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You are here: BAILII >> Databases >> England and Wales High Court (Commercial Court) Decisions >> Senergy Ltd v Zeus Petroleum Ltd [2011] EWHC 3382 (Comm) (15 December 2011)
URL: http://www.bailii.org/ew/cases/EWHC/Comm/2011/3382.html
Cite as: [2011] EWHC 3382 (Comm)

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Neutral Citation Number: [2011] EWHC 3382 (Comm)
Case No: 2010 Folio No 415

IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT

Royal Courts of Justice
The Rolls Building
Fetter Lane
EC4A 1NL
15/12/2011

B e f o r e :

HIS HONOUR JUDGE MACKIE QC
____________________

Between:
SENERGY LIMITED
Claimant
- and -

ZEUS PETROLEUM LIMITED
Defendant

____________________

Mr Paul Downes QC and Mr Stewart Chirnside (instructed by HJB Gateley) for the Claimant
Mr Huw Davies QC and Mr Tom Ford (instructed by Watson Farley & Williams) for the Defendant
Hearing dates: 11, 12, 14, 17, 18, 20 October and 10 November 2011

____________________

HTML VERSION OF JUDGMENT
____________________

Crown Copyright ©

    Judge Mackie QC :

  1. This is a claim for damages for alleged breach of an agreement between the parties by which the Defendant was to hire from the Claimant a semi-submersible oil rig to drill a well in the North Sea. The claim is for just over US$12 million. The dispute is about what the terms of the contract between the parties were and whether the Defendant was in breach.
  2. The Parties and the Background

  3. The Claimant ("Senergy") is an energy services company which, amongst other activities, procures and manages oil drilling rigs in the North Sea. The Defendant ("Zeus") is a London based oil production and exploration company with interests in the North Sea. Until late 2009 Zeus held licences for blocks 14/11, 12/15, 13/11, 13/12 and 13/13 all in the North East of the Moray Firth.
  4. One aspect of Senergy's operations is a business giving effect to a joint government and oil and gas industry pilot scheme known as the Wells Share Initiative launched in 2005. Senergy would enter into a rig supply contract for a significant term and then in effect sub-let the use of the rig for particular periods of time or numbers of wells thus enabling small or new operators to have access to a rig to meet their drilling requirements.
  5. On 12 December 2007 Senergy hired the Byford Dolphin semi-submersible oil rig ("the Rig") from Dolphin Drilling Limited ("Dolphin") under a Rig Supply contract ("the Drilling Contract"). The Drilling Contract was for 5 wells with a minimum time of 133 days and a most likely time estimate of 157 or 177 days. The Drilling Contract was divided into 5 "slots" beginning on 1 May 2008. Senergy immediately started negotiating with Dolphin for an extension of the Drilling Contract and on 13 December 2007 contacted Zeus. Negotiations between the parties for Zeus to have one or more slots under an extended Drilling Contract continued, until Zeus signed a Letter of Commitment ("LOC") in May 2008. While these negotiations continued Dolphin and Senergy agreed four variations to the Drilling Contract. Senergy says that as a result, Zeus became legally obliged to take up a slot on 12 April 2009 but declined to do so forcing Senergy to "warm-stack", i.e. maintain out of drilling use, the Rig for 30 days at a cost of US$396,600 per day amounting to US$11,907,000. Zeus contends that it never became obliged to take up the rig slot.
  6. The Issues

  7. The parties are agreed that determination of this dispute involves deciding one or more of four issues. First, did the parties agree that Zeus would take up slots for one well or for two wells? Secondly, did Variation 4 to the Drilling Contract have the effect of including Zeus' drilling programme as set out in the LOC? If Zeus succeeds on either of the first two issues it wins the action. Thirdly, was Zeus still obliged to enter into a Rig Re-Supply Agreement ("RRSA") to give effect to the LOC? Fourthly, if Zeus was obliged to enter into the "RRSA" what if any loss did this cause to Senergy?
  8. Evidence

  9. Although the issues are mainly questions of construction of the documents said by one or other of the parties to constitute the contract there are some limited but important factual disputes. This led the parties to call extensive witness evidence. Senergy called Mr Peter Pavy, Director of Projects and Asset Management, Mr Ian Williamson, Director of Operations, (formerly Wells Project Manager), Mr Steve Bowyer formerly the Commercial Director who now works for another company, Mr Neil Campbell, the Chief Financial Officer and Mr Iain Mitchell, Dolphin's Senior Vice President of Marketing. Zeus called Mr Hayden Gardner, Chief Executive Officer and a Director of Zeus who is also the Managing Director and CEO of its parent company. Some of those differences fell away in the course of the trial and others are irrelevant to the points of construction.
  10. Facts Agreed or Not Greatly in Dispute

  11. Senergy set out on a venture based on the Wellshare Model. This venture was to prove unsuccessful mainly because the market for oil rig time was very "hot" or strong when Senergy was persuading clients to book time but became much weaker in the second part of 2008. Customers therefore sought to avoid in the second part of 2008 drilling commitments on which they had been very keen earlier in the year.
  12. While Zeus may not have known of the expression Wellshare Model it was clearly aware of the basis on which Senergy was going to operate the venture. Senergy was to obtain or receive expressions of interest from prospective clients who wished to book time on a rig. Once there was enough interest Senergy would approach the drilling contractor and seek a quote to hire a suitable rig to cover the period of expressions of interest. After the quote was in Senergy would seek to firm up expressions of interests from clients into binding commitments which would take the form, in this case, of LOCs. While finalising the LOC with clients Senergy would also finalise the drilling contract but would execute it only once it had received sufficient completed LOCs. I accept the evidence of Mr Pavy and Mr Williamson that Senergy would not incur liability to a drilling contractor for the hire of a rig without being able to pass the cost on to clients. There is no doubt that this was Senergy's aim but, as Mr Davies QC for Zeus points out, whether or not it was achieved is another question.
  13. The Drilling Contract of 12 December 2007 was for 5 wells or "slots", Senergy allocated slots to clients. The last slot was allocated to a client Granby Oil and Gas PLC ("Granby"). On 13 December Mr Williamson of Senergy sought an extension of the Dolphin Contract and on the same day contacted Zeus. On 14 December Mr Gardner of Zeus responded suggesting a meeting indicating that "the block we wish to drill on is 14/11…" The parties met on 18 December and Mr Pavy's notes survive. These indicate that at this point Zeus was ready to commit to a single firm well at block 14/11 and wanted an "option" to drill a second well on another block. But of course requirements change. On 5 March 2008 Mr Pavy and Mr Gardner met again. Mr Pavy's notes refer to Zeus seeking to drill "2 wells in 2009" mentioning a "firm well (definite)" at block 14/11, a "contingent" well at block 12/15, 12/13 and a well "to be drilled" at block 13/16B. An email from Mr Pavy that day to colleagues distinguishes between the firm well and the others for which an "option" was sought. On 27 March Mr Pavy and Mr Gardner met again to discuss Zeus' plans and how Senergy were getting on with negotiations to extend the Drilling Contract. The meeting was in Aberdeen, Mr Pavy retained no note and has no clear recollection of it. Mr Gardner does not have a note either but he claims to recollect explaining that Zeus wanted a programme of 2 slots ideally back to back and with a preferred commencement date of August 2009. Mr Davies QC presses the Court to accept Mr Gardner's recollection partly on the basis of Mr Pavy's oral evidence that he could not "honestly say" that Mr Gardner was incorrect. If Mr Gardner is correct the message did not get through to Mr Pavy as his email of 8 April states "I have assumed you would be in for a single well slot of 30 days with an earliest start April 2009". That email also attached copies of the Drilling Contract, Senergy's Well Project Management and Integrated Services Contract ("WPMISC") and Senergy's standard proforma LOC. The email stated that the Drilling Contract had already been executed so there was little opportunity to amend it. The WPMISC was in standard form and familiar to ADIL, Zeus' project manager. Mr Gardner did not respond to the email but forwarded the document to ADIL for their comment.
  14. On 16 January 2008 Dolphin and Senergy had agreed Variation 1 making minor amendments to the Drilling Contract. On 21 March they had agreed Variation 2 which swapped 2 clients in the drilling sequence under the Drilling Contract.
  15. On 2 April Dolphin agreed to extend the Drilling Contract until 30 June 2009. On 22 April Silverstone Energy Limited acquired Granby . On 6 May Silverstone told Senergy that Granby wished to defer drilling its block until 2009. On 11 May Mr Pavy emailed Mr Gardner asking whether Zeus was still interested in taking a slot in 2009 and they spoke on the telephone later that day. In evidence both witnesses were understandably vague in their recollection of the telephone conversation but it is common ground (see paragraph 17(2) of the Reply) that following the telephone conversation Senergy "was aware that the Defendant wished to drill two wells and the Defendant's preferred date was August 2009". On 16 May Mr Gardner emailed Senergy seeking a further copy of the proforma LOC and on 18 May Mr Williamson emailed a blank copy to Mr Gardner asking him to indicate the earliest start date for Zeus' "well or wells". Mr Williamson stated that slots in August 2009 were at that stage unavailable from Dolphin but discussions continued. On 22 May Mr Williamson emailed Mr Gardner again referring to a meeting the following day to discuss the duration and terms of the extension to the Drilling Contract. He mentioned that Zeus' work was only included as provisional at that stage. On 23 May Mr Gardner faxed a completed but unsigned copy of the LOC to Senergy.
  16. As the text of the LOC is central to this case and needs to be read as a whole I now set it out in its entirety as submitted by Senergy and completed by Zeus setting out its requirements. I place in bold type those provisions on which the parties place particular emphasis:-
  17. "Provision of the Byford Dolphin Semi Submersible Rig by Senergy

    Letter of Commitment

    WHEREAS

    A We wish to carry out a well programme, a summary of which is set out below (hereafter referred to as the 'Programme'), requiring a Mobile Semi Submersible Rig, a project management team and all well execution support services.

    B Senergy Limited ('Senergy') has entered into a contract SENRIG/002/2007/DOLPHIN/01 executed on 12th December 2007 including Variation 1 (the 'Rig Contract') with Dolphin Drilling Limited ('Dolphin') to contract the Byford Dolphin Semi Submersible Rig ('Rig'). Senergy have provided us with a copy of the Rig Contract.

    C Senergy has the competency, capacity, knowledge, experience and systems to provide a project management team and all well execution support services for the Programme.

    C Senergy and Dolphin have agreed to extend the Rig Contract at a base operating rate of US$ 405,000, subject to final execution of the extension amendment. Senergy is willing to offer the Rig under an assignment or re-supply contract to carry out the Programme.

    Summary well work description:

    Location (block number) 14/11 13/12 (TBC)
    Water Depth 110m 110m
    Well type (Expl/ App / Dev ) Expl Expl
    Well TD (TVD / MD) 2450m 3050m
    Well Step out – –
    Well maximum angle and angle at TD – –
    Estimated reservoir pressure (at depth) 3500psi 3800psi
    Reservoir Formation Lwr Cretaceous Scapa Lwr Cretaceous Scapa
    TD formation Kimmeridge Kimmeridge

    We reserve the right to substitute alternative well work of similar duration within the UKCS North Sea and the capability of the Rig.

    1. We now commit to:

    a) enter into a rig re-supply or rig assignment contract ('Assignment') with Senergy to use the Rig, on terms identical, mutatis mutandis, to the extension of the Rig Contract at the base operating rate of US$ 405,000 per day subject to our review and acceptance of the terms thereof, such acceptance not to be unreasonably withheld or delayed.

    b) enter into a well project management and integrated services contract with Senergy to manage the Programme on the Rig under the commercial and contractual terms based on the Logic standard contract for Well Services Edition 2 – March 2001 and substantially similar to those provided to us by Senergy (subject to our review and acceptance of the terms thereof, such acceptance not to be unreasonably withheld or delayed).
    c) enter into a side letter agreement with Senergy and its other clients who will be using the Rig under parallel agreements similar to the Assignment to share any mobilisation and demobilisation or other costs that can reasonably and equitably be shared on a pro-rata basis (based on rig days used).
    c) provide reasonable and appropriate financial assurances (in the form of a Bank Guarantee or Letter of Credit, Escrow Agreement, Parent Company Guarantee or similar), acceptable to Senergy and or and or the Rig owner (at their reasonable discretion), and its or their associated financial institutions, in respect of its obligations under the Assignment and in respect of Senergy's obligations to pay for the provision of third party services as reasonably requested by Senergy;
    d) purchase, provide or have provided any insurance cover normally held by an operator for the carrying out of well operations and/or as required by the contracts referenced at (a) and (b) above; and
    e) subject to the above, to commit to two slot durations of 30 days with a commencement date no earlier than Feb 2009, with the following additional time constraints. Well must commence before November 2009. A single 60 day slot is preferable.

    2. We represent that, to the best of our knowledge at the date hereof, the duration noted in point 1 e) above is a reasonable estimate of the firm duration of our Programme including mob/demob and abandonment/suspension. [In addition the Programme has up to 15 days contingent [to sidetrack/well test, as appropriate]]

    3. We reasonably expect to be able to provide the appropriate financial assurances 90 days ahead of the anticipated start of the Programme.

    4. This letter of commitment is valid until the earlier of:

    a) Notification from Senergy that no slot is available on the Rig that meet the time constraints given in item 1 e) above;
    b) 31st May 2008, unless extended in writing;
    unless Senergy has entered into a contract for the Rig including our Programme, in which case the term of this letter of commitment endure until its commitments are met.

    5. We understand to treat this letter and all documents forwarded to us by Senergy associated with the Rig offer and the provision of well project management and integrated services as confidential material for the duration of this Letter of Commitment and for a period of thirty six (36) months thereafter, on the basis that you likewise treat all documents and information including without limitation the information related to our well programme confidential on the same basis.

    6. On Senergy's formal acceptance of this Letter of Commitment, Senergy commits the Assignment of the Rig to us, subject to Senergy finalising negotiations with the Rig owner and contracting the Rig, our compliance with the terms of this letter and sufficient duration remaining in the term of that contract to carry out our well programme.

    7. In consideration of Senergy incurring time and expense in negotiating rights to provide the Rig, we undertake to Senergy, with the intention that such undertakings shall constitute legal obligations binding on us, as follows:

    a) To procure compliance for the duration of this letter of commitment with the provisions of this letter by ourselves and the employees, agents and advisers of ourselves and our affiliates;
    b) In acknowledgement of the value provided to us with this rig opportunity, to pay Senergy 1.75% of the operating rig rate, for the duration of the use of the rig under the contract referenced in item 1a) above, if we use the rig, but do not use Senergy's integrated project management services as outlined in the documents referenced in item 1b) above.

    8. This letter (including in particular the undertakings set out in paragraphs 1, 5, 6 and 7 shall be construed in accordance with and governed by the laws of England and we irrevocably submit to the exclusive jurisdiction of the English courts to settle and disputes which may arise out of or in connection with this letter."

  18. Mr Williamson responded to Zeus' LOC which was unsigned but contained the company's requirements, stating that he had had a good meeting with Dolphin and thought it likely that they would agree to an extension "to include your programme" though they would have to check with their CEO. Mr Williamson countersigned the LOC and, noticing that Mr Gardner had not signed it on behalf of Zeus asked for it to be signed and returned again.
  19. Mr Williamson's email proved to have been over optimistic because at 18:08 on 29 May 2009 he emailed Mr Gardner as follows.
  20. "Haydn,

    Dolphin have come back, and contrary to their thoughts in our meeting they have NOT agreed to allow us to contract a greater length of term to allow us to firmly include both your wells at the end of the programme. We do have a firm slot for one and possibly two in the March to May time and would hope that this is acceptable. We do expect to extend the Byford into 2010 eventually, and so we would hope to be able to get both wells drilled, and we could possibly juggle schedules to get them drilled together.

    We would also hope to have additional semi time on other semis, but this is unclear at this time.

    If you are happy with the above, can you sign the LOC as requested in my note below.[1]

    If you are travelling, and unable to get to printer or fax, could you respond to this e-mail that we should consider the LOC signed and binding, and that you will execute it as soon as practically possible.

    We hope to be in a position to sign the extension tomorrow, so long as Dolphin agree to one or two tweaks, and for this we would like a positive response from you also.

    Please give me a call if you wish to discuss. I will be in the office from just before 7.30 UK time tomorrow morning."

  21. On 30 May Mr Gardner emailed Mr Williamson stating that Senergy should consider his email to be confirmation that the LOC had been signed and he promised to fax a signed copy and did so later in the day. On that day Senergy and Dolphin also agreed Variation 3 and Variation 4 which extended the term of the Drilling Contract for a period of 270 days to include a further 8 slots. Clause 3 of Variation 4 provided; "The duration of the CONTRACT shall be extended with 270 days. The planned locations, scope and estimated timings of wells to be drilled during the extension of the CONTRACT are included in table 1 below. The sequence and duration of wells are indicative only and may be changed at COMPANY'S option within the duration of this extension of the CONTRACT. For the avoidance of doubt the duration of the CONTRACT shall not be reduced or extended without CONTRACTOR'S approval provided that in the event the DRILLING UNIT has commenced drilling a well or wells at the end of this extension of the CONTRACT, then the duration of the CONTRACT shall be extended until the programmed operations on such location are completed…" Operations were not to start for this purpose without Dolphin's permission on or after 15th May 2009 before the rig was moved to its final drilling location.
  22. On 30 May 2009, Mr Williamson also sent an email addressed to all clients to be allocated slots under Variation 4 confirming that an extension had been agreed "to cover your Well Programme as stipulated in your Letter of Commitment to ourselves". The message added that Mr Williamson would be in contact over the next few weeks to progress the next stages of paperwork.
  23. Senergy claims that slot 6 was allocated to Zeus (which is why the email was sent to Mr Gardner). Senergy accepts that Zeus received one slot but not two.
  24. Mr Gardner's evidence is that around this time there were two further telephone conversations with Mr Williamson. Mr Gardner says that on 29 May he telephoned Mr Gardner to explain that the Defendant would not be ready to drill in March 2009 and reminded him that Zeus wanted two slots in August 2009. Mr Williamson does not recall the details of the conversation but said that he would certainly have remembered if anything had been discussed different from what he had said in his email on 29 May. Neither Mr Williamson nor Mr Gardner made notes of this conversation or referred to it in contemporaneous or later emails or other messages.
  25. Mr Gardner also claims that on receiving the email of 30 May sent to clients who had been allocated slots he telephoned Mr Williamson to say that he could not identify any slots for Zeus in the variation. Again Mr Williamson, like Mr Pavy, had no specific recollection of this telephone call. Mr Williamson said in evidence however that if Mr Gardner had suggested that there was no slot in Variation 4 for the Defendant he would certainly have contradicted him. Mr Williamson is criticised by Zeus' counsel for attempting to reconstruct what might have been said. I do not accept that criticism. Its seems obvious that if in the telephone conversation of 29 May Mr Gardner had told Mr Williamson that Zeus wanted two slots in August 2009 and not what was set out in the email Mr Williamson would have remembered this and/or acted differently. Similarly, if on 30 May Mr Gardner had told Mr Williamson that as he saw it there were no slots in Variation 4 for Zeus Mr Williamson would obviously have sought to reassure him and, if such reassurance had not been successful, urgent steps would have been taken to deal with or fill what would have become a hole in Senergy's programme. Those steps would have been urgent as, under paragraph 4 of the LOC, Zeus' commitment would have ceased to be valid after the following day 31 May.
  26. Things were quiet over the summer but on 22 September Mr Pavy emailed Mr Gardner with an update on the timing of Zeus' rig slot stating that the programme was running to or ahead of schedule and Zeus' slot was expected to be in the first week of February. Mr Pavy asked that Zeus put in place the financial guarantees required by the LOC by 1 November 2008. On 29 September Mr Pavy emailed Mr Gardner again referring to a conversation earlier about Zeus' requirement for a farm in partner and possible deferral of the Well at 14/11. The email assumed that Zeus had a binding commitment for one well. Mr Gardner claims that during the conversation he told Mr Pavy that he did not think that Zeus had any rig slots under Variation 4 and therefore was not required to put in place the financial guarantees under the LOC. Mr Pavy had no such recollection. Mr Gardner's recollection is not supported by any contemporaneous document and it seems at odds with the 29 September email.
  27. This was the start of a series of contacts and emails over a period of about six months characterised by assumptions by Senergy that Zeus remained liable under the LOC for one well which Zeus never contradicted. Mr Gardner never challenged the position or recorded contemporaneously what in evidence at the trial he said to be his company's perception at the relevant times. He was unclear when asked why his company had chosen to remain silent. Zeus does correctly point out however that it at no stage expressly acknowledged a contractual commitment. I refer to these emails and other contacts only briefly because it is common ground that they are inadmissible to the construction of the agreement reached between the parties at the end of May 2008. Mr Downes QC for Senergy relies upon these events as relevant to the credibility of Mr Gardner's recollection of disputed telephone conversations.
  28. During October Senergy sent to Zeus at various times the WPMISC, a copy of the Rig Re-Supply Agreement ("RRSA") and of the Pre-Data Drilling Package ("PDDP"). There were other communications from Senergy to Zeus seeking to take forward the drilling of the well at block 14/11. Zeus either ignored communications or prevaricated until 20 March 2009. Mr Gardner then emailed Mr Bowyer of Senergy denying, for the first time, any liability under the LOC and requesting information about the position of other clients with regard to their commitments to this venture. On 23 March 2009 Senergy's solicitors wrote claiming that Zeus, had in effect, repudiated its obligations under the LOC by failing to respond to Senergy's requests, in particular for approval of the purchase of wellhead equipment.
  29. The slot which Senergy claims to have allocated to Zeus commenced in April 2009 so the rig was "warm-stacked" for this period of 30 days thus standing idle and incurring what Senergy contends was, at the rate of US$396,900 per day for 30 days, a standby cost obligation to Dolphin of US$11,907,000.
  30. Senergy's Witnesses

  31. Most of the dealing in the relevant period between the parties was between Mr Williamson of Senergy and Mr Gardner of Zeus. Mr Pavy had some involvement, Mr Bowyer was more involved as relations between the parties deteriorated, Mr Campbell gave relatively uncontroversial evidence about quantum. Mr Mitchell, Dolphin's Senior Vice President of Marketing, dealt with the settlement discussions between Senergy and Dolphin and the agreement they reached. There is dispute about the significance of Mr Mitchell's evidence but no doubt about the truth of what he said. Mr Davies submitted that Mr Bowyer was keen to act as an advocate for his company's case, as truthful witnesses often are. He accepts that Mr Williamson was an honest witness but with limited recollection. He criticises Mr Pavy for having a poor recollection of events independent of the documents and of making unreliable notes.
  32. Senergy's evidence on the relevant issues was mainly from Mr Williamson and to some extent from Mr Pavy. Both these witnesses seem to me to be straightforward, honest and candid oil executives. If Mr Pavy's notes were unreliable, at least he made some. The evidence of these two witnesses about the structure and background to the contract in dispute seemed to me to be convincing, consistent with one's impression from many other cases in this area and with commercial logic. The evidence of these two witnesses about their dealings with Mr Gardner is in a sense uncontroversial because they readily admitted to having no live memory of conversations. They were ready to accept the logical consequence of this which was that if Mr Gardner claimed to have said something they could not be entirely sure that he did not. This was what one would expect an honest witness to say about conversations taking place more than three years ago between very busy people in a fast moving industry and of which there is no contemporaneous record (although in some cases there are emails, the terms of which are generally not consistent with what is claimed by Mr Gardner and on his behalf).
  33. Zeus' Witness

  34. Mr Gardner is an intelligent and experienced businessman. He has a degree in applied science and has worked extensively in the legal, processing and oil industries. He is the CEO of Zeus but he has also since May 2004 been Managing Director and Chief Executive of Rheochem plc (now Lockard Energy Group plc), an international oil and gas exploration business quoted on the London Stock Exchange and listed on the Australian Securities Exchange. Mr Gardner was Zeus' only witness and gave evidence for more than a day. Mr Downes is very critical of Mr Gardner's evidence. He contends that Mr Gardner was evasive on nearly every point he was questioned on, was argumentative and unhelpful, sometimes contradicted himself and inclined to make implausible suggestions. As well as being unable or unprepared to accept propositions that should have been obvious. Mr Downes also claims that Mr Gardner was "almost certainly dishonest" on several occasions. He gave five examples:-
    • Mr Gardner initially denied signing the LOC. When Senergy disclosed this Mr Gardner explained that when signing the defence he could not recall having signed the LOC. In cross-examination however he said that he remembered signing the LOC at home in May 2008.

    • There were differing answers in cross-examination from Mr Gardner about what he saw to be the meaning of Mr Williamson's email of 29 May 2008. This is said to indicate that he must have been well aware on the 29 May that the email offered only one firm rig slot.

    • He accepted in cross-examination that a document entitled "Summary of Arrangements between Senergy and Zeus" had reproduced the various elements of the Wellshare Model and that he was aware of all of these considerations at the time but he had previously denied awareness of the Wellshare Model.

    • Mr Gardner claimed in his witness statement that after receiving Mr Williamson's email of 30 May attaching Variation 4 he carried out internet research and concluded that slot 6 must refer to Granby and not to Zeus. He confirmed this in cross-examination. However he wrote to Senergy on 24 March 2009 claiming that it was not possible to identify who the operator was in respect of slot 6 of Variation 4, an assertion repeated by Zeus' solicitors the following month.

    • Mr Gardner claimed that he did not think that Zeus was bound under the LOC from 31 May 2008. Mr Downes submits that that cannot be true given Mr Gardner's omission over what was almost a nine month period to put anything in writing to Senergy to suggest that Zeus did not see itself as bound.
  35. Mr Downes supported these submissions about Mr Gardner with an appendix running to 36 pages. Unsurprisingly Mr Davies responded with a document rejecting the criticisms of Mr Gardner.
  36. It is as I see it not useful to conduct such a detailed evaluation of what is said to be Mr Gardner's lack of candour as a witness when his relevant evidence relates to little more than whether or not his account of telephone conversations not central to the issue is true. Mr Gardner did spend time as an advocate for his company as, at times, did witnesses for Senergy. His evidence had a number of the shortcomings identified by Mr Downes. He was reluctant to say or accept anything in the course of his evidence that might conceivably have, as he saw it, the effect of weakening his company's case. He claimed that matters of significance were raised in three telephone conversations but there was no contemporaneous record to support any of them. Moreover the written record at the time is sometimes inconsistent with what Mr Gardner recalled. It is also very unlikely that if the calls had taken the turn claimed by Mr Gardner that Senergy would not have reacted to each of them. One would have expected Mr Williamson to respond in writing or to report the matter to colleagues if Mr Gardner had telephoned him on 29 May claiming that Zeus would not be ready to drill in March 2009 (despite the potential start date of February given in the LOC) and that Zeus wanted two slots in August. The position would have been the same on 31 May if Mr Gardner had telephoned Mr Williamson claiming that Zeus had no slot in Variation 4. Less relevantly it seems almost inconceivable that Mr Gardner would have denied to Mr Pavy in September 2008 the existence of any commitment under the LOC without referring to the matter again over many months or setting off alarm bells at Senergy.
  37. In commercial cases where written records generally exist the contemporaneous documents and questions of business probability carry particular weight. Mr Gardner's evidence was often inconsistent with both. I conclude that his claims about the three telephone conversations are clearly untrue and that if he had raised these matters as he claims to have done Senergy's witnesses would have acted differently and certainly would have remembered. Mr Gardner has perhaps convinced himself of the truth of those conversations, which if accepted to have taken place,would have assisted his company's case.
  38. The Issues

  39. I have mentioned that it is common ground that there are four main issues:-
    • Issue One. Was the agreement reached between the parties for one or two wells to be drilled? Within this, what did Zeus agree to commit to under the terms of the LOC? Was it a programme for two slots or for one?

    • Issue Two. Did Variation 4 include Zeus' slot? I say slot not slots because it is common ground that if the contractual requirement was for two slots no more than one was provided for and the claim fails.

    • Issue Three. Was Zeus bound under the LOC to enter into the RRSA?

    • Issue Four. If Zeus was obliged to enter into the RRSA what if any loss has Senergy suffered ?
  40. Neither party has been consistent in its claims from the outset. Initially Senergy relied upon what it claimed was an oral agreement between the parties that the LOC would be, in effect, for one slot. That claim was based on a documentary reference that was not chased up until the case had got going. Similarly Zeus' case moved over time, as a comparison between its approach in March 2009 and the case put at trial makes clear.
  41. Issue One. The Agreement between the Parties

  42. Senergy claims that the Agreement was formed on the basis of the emails of 23, 29 and 30 May and the LOC as signed by Zeus. Mr Downes contends that the 23 May email discussed two slots to drill two wells at blocks 14/11 and 13/12 with the latter described as "TBC." Before the LOC was signed Senergy's email of 29 May made it clear that there was one firm slot and possibly two in the March to May time with the hope that this was acceptable. Zeus were invited "If you are happy with the above" to sign the LOC as requested if necessary by email so that "we should consider the LOC signed and binding and duly executed as soon as practically possible." The 30 May email from Zeus provided the confirmation which was confirmed when Mr Gardner signed and returned the LOC.
  43. Mr Downes says that the 23 May email was an offer to contract on the terms set out in the LOC but before it was accepted it was varied by Mr Williamson's email of 29 May offering a single drilling slot for one well and possibly a second if time allowed. The offer as varied was accepted by the 30 May email and confirmed by the return of the signed LOC. There is an alternative case that if Mr Williamson's email of 23 May was an acceptance on behalf of Senergy of an offer contained in the completed but unsigned LOC faxed on 23 May that agreement was subsequently varied by the emails of the 29 and 30 May. The LOC has no "entire agreement" clause; it does not have to stand on its own.
  44. Mr Davies' responds that the agreement between the parties is what is contained within the four corners of the LOC signed by Mr Williamson on behalf of Senergy on 23 May and by Mr Gardner on behalf of Zeus on 30 May. It is uncommercial to contend that the parties to an arrangement of this kind could have intended its terms to be contained within four documents rather than simply within the LOC itself.
  45. For this exercise I ignore the varying responses given by Mr Gardner about the impression he formed from the email of 29 May. Mr Downes submitted that the 29 May email was quite clear. Dolphin had not agreed to an extension to include two wells for Zeus in August 2009. All the Claimant could offer was a single firm slot for one well and possibly a second well if time allowed around March-May 2009. If Mr Gardner was happy with that he should sign and return the LOC. In contrast Mr Davies submits that the email is vague and ambiguous. He says that "If you are happy with it" is ambiguous. Mr Gardner could be perfectly happy with what is said and to sign the LOC without at all intending to change the terms of that document. He may be happy that Senergy are intending or expecting to get extensions into 2010. Eventually Zeus wants to get both wells drilled. Mr Gardner may be happy with references to schedules being juggled. He is happy to sign the LOC in that context. If, Senergy does not, by 31 May, get a rig programme which complies that in the LOC that is not Mr Gardner's problem because his company will no longer then be bound. (This aspect of the submission is unrealistic. 31May was of course only one day after Mr Gardner signed the LOC.)
  46. The legal basis for these contrasting approaches is not in dispute although, at the outset it seemed that it might be. The parole evidence rule has no application unless it is shown that the parties' agreement is wholly contained in the relevant written document. The rule is a presumption only. As it was put in a case cited by Mr Downes, in determining whether an agreement is wholly contained within the written document "The court is entitled to look at and should look at all the evidence from start to finish in order to see what the bargain was that was struck between the parties". J Evans & Son (Portsmouth) Limited v Andrea Merzario Limited [1976] 1WLR 1078, CA per Roskill LJ at 1083.
  47. The approach of the law to the construction of a contract was also common ground so I can refer to it very briefly. The construction or meaning of a contract is what a reasonable person with all the relevant background knowledge of the parties at the time when the agreement was made would have understood them to mean by the language of the contract. Evidence of subjective intention is, except in circumstances that do not arise in this case, irrelevant and inadmissible – Chartbrook Ltd -v- Persimmon Homes Ltd [2009] 1 AC 1101 and ICS Ltd -v- West Bromwich Building Society [1998] 1 WLR 896. Similarly as Lord Reid put it in James Miller & Partners Ltd v. Whitworth Street Estates (Manchester) Ltd [1970] AC 583 at 603, "...it is not permissible to use as an aid to construction of the contract anything which the parties said or did after it was made". To which I add, as it was reported after closing submissions in this case, " where a term of a contract is open to more than one interpretation, it is generally appropriate to adopt the interpretation which is most consistent with business common sense"-see Rainy Sky-v-Kookmin [2011] UKSC 50, at para 30.
  48. In the ordinary way a document called a Letter of Commitment will be seen as just that and to include the entirety of the bargain between the parties. That is a matter of logic and of business common sense. Where however the circumstances indicate that the bargain is contained in more than one document then that bargain will be upheld despite the fact that it is not the usual way in which such agreements are recorded. The LOC was Senergy's standard form as revised by Zeus to incorporate its requirements. The negotiations were conducted by busy business people, not by lawyers. The email at 29 May was of great importance indicating as it did, with the use of "NOT", that Senergy had not been able to obtain what it hoped from Dolphin. The writer hopes that one firm slot and possibly two in March-May will be "acceptable." It refers to a hope to drill two wells and to the possibility of juggling schedules. Mr Gardner is asked to sign the LOC if he is happy with "the above." To what is that happiness to relate? It is the firm and recent news that one slot and possibly two are available in March-May, it seems to me, rather than to the hopes and expectations towards the end of the first paragraph. A commercial reading of the document is that the message is in the first two sentences, the rest being flannel. The interpretation put forward by Mr Davies is tenable but lacking in commercial logic. Standing back and looking at the sense of a communication between business people it seems to me clear that what is proposed and available to Zeus for acceptance is the LOC varied to specify a narrower commencement window of between March-May, rather than February-November. The second well remains what the email says it is only a "possibility" and "hope". So I prefer the approach of the Claimant.
  49. TBC

  50. Senergy argues that if it is wrong about the email exchanges and the entire agreement is to be found within the four corners of the LOC then the letters "(TBC)" denote that the inclusion of the second well was subject to confirmation. Mr Downes argues that the letters have to be construed as at 30 May when the agreement was concluded against the relevant background knowledge which would have included the following.
  51. The well at block 14/11 was firm but that at block 13/12 was contingent upon a suitable target being identified by seismic survey not to be carried out until July or August 2008. The fact that the second well at block 13/12 was contingent was known to Mr Pavy from discussion with Mr Gardner on 18 December 2007 albeit that intentions can change. Zeus never stated in terms that it would insist on two wells or none at all (Zeus responds that it only had to state what it required). The letters TBC must refer to more than just the location of the second well. If the location changed then other details in the LOC would alter as well including water depth, well type, rock structure and reservoir formation. Zeus' construction would make the terms of the LOC in relation to location redundant because under the table the LOC states "We [i.e. Zeus] reserve the right to substitute alternative well work of similar duration within the UK's CS North Sea and capability of the Rig." It follows that there would be no purpose including the letters TBC in relation to location only. The provision in 1(e) of the LOC to commit two slot durations of 30 days with a commencement date earlier than February 2009 does not assist Zeus because the provision begins with the words "Subject to the above" which includes the table and reservation of the right to substitute. Mr Williamson's email of 29 May was clear that Senergy could only offer a single slot for one well and possibly a second, to be confirmed, if time allowed. By the time Zeus came to accept the LOC that fact was known to both parties and part of the factual matrix. There was no obligation on Senergy to enter into a contract with Dolphin beyond the well block 14/11 unless Zeus provided confirmation that the well would in fact be drilled, which it never did. It follows that the inclusion of any second well in the programme was subject to confirmation, not just the location of that second well.
  52. Mr Davies submits that TBC denotes that the location of a second well might change not that the programme might consist of only one well. Clause 1e) refers to "two slot durations of 30 days". Senergy accepts in its pleading that from 11 May 2008 the Defendant wished to drill two wells. The draft of Variation 4 of the rig contract which Senergy sent to Dolphin on 23 May shows Senergy seeking to extend its contract for ten wells with slots 9 & 10 being Zeus' programme and the location of slot 10 simply being identified as "(TBC)." He relies also on the oral evidence of Mr Gardner and Mr Williamson in ways that seem to me inadmissible. Even were the abbreviation "TBC" to be treated as referring to whether a well would be included, Zeus' programme under the LOC still required provision for a second well "TBC." It is common ground that Variation 4, as signed, did not cater for that.
  53. As I see it the expression TBC has to be considered against what was known when the LOC was treated as having been signed and returned by Zeus. As at that time both parties to the LOC were aware that Dolphin had made it clear, in effect, that there was one firm well and the possibility of another. The LOC clearly envisages that the contract will be for two wells but the second one, TBC, is, as I read the document, up in the air. Given in particular the possibility of changing the features of the second well and the contractual right to use the slot to drill elsewhere (and perhaps even to sell it on) I give the letters TBC the broader construction sought by the Claimant.
  54. Issue Two. Did Variation 4 include Zeus' Slot?

  55. The evidence of Senergy is that slot 6 in Variation 4 was expressly allocated to Zeus. That slot had previously been for Granby/Silverstone, who unlike Zeus, were not included in the list of email recipients for Mr Williamson's email of 30 May announcing the conclusion of Variation 4. Furthermore Mr Williamson's evidence that slot 6 was specifically reserved for Zeus is confirmed by the contemporaneous working sheets which he prepared to keep track of slot allocation to clients.
  56. Zeus places emphasis on the fact that until the end of May Mr Williamson was continuing to negotiate with Granby/Silverstone (although no draft LOC was provided to it). Zeus points out that there is no evidence that Dolphin was informed of the substitution and that the details in slot 6 as signed in Variation 4 were still those of Granby, due apparently to Mr Williamson wanting to get the deal signed up before Mr Haakonsun the CEO of Dolphin, a man said to have a mercurial tendency, changed his mind. The slot was 25 days not the 30 required by Zeus. Under Clause 3 of Variation 4, the Contractor's approval would have been required to extend the term. The result was also that the overall length of the Drilling Contract remained at 271 days rather than the 275 needed to drill the Zeus well. On this basis Zeus contends that Senergy had not entered into an extension of the Drilling Contract with Dolphin which included Zeus' Programme for the purposes of Clause 4 of the LOC. Accordingly under Clause 4 the LOC ceased to bind the parties after 31 May 2008.
  57. Senergy responds to these objections as follows. The documentation was as it was because of time pressure in finalising Variation 4 and because there was always a possibility that Granby might have taken slot 6 instead of Zeus. That explains any discrepancy in the information about depth or timings. Depth is stated to be immaterial. Timings for slot 6 take the form they do because slot 6 has been used as a "float" to make timings of the individual wells fit within the duration of Variation 4. Senergy also rejects the claim by Zeus that there could be no extension of time to allow Zeus its slot without a formal amendment to Variation 4. However Mr Mitchell of Dolphin confirmed that the timings under Variation 4 were sufficient to include Zeus' well and that provided Zeus' well was commenced before 15 May 2009 it would have been completed however long it took. Mr Mitchell said that Dolphin was not much concerned with the sequence and timings of individual wells but with the overall picture. The table in Variation 4 was a rough guide only and timings are always approximate in the industry.
  58. Both sides' pleadings on this point have changed with time. With the emergence of the evidence it became clear beyond doubt that, as a matter of fact, Senergy had allocated a slot to Zeus as required by the LOC. There is a more basic point. The "Programme" in the LOC is the programme summarised in the box below C of the LOC. I have found that programme to consist of the certainty of well work to block 14/11, with a possibility, not giving rise to a contractual obligation (TBC) of a second well. That programme is not some formal document which Senergy is obliged to show is explicitly catered for on a proper construction of the Drilling Contract as varied. Clause 3 of the Variation (the relevant passages of which I have set out above) is expressed in elastic terms with each side relying on phrases from it in isolation. The question is whether the Drilling Contract did in fact include the work required by Zeus in the LOC. Dolphin does not dispute that it was in practice included. The evidence of Mr Mitchell undermines the submissions on behalf of Zeus. Senergy the other party to the Drilling Contract included the Zeus well as contemporaneous documents confirm. In practice the well was within the programme and as the months went by increasingly anxious efforts were made by Senergy to persuade Zeus to co-operate in drilling it. The pudding was waiting to be proved but Zeus would not eat it.
  59. Issue Three. Was Zeus bound to enter into the RRSA?

  60. Senergy's claim for damages is based upon what it says is a failure by Zeus to enter into a rig re-supply or rig assignment contract as required by Clause 1(a) of the LOC. Zeus says that there is no liability because it was free not to enter into the RRSA given the proviso in Clause 1(a) that its obligation was "subject to our review and acceptance of the terms thereof such acceptance not to be unreasonably withheld or delayed." Zeus contends that the commitment to enter into the RRSA was in the legal sense subject to contract.
  61. The first position of Zeus is that the proviso is no more than an unenforceable agreement to agree. At the outset of the case I indicated that I would find that a difficult submission to accept given the inclusion by the parties of the objective criterion "such acceptance not to be unreasonably withheld or delayed." Mr Davies relies upon the decision of Blair J in Barbudev v Eurocom [2001] EWHC 1560 (Comm) but did not develop this submission. I find nothing in Barbudev, which was concerned with a side letter in very different terms to the LOC and set in a much broader context, to support Zeus' position. The case illustrates how a promise may be an unenforceable agreement to agree even when embodied in a formal looking document. But I see nothing in the reasoning or in the helpful references to the leading authorities to give support to Mr Davies' submission. The contract (or part of it) is described as a Letter of Commitment. It was a commercial agreement intended to be binding. It was important to Senergy and would have been known to be so to Zeus for the LOC to contain a binding commitment. The evidence is that the parties had reached agreement on the main points of the RRSA, the daily rig rate was US$ 405,000, the number and duration of the slots and the timing. The remaining terms would be essentially the same as Variation 4 with consequential amendments. The details remaining open were minor. I reject Zeus' first position
  62. Mr Downes argues that on a proper construction of Clause 1(a) there was an obligation on Zeus to take reasonable steps to review the RRSA with a view to either accepting its terms or identifying those which it thought were unacceptable and to give reasons as to why they were unacceptable. Mr Gardner accepted in cross-examination that he reviewed the RRSA when he received it on 17 October, but only very briefly. That failure to consider the document properly is said to be a breach. Zeus never gave any reasons to Senergy at the time as to why the RRSA was unacceptable. That too is said to be a breach. In evidence Mr Gardner suggested that he had not signed the RRSA because he did not think he was under an obligation to do so. That too is argued to be a breach because that was wrong and not a legitimate reason not to accept.
  63. Mr Davies responds that it is for the Senergy to prove a breach of the clause, a submission based initially on landlord and tenant cases and then, by the time of oral closing submissions, on a very recent decision of Hamblen J who considered similar wording in Porton Capital –v-3M UK Holdings Ltd [2011] EWHC 2895 (Comm) Mr Downes, faced with Porton, a commercial case, did not seriously challenge that conclusion.
  64. Zeus next argues that the words "such acceptance not to be unreasonably withheld or delayed" go no further than obliging Zeus not to exercise its broad and unfettered discretion arbitrarily or capriciously. Mr Davies relies upon the decision of Etherton J in Town Quay Developments Limited v Eastleigh Borough Council [2008] All ER37 at paragraph 121.
  65. Mr Downes says that Town Quay is a different case where the Court was concerned with a clause allowing consent to an easement. At the time that sort of agreement was entered into the parties would envisage that the discretion would be at large taking into account the possibility that over time many different factors may be legitimately taken into account. In contrast the LOC was concerned with an obligation to enter into the RRSA provided its terms were reasonable. In such a situation a change in circumstances could not possibly form the basis of a reasonable refusal – it would undermine the whole purpose of Clause 1(a). He suggests that a better analogy is cases where goods are sold "subject to export (or import) licence." In those cases the party who has to obtain the licence needs to show that he took reasonable efforts to do so. If the party fails to take reasonable steps he will be liable in damages unless he can show that any such efforts would have necessarily been unsuccessful. He gives typical examples including Malik v Ceta [1974] 2 Lloyd's Rep. 279.
  66. As I see it the words, not to be "unreasonably withheld or delayed" mean what they say and should not be subjected to a gloss substituting "arbitrarily or capriciously" for "unreasonably." This is self evident and not inconsistent with Town Quay as becomes clear when that case is seen in context. Thus paragraph 121 reads as follows:
  67. "Finally, on this aspect, no submissions were addressed to me drawing any distinction between a qualification that the consent of the Director of Planning and Development should not be unreasonably withheld on the other hand. No distinction was made between those two qualifications by Hart J in Mahon Sims [2005] 3 EGLR 67 in the context of a restrictive covenant by transferees not to built on the transferred land save in accordance with plans previously approved in writing by the transferors. As Hart J observed, in Cryer the Court of Appeal proceeded on the basis that a proviso not to use a power unreasonably was necessary to exclude an arbitrary or capricious exercise of power, and so seems to have regarded both qualifications as, in practice, amounting to the same thing. In Mahon, Hart J concluded that, in the context he was considering, he did not think it made any practical difference whether the implied proviso was expressed as "not to be arbitrarily or capriciously withheld" or as "not to be unreasonable withheld." The same applies in the present case.
  68. Thus in the context being considered there was no distinction between the two tests. The fact that Hart J concluded that in the context he was considering there was no practical difference between the two tests does not make them synonymous or cause one to be replaced by the other.
  69. Zeus argues on the basis of the "arbitrary or capricious" formulation which I reject, and also on the basis that it is a question of fact for the court whether or not a withholding of acceptance was reasonable, that Zeus was entitled to refuse to enter into the RRSA because of the dramatic change in market conditions. He seeks support for that from the reasoning in Porton where at one point Hamblen J endorses a conclusion that the party considering whether or not to grant consent can have regard to its own interests. Mr Davies suggests that Senergy must be taken to have been aware of and to assume the risk that market conditions might change before Zeus came to consider the terms of the RRSA and whether to enter into them. I reject that for the reasons given by Mr Downes which I have mentioned, and who draws a distinction between this case and those (including the facts in Porton) where at the time the clause was entered into the parties would reasonably be expected to take account of subsequent events unforeseen at that stage.
  70. Zeus also argues that it always made it clear that it wanted to drill in August 2009 but Variation 4 prevented that from happening. As a result Zeus had a reasonable ground for refusing to enter into the RRSA. (Given the view I have taken of the contract and the obligations assumed by Zeus that point is not arguable).
  71. Finally Mr Davies argues that the RRSA contains in clause 6.1 of Schedule 1 an obligation to pay a rig rate for a minimum of 40 (not 30 days). Zeus is exposed to a very substantial new liability which it could not have anticipated at the time of the LOC. He says that the fact that the point was not taken at the time does not matter. He draws an analogy with the position on repudiation of a contract. See Chitty on Contracts (30thEdn.), at paragraph 20-014:
  72. "The general rule is well established that, if a party refuses to perform a contract, giving therefore a wrong or inadequate reason or no reason at all, he may yet justify his refusal if there were at the time facts in existence which would have provided a good reason, even if he did not know of them at the time of his refusal".

  73. This would certainly have been a point to object to – but it was not taken at the time and there is no evidence of what would have happened if the parties had turned their minds to it. Zeus raised the point too late for that. It is very likely that Senergy would have conceded the point given the pressures it was under. Further the reference to 40 days is not consistent with the other documents. Indeed it may well have been a typo as it does not appear in the corresponding contracts for Senergy's other customers for the rig. The point was taken after Senergy's witnesses would have had an opportunity to deal with it in their statements or examination in chief and there was no cross examination about it. While the burden may lie upon Senergy to prove that the withholding of acceptance was unreasonable that does not mean that it is under the evidential burden of anticipating points of this kind. Further the analogy with repudiation of a contract is not exact. Moreover Zeus did know, at the time of the withholding of acceptance, that the draft provided for 40 days not 30.
  74. This issue is another one of fact. None of these grounds if invoked would have made the withholding of acceptance reasonable. If Zeus could have relied on market changes to withhold acceptance the LOC would have had little purpose for Senergy who would have been under a firm obligation to Dolphin extending to millions of dollars having granted what was no more than an option to Zeus.
  75. Rectification

  76. Senergy made a claim for rectification which was unpromising, first because it was unparticularised and secondly because the provision which it was sought to have rectified was not spelled out. Further once the positions of the parties on the ramifications of the Parole Evidence Rule had come together the rectification claim fell away.
  77. Reasonable expectations of honest people

  78. There is a consideration, not directly relevant to construction of the agreement, which supports the view which I have formed of the contractual relationship between the parties. I emphasise that my decision would have been the same without this consideration. The broader commercial reality and justice reassures me in not taking the view of the wording of the LOC sought by Zeus. I do not believe that Mr Gardner was under any doubt about what he was committing to do when he returned the LOC. His differing characterisations in evidence of how he read the 29 May email both as to whether it was clear and as to what it meant were not as convincing as the obvious one which is that the return of the LOC was to enable a deal to be sewn up with Dolphin giving Zeus one firm well and the possibility of another. No uncertainty was engendered for the parties or for Dolphin. Mr Gardner proceeded on the basis first that Zeus had a commitment and secondly that it was for only one well. That is abundantly clear from any fair reading of the correspondence over the months between May 2008 and end of March 2009. While it is true that Zeus never expressly affirmed the contractual commitment Mr Gardner did nothing to put what Zeus now contends are the misconceptions of Senergy right. His methods were neither candid nor straightforward. He did not operate within the bounds of what many would see as essential fair dealing. Both parties were, I believe, clear about what their commitments to each other were but once the market turned Zeus kept its counsel in the hope of finding a chance to get off the hook. As I read the situation, the legal solution proposed by Zeus to this problem runs counter to the reasonable expectations of honest people and I have regard to what Lord Justice Steyn (as he then was) said in First Energy (UK) Ltd v Hungarian International Bank Ltd [1993] 2 Lloyd's Rep. 194, at 196:
  79. "A theme that runs through our law of contract is that the reasonable expectations of honest men must be protected. It is not a rule or a principle of law. It is the objective which has been and still is the principal moulding force of our law of contract. It affords no licence to a Judge to depart from binding precedent. On the other hand, if the prima facie solution to a problem runs counter to the reasonable expectations of honest men, the criterion sometimes requires a rigorous re-examination of the problem to ascertain whether the law does indeed compel demonstrable unfairness."

    Issue Four. What if any damages can Senergy recover from Zeus?

  80. Senergy's claim for damages moved around considerably until Mr Downes set it out in his opening skeleton argument. There will need to be further argument if agreement cannot be reached as these issues remained unclear and incompletely argued by the end of the trial. I will try to summarise the current state of the damages claim. Damages are claimed under four heads of which the first is by far the most important.
  81. Warm Stacking of the Rig

  82. The Claimant was forced to warm-stack the rig for the duration of the 30 day Zeus slot at a rate cost of US$ 396,900 being US$ 11,907,000 in all. This was invoiced to Senergy by Dolphin in May 2009 but has never been paid. Senergy submits however that it has an obligation to pay the sum in full and so should recover it from Zeus.
  83. The basis for that submission is a Supplemental Agreement dated 7 June 2010 between Senergy and Dolphin. That agreement covers Senergy's liability to Dolphin for the Zeus slot and also for the slot of another company Fox. Mr Downes submits that on the proper construction of the Supplemental Agreement the US$ 11,907,000 remains due and owing despite the payment of US$ 6,000,000 under the Supplemental Agreement. He submits that the agreement must be construed objectively without regard to the subjective belief of the parties.
  84. Mr Downes emphasises the contractual position because in cross examination the evidence of Mr Mitchell of Dolphin was that his company would receive no payment for the warm stacking if Senergy lost this action. He accepted that the commercial agreement between the parties is to the effect that Senergy's liability to Dolphin is capped at a total of US$ 6,000,000 for the Zeus and Fox wells . There was some uncertainty about the effect of Mr Mitchell's evidence and a degree of mystery about the arrangements between Senergy and Dolphin. Senergy and its lawyers provided the Supplemental Agreement quite late and declined to give disclosure of surrounding documents. This was a mistake because even if, which I doubt, it was legally correct the effect was to create the impression of there being something to hide. I disagree with Mr Downes that the question is simply the true effect of the Supplemental Agreement. The question is whether or not Senergy is obliged, to pay the US$ 11,907,000 claimed in its pleading. The position is not clear. At this point it seems to me unjust either to award the US$ 11,907,000 or to limit recovery to some proportion of US$ 6,000,000 when it should be relatively straight forward to find out what the position is. For this reason it seems to me that I should hear further submissions and if necessary, additional evidence. It may be that Senergy should pay the costs or any additional exercise regardless of what the outcome proves to be.
  85. The position is further complicated by the fact that Mr Downes brought into the discussion, only in his reply oral closing submissions, a series of decisions such as Burdis-v- Livesy dealing with the complex issue of when credit should be given by a claimant for benefits received. There is also now a difference between the parties as to whether this claim is put forward on'reliance' or an 'expectation' basis. I informed the parties that I would not at this stage decide new unpleaded issues which have not even been covered in skeleton arguments, particularly when there was no time to deal with them at the end of the trial.
  86. Third Party Service Costs

  87. A claim originally put at £1,350,000 is now £72,464.22 representing services which it is accepted that Senergy paid for in respect of Zeus' drilling slot. Zeus contends that this amount is not recoverable because if it had entered into the RRSA it would only have been liable to pay the rig rate not the cost of these services. The response of Senergy is that under Variation 4 these service costs were recoverable because Dolphin was entitled to invoice Senergy for third party service costs. If, as it should have done, Zeus had entered into the RRSA Senergy would have the same rights and powers to recover these costs. Provided that Dolphin was entitled to claim those costs from Senergy that is right. But it is not yet clear to me that it was.
  88. Remobilisation Costs

  89. Costs of £400,000 were originally claimed but were abandoned at the start of the trial.
  90. Loss of Profits

  91. Senergy originally claimed £72,000 for loss of profits it would have made from the WPMISC. It claims instead, or in addition, the 1.75% of the operating rig rate which under Clause 7(b) of the LOC is payable if Zeus uses the rig but does not use Senergy's integrated project management services. Senergy say that if Zeus had entered into the RRSA it would have become liable to pay this 1.75% which, with a 30 day slot at a rig rate of US$ 405,000 per day, amounts to US$ 212,625.
  92. Zeus responds that on its proper construction Clause 7(b) is only applicable in the specified circumstances namely that if Zeus had used the rig but not entered into an integrated project management service contract with Senergy. Mr Davies contends that it is for Senergy to prove the loss of profits but it has entirely failed to identify the costs that it would itself have incurred had Zeus in fact entered into the WPMISC with it.
  93. I do not accept Zeus' submission. The 1.75% is an additional fee payable if Zeus had used the rig but not the management services. No doubt it makes up for what would otherwise have been the revenue receivable by Senergy for those services. I see no need for Senergy to have to prove detailed estimates of its loss of profit. If Zeus had complied with its contractual obligations it would have used the rig and either taken the services on offer or paid the 1.75% . That 1.75% is what the parties agreed that the value of the services would be to Senergy. In the uncertain and approximate world of damages for loss of profit this is an adequate measure. It follows that the Claimant will recover US$ 212,625 in respect of this subject to Zeus's right to make further submissions if it wishes given that the claim is so different from that which was pleaded.
  94. Conclusion

  95. I therefore conclude that the contract between the parties was contained in the four documents identified by Senergy and that as a result Zeus was obliged to drill one well with the possibility of a second. If I am wrong about that and the contract consists only of the LOC itself the same result follows because of the view I have formed about the meaning of "TBC." Variation 4 of the Drilling Contract between Senergy and Dolphin included Zeus' programme which was for one well with the possibility of a second. Zeus was in breach of contract by not entering into the RRSA because this commitment was a legal one which was neither uncertain nor a mere agreement to agree and on the facts it unreasonably withheld its acceptance. Zeus is liable to pay damages to Senergy in an amount to be determined.
  96. I shall be grateful if the parties will, not less than 72 hours before judgment is due to be handed down, provide corrections of the usual kind and a draft order, preferably both agreed, and notes about all other matters which they seek to raise at the next hearing. If there is to be further evidence or detailed submissions about the outstanding question of damages the Court should be notified well in advance and a different timetable established.
  97. Finally I thank Counsel and Solicitors for the parties for the admirable way in which the case was prepared and presented.
  98. His Honour Judge Mackie QC …………………………………15 December 2011

Note 1   The “note below” was Mr Williamson’s e-mail of 23 May 2008     [Back]


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