would be predicting damage of such a sort that --
A. You would be predicting damage.
Q. And you could not sign a certificate saying that this project could withstand the ordinary incidents of the expected voyage, could you?
A. If I knew those figures, no.
A. … are you saying I'm standing at Galveston with a spectral analysis giving a damage of 2?
Q. Yes
A. I'm afraid -- I'd have to say, don't do it.
Q. Don't do it?
A. Yes.
Q. Why not do it?
A. Because a damage sum of 1 on that design curve is intended, actually, for structures that can be inspected and are probably not redundant, and, as Dr Aston discussed in his report, looking at some numbers -- one or two of the other codes, given that this structure is not redundant and you're not going to inspect during the voyage, I would actually have wanted a lower damage sum even, than 1. So in this hypothetical situation, I would have to say professionally if I'd seen a damage sum of 2 at Galveston, I would have had to say, don't cast off, stop.
As I have said, the DNV recommendation is about 0.3 if there cannot be an inspection during the voyage, and 0.5 if there can. So it is not at all surprising that Dr Andrews would have said, "Don't cast off, stop".
The probabilities
Resetting the fatigue life—the repairs at Saldanha Bay
What happened at Saldanha Bay
"Saldanha Bay, it's primarily -- I don't know what is the correct word for it, but it is a bulk carrier loading. There's coal loading facilities there. So it's sheltered. It has quite significant depth, so it can take quite large vessels. There's very little there in way of sort of public ship repair, if you like. So when we were there, we were actually doing it while we were moored in the centre of the bay. So there were very limited facilities in Saldanha."
"... Also, if the holes are due to fatigue, and fatigue comes from imperfections and surface defects at the intergranular level and high stresses (which are also at the extreme fibres), then grinding out the surface to eliminate all undetectable cracks and cracks which are less than the ground out length, should essentially reset the fatigue clock close to zero."
"Our engineers are increasingly worried that the repairs being undertaken are insufficient for the Cape passage. Bader [Diab of Noble Denton] is back in the office now and we would very much like to speak to you, or someone on site in Capetown, to make sure we are correctly understanding the extent of damages/repairs before committing ourselves to permit the transport to proceed."
"... As you appreciate, no engineering has been presented to us that document the acceptability, in terms of fatigue performance, of the drilled hole repair method. As such we have no basis for any approval.
Based on the above we cannot approve the sailaway of the rig from the Cape. We would recommend the following:
- Proceanic need to propose an alternative repair method to drilled holes at the end of cracks. ...
- Proceanic need to inspect the holes at the 24' level for evidence of cracks and repair as necessary. Inspections at the next elevation (30') need to be carried out and cracks repaired if necessary."
"... It is our understanding that the geometry of the finished repair will have a better profile from a fatigue perspective than the original design and that the reduction in the section of the leg at the repair locations is negligible. Additionally, the fatigue clock will be reset at zero in these locations."
"We have reviewed the modified pin hole stress and conclude that the new, reduced SCF's are acceptable.
It is now incumbent upon Proceanic through their various sub-contractors to ensure that the pin holes are modified as per the new design and to ensure that all cracks are fully removed."
"The ODIN LIBERTY legs have been the subject of a simplified fatigue analysis. Since the fatigue analysis showed possible damage, it has been necessary for the legs to be re-inspected at Capetown for crack initiation in way of the six levels of 'pin holes' above and below the jack house top. Remedial work has been undertaken as found necessary."
I have already pointed out that the reference to a "simplified fatigue analysis" suggests that Noble Denton had not seen Viking's spectral fatigue analysis, with its much higher number.
Discussion
Q. There was no discussion and no intention to cut away or grind any of the pinholes that weren't showing cracks?
A. No, there was no discussion about that.
…
A. There was no discussion about looking at -- doing any type of remedial action to pinholes that didn't have any cracking in it.
MR PARSONS: The approach is the same as at Galveston. If you saw a crack you would repair it, but you weren't going to grind pinholes that weren't showing cracks. You weren't trying to reset a fatigue life everywhere?
A. No, that's correct.
Q. What was the intention of the repairs at Cape Town?
A. The intention was to make the cargo safe for the balance of the voyage.
Q. And you were asked, was there any discussion of remedial action at pinholes where there was no cracking, and you confirmed that there was not. Who or what determined what repairs were carried out at Cape Town?
A. Noble Denton.
Q. And what would have been your attitude if it had been said to you that you should do something to pinholes where no cracking was found?
A. We would have been obliged to follow the requirements of the warranty survey.
Conclusions as to the re-set argument
The law
Inevitability
"When he [the insured] avers loss by some risk coming within "all risks," as used in this policy, he need only give evidence reasonably showing that the loss was due to a casualty, not to a certainty or to inherent vice or to wear and tear. That is easily done. I do not think he has to go further and pick out one of the multitude of risks covered, so as to show exactly how his loss was caused. If he did so, he would not bring it any the more within the policy. These considerations answer the appellants' complaint, that the plaintiffs were meagre with their proof. So they were, but it was enough for them to prove some casualty insured against. Rowlatt J., as I venture to think, attached too much importance to the absence of any kind of marine disaster. If the casualty was fortuitous, it needed not to be a calamity."
Inherent vice
"… in my judgment a loss is proximately caused by inherent vice if the natural behaviour of the goods is such that they suffer a loss in the circumstances in which they are expected to be carried. This is the test under a contract of affreightment and the shipowner in this case could have pleaded inherent vice in answer to a claim for damage to cargo."
"… refers to a peril by which a loss is proximately caused; it is not descriptive of the loss itself. It means the risk of deterioration of the goods shipped as a result of their natural behaviour in the ordinary course of the contemplated voyage without the intervention of any fortuitous external accident or casualty. Prima facie, this risk is excluded from a policy of marine insurance unless the policy otherwise provides, either expressly or by necessary implication …"
"The expression "all risks" is used in policies of insurance as a convenient way of encompassing all insurable risks to which the property in question may be exposed without attempting to identify them individually. The contract nonetheless remains one under which the insurer accepts the risk of loss occurring through the occurrence of some peril acting on the property insured. A number of consequences follow from this. The first is that in order to recover under the policy the insured must prove that the loss was caused by an accident or casualty of some kind. Insurers accept the risk, but not the certainty, of loss. The second is that although the insured must prove a loss by an accident of some kind, it is not necessary for him to go further and establish the exact nature of the accident by which it occurred. The third is that the policy does not cover the insured against loss due to wear and tear or the inherent vice of the thing insured, whether that loss was bound to occur or was fortuitous in the sense that its occurrence depended on the particular circumstances to which the goods happened to be exposed in the course of the voyage.
He then goes on to cite the passage from Lord Diplock's judgment in Soya GmbH v. White which I have set out above. It was not in dispute that inadequate packing, where packing is required to enable the goods to withstand the ordinary incidents of the voyage, can properly be regarded as an aspect of inherent vice (see [19], and Bennett, The Law of Marine Insurance, 2nd edn, paragraph 15.55).
"The action of the winds and waves is, of course, an inevitable incident of any voyage and is therefore a hazard to which all goods carried by sea are necessarily exposed. Goods tendered for shipment must therefore be capable of withstanding the forces that they can ordinarily be expected to encounter in the course of the voyage and these may vary greatly depending on the route and the time of year. In a case such as the present, therefore, the competing causes, namely, perils of the sea and inherent vice, are to a large extent opposite sides of the same coin. If the conditions encountered by the vessel were more severe than could reasonably have been expected, it is likely that the loss will have been caused by perils of the sea (though even then there might be evidence that the goods would have suffered the same degree of damage under normal conditions). If, however, the conditions encountered by the vessel were no more severe than could reasonably have been expected, the conclusion must be that the real cause of the loss was the inherent inability of the goods to withstand the ordinary incidents of the voyage."
Conclusion