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You are here: BAILII >> Databases >> England and Wales High Court (Commercial Court) Decisions >> Technip Saudi Arabia Ltd v Mediterranean and Gulf Cooperative Insurance and Reinsurance Company [2023] EWHC 1859 (Comm) (21 July 2023) URL: https://www.bailii.org/ew/cases/EWHC/Comm/2023/1859.html Cite as: [2023] EWHC 1859 (Comm) |
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KING'S BENCH DIVISION
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
COMMERCIAL COURT
Fetter Lane, London, EC4A 1NL |
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B e f o r e :
____________________
Technip Saudi Arabia Limited |
Claimant |
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| - and - |
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| The Mediterranean and Gulf Cooperative Insurance and Reinsurance Company |
Defendant |
____________________
James Brocklebank KC and Douglas Grant (instructed by Clyde & Co LLP) for the Defendant
Hearing dates: 15th – 18th and 23rd – 24th May 2023
____________________
Crown Copyright ©
Index
| Section | Para. Number |
| A: Introduction | 1 |
| B: The chronology of events | 16 |
| The parties and the contractual relationships | 16 |
| The Allision | 26 |
| Events subsequent to the Allision | 30 |
| C: The Policy terms | 47 |
D: Did Technip have a legal liability to KJO |
50 |
| D1: The relevant contractual terms | 50 |
| D2: The parties' arguments | 54 |
Technip's argument |
54 |
| Medgulf's argument | 63 |
| D3: Discussion | 70 |
| E: Absence of consent to settlement | 94 |
| The issue | 94 |
| The parties' arguments | 96 |
| Discussion | 104 |
| F: The Existing Property Endorsement and other exclusions | 119 |
| F1: Introduction and the parties' arguments | 119 |
| Introduction | 119 |
| The Existing Property Endorsement: Medgulf's argument | 123 |
The Existing Property Endorsement: Technip's argument |
130 |
| F2: Discussion | 144 |
| Limb 1 | 147 |
| Limb 3 | 184 |
| F3: The Watercraft exclusion | 185 |
| G: Quantum issues | 187 |
| G1: Introduction to the issues | 188 |
| G2: Legal principles | 198 |
| G3: The expert evidence | 211 |
| G4: Safeguarding costs | 213 |
| G5: Repair costs: Agreed Scope or Reduced Scope | 226 |
| G6: Reduced Scope – repair costs | 235 |
| G7: Miscellaneous costs | 246 |
| Conclusion | 253 |
MR JUSTICE JACOBS:
A: Introduction
Technip")
had chartered the Vessel to perform certain work as part of a project to improve certain production assets in the Khafji Field, in accordance with its responsibilities as the "Contractor" under a contract with an unincorporated joint venture known as the Al-Khafji Joint Operation ("KJO").
Technip's
case, at the start of trial, was that the damage to the Platform resulted in
Technip
being liable to KJO in the sum of US$ 31,038,265 plus €458,052, comprising US$ 25,000,000 in respect of the cost of repair (for which
Technip
incurred a legal liability to KJO) and additional costs incurred by
Technip
in the sum of US$ 6,037,932 plus €458,052.
Technip
claimed an indemnity in respect of these sums (less the applicable deductible) under an offshore construction insurance policy (the "Policy") underwritten by the Defendant ("Medgulf"). These figures were reduced in various respects during the course of the trial and, in one respect, subsequent thereto. Notwithstanding these reductions,
Technip's
claim against the Defendant insurer remains a substantial one.
Technip's
claim was originally advanced under Section I of the Policy, where the basic cover is in respect of physical loss and damage to the construction work being performed, but with liability cover in accordance with Institute Clauses for Builders' Risks also being provided. Ultimately, however, this aspect of
Technip's
claim, which was always their secondary claim, was not pursued. The relevant claim is therefore advanced under Section II of WELCAR. This provides cover in respect of liabilities arising out of the contract works. This Section II incorporates an "Existing Property Endorsement", whose interpretation and application to the facts of the present case are critical to the determination of
Technip's
claim. It is clear from the discussion in Sharp that the Existing Property Endorsement is a standard endorsement which can be added to a WELCAR policy.
Technip
has been established by judgment or settlement: Post Office v Norwich Union Fire Insurance Society Ltd [1967] 2 QB 363.
Technip
contends that its liability has been established by a settlement agreement (the "Settlement Agreement") concluded between
Technip
and KJO on 17th December 2019. There was no dispute that a Settlement Agreement was indeed concluded between the parties, and therefore Medgulf did not suggest that the claim advanced by
Technip
was premature (as had been successfully contended in Post Office v Norwich Union). It was, however, common ground that the Settlement Agreement did not establish that
Technip
was in fact liable to KJO in the amounts provided for in that agreement.
Technip
notified Medgulf of the Allision in or about August 2015 and formally presented a claim to Medgulf for an indemnity under Section II of the Policy including by letter dated 29 June 2016.
Technip
that there was no cover under the Policy by reason of the operation of certain Policy exclusions. These exclusions were those contained in (i) the Existing Property Endorsement and (ii) a "Watercraft" exclusion. Both of these exclusions are relied upon by Medgulf in the present proceedings, and they are a key part of Medgulf's defence.
Technip's
claim does not get to first base, because
Technip
cannot prove that it had any legal liability at all to KJO in respect of the Allision. Even if that submission were unsuccessful, Medgulf contends that
Technip's
liability to KJO was substantially less than the amount reflected in the Settlement Agreement and which
Technip
now claims. A further argument advanced is that Medgulf were not asked to consent, and did not consent, to
Technip's
settlement with KJO, and that this provides a complete defence to the claim.
Technip's
confirmation that they are acting as a prudent uninsured". The evidence of Mr Marwan Cortas, who was a project manager for
Technip
and who gave evidence at the hearing, was that there were a number of occasions when Medgulf advised that
Technip
had to act as a prudent uninsured.
Technip's
case is that this is what they did, in entering into the Settlement Agreement with KJO.
Technip's
solicitors (HFW) issued a letter before action to Medgulf's solicitors, Clyde & Co. Medgulf has declined to indemnify
Technip,
thus giving rise to the present proceedings.
Technip
since 2007. He had become involved in the relevant project (described in Section B below) following the Allision, and was appointed as its project manager in September 2015. His evidence described the background to the project and his involvement in the dispute which developed with KJO, following the Allision, and its ultimate settlement. Mr Cortas was an impressive witness, and he answered questions fairly and with a view to assisting the court. Some of his evidence resulted in certain aspects of
Technip's
claim being reduced. Whilst the evidence was valuable in explaining the commercial and technical background, ultimately Mr Cortas' evidence was not critical to any issue that requires resolution. His evidence explained, at least to some extent, why the settlement with KJO was a reasonable one in all the circumstances. However, by the end of the trial, it was common ground that the reasonableness or otherwise of the settlement was not a matter which the court needed to address. Rather, as explained above,
Technip
needed to establish the existence of a liability and that this was at least as much as the amount paid under the settlement. It was common ground that in the event that it was a lesser amount, then a claim could be made for the lesser amount, subject of course to the issues of coverage.
Technip,
in carrying out the necessary repairs themselves. It was rightly not suggested by Medgulf that this meant that
Technip
could not pursue a claim in respect of its liability for the reasonable costs of repair. It did, however, mean that the expert evidence was to an extent theoretical, in that the experts were assessing and disputing what would be required to carry out the repairs, rather than commenting on actual costs of actual repair work carried out.
(1) Section B provides some further detail as to the background facts, including the contractual arrangements between KJO andTechnip.
The latter are particularly important in the light of Medgulf's argument that
Technip
had no legal liability to KJO in respect of the consequences of the Allision.
(2) Section C sets out the relevant terms of the Policy.
(3) Section D addresses the question of whetherTechnip
had any legal liability to KJO at all.
(4) Section E addresses Medgulf's argument based uponTechnip's
failure to obtain its consent to the settlement with KJO.
(5) Section F addresses the claim under Section II of the Policy, and in particular the Existing Property Endorsement and Watercraft exclusion relied upon by Medgulf.
(6) Section G addresses the issues concerning the reasonableness of the repair costs and other quantum issues.
B: The chronology of events
The parties and the contractual relationships
Technip
was, at the material times, a company based in Saudi Arabia specialising in project management, engineering and construction work for the energy industry. Medgulf was an insurance and reinsurance company also based in Saudi Arabia.
Technip
as a Principal Insured on an amended WELCAR form. As extended by endorsements, the Policy provided cover for the period from 1st July 2015 to 31st December 2015.
Technip
(as "Contractor") entered into contract number HQ825PC09 (the "Contract") on 18 August 2010. The counterparty was AGOC "acting on its own behalf and on behalf of [KGOC] for Al-Khafji Joint Operations between KGOC and AGOC … at Al-Khafji, Saudi Arabia". AGOC was described as "Company". In its opening submissions,
Technip
described the Contract as having been concluded with "AGOC and/or KGOC and/or KJO". Nothing turns on whether the other contracting party was simply AGOC, or whether it included KGOC and the unincorporated joint venture KJO. For simplicity, I shall proceed, as did the parties, on the basis that the contract was with KJO; i.e. with the two joint venture partners.
Technip.
Clause 2 was headed "Work", and provided as follows:
"WORK
The CONTRACTOR shall, in accordance with the terms and conditions set out in this CONTRACT, attached schedules and drawings, standards, specifications and other documents referred to in the schedules or in any of the referenced documents perform the WORK required for the Project entitled KHAFJI CRUDE RELATED OFFSHORE PROJECTS, which includes the following individual Projects:
i. INSTALLATION OF SECOND SUBMARINE POWER CABLE (SSPC)
ii. INSTALLATION OF POWER DISTRIBUTION PLATFORMS FOR ESP PHASE-II (PDP-4&5)
iii. CONSTRUCTION OF CONTROL AND LIVING PLATFORM (CLP)
iv. INSTALLATION OF INTEGRATED WELL JACKETS 6&7 (IWJ-6&7)"
Technip
were therefore engaged to perform design, engineering, procurement and fabrication services in respect of the Project.
Technip's
alleged liability to KJO, and are set out in Section D of this judgment.
Technip
chartered the Vessel to perform certain of the Contract work from Maridive & Oil Services SAE, the registered owners ("Maridive") pursuant to a charterparty on an amended BIMCO SUPPLYTIME 2005 form, dated 1 December 2014 (the "Charterparty"). As Mr Cortas explained in his written evidence, the Vessel was engaged in work on the OCP/LQP (offshore control platform/ living quarters platform) refurbishment work and was primarily being used for anchor handling of the Falcon Warrior, an 8 point mooring barge.
The Allision
Technip
to "reconfirm that there are no live subsea assets in the working area of the NR09 platform". The e-mailed response was:
"No live subsea lines around the subject jacket since KJO operation is shutdown. All gas and oil lines are mothballed with minimum preservation pressure"
Accordingly, the Allision did not affect ongoing operations in any way.
Technip's
expert, explained in his report, this meant that there was no risk of Platform collapse but for an operating condition or an extreme 100-year event. This meant that the repairs did not need to be performed immediately, but rather at a time convenient to KJO.
Events subsequent to the Allision
Technip
was "in a dispute environment" with KJO. There were a number of big claims including invoices for weather delays that had been accepted by KJO but never paid, and a number of contractual change orders for additional works performed by
Technip
but which had never been approved by KJO. In summary,
(1) KJO owedTechnip
around US$ 20m in unpaid invoices;
(2)Technip
held around US$ 24m of contractual performance bonds, such that (as Mr Cortas explained)
Technip
was exposed to a loss by reason of a drawdown under the bonds and was incurring costs for maintaining the bonds over an extended period of time;
(3) Retention monies of around US$20m would only be returned toTechnip
on final acceptance of the Project; and
(4)Technip
and KJO were in dispute about various claims and change orders that
Technip
had submitted in respect of disruption, delays and additions to the Project, which together amounted to US$ 229m.
Technip
or to discuss
Technip's
claims – until the parties had resolved the dispute about the Allision. The Allision thus delayed the progress of any settlement with KJO in respect of
Technip's
various Project claims and change orders.
Technip
established an independent team to manage it, and Mr Cortas was appointed project manager, in co-ordination with the existing
Technip
project team managing the KCROP.
Technip's
strategy was to hire independent third-party contractors to assess the extent of damage to the Platform and what repairs would be required. From the outset, KJO made it clear that they were holding
Technip
liable under the Contract for the damage and costs associated with assessing the damage and repairing the Platform.
Technip's
"TOPSET" investigation team concluded that Maridive was responsible for the Allision due to their negligence. For example, there was poor watchkeeping, poor seamanship, complacency and improper use of the Vessel's navigation equipment by the Maridive crew on board the Vessel. There was no dispute at trial that it was negligence by Maridive's crew that had caused the Allision, and no suggestion that
Technip's
staff had been at fault in any respect. However, Maridive were reluctant to admit liability. Matters were conducted on their behalf by Ince & Co, appointed by Maridive's P&I insurers Gard.
Technip's
approach after the Allision was to appoint third party agencies to conduct a survey of the Platform and to assess the damage. They required an engineering company to prepare the scope of work for the survey and complete a structural assessment of the Platform, and a marine "IRM" (Inspection, Repair and Maintenance) contractor to perform the survey. The engineering contractor's role was to analyse the results of the data collected by the marine IRM contractor, to generate structural reports and establish a methodology to perform the repairs. The IRM contractor's role was to mobilise the asset and perform the survey in accordance with the scope established by the engineering contractor.
Technip
should perform as much data collection as possible to ensure that a proper survey campaign was performed. The IRM contractor, appointed for the purposes of performing the survey, was CCC Underwater Engineering ("CCC").
Technip
presented KJO with three repair methodologies.
Technip
recommended repair option 1, which involved minimal intervention on the Platform, satisfying structural code requirements to repair the main aspects of the Platform. KJO, however, insisted on repair option 3, which involved repairing all the damage caused by the Allision and bringing the Platform back to its pre-Allision condition, even though not necessary for structural integrity purposes. In their written opening, Medgulf submitted that option 3 was a departure from what was reasonably required to repair the Platform, and that repair option 1, or something like it, would have been sufficient. I disagree. As the owner of a Platform which had been damaged, KJO were in my view entitled to require that it should be brought back into its pre-Allision condition.
Technip
agreed to the repair option 3 approach.
Technip
that their appointed consultants, Atkins, were also going to prepare a structural analysis based on the agreed repair scheme. KJO also made it clear that they would not enter commercial discussions until Atkins had completed their full structural analysis. Once available,
Technip's
intention was to compare the two analyses in order to create a schedule for the repairs and proceed with an assessment of the repair costs.
Technip
and KJO held a technical review meeting to discuss differences between the parties' repair methods (both based on repair option 3). The parties agreed upon most items in an agreed repair scope (the "Agreed Scope") which was set out in a spreadsheet containing 23 items.
Technip
did not agree that two items should be included because they were not attributable to the Allision, but those repairs were later included in
Technip's
subsequent estimates at KJO's behest. The other disputed item in the spreadsheet was item 23:
"General: safe access to wellheads and well suspension/closure and reactivation operations, including Preparation works such as flowlines, topside piping purging process, well suspension, Xmas tree protection, reinstating wells, in addition to the functionality of the J-tube internals (water injection flexible pipe)"
Technip's
position was that these activities were for KJO to perform at KJO's cost. KJO's position was that these costs were the result of the incident and should be borne by
Technip.
The parties agreed to discuss this again later in May. One of the most significant issues in dispute in the present case, in relation to quantum, concerns these costs.
Technip's
position, as stated to KJO, was that if
Technip
were to perform the repairs, then they did not believe that a dimensional survey was necessary: since there was enough data that had been collected from the survey campaign previously carried out. The purpose of a dimensional survey would be to re-verify the dimensions and measurements of certain elements of the proposed repair in order to avoid mobilising a vessel with materials to install, only to discover that the item did not fit. However, in its cost estimate,
Technip
priced in a dimensional survey to cater for the situation where a third party would be carrying out the repairs: the survey could then be included in a package which could be given to KJO and the third party.
Technip's
in-house team produced a cost estimate of the repair schedule. This was sent to KJO in early July. The total was US$ 12,720,461. A note to the table containing this figure stated that KJO should hand over the Platform decommissioned and safe for repair activities, and that the costs of doing so had not been included in the table. Following submission of these figures, KJO expressed a willingness to discuss the way forward for settlement of both the Allision issue and the disputes concerning the KCROP itself. A meeting was held on 6 August 2019, at which KJO provided (for the first time) its estimate of repair costs. KJO presented a repair estimate, in tabular form, of US$ 21,738,000.
Technip
was given to understand that this had been prepared by Atkins, although it was not actually on Atkins headed paper or in a report from Atkins. This figure was separate from additional sums set out in the table. These comprised US$ 11,630,000 in respect of well suspension costs and various other costs, to produce a total of US$ 36,393,010. The document containing these figures comprises two pages containing two tables: the first with the overall figure, and the second with a high level breakdown of the US$ 21,738,000. There is no underlying detail as to how any of these figures were calculated, and Dr Lamport acknowledged in his report that KJO had provided no information to support their estimate on the safeguarding costs.
Technip
provided KJO with a revised estimate of US$ 15,823,008. This was based on a proposal for the repair work from CCC, whom
Technip
considered to be the most suitable contractor to provide a proposal because of their experience on the Project and in the field.
(1)Technip
would pay KJO US$ 33m, which amount was allocated US$ 25m in respect of the Allision (clause 1) and US$ 8m in respect of punch and warranty items (clause 2); and KJO would pay
Technip
US$ 33m in respect of additional claims and change orders (clause 3). Those sums cancelled each other out and were set off against each other (clause 4);
(2) KJO would release all unpaid invoices (clause 5(a)). According to a presentation made byTechnip
in 2016, these amounted to around US$20m;
(3) KJO would payTechnip
an additional US$ 4,751,342.81 for weather stand-by compensation (clause 5(b));
(4) Retention monies held by KJO would be released (clause 5(e)). According to the same presentation, these amounted to around US$ 19.2m;
(5) Contractual performance bonds would be released (clause 5(f)). These amounted to around US$ 24.7m;
(6)Technip
would perform Home Office Detail Engineering for the Platform repairs at no additional cost (clause 5(c)(vii)).
Technip's
alleged liability to KJO, but it was otherwise not relevant to the issues that required resolution.
Technip
did not seek or obtain Medgulf's consent prior to entering into the Settlement Agreement. By the time it was concluded, indeed three years earlier, Medgulf had declined cover and was content for
Technip
to act as a prudent uninsured.
C: The Policy terms
INSURANCE SCHEDULE
INSURED:
PRINCIPAL INSUREDS:
i.Technip
Saudi Arabia and/or Aramco Gulf Operations Company (AGOC) and/or Kuwait Gulf Oil Company (KGOC) and/or associated and/or subsidiary companies and/or Joint Venturers and or co-venturers as they may now or subsequently exist.
ii. Parent and/or subsidiary and/or affiliated and/or associated and/or inter-related companies of the above as they are now or may hereafter be constituted and their directors, officers and employees while acting in their capacities as such.
Other Insureds:
iii. Project managers
iv. Any other company, firm, person or party (including contractors and/or sub-contractors and/or manufacturers and/or suppliers) with whom the Insured(s) named in i, ii, iii, and iv have entered into written contract(s) directly in connection with the Project.
INTEREST/POLICY LIMIT:
All works and operations connected with the Khafji Crude Related Offshore Projects (KCROP), including but not limited to: project studies, engineering, design, project management, procurement, fabrication, construction, load out, loading/unloading, transportation by land, sea or air (including call(s) at port(s) or place(s) as may be required), storage, towage, mating, installation, pipelaying, burying, trenching, hook-up, connection and/or tie-in operations, trials, testing and commissioning, existence, initial operations and maintenance all as more fully detailed in the Information Section contained herein.
…
Section II – Liability
Third Party Legal Liability and/or Contractual Liability as Welcar 2001, including Damage to Existing Property.
Section II – Liability
USD 125,000,000 any one occurrence combined single limit in respect of both third party liabilities and damage to existing property.
Deductibles / Excess (100%)
USD 250,000 for any one occurrence in respect of third party liabilities.
USD 500,000 any one occurrence in respect of damage to existing property.
OFFSHORE CONSTRUCTION PROJECT POLICY
Subject to the terms, conditions and exclusions herein, this Policy provides coverage for certain physical damage and liabilities incurred by the Insureds. Section I Physical Damage and Section II Liability are distinct sections, with the exception that the Scope of Insurance and General Terms and Conditions below shall apply to Section I and Section II.
SCOPE OF INSURANCE
(Applicable to…Section II)
Subject to the insuring agreements, applicable terms, conditions and exclusions, this insurance covers the following activities undertaken in the course of the project identified in Item 2 of the Declarations (hereinafter, the Project), provided such activities are within the insured values. Covered activities include but not limited to: design, engineering, management, procurement and supply of all materials, fabrication, construction, load-out, transit/tows, installation and existence during hook-up, testing and commissioning and all works associated with the Project, being platform modifications all as more fully described in the Project Information.
The Policy shall be deemed to be a separate insurance in respect of each Principal Insured hereunder without increasing Underwriters limits of liability.
1. INSUREDS
PRINCIPAL INSUREDS:
i.Technip
Saudi Arabia and/or Aramco Gulf Operations Company (AGOC) and/or Kuwait Gulf Oil Company (KGOC) and/or associated and/or subsidiary companies and/or Joint Venturers and/or co-venturers as they may now or subsequently exist.
ii. Parent and/or subsidiary and/or affiliated and/or associated and/or inter-related companies of the above as they are now or may hereafter be constituted and their directors, officers and employees while acting in their capacities as such.
Other Insureds:
iii. Project managers.
iv. Any other company, firm, person or party (including contractors and/or sub-contractors and/or manufacturers and/or suppliers) with whom the Insured(s) named in i, ii, iii and iv have entered into written contract(s) directly in connection with the Project.
GENERAL TERMS AND CONDITIONS
(Applicable to…Section II)
15. CANCELLATION
The first named Principal Insured set out in Item 1 of the Declarations may cancel the Policy on behalf of all Insured(s) at any time prior to the first Occurrence that gives rise or may give rise to a covered loss.
SECTION II – LIABILITY
INSURING AGREEMENT
1. COVERAGE
Underwriters agree, subject to the limitations, terms, conditions and exclusions herein, to indemnify the Insured(s) for Ultimate Net Loss which the Insured(s) shall be obligated to pay by reason of
i. liability imposed upon the Insured(s) by law, and/or
ii. Express Contractual Liability,
for Bodily Injury or Property Damage caused by an Occurrence, provided always that the Occurrence takes place during the Project Period and arises out of the activities described in the Scope of Insurance section herein.
TERMS AND CONDITIONS
(Section II only)
1. NOTICE TO UNDERWRITERS
In the event of an Occurrence, the Insured(s) shall provide written notice to Underwriters as soon as in practicable stating the following:
(1) the specific Occurrence; and
(2) the damages which may result or has resulted from the Occurrence; and
(3) the circumstance by which the Insured(s) first became aware of the Occurrence.
In respect of Claims to which Exclusion 15 applies, the Insured(s) shall provide such notice within the timing requirements set forth in that exclusion.
4. CROSS LIABILITIES
In the event of one insured incurring liability to any other of the Insured(s), this Policy shall cover the Insured against whom the claim is or may be made in the same manner as if separate policies had been issued to each Insured. However, the inclusion of more than one Insured hereunder shall not operate to increase the Limit of Liability.
In no case shall this Policy provide coverage for any physical loss or physical damage to or defects discovered in the property insured
Coverage in respect of Other Insured(s) does not apply to actual or alleged liability to other contractors and/or vendors and/or suppliers for consequential loss, loss of profit or business interruption.
DEFINITIONS
(Section II only)
2. "CLAIMS EXPENSES" shall mean reasonable legal costs and other expenses incurred by or on behalf of the Insured(s) in the defence of any covered claim including attorney's fees and disbursements, investigation, adjustment, appraisal, appeal costs and expenses and pre- and post- judgement interest, excluding salaries, wages and benefits of the Insured's employees and the Insured's administrative expenses.
3. "DAMAGES" shall mean compensatory damages, monetary judgments, awards, and/or compromise settlements entered with Underwriters' consent, but shall not include fines or penalties, punitive damages, exemplary damages, equitable relief, injunctive relief or any additional damages resulting from the multiplication of compensatory damages.
4. "EXPRESS CONTRACTUAL LIABILITY" means liability that the Insured has expressly assumed prior to any Occurrence covered by this Policy in:
a. any written contract; or
b. any oral contract reduced to writing within 7 days after the contract is orally agreed
7. "ULTIMATE NET LOSS" shall mean the total sum the Insured is obligated to pay as Damages, and shall include Claims Expenses in respect of claims covered under this Policy.
EXCLUSIONS
(Section II only)
The insurance afforded by this policy does not apply to actual or alleged liability:
5. arising out of the use or operation of watercraft, whether owned, time chartered, bareboat chartered or operated by any Insured, or for which any Insured may be responsible other than as declared hereto:
11.for loss of or damage to any well or hole.
i. which is being drilled or worked over by or on behalf of the Insured, or
ii. which is in the care, custody or control of the Insured, or
iii. in connection with which the Insured has provided services, equipment or materials:
13. for loss of or damage to any drilling tool, pipe, collar, casing, bit, pump, drilling or well servicing machinery, or any other equipment while it is below the surface of the earth in any well or hole:
i. which is being drilled or worked over by or on behalf of the Insured, or
ii. which is in the care, custody or control of the Insured, or
iii. in connection with which the Insured has provided services, equipment or materials.
15. for Bodily Injury or Property Damage directly or indirectly caused by or arising out of seepage, pollution or contamination however caused whenever or wherever happening:
This exclusion shall not apply when the Insured has established all of the following conditions:
a. the seepage, pollution or contamination was caused by an event;
b. the event first commenced on an identified specific date during the Policy Period set out in Item 3 of the Declarations;
c. the event was first discovered by the Insured within 14 days of such commencement;
d. Underwriters received written notification of the event from the Insured within 60 days of the Insured's first discovery of the event; and
e. the event did not result from the Insured's intentional violation of any statute, rule, ordinance or regulation.
Even if the above conditions a) to e) are satisfied, this policy does not apply to any actual or alleged liability:
i. to evaluate, monitor, control, remove, nullify or clean up seeping, polluting or contaminating substances to the extent such liability arises solely from any obligations imposed by any statute, rule, ordinance, regulation or imposed by contract;
ii. to abate or investigate any threat of seepage onto or pollution or contamination of the property of a third party;
iii. for seepage, pollution or contamination of property which is or was, at any time, owned, leased, rented or occupied by any Insured, or which is or was at any time in the care, custody or control of any Insured (including the soil, minerals, water or any other substance on, in or under such owned, leased, rented or occupied property or property in such care, custody or control);
iv. arising directly out of the transportation by the Insured of oil (other than fuel or other substances used in furtherance of the Insured's operations) or other similar substances by watercraft; or
v. arising directly or indirectly from seepage, pollution or contamination which is intended from the standpoint of the Insured or any other person or organisation acting for or on behalf of the insured;
17. for loss of, damage to, or loss of use of property directly or indirectly resulting from subsidence caused by sub-surface operations of the Insured.
21. for damage to or loss of or loss of use of:
i. property owned or occupied by or rented or leased to the Insured;
ii. property used by the Insured; or
iii. property in the care, custody or control of the Insured or over which the Insured is for any purpose exercising physical control:
for the costs of removal, recovery, repair, alteration or replacement of any product (or any part thereof) which fails to perform the function for which it was manufactured, designed, sold, supplied, installed, repaired or altered by or on behalf of the Insured in the normal course of the Insured's operations.
ENDORSEMENTS
ENDORSEMENT 1
WATERCRAFT EXCLUSION Endorsement
Subject always to the terms and conditions of the Policy hereunder, Underwriters hereby agree that the Watercraft Exclusion 5 of Section II is deleted subject to watercraft associated with the Project maintaining Protection and Indemnity (P&I) cover up to a minimum of hull value.
All other insuring agreements, terms, conditions, definitions, exclusions, notice requirements, schedules and endorsements of the policy remain unchanged.
ENDORSEMENT 2
EXISTING PROPERTY Endorsement
Cover for damage to existing property is subject to the following Existing Property Contractual Exclusion and Buyback:
Existing Property Contractual Exclusion
The coverage provided under Section II of this policy shall not apply to any claim for damage to or loss of use of any property for which the Principal Assured:
1) owns that is not otherwise provided for in this policy;
2) has use of, custody, physical control, access, right of way or an easement to by operation of a contract or agreement, or
3) is liable or claimed to be liable by operation of any indemnification, hold harmless or similar provision contained within any contract or agreement.
All other insuring agreements, terms, conditions, definitions, exclusions, notice requirements, schedules and endorsements of the policy remain unchanged.
Existing Property Contractual Exclusion Buy-Back
Notwithstanding the Existing Property Contractual Exclusion above, it shall not apply to any claim for:
Physical loss of and/or physical damage to existing property as per Schedule of Existing Property below and extends to anything reasonably ancillary thereto.
All other insuring agreements, terms, conditions, definitions, exclusions, notice requirements, schedules and endorsements of the policy remain unchanged.
Schedule of Existing Property:
Offshore
Gas lift structure (GLS)
Riser platform (RP)
Production platform (PP)
Operational Control Platform (OCP)
Living quarter platform (LQP)
Utility platform (UTP)
Integrated Well Jackets (IWJ) (12 units)
Pipelines, flowlines and cables
Onshore
Main Oil Line (MOL)
Substations
D: Did
Technip
have a legal liability to KJO?
D1: The relevant contractual terms
Technip
relied upon clauses 5.2.3 and 12.6 of Schedule A in support of its argument that it had incurred a liability to KJO. These clauses themselves referred to various terms defined elsewhere in the Contract, and the parties' arguments also referred to some other clauses within Schedule A as well as Schedule B.
1. DEFINITIONS
1.5 "FACILITIES" means the structures or items being designed, procured, fabricated, or constructed by CONTRACTOR pursuant to this CONTRACT.
1.6 "WORK" means all the FACILITIES, work, obligations and services to be performed by CONTRACTOR pursuant to this CONTRACT.
1.7 "WORK Site" means all locations at which CONTRACTOR performs any portion of the WORK.
1.37 "Subcontractor" means an organization contracted by and wholly responsible to CONTRACTOR for executing a specific part of the WORK.
5. CONTRACTOR's RESPONSIBILITY
5.2.1 The establishment or construction by CONTRACTOR of all WORK related storage areas and temporary structures on or adjacent to COMPANY premises must be authorized in advance by COMPANY and shall be confined to areas specified by COMPANY.
5.2.2 CONTRACTOR shall preserve and protect the environment at and adjacent to the WORK site
5.2.3 Except as may be otherwise provided in SCHEDULE "B", CONTRACTOR shall protect from damage all existing structures, improvements or utilities at or near the WORK Site, and shall repair and restore any damage thereto resulting from CONTRACTOR's failure to exercise reasonable care in protecting the same during CONTRACTOR's performance of the WORK. If CONTRACTOR fails or refuses to promptly repair any such damage, COMPANY may perform such repairs, or have them performed by others.
5.2.6 CONTRACTOR shall at all times keep the WORK Site neat, clean and free of waste material, any wreckage, debris of any kind and rubbish and dispose of same as instructed by COMPANY.
12. SUBCONTRACTS
12.1 Subcontracts for the performance of any portion of the WORK shall be procured only in accordance with the Subcontracting Plan contained in CONTRACTOR's bid, and only after CONTRACTOR has received written approval and authorization from COMPANY that CONTRACTOR may subcontract that portion of the WORK. In procuring subcontracts, CONTRACTOR shall select Subcontractors solely on the basis of financial and technical considerations, The submission of the Subcontracting Plan in the CONTRACTOR's Bid prior to Contract Award shall be considered as the minimum intention for compliance but shall not relieve the CONTRACTOR from its obligation to seek approval for the subcontractors after CONTRACT Award. The COMPANY reserves the right to reject a Subcontractor that is found unacceptable for the execution of the related part of the WORK, even if the Subcontractor is specified in the Subcontracting Plan at the Bidding Stage.
12.2 After receiving COMPANY's written authorization that a portion of the WORK may be subcontracted, CONTRACTOR shall, before procuring any subcontract for part or all of that portion of the WORK, submit a notification to COMPANY containing the following information:
12.2.1 If the proposed Subcontractor is a sole proprietorship or partnership, the name(s) and address(es) of the proprietor or all members of the partnership, as the case may be.
12..2.2 If the proposed Subcontractor is a corporation, the place of its incorporation or formation and its corporate headquarters.
12.2.3 The name and address of the proposed Subcontractor's principal bank and a copy of the Subcontractor's latest audited financial statement.
12.2.4 Evidence acceptable to COMPANY of the proposed Subcontractor's technical qualifications to perform the WORK to be subcontracted.
COMPANY shall review the information and, provided that the proposed Subcontractor is, in COMPANY'S opinion, both technically competent and financially able to perform the WORK to be subcontracted, COMPANY shall advise CONTRACTOR in writing of its non-objection to the proposed Subcontractor. If COMPANY objects to the proposed Subcontractor, CONTRACTOR shall either itself accomplish the WORK which would otherwise have been performed by the proposed Subcontractor or shall select another Subcontractor and submit a revised proposal for the approval of the COMPANY.
12.3 CONTRACTOR shall ensure that all Subcontractors selected by CONTRACTOR abide by and observe, to the same extent required of CONTRACTOR, all applicable COMPANY's regulations, and CONTRACTOR agrees to insert or cause to be inserted into all subcontracts provisions to that effect.
12.4 In the event of any substantial breach of this CONTRACT by CONTRACTOR and without regard to whether COMPANY terminates this CONTRACT or a portion of the WORK pursuant to Paragraph 22 of this SCHEDULE "A", CONTRACTOR shall, if COMPANY requests, assign to COMPANY all of its rights under all subcontracts entered into by CONTRACTOR and COMPANY may, to the extent permitted by applicable law and after prior written notice to CONTRACTOR, enforce directly against any such Subcontractor all rights of CONTRACTOR under such subcontract. All subcontracts entered into by CONTRACTOR shall contain a provision whereby the Subcontractor agrees and consents to such assignment by CONTRACTOR to COMPANY.
12.5 CONTRACTOR shall include in every subcontract under this CONTRACT, a provision prohibiting any further subcontracting of any portion of the WORK by the Subcontractor unless the Subcontractor first obtains the approval of CONTRACTOR. CONTRACTOR shall not give such approval without first obtaining approval of COMPANY.
12.6 CONTRACTOR shall be fully responsible to COMPANY for the acts, negligence, alteration, additions and omissions of all its Subcontractors at whatever tier, and their personnel, as if they were the CONTRACTOR's own personnel. CONTRACTOR shall manage, schedule and coordinate the work of all its Subcontractors so as to meet the Scheduled Completion Date and Critical Milestone Dates. Nothing in this CONTRACT shall create any contractual relationship between COMPANY and any Subcontractor unless COMPANY elects to exercise its rights under Paragraph 12.4. COMPANY's approval to subcontract any portion of the WORK and COMPANY's non-objection to CONTRACTOR's Subcontractor selection shall not relieve CONTRACTOR of any of its obligations under this CONTRACT.
14. DISTRIBUTION OF RISKS
The distribution of risks between COMPANY and CONTRACTOR set forth in Paragraphs 14.1 and 14.2 hereunder are subject to the specific exclusions set forth in Paragraph 14.3.
14.1 Persons and Properties
14.1.1 CONTRACTOR's Persons and Properties
The CONTRACTOR shall be liable to make payment for all CONTRACTOR's personnel, equipment, materials, services, tools, vehicles and other things required to be provided, secured and procured by the CONTRACTOR under this CONTRACT, and indemnify and hold the COMPANY harmless against and from any claims of whatsoever nature on account of the CONTRACTOR's failure to so pay.
The CONTRACTOR shall solely be responsible for and indemnify and hold the COMPANY harmless against and from any and all claims, demands, injunctions, judgments, suits, liabilities, costs and expenses of whatsoever nature arising or resulting on account of or in connection with damage to, destruction or loss of the CONTRACTOR's equipment and any other properties of the CONTRACTOR howsoever caused, any injury or sickness, fatal or otherwise, or disablement suffered by anyone of the CONTRACTOR's personnel or any other person employed directly or indirectly by the CONTRACTOR, howsoever caused.
14.1.2 COMPANY Persons and Property
The CONTRACTOR shall be responsible for and indemnify and hold the COMPANY harmless against and from any and all claims, demands, injunctions, judgments, suits, liabilities, costs and expenses of whatsoever nature arising or resulting on account of or in connection with injury or sickness, fatal or otherwise, or disablement suffered by any person employed by the COMPANY or for whom the COMPANY may otherwise be responsible, and damage to, destruction or loss of any properties of the COMPANY, when caused by misconduct, negligence or omission on the part of the CONTRACTOR.
14.2 Third Party
Each party shall be responsible and indemnify and hold the other party harmless against and from any and all claims, demands, injunctions, judgments, suits, liabilities, costs and expenses of whatsoever nature arising or resulting on account of or in connection with injury or sickness, fatal or otherwise, or disablement suffered by any third party person, and damage to, destruction or loss of any third party property, when caused by such each party's misconduct, negligence or omission.
In the event of the joint or concurrent negligence of the COMPANY and the CONTRACTOR, the responsibility shall be determined and damages shall be apportioned in accordance with the applicable laws or as agreed by the parties.
"Third party" in this Paragraph 14.2 means a person, whether natural or artificial, other than the parties, but does not include such contractors and subcontractors of any tier as being currently employed by each party whether in performance of this CONTRACT or not. These CONTRACTORS and Subcontractors of each party shall be deemed identical with such each party particularly for the intent of Paragraph 14.
15. INSURANCE
15.1 CONTRACTOR shall carry and maintain in force at all times during the term of this CONTRACT the following insurances:
15.1.5 Fabrication and Transit Insurance
Insurance to cover the full value of any loss, damage or destruction of any materials for the FACILITIES and which shall cover fabricated subassemblies incorporating those materials while they are located at fabrication yard(s), while in storage and during transit from these foregoing locations to the Installation Site.
15.1.7 CONTRACTOR'S All Risk Insurance
For the full value of the WORK covering the materials and WORK in progress up to successful completion of the Performance Acceptance Test required and issuance of the Performance Acceptance Certificate under the CONTRACT
15.3 The policies of those insurances shall contain a waiver of subrogation in favor of the COMPANY.
The COMPANY shall be named as the additional insured under those insurance policies in addition to the CONTRACTOR and others as their interests may appear, except for the insurances required under Paragraph 15.1.1 above.
The policies of those insurances shall also contain a cross liability clause such that the insurances shall apply to the CONTRACTOR and the COMPANY as separately insured, except for the insurances required under Paragraph 15.1.1 above.
3.1 Summary of Project FACILITIES
The purpose or FACILITIES encompassed within the related Projects hereby defined below, is to support maintaining the maximum sustainable capacity (MSC) of 300 thousand barrels per calendar day (MBCD) of Khafji crude and 50 thousand barrels per calendar day (MBCD) of Hout (KRL) crude:
i. INSTALLATION OF SECOND SUBMARINE POWER CABLE (SSPC)
ii. INSTALLATION OF POWER DISTRIBUTION PLATFORMS FOR ESP PHASE-II (PDP-4&5)
iii. CONSTRUCTION OF CONTROL AND LIVING PLATFORM (CLP)
iv. INSTALLATION OF INTEGRATED WELL JACKETS 6&7 (IWJ-6&7)
Pursuant to SCHEDULE "A", CONTRACTOR shall furnish, without limitation, all facilities, tools, labor, supervision, technical and professional services, material, equipment, supplies and consumables (except fuel which can be supplied by COMPANY on a back-charge basis at the market rates applicable at the time of delivery and water on a back-charge basis at the prevailing SWCC rate and those items specified in SCHEDULE "G") required to totally engineer /detailed design; procure, install, construct, test, pre-commission / mechanically complete, the FACILITIES in accordance with this SCHEDULE "B" – Job Specification.
Also CONTRACTOR shall assist COMPANY with start-up / commissioning and performance testing / acceptance activities as defined in Paragraph 9.7 of this SCHEDULE "B" and Scope of WORK documents.
3.2 Description of FACILITIES
CONTRACTOR shall refer to the documents outlined in Paragraph 4 of this SCHEDULE "B" for a detailed description of the FACILITIES' Scope of WORK, a summary description of which includes but is not limited to the following:
…
3.2.3 CONSTRUCTION OF NEW CONTROL & LIVING PLATFORM (CLP)
The objective of this Project is to accommodate the future expansion of offshore facilities and offshore manpower resources, by providing a new Control and Living Platform (CLP).
The existing Living Quarters Platform (LQP) and OCP will be refurbished to provide additional improved living and working facilities to personnel.
The Project Scope of Work will include but not be limited to:
New Offshore Facilities:
a) Installation of a Control and Living Quarters Platform for 69 people and Control Room to support 24 hours operation. The CLP will be provided with stand-alone utilities systems such as sea water, fresh water, hot water, fire water, instrument / plant air, sewage treatment, diesel etc.
b) Installation of Electrical, HVAC, Telecommunication & Process Control System (PCS).
c) Installation of an interconnecting bridge between CLP and existing UTP.
Modification to Existing Offshore Facilities:
a) Modifications to the UTP to allow Structural, Electrical and Piping Tie-ins to CLP
b) Refurbishment of three floor levels the OCP.
c) Refurbishment of two floor levels of the LQP.
3.2.4 INSTALLATION OF INTEGRATED WELL JACKETS IWJ-6&7
The objective of this project is to maintain crude oil production through the installation of two new integrated well jacket platforms to facilitate new producer and/or injection wells.
New Offshore WORK:
Installation of two (2) Integrated Well Jacket Platforms (IWJ-6&7). Each IWJ shall be provided twelve slots for drilling new producer and/or injection wells.
Installation of Electrical, Piping, Instrumentation and Fire and Gas system.
WORK
The CONTRACTOR shall, in accordance with the terms and conditions set out in this CONTRACT, attached schedules and drawings, standards, specifications and other documents referred to in the schedules or in any of the referenced documents perform the WORK required for the Project entitled KHAFJI CRUDE RELATED OFFSHORE PROJECTS, which includes the following individual Projects:
i. INSTALLATION OF SECOND SUBMARINE POWER CABLE (SSPC)
ii. INSTALLATION OF POWER DISTRIBUTION PLATFORMS FOR ESP PHASE-II (PDP-4&5)
iii. CONSTRUCTION OF CONTROL AND LIVING PLATFORM (CLP)
iv. INSTALLATION OF INTEGRATED WELL JACKETS 6&7 (IWJ-6&7)
D2: The parties' arguments
Technip's
argument
Technip
submitted that the effect of clauses 5.2.3 and 12.6 was as follows.
Technip
was required to "protect from damage all existing structures … at or near the WORK Site".[1] This would have included the Platform, which was only about 1,000 metres from IWJ-7, the installation of which was within the scope of the "WORK" identified in clause 2(iv) of the Contract as well as Schedule B thereof.
Technip
was required to "repair and restore any damage thereto resulting from CONTRACTOR's failure to exercise reasonable care in protecting the same during CONTRACTOR's performance of the WORK". In this regard, "WORK" was defined as meaning "all … work, obligations and services to be performed by CONTRACTOR pursuant to this CONTRACT" (see clause 1.6 of Schedule A). Schedule B of the Contract expanded upon the scope of the Work to be performed to include, under clause 3.4, transportation and "all other work items that are reasonably inferred from the CONTRACT as necessary for proper execution of the WORK".
Technip
itself (the charterer) which was responsible for sailing the Vessel into the Platform, it would have been liable in respect of the damage under clause 5.2.3 of the Contract.
Technip
remained liable "for the acts, negligence, alteration, additions and omissions of all its Subcontractors at whatever tier, and their personnel, as if they were the CONTRACTOR's own personnel". As such, it would be no defence to a claim under clause 5.2.3 of the Contract to say that
Technip
was not responsible for Maridive's "failure to exercise reasonable care".
Technip
referred to a number of charterparty clauses in that respect, and to authority which recognised that a registered or disponent owner of a vessel can be a sub-contractor in respect of services to be provided by a charterer. It did not matter that the contractual procedure for approval of sub-contractors may, possibly, not have been fully applied in the case of Maridive: it was only ever contemplated that major sub-contractors would be the subject of the approval process. In any event, KJO was plainly aware of and approved the use of the Vessel.
Technip.
Medgulf was therefore wrong to suggest that it was necessary to find a source of liability elsewhere in the Contract. But if such source was needed, then it was provided for by clause 5.2.3.
Technip.
There could be no defence of lack of negligence in a case where the Vessel had sailed into a fixed object like the Platform.
Medgulf's argument
Technip
did not assume responsibility for Maridive's negligence under clause 12.6 because Maridive was not a "Subcontractor" within the meaning of the Contract. Furthermore, clause 12.6 did not create a freestanding basis of liability:
Technip
would need to identify another contractual provision which was breached by reason of Maridive's negligence. They could not do so, because clause 5.2.3 did not apply, for two reasons: (i) the Platform was not at or near the Work Site, and (ii) the Allision did not occur during performance of the Work.
Technip
was a typical time charterparty, and was not in the nature of a subcontract pursuant to which Maridive was obliged to perform a specific part of the Work.
Technip's
liability under the charterparty to pay for fuel and also for any anchor handling wires and accessories in the event that such equipment was lost or damaged, other than as a result of Maridive's negligence. These provisions would make no sense in the context of a subcontract, where the subcontractor's expenses in performing the subcontracted work would usually be for its own account.
Technip
did not receive written approval and authorisation to subcontract any Work to Maridive. The fact that the Vessel was approved had nothing to do with the subcontracting provisions in the Contract.
Technip's
assertion that Maridive was a "Subcontractor" within the meaning of the KCROP Contract. Maridive was not "wholly responsible… for executing a specific part of the WORK". Further, none of the subcontracting provisions was complied with in respect of Maridive: KJO did not approve the subcontracting of the supposed "WORK" performed by Maridive; it did not approve Maridive as a subcontractor; and Maridive was not identified in the Subcontractor Master List. All of this served to underscore the common sense conclusion that the registered owner of a vessel cannot sensibly be characterised as the time charterer's 'subcontractor' for a construction project.
Technip
could establish that Maridive was a Subcontractor for the purposes of clause 12.6, it must also establish that
Technip
was liable under clause 5.2.3. clause 5.2.3 provides a specific and limited indemnity for damage to property "at or near the WORK Site" as a result of a failure to exercise reasonable care "during… performance of the WORK". These two aspects of clause 5.2.3 are linked: property "at or near the WORK Site" must be the property which, by virtue of its proximity to the "WORK Site", is exposed to the risk of damage during "performance of the WORK".
D3: Discussion
"The court's task is to ascertain the objective meaning of the language which the parties have chosen in which to express their agreement. The court must consider the language used and ascertain what a reasonable person, that is a person who has all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract, would have understood the parties to have meant. The court must consider the contract as a whole and, depending on the nature, formality and quality of drafting of the contract, give more or less weight to elements of the wider context in reaching its view as to the objective meaning of the language used. If there are two possible constructions, the court is entitled to prefer the construction which is consistent with business common sense and to reject the other. Interpretation is a unitary exercise; in striking a balance between the indications given by the language and the implications of the competing constructions, the court must consider the quality of drafting of the clause and it must also be alive to the possibility that one side may have agreed to something which with hindsight did not serve his interest; similarly, the court must not lose sight of the possibility that a provision may be a negotiated compromise or that the negotiators were not able to agree more precise terms. This unitary exercise involves an iterative process by which each suggested interpretation is checked against the provisions of the contract and its commercial consequences are investigated. It does not matter whether the more detailed analysis commences with the factual background and the implications of rival constructions or a close examination of the relevant language in the contract, so long as the court balances the indications given by each."
Technip
to protect "all existing structures, improvements or utilities at or near the WORK site". However, in the light of the phrase requiring repair or restoration "resulting from CONTRACTOR'S failure to exercise reasonable care in protecting the same", the contractual obligation to protect is not absolute but is (as
Technip
submitted) in substance an obligation of reasonable care.
Technip's
"performance of the WORK", in the context of damage occurring near but away from the Work Site itself, must encompass a situation where, as
Technip
submitted, an anchor-handling vessel engaged in work at the Work Site is proceeding to a designated anchorage before resuming active duties the following day. This seems to me to be a paradigm case where clause 5.2.3 applies in the context of damage which is not at the Work Site itself.
Technip
submitted) to the Vessel standing down for the day and going to an appropriate anchorage before resuming the next day. I also accept that this also comes within the meaning of "transportation", which is used earlier in clause 3.4.
Technip's
construction of clause 5.2.3 is far more consistent with business common sense than Medgulf's. Medgulf's argument posits only a very narrow restricted protection for KJO's structures, improvements or utilities. Business common-sense would in my view lead to the opposite conclusion; namely that KJO was looking for wide protection against damage to structures, improvements and utilities, and that clause 5.2.3 provided it.
Technip
should be answerable only for a failure to exercise reasonable care where its own directors or employees could personally be blamed for what had happened, because they were themselves personally negligent in some respect. The alternative is that
Technip
is also answerable under clause 5.2.3 where the operative negligence is that of a third party such as Maridive, which
Technip
had engaged in the context of the performance at the Work Site of its obligations under the Contract.
Technip
would be answerable under clause 5.2.3 (assuming that it applied) if Maridive was a Subcontractor as defined in the Contract. However, Medgulf's argument was that Maridive was not a Subcontractor, and that therefore
Technip
was not liable if (as was clearly the case on the evidence) Maridive's negligence caused the damage.
Technip's
submission that Maridive are Subcontractors for whom
Technip
is liable under clause 12.6. The points which I consider to be significant are as follows.
Technip
for the acts, negligence, alteration, additions and omissions of all its Subcontractors at whatever tier as if they were the Contractor's own personnel (my underlining). The words "at whatever tier" are wide: they would extend to parties who are sub-sub-contractors. Clause 12.6 also creates an obligation on the part of
Technip
to manage, schedule and coordinate the work of all its Subcontractors so as to meet the critical dates. It would be surprising if this obligation somehow excluded – on the grounds that Maridive was not a Subcontractor – any obligation to manage, schedule and coordinate the work of Maridive, whose Vessel was to be on-site and which would be carrying out important work. I do not consider that there is anything in this comprehensively drafted clause which suggests that a distinction is to be drawn, as Medgulf contends, between parties engaged to perform contractual work and parties engaged to facilitate
Technip's
performance of its contractual work. This distinction would not have occurred to any reasonable person when considering the wide language of this clause.
Technip
pursuant to the Contract. Clause 1.6 needs to be considered in conjunction with Schedule B of the Contract. Clause 3.4 in Schedule B describes
Technip's
"Scope of Supply and Services" in very wide terms: it includes "transportation" and, perhaps more significantly, "all other work items that are reasonably inferred from the CONTRACT as necessary for proper execution of the WORK". The engagement and use of an anchor-handling vessel was, in my view, necessary for the proper execution of the Work. Accordingly, it came within the Scope of Supply and Services described in clause 3.4 of Schedule B, and can therefore properly be regarded as part of the Work to be performed by
Technip
pursuant to the Contract. There is then no difficulty in regarding Maridive as an organization which falls within the definition of Subcontractor in clause 1.37. Anchor handling was a service which was necessary for the proper execution of the work, and Maridive was responsible for executing that service under the terms of the charterparty concluded between the parties.
Technip
submitted) clearly focused on the major sub-contractors. Two such sub-contractors are identified, but other contemplated sub-contractors were not. Thus, the plan refers to local support vessels being used by COOEC for supply and crew changes, but it does not identify the owners of such vessels. Whilst I accept that supply vessels are different to anchor-handling vessels, there is not such a significant difference to affect the points of substance, namely that (as
Technip
contends): the Subcontracting Plan was focused on major subcontractors; it was envisaged that there would be other subcontractors albeit not named specifically; and it cannot realistically be contended that the engagement of an anchor-handling vessel from Maridive was impermissible or outside the scope of the Subcontracting Plan. KJO's approval of the Vessel was contractually required under Box 9 of the charterparty: the period of hire was "subject to the approval of the Vessel by authorized inspection of KJO in Abu Dhabi, UAE in advance of the date of delivery". This approval was then given: KJO confirmed in a letter dated 7 April 2015 that the Vessel met the safety requirements and was "Acceptable". I agree with
Technip
that this operated as an approval of the sub-contracted services to be performed by the Vessel. Thus, there is nothing in the point that the engagement of Maridive as a Subcontractor fell outside the scope of the Subcontracting Plan.
Technip
submitted, it cannot be a pre-condition to liability under clause 12.6, or indeed 5.2.3, that all the contractual procedures had been followed in relation to the negligent Subcontractor. Otherwise, the very odd result would be that
Technip
would be liable to KJO only for the conduct of its approved Subcontractors, and not for any unapproved Subcontractors. That odd result could not be reached for another reason: clause 12.6 expressly provides that KJO's "non-objection to CONTRACTOR's Subcontractor selection shall not relieve CONTRACTOR of any of its obligations under this CONTRACT". Mr Brocklebank, in his oral closing, sensibly accepted that a party could be a relevant Subcontractor even if the procedures were not followed: he was not saying that Maridive was not a Subcontractor because the procedures were not followed.
Technip
was responsible for the negligence of Maridive in damaging the Platform. Furthermore, I reach the same conclusion on the basis of clause 12.6 alone, and I reject Medgulf's argument that that clause is insufficient in itself to create a liability on the part of
Technip
without reference to other contractual obligations. There is nothing in the language of clause 12.6 which limits its scope and application to breach of contractual obligations elsewhere in the Contract. On the contrary, there is a clear responsibility under clause 12.6 for "negligence", and I see no reason why this responsibility should be in some way dependent on KJO showing that there was a breach of some other contractual provision.
Technip
for the negligence of a third party, such as Maridive, whom they had engaged in order (as Medgulf described it) to facilitate the performance of
Technip's
work at the Work Site. I am not persuaded that there is any good reason for contending that a different regime applies, in the context of clause 5.2.3, as between "Subcontractors" and other parties who are directly engaged in relation to the Work that
Technip
was carrying out and where (as I have already concluded) there was damage to structures near the Work Site during
Technip's
performance of the Work. In other words, I do not ultimately think that it is critical, for the purposes of clause 5.2.3, to determine whether or not Maridive was a Subcontractor as defined by the Contract. It makes far more commercial sense, in the context of a clause which protects KJO from damage to its structures near the Work Site, to say that
Technip
should be answerable for negligent damage to those structures caused by parties engaged by
Technip
to facilitate its performance of the Work and who were working at the Work Site at the relevant time.
Technip
to protect the structures, improvements or utilities. The words "failure to exercise reasonable care in protecting the same", when seen in the light of a clause which requires the protection to be provided, is to be construed as meaning that
Technip
would bear responsibility for damage whether or not the negligent party was a Subcontractor or a party engaged to facilitate
Technip's
work at the Work Site.
Technip
to KJO for the Allision.
Technip
did not base its case on that clause, no doubt because of a concern that a liability based on that clause might be excluded under the Existing Property Exclusion discussed below.
Technip's
case was based on clauses 5.2.3 and 12.6, and I have reached my conclusions without regard to clause 14.1.2. I have, however, considered that clause and ultimately do not consider that it affects or adds to the analysis set out above.
E: Absence of consent to settlement
The issue
"DAMAGES" shall mean compensatory damages, monetary judgments, awards, and/or compromise settlements entered with Underwriters' consent, but shall not include fines or penalties, punitive damages, exemplary damages, equitable relief, injunctive relief or any additional damages resulting from the multiplication of compensatory damages".
Technip
did not obtain Medgulf's consent to the compromise settlement which it had concluded with KJO in 2019. Medgulf contended that there were, in those circumstances, no "Damages" as defined by the policy which
Technip
could claim as part of its Ultimate Net Loss. This was disputed by
Technip.
The parties' arguments
Technip
contended that the sum agreed to be paid under the Settlement Agreement constituted "compensatory damages" as well as a "compromise settlement". There was no requirement to obtain consent in connection with "compensatory damages". The authorities established that "compensatory damages" simply meant pecuniary recompense for an actionable wrong: see e.g. Bedfordshire Police Authority v Constable [2009] EWCA Civ 64.
Technip
also submitted that the absence of Medgulf's consent did not preclude a claim in respect of its "compromise settlement". Consent was not, in that context, stipulated to be a condition precedent to recovery. The insurer's remedy would be to claim damages for loss caused by the failure to obtain consent.
Technip
and confirmed that
Technip
should act as a prudent uninsured, any requirement to obtain Medgulf's consent no longer applied.
Technip
relied in particular upon the decision of Edwards-Stuart J in William McIlroy Swindon Ltd v Quinn Insurance Ltd [2010] EWHC 2448 (TCC) para [70]. In his oral submissions, Mr MacDonald Eggers submitted that this result should be reached as a matter of construction: the premise of the provision referring to consent is that the insurer accepts liability under the contract or at least does so with qualifications and reservations. It could have no application where there had been, as here, an unqualified denial of liability.
Technip
submitted that if consent was required, and if it was a condition precedent to Medgulf's liability, it was now sought on the grounds that it could not be unreasonably withheld in circumstances where there was an actual liability on the part of
Technip
to compensate KJO in a sum of at least US$ 25 million.
Discussion
Technip
was contractually responsible (see Section D above). As Longmore LJ said in Bedfordshire Police Authority v Constable:
""Damages" to an English lawyer imports this idea, that the sums payable by way of damages are sums which fall to be paid by reason of some breach of duty or obligation, whether that duty or obligation is imposed by contract, by the general law, or legislation".
Technip's
argument that the absence of the Underwriters' consent does not preclude a claim under the policy, since
Technip's
settlement with KJO involved a payment of "compensatory damages".
Technip
as to why Medgulf's reliance on the absence of its consent to
Technip's
settlement did not provide an answer to the claim. I did, however, consider that there was particular force in
Technip's
argument that there could not, in the relevant factual circumstances, have been a requirement for
Technip
to obtain Medgulf's consent to its settlement. If this had been a critical argument for
Technip,
I would have been strongly inclined to accept it for the following reasons.
Technip
in 2016 that there was no coverage in respect of its alleged liability for damage to the Platform, and that therefore
Technip
should act as a prudent uninsured. There was no evidence of any change in Medgulf's position in the period prior to the conclusion of the Settlement Agreement, and of course their position throughout these proceedings has been consistent with their denial of liability in 2016.
Technip,
and which relates to this issue, is the decision at first instance in McIlroy. The issue in that case was whether (in the context of claim under the Third Parties (Rights Against Insurers) Act 1930) an insured's claim against its insurer under a liability policy was made too late, in circumstances where no claim had been made following the insurer's denial of liability. The judge held that the time-bar argument succeeded, even though this produced the result that the insured's claim was time-barred long before liability had been established against the insured in respect of the underlying claim. In the course of his judgment, Edwards-Stuart J said this:
"[70] It must be remembered that in this policy, like almost every other liability policy, there is a condition which provides that the insured shall not negotiate, admit liability or make any promise, payment or settlement without the insurer's written consent (General Condition 7b). Under general principles of English contract law I consider that where an insurer has notified the insured that it will not be granting indemnity in respect of a claim notified by the insured, the insurer cannot insist on compliance by the insured with his obligations under the policy in relation to that claim such as, for example, the obligation not to negotiate a settlement or admit liability, The insurer, having refused to perform his primary obligations under the contract in respect of that claim cannot at the same time insist on the insured complying with his primary obligations in respect of that claim. The conduct of the insurer means that the insured is effectively uninsured and must therefore take such steps as he reasonably can to protect his own interests. Such steps may well include attempting to negotiate a reasonable settlement of the claim against him."
Technip,
such as McIntyre and the New Zealand cases, were concerned with clauses where there was a contractual obligation not to admit liability or settle without the insurer's consent. By contrast, the present case concerns a clause where consent is required in order for a settlement to qualify for inclusion in the "Damages" definition. Whilst this is a fair point, I was not persuaded that it provided a powerful answer to a case of waiver or estoppel.
Technip's
argument – that "compensatory damages" covers the amounts paid in settlement for which the policyholder can prove that it was liable – makes far more commercial sense than Medgulf's contrary argument.
F: The Existing Property Endorsement and other exclusions
F1: Introduction and the parties' arguments
Introduction
Technip
in a questionnaire completed in August 2010 (the "Marsh questionnaire"). The questionnaire was on the letterhead of Marsh, the brokers. It was headed: "Offshore Builders Risk Questionnaire – General Information Required". Question 9 was:
"Third Party Property
Details of any third party property - pipelines, platforms etc. - in vicinity of contract plus any indemnities provided under contract"
Technip
provided the following table and text:
| DAMAGES TO EXISTING PROPERTIES | |||
| Existing properties | Value (USD) | Nature of the potential damage | Potential maximum risk (USD) |
| OFFSHORE | |||
| Gas lift structure (GLS) | 180,000,000.00 | Riser J-tube Structure |
5,000,000.00 |
| Riser platform (RP) | 100,000,000.00 | Riser J-tube Structure |
5,000,000.00 |
| Product platform (PP) | 140,000,000.00 | Riser J-tube Structure |
5,000,000.00 |
| Operational Control Platform (OCP) | 120,000,000.00 | Riser J-tube Structure |
5,000,000.00 |
| Living quarter platform (LQP) | 80,000,000.00 | Riser J-tube Structure |
5,000,000.00 |
| Utility platform (UTP) | 120,000,000.00 | Riser J-tube Structure |
5,000,000.00 |
| WHJ (12 units, each 50MUSD) | 600,000,000.00 | replacement | 50,000,000.00 |
| Pipelines and frowlines [sic] (200km)* | 300,000,000.00 | puncture | 10,000,000.00 |
| Cables and submarines (350km)* | 120,000,000.00 | cut | 15,000,000.00 |
| Onshore | |||
| MOL | 5,000,000.00 | damage equipment | 1,000,000.00 |
| Substations | 15,000,000.00 | puncture | 1,000,000.00 |
| TOTAL | 1,780,000,000.00 | Maximum risk to ensure per occurrence: | 50,000,000.00 |
*damages to these facilities can be simultaneous.
"Contractual requirements regarding third parties are in ATTACHMENT E.
For further information, see ATTACHMENTS previously given to MARSH"
The Existing Property Endorsement: Medgulf's argument
Technip
in relation to "composite" policies, such as Arab Bank plc v Zurich Insurance [1999] 1 Lloyds Rep 262, were of no relevance in the present context and in any event made no difference to the analysis. The Existing Property Exclusion is not concerned with whether the acts of one insured affect another. Instead, it is concerned with identifying the types of property insured. It makes no sense to construe it as applying only to property owned by the Principal Insured that happens to be making a claim.
Technip,
which would likely be covered under other insurance. The Existing Property Endorsement can only plausibly have been drafted in contemplation of one insured incurring liability in respect of damage to another's insured property. A Principal Assured will rarely, if ever, incur a liability in respect of damage to or loss of use of its own property. But on
Technip's
construction, the only scenario in which the Existing Property Exclusion can operate, so as to exclude a claim by
Technip,
would be if
Technip
was claiming in respect of damage which it caused to its own property.
Technip
as giving rise to its liability for damage to the Platform, namely 5.2.3 and 12.6, were both caught by limb 3.
The Existing Property Endorsement:
Technip's
argument
Technip
submitted that limb 1 did not apply, both as a matter of Policy language and also having regard to the composite nature of the Policy. The substance of the argument was that limb 1 had no application where the property owned by one Principal Insured (here KJO) was damaged by another Principal Insured (here
Technip).
Nine points were advanced in
Technip's
written closing in support of this argument.
Technip
for any liability for damage to property unless that property was
Technip's
own property and was not declared. If Medgulf's were the true construction, the Policy would have provided simply that there is no cover for any physical damage to property unless it is declared or scheduled. Alternatively, there would have been an "insured v insured" exclusion, but there is none. If Medgulf's argument were right, there could be no realistic cover for Property Damage afforded by Section II unless the relevant property were scheduled. The cover for Property Damage would be emasculated.
a. Avoidance of the Policy by reason of a non-disclosure or misrepresentation by another insured will not prejudice the claimant insured.
b. The application of an exclusion based on wilful misconduct is limited to the guilty insured.
c. The application of other types of exclusion based on the conduct of an insured other than the claimant insured.
d. The application of a breach of warranty by one insured will not ordinarily affect another Insured.
e. The application of policy limits.
Technip.
The fact that the Platform was owned by KJO is irrelevant.
Technip's
construction is evident from the fact that Limb 3 is an exclusion defined by reference to the particular Principal Assured's obligation of indemnity (which is the subject of the claim under the Policy) and not any other Principal Assured's obligation of indemnity.
F2: Discussion
"[47] The core principle is that an insurance policy, like any other contract, must be interpreted objectively by asking what a reasonable person, with all the background knowledge which would reasonably have been available to the parties when they entered into the contract, would have understood the language of the contract to mean. Evidence about what the parties subjectively intended or understood the contract to mean is not relevant to the court's task".
In that regard, the Supreme Court referred (at paragraph [47]) to the summary of the relevant principles and case-law in paragraphs [62] – [66] of the judgment of the Divisional Court.
"[65] In my judgment, applying this approach, the Court must adopt an approach to the interpretation of insurance exclusions which is sensitive to their purpose and place in the insurance contract. The Court should not adopt principles of construction which are appropriate to exemption clauses - i.e. provisions which are designed to relieve a party otherwise liable for breach of contract or in tort of that liability - to the interpretation of insurance exclusions, because insurance exclusions are designed to define the scope of cover which the insurance policy is intended to afford. To this end, the Court should not automatically apply a contra proferentem approach to construction. That said, there may be occasions, where there is a genuine ambiguity in the meaning of the provision, and the effect of one of those constructions is to exclude all or most of the insurance cover which was intended to be provided. In that event, the Court would be entitled to opt for the narrower construction. This result may be achieved not only by the applicable of the contra proferentem approach, but also the approach adopted by Lord Clarke, JSC in Rainy Sky SA v Kookmin Bank [2011] UKSC 50; [2011] 1 WLR 2900, that in the case of ambiguity, the Court may opt for the more commercially sensible construction, at paragraph 21: "If there are two possible constructions, the court is entitled to prefer the construction which is consistent with business common sense and to reject the other". That said, as Lord Clarke, JSC also said, at paragraph 23 of his judgment: "Where the parties have used unambiguous language, the court must apply it". This would, however, be subject to considerations of absurdity or where something plainly has gone wrong with the language of the contract."
Limb 1
Technip
having been asked to identify third party property which was in the vicinity of the contract, and then providing details of certain KJO property, the value of that property, the nature of the potential damage, and the potential maximum risk. It is also in the context of a contractual definition of "Principal Assured" (the Policy itself uses the equivalent expression "Principal Insureds") as encompassing a number of entities, and specifically naming AGOC, KGOC (the two joint venture partners in KJO) as well as
Technip.
Technip;
AGOC; KGOC; associated and/or subsidiary companies; Joint Venturers and/or co-venturers as they may now or subsequently exist; parent, subsidiary, affiliated, associated and inter-related companies of the foregoing, and their directors, officers and employees whilst acting as such.
Technip's
contrary argument is, in substance, that any particular item of existing property is subject to the exclusion if the claim is made by one insured, but is not subject to the exclusion if the claim is made by another insured. Thus, here, the Platform would qualify as excluded existing property if the damage was caused by KJO itself and KJO were then seeking to claim under the policy. However, it would not qualify as excluded existing property if, as here, the damage was caused by
Technip
(or those for whom
Technip
was responsible) and the claim was therefore being made by
Technip.
I do not consider that there is anything in the language of the endorsement which produces this complex and rather odd result. The exclusion is, in my view, much more straightforward: limb 1 is simply concerned with the identity and nature of the property.
Technip's
argument does not dispute that KJO can come within the scope of the words "Principal Assured". However, a proposition that is critical to
Technip's
argument is that it does not do so when considering the position of
Technip.
It only does so when considering KJO's position. This conclusion is said to flow, at least principally, from the fact that the Policy is a composite policy, with the consequence that each insured entity, including
Technip,
is separately insured. On this basis, when considering the separate insurance between
Technip
and Medgulf, there is only one entity that qualifies as "the Principal Assured", namely
Technip
itself.
Technip
and Medgulf. The "Principal Assured" referred to in the Endorsement is a reference to those who are identified as "Principal Insureds" earlier in the Policy. It therefore includes KJO, as a matter of the construction of the endorsement as a whole. It includes KJO whether one is considering the bilateral contract between KJO and Medgulf, or the bilateral contract between
Technip
and Medgulf, or indeed any of the other bilateral contracts which are created. As Mr Brocklebank submitted, correctly in my view, treating the cover as applying separately to
Technip
does not change what is meant by "property [for] which the Principal Assured owns". Those words identify the property within the scope of the endorsement and exclusion, and the identified property does not change depending upon which insured is being considered.
Technip
(in the context of
Technip's
bilateral contract) makes no commercial sense for reasons discussed below, and also pays no regard to the context in which the Policy was placed including the Marsh questionnaire. By contrast, the straightforward reading of the clause advanced by Medgulf, which I accept, makes commercial sense, is supported by the factual matrix and is more consistent with the endorsement as a whole.
Technip's
submissions, I consider that there is significance in the nature of the property identified in the Schedule and that this has a bearing on how the exclusion is to be construed. The essential point is as follows, in the light of the endorsement as a whole. The Schedule lists the property which is the subject of the Buy-Back: in other words the property which is excepted from the exclusion. This is all property owned by KJO. The parties have agreed that notwithstanding the "Existing Property Contractual Exclusion" above, it shall not apply to the scheduled KJO property. The parties must therefore have understood that if there had been no Buy-Back, the exclusion would be applicable. This in turn leads to the conclusion that the words "property … which the Principal Assured owns" must cover property owned by KJO. In other words, KJO comes within the scope of the words "Principal Assured". This is scarcely surprising, in circumstances where the two joint venture partners in KJO are both specifically identified as Principal Insureds.
Technip's
contrary argument posits that, as far as
Technip's
potential liabilities for damage to KJO's property is concerned, the listing of the specific property in the Schedule was irrelevant. In my view, this makes no commercial sense, and certainly far less commercial sense than Medgulf's contrary argument.
Technip's
case) that damage to all of KJO's property is covered, provided that the damage is not caused by KJO itself but rather is caused by another Principal Assured such as
Technip.
The supposed rationale is even harder to discern when one takes into consideration the fact, as is obvious from the question and answer in the Marsh questionnaire, that the identification of the relevant third party property was relevant for the insurers' consideration of the risk and their exposure. Mr MacDonald Eggers also realistically accepted, albeit that there was no specific evidence on this point, that one would expect an additional premium to be paid in order to reflect the additional coverage for the property identified in the endorsement. This seems to me to be a very reasonable, indeed obvious, inference to be drawn from the listing of specific property and information as to its value and likely loss. Since the identification of the relevant property was relevant to the consideration of the risk and the premium to be charged, it cannot sensibly be the case that damage to all of KJO's property, whether or not specified, was insured, provided only that the damage was caused by
Technip
or another Principal Assured (other than KJO itself – a point to which I return below).
Technip.
Thus, the critical words of the endorsement in the context of limb 1 do not mean something different in the context of claims by KJO or Other Insureds or
Technip.
In each case, what matters is the identity and nature of the relevant property which has been damaged. Limb 1 is therefore not concerned with who has a liability to whom.
Technip's
construction has a number of other surprising uncommercial consequences. It has the illogical effect that exactly the same loss, in respect of categories of property to which the endorsement potentially applies, will be covered if claimed by one insured, but will not be covered if claimed by a different insured. I do not consider that there is anything in the language of the endorsement, when viewed in its commercial context, which would produce this result.
Technip's
submission is also that its potential liability for damage to KJO's property is unaffected by the terms of the endorsement and that there is therefore coverage for all of KJO's property whether or not listed in the Schedule of Existing Property. This gives rise to the question: what, therefore, was the point of including a list of certain specific property in that Schedule? On
Technip's
case, the reason for so doing must have been to ensure that if KJO (meaning either of the two joint venture partners, AGOC and KGOC) damaged its own property, there would be coverage for the resulting liabilities. Mr Brocklebank accepted that it is possible to conjure scenarios where a person could be liable for causing damage to property which he himself has an ownership interest; for example a liability of one co-owner to another in respect of jointly owned property, or a liability for a third party's loss of use of an asset which an owner has damaged.
Technip
was to perform in relation to the Project under the Contract. The same is true of the somewhat similar language in the "Scope of Insurance" clause: "Covered activities include but not limited to: design, engineering, management [etc]". It is therefore no surprise that, as I was told, it was
Technip
which had arranged the insurance. The fact that
Technip
did so is consistent with the way in which the questionnaire was answered. Thus, the answers to the question concerning "Past Loss Record" referred to
Technip's
record, with separate information about "our subcontractor COOEC". Similarly, the answer to question 9, concerning third party property, was the table listing KJO's property. No doubt this was because, as far as
Technip
was concerned, KJO was a third party – albeit that the intention appears (from the answer to question 4, concerning parties to be insured) to include coverage for AGOC alongside
Technip
and its subcontractors. It is also consistent with clause 15 of the Contract, which requires
Technip
to take out various insurances.
Technip,
or those for whom it was responsible (or perhaps others) would cause damage to the property of third parties, and in particular KJO whose property was in the vicinity, in the course of carrying out the extensive work that the Contract required. There is nothing to suggest that the parties were concerned to deal with the risk that one of the joint venture partners would cause damage to its own property, and that this was the reason why certain specific KJO property was subject to a Buy-Back. It is far more plausible to suppose, as the response to the Marsh questionnaire indicates, that the parties were concerned to deal with the risk that KJO's property, in the vicinity of the work being performed under the Contract, would be damaged by one of the other insureds (either a Principal Insured or an Other Insured), and in particular by
Technip
or those for whom they were responsible. The exercise of construction involves considering the commercial consequences of the rival interpretations. Medgulf's construction gives a very sensible reason why there was a Buy-Back (and the likelihood of an additional premium) in respect of specific KJO's property.
Technip's
construction does not.
Technip's
property, as falling within "existing property". At the time when this type of insurance is being put in place, one would not expect a contractor such as
Technip
to have started work and therefore to have brought any property to the work site so as to be at risk of damage from covered activities. Mr Brocklebank did not submit that
Technip's
property fell outside the definition of "existing property". His point was that it would be odd to interpret the endorsement (as
Technip's
argument posits) as being applicable, as far as
Technip
was concerned, only to
Technip's
property in circumstances when, at the time that the Policy was put in place, the property had not even been brought to the field for the purposes of the Project. I agree.
Technip
based on the wording of the endorsement. Mr MacDonald Eggers placed emphasis on the word "the" before Principal Assured. Although he disputed this, I consider that if the endorsement had used the word "a", before Principal Assured,
Technip's
present argument would be unarguable. Regardless of whether or not that is right, I do not consider that the use of the word "the" rather than "a" or "any of the" is of any significance. Indeed, if one were to give a literal meaning to "any property [for] which the Principal Assured owns", one would be looking for property jointly owned by all of the Principal Assureds. As previously discussed, it is improbable to say the least, that such property would actually exist. Accordingly, a reasonable person reading the Policy, with the relevant background, would understand that the words referred to property owned by any of the Principal Assureds. Furthermore, the endorsement is a standard form, as is clear from the discussion in Sharp paragraph 9.5.1. The use of the word "the" reflects the fact that, as Mr Brocklebank submitted, there will be cases where the WELCAR policy has a single Principal Assured, with other insureds being identified as "Other Insureds".
Technip.
In addition, the same "Principal Assured" (again
Technip)
must be the owner of the property which has been damaged. Otherwise, a different meaning would be attached to "Principal Assured" in both parts of the sentence.
Technip
damaged one of the properties which were identified in the endorsement's schedule, the Cross Liabilities clause would make it clear that
Technip
could claim. Mr MacDonald Eggers accepted in his oral reply submissions that this clause did not provide a self-standing ground of liability.
Technip's
argument that Medgulf's construction results in there being no realistic cover for property damage. There is cover for damage to property owned by a Principal Assured where the property is identified in the schedule, because it has been bought back. There is also cover for damage to property which is not owned by a Principal Assured, and it is possible to identify realistic scenarios in which that might be the case. There may be damage to the property of a sub-contractor who qualifies as an Other Insured rather than a Principal Assured. Subject to the terms of the pollution exclusion, there may be damage to the property of third parties caused by pollution. If the Vessel had collided with another vessel in the vicinity of the Platform, then (again subject to the exclusions) there would be coverage. If
Technip
had caused damage to the Vessel itself, then that would in principle be covered. There would also be coverage for bodily injury, which falls completely outside the endorsement.
Technip's
points and I accept Medgulf's argument on this issue. The consequence is that liability under the Policy is excluded, and that therefore
Technip's
claim fails.
Limb 3
Technip
to KJO arises (see Section D) under clause 5.2.3 or 12.6 of the Contract, or both. I do not consider that either of these clauses is an "indemnification, hold harmless or similar provision". They are both clauses which define the scope of
Technip's
liabilities under the Contract for the Work that it was engaged to carry out. The Policy clearly covers "Express Contractual Liability", and thus (broadly speaking) cover liabilities for bodily injury and property damage which arose in the course of
Technip's
contractual performance and were the result of
Technip's
fault. Clause 5.2.3 creates a fault-based liability for damage to KJO's property at or near the Work Site. Clause 12.6 makes it clear that
Technip's
fault-based liability extends to Subcontractors that it has chosen to employ. A reasonable person, with the relevant background knowledge, would not have understood limb 3 to apply the liability which arose under either or both of these clauses.
F3: The Watercraft exclusion
Technip
that there is nothing in the wording of Endorsement 1 which required
Technip
to be a co-insured under the Gard policy. Accordingly, the Watercraft exclusion cannot be relied upon by Medgulf.
G: Quantum issues
Technip,
it is not necessary to resolve the disputes on quantum. However, in view of the possibility that my decision on liability may be appealed, it is sensible for me to set out how I would have resolved the quantum disputes had it been necessary to do so.
G1: Introduction to the issues
Technip's
financial claim comprised two elements. The main element comprised sums which formed part of its liability to KJO. There were two principal components here. First, there were various costs associated with safeguarding the Platform in preparation for the necessary repairs. Secondly, there were the costs of actually carrying out the repairs in situ. This claim gave rise to various disputes between the parties and their experts.
Technip
had not proved by any sufficient evidence that there was any liability on the part of
Technip
to KJO in relation to any aspect of these costs. In the event that there was a liability for such costs, there was a dispute on quantum which concerned the reasonableness of the figures relied upon by
Technip.
Dr Lamport's evidence, for
Technip,
was that the costs were in the range of US$ 8.039 million to US$ 15.765 million. Mr van Beek's evidence, for Medgulf, was that the appropriate figure (if any sums were to be awarded at all) was US$ 5.524 million.
Technip's
claim, was based upon the "Agreed Scope" of the work: i.e. the agreement, described in Section B above, between KJO and
Technip
which had been reached in the course of the discussions in May 2019. Mr van Beek's figures were based on what was referred to as the "Reduced Scope". His evidence was that it was not necessary or reasonable to do all of the work set out in the Agreed Scope: the "Reduced Scope" of work would be sufficient to restore the Platform to its pre-Allision condition. The main issue here concerned whether or not it was necessary or reasonable to allow for the entire removal and replacement of the tripod deck of the Platform.
Technip's
liability to KJO should be assessed on the basis of the "Agreed Scope" or Mr van Beek's "Reduced Scope" had significant implications for the quantum of the claim. Dr Lamport's figures, based on the Agreed Scope, was a range between US$ 9.068 million and US$ 10.264 million. Mr van Beek's figure, based on the Reduced Scope, was US$ 4.958 million. If, however, the court were to conclude that the Agreed Scope was the relevant approach, then Mr van Beek took issue with Dr Lamport's figures: Mr van Beek's figure for the Agreed Scope was US$ 7.329 million.
Technip's
liability to KJO as such, but upon the terms of the Policy which included "Claims Expenses" as part of the claimable "Ultimate Net Loss". Claims Expenses were defined as follows:
""CLAIMS EXPENSES" shall mean reasonable legal costs and other expenses incurred by or on behalf of the Insured(s) in the defence of any covered claim including attorney's fees and disbursements, investigation, adjustment, appraisal, appeal costs and expenses and pre- and post- judgement interest, excluding salaries, wages and benefits of the Insured's employees and the Insured's administrative expenses."
Technip's
case was reduced when its closing submissions were served, no doubt in the light of the evidence of Mr Cortas and the express exclusion in the Claims Expenses definition for salaries, wages and benefits of the Insured's employees and the Insured's administrative expenses. Accordingly,
Technip
said in its closing submissions that it was reducing its "Additional Expenses" claim by limiting it to the damage survey costs and the costs of extending the performance bonds provided by
Technip.
Subsequent to the conclusion of the trial, HFW on behalf of
Technip
wrote stating that it was no longer pursuing its claim under the Policy in respect of the costs of extending the contractual performance bonds.
Technip
had an opportunity to consider the revised figures. I did not understand that there was any objection to the figures put forward as Mr van Beek's final position, and I therefore base my decisions on that schedule. The schedule is annexed to this judgment, and I have added a final column with my decision on the quantum of
Technip's
claim.
Technip,
then it was common ground that allowance would have to be made for the US$ 500,000 deductible under the Policy. Credit would also need to be given for any recoveries made by
Technip
from Maridive pursuant to the arbitration award which was issued shortly before the trial.
G2: Legal principles
"… when loss was incurred by physical damage to a chattel and it could be economically repaired, then the diminution in value caused by the tort was measured by reference to the reasonable cost of repairs which, in practice, was "likely to be the lowest reasonably obtainable cost of repairs"."
"(1) Where a chattel is damaged by the negligence of another that loss (the "direct" loss) is suffered as soon as the chattel is damaged. (2) The proper measure of that loss is the diminution in value that the chattel has suffered as a result of the negligence of the defendant. This follows the general principle in awarding damages, i e that of restitution: see Livingstone v Rawyards Coal Co (1880) 5 App Cas 25, 39, per Lord Blackburn. In Lord Hobhouse's phrase, "this can be expressed as a capital account loss". (3) If the chattel can be economically repaired, the claimant is entitled to have it repaired at the cost of the wrongdoer, although the claimant is not obliged to repair the chattel to recover the direct loss suffered. (4) Events occurring after the infliction of the damage are irrelevant to calculating the diminution in value measure of damages: see Burdis v Livsey [2003] QB 36, para 95. Thus, subsequent destruction of the chattel, or a decision to delay repairs (The Kingsway [1918] P 344), or an ability to have the repairs done at less that cost (Jones v Stroud District Council [1986] 1 WLR 1141) or for nothing (The Endeavour (1890) 6 Asp MC 511; Burdis v Livsey [2003] QB 36, where no sum was payable because the repairs were carried out under an unenforceable credit agreement) will not prevent the claimant from recovering the diminution in value of the chattel that has been caused by the negligence of the tortfeasor. (5) Generally, the practical way that the courts have calculated this diminution in value is to ask how much would be the reasonable cost of repair so as to put the chattel back in the state it was in before it was damaged. In general this is a convenient practice which we think the courts should continue to follow. Only if the sum claimed appears to be clearly excessive will the court be justified in investigating whether that sum exceeds the cost that the claimant would have incurred in having the repairs carried out by a reputable repairer."
"[32] In summary, if a claimant, whose damaged chattel is capable of economic repair, chooses to repair it at a cost which is not reasonable, then the reason why he cannot recover that unreasonable cost as damages will be because that cost does not represent the diminution in value of the chattel. What is the diminution in value of a chattel or the "reasonable cost of repair" will always be a question of fact for the trial judge to determine if it is in dispute.
…
[44] The claim in respect of the physical damage to the vehicle is a claim in general damages and the measure of damages recoverable is the monetary amount of the diminution in value of the vehicle caused by the negligence of the defendant. That diminution in value figure is usually calculated, as a rule of thumb, by the reasonable cost of repairs (to the claimant) in a case where the vehicle is capable of economic repair. If, as is assumed by the form of the question in the third preliminary issue, it is the insurer that has arranged and paid for the repairs to the claimant's vehicle and the claimant then sues for the cost incurred by the insurer as the sum representing the diminution in value of the vehicle resulting from the negligence of the defendant, the court has only one question to consider. It is whether the actual sum claimed is equal to or less than the notional sum this claimant would have paid, by way of a reasonable cost of repair, if he had gone into the open market to have those repairs done. The court will examine the components of the notional overall figure which is said to represent what the claimant (not the insurer) would have had to pay if he had organised the repairs, to ensure that that sum represents the "reasonable cost" of repairs that the claimant would have had to pay. It will then compare that figure (stripped, if necessary, of any "unreasonable" elements) with the total sum representing the actual cost to the insurer, which will be the sum claimed by the claimant."
Technip's
liability to KJO for the cost of repairs flowing from the Allision. As stated in paragraph [32], the "reasonable cost of repair" is simply a question of fact for a trial judge to determine. I need to deal only briefly with the principal points raised in that regard.
"Again, generally speaking, in order to claim under a liability policy where the insured has settled the claim of the third party the insured still has to demonstrate that it was or would have been liable to the third party. It cannot simply rely on the fact of the settlement to demonstrate either liability or that the amount of the settlement was reasonable. In order to show the settlement was reasonable, the insured must show that the amount of damage for which it would have been liable is at least as much as the amount paid under the settlement".
Technip
needs to prove the amount of damage for which it would have been liable. This involves, in substance, proving the reasonableness of the repair costs which were being claimed by KJO; since
Technip
would have had no liability to KJO, in respect of the costs of repair, for anything other than the reasonable repair costs. The amount of the settlement cannot prove the reasonableness of the repair costs which were being claimed. It follows that I need to consider the extent to which
Technip
in fact had a liability to KJO for each of the items of relevant cost which were being claimed by KJO and in respect of which
Technip
alleges that it was liable. At times, Mr MacDonald Eggers accepted that this was the position: for example in an exchange at Day 5 page 124 (which it is not necessary to set out in full). At other times, he tended to elide the question of whether there was a liability for the amounts claimed with the reasonableness of the US$ 25 million paid. I do not accept that this elision was appropriate.
Technip
submitted that "the cost of repair must be reasonable, in that the work must be necessary and the charges must not be extravagant". In support of that proposition,
Technip
referred to The Pactolus (1856) Swabey 173 and McGregor on Damages 21st edition, paragraph 37-006. The latter states:
"The method of assessing the cost of repair has been elaborated in a number of cases. (1) The cost of repair must be reasonable, both in that the work must be necessary and the charges must not be extravagant".
In their opening submissions, Medgulf said that this was common ground.
"Where the court must fix the "proper" valuation of a property there is normally a range of valuations which might have been made by reasonably careful valuers: the court must choose the figure which it considers to be the most likely outcome of careful assessment: the defendant is not given the benefit of damages being assessed by reference to the highest figure which might have been given without negligence".
Technip's
argument based upon the ranges given by Dr Lamport. Ranges are potentially relevant whether repairs have been carried out or not. In each case the court is seeking to decide upon a reasonable cost of repair, and to arrive at a figure which can be the subject of a money judgment. However, the evidence available to the court is different in these two different situations, where repairs have or have not been carried out, and this has an impact on the court's decision-making process. Where a repair has been carried out and paid for, the court will be focusing on whether the amount actually paid was reasonable. There is a firm figure as a starting point, and the court can then consider whether or not that figure falls within whatever range of reasonable repair costs exists. Where no repair has been carried out, the court does not have that firm starting point. If the court is persuaded that (as may well be the case) there is a range of possible repair costs, then the court will need– in order to fix upon the appropriate figure to be awarded -- to decide the most likely outcome in terms of what the repair cost would be. This may well be a figure in the middle of a range, if the evidence shows that there is indeed a range. But it may be a figure either side of the mean, depending on the evidence. However, Mr Brocklebank was correct to submit that a claimant whose expert can identify a range cannot simply claim the highest value figure in the range, just as a defendant cannot simply ask for the cost of repair to be assessed on the basis of the lowest figure in the range. Ultimately, the court must decide what is the most likely outcome in terms of the reasonable cost of the particular repair. This is essentially the same approach as in Lion Nathan.
Technip's
liability to KJO in the present case is not, strictly speaking, to be carried out by reference to the diminution in value of the relevant asset. Clause 5.2.3 creates a liability on the part of
Technip
to carry out the repair. I agree, but this does not make any practical difference to the approach to the key factual question: what is the reasonable cost of repair for which
Technip
has proved its liability?
G3: The expert evidence
Technip,
his answers were less than persuasive and also at times difficult to reconcile with other answers which he gave. These points will be illustrated in the more detailed discussion below.
G4: Safeguarding costs
Technip's
claim concerned its alleged liability for the costs of safeguarding the Platform prior to carrying out the actual repairs. Dr Lamport's evidence was that these were in an amount ranging between US$ 8.039 million and US$ 15.765 million. The mid-point of this range is US$ 11.9 million. Mr van Beek's evidence was that extensive safeguarding was not required. He accepted that some measures were required in any event, and included the necessary costs in his repair cost estimates. However, he disputed the need for the very significant costs claimed by
Technip
and supported by Dr Lamport's evidence. Mr van Beek's evidence, and Medgulf's case, was based on their interpretation of two statements made by KJO and Atkins at the time, and the fact that hot work had been performed on the Platform, in relation to the J-tube installation, shortly before the Allision. Medgulf submitted that these three elements provided powerful (and in their submission conclusive) evidence that the Platform was already safe for hot work and for work of the kind involved in the anticipated post-Allision repairs. They all presented a consistent picture of a Platform in shutdown and safeguarded for the purposes of hot work and significant construction (such as the J-tube installation). On this basis, Medgulf submitted that the correct finding of fact is that no further well safeguarding was required before the repairs could be implemented.
Technip's
claim were not required, or at the very least raise very serious questions as to whether they were actually required. It is for
Technip
to prove, on the balance of probabilities, that they incurred a liability for these safeguarding costs. In my view, the evidence which they have adduced at the trial falls a long way short of satisfactorily addressing each of the points relied upon. That evidence consists of Dr Lamport's evidence, which essentially seeks to explain away each of the three matters relied upon. I do not consider that he could do so satisfactorily. If Medgulf's case was to be addressed effectively, then in my view it would have been necessary to have had some evidence from KJO, or Atkins, or both. If this had been a claim made by KJO itself for US$ 11.9 million, or figures in the range identified by Dr Lamport, no court would conceivably have ordered payment of such a sum on the basis of the materials which were before me at trial. I do not see that any different result is reached in the context of a case where
Technip
must establish its liability to KJO for such sums.
Technip,
assert a claim for significant safeguarding costs. A figure of US$ 11,630,000 was put forward in August 2019 as being the cost of temporary suspension of the two wells on the Platform by plugging and un-plugging. This figure was contained in a table, but there was no breakdown of how it had been computed.
Technip's
position in the discussions, prior to that time, had been that it was for KJO to present the Platform so that it was ready for the repairs to be carried out. It is not clear that that position changed, and there is no evidence that
Technip
ever took steps to look into detail at the merits of including this element of the claim, or to challenge it. This was probably because
Technip
was preparing for a commercial negotiation, in which the overall outcome was what really mattered. Mr Cortas accepted in cross-examination that
Technip
had not done any analysis to work out what safeguarding work was actually required, and had assumed that the Platform would be handed over free of hydrocarbons to allow repair activities; and that
Technip
did not know what KJO had already done.
Technip
did not look in detail at the merits of the claim does not in itself affect its validity. As Medgulf accepted, ultimately the question of whether there was a liability for this sum is an objective question. However, it does serve to explain why
Technip
has been unable to produce, leaving aside Dr Lamport, any relevant evidence in support of its validity.
"The proposed Implementation Schedule for the chosen mitigation scheme is presented in Table 9-1, considering the criteria set in Section 5.1.
In order to implement the repair mitigation schemes effectively with minimum possible schedule, experienced Offshore Repairs Contractor(s) shall be assigned to carry out the repair works.
The major assumptions/considerations affecting the schedule are presented below.
1. As per KJO standard safety practice, temporary suspension of the two (2) Wells K-10 and K-213 is shall be performed prior to any repair/mitigation
2. Removal of piping, protection of Xmas trees and other topside facilities are expected to be carried before starting any repair works. (Atkins understand that NR-09 platform is currently in shutdown, hence hot work is permitted on the platform without further well intervention)".
Technip
in fact had a liability to KJO for the safeguarding costs claimed. It does not, however, stand on its own. In the context of a pre-survey inquiry, Ahmed Sairat, a KJO production engineer, informed
Technip
that there were no live subsea lines around the Platform as the KJO operation was in shutdown and that:
"All gas and oil lines are mothballed with minimum preservation pressure. (gas line = 100 psig & oil line < 50 psig)".
"KJO …. have their certain procedures in place, what requirements they required … and those pipe supports did not require suspension of the wells otherwise they wouldn't have put it in their bid to have it done… So on offshore platforms, you can do work on them all the time, there is always hot works done … it just has to be done safely."
In my view, however, the rational explanation for the carrying out of work on the J-tube installation, which did require hot work, is that the wells had been safeguarded.
Technip's
closing submissions) was based on the proposition that KJO had included a substantial sum for safeguarding in the figures which they presented, that there was no reason for them to do so if this work was not required, and that
Technip
would have to comply with KJO's requirements. However, the assertion by KJO that such work was required, and should be paid for by
Technip,
cannot in itself establish that
Technip
had a liability to KJO for this work. It certainly cannot do so in circumstances where the evidence relied upon by Medgulf suggested very strongly that the safeguarding work was not required, and where
Technip
could in my view produce nothing of any weight to counter the strength of that evidence.
G5: Repair costs: Agreed Scope or Reduced Scope?
Technip
contended that the removal and replacement of the tripod deck, which was part of the scope of repairs agreed between KJO and
Technip
in the "Agreed Scope" was a reasonable method of repair.
Technip's
liability to KJO would extend beyond the costs of implementing the Reduced Scope. Two separate matters feed into this conclusion.
Technip
contended to be too low), there was a significant difference in the cost. It is true that much of this difference is related to the vessel to be used for the repairs: Mr van Beek used a jack-up barge for his Reduced Scope, but a more expensive jack-up rig for the Agreed Scope. However, as Mr van Beek said in evidence, there was still a large amount of money – some US$ 700,000 – which is not accounted for by that difference.
"… that you introduce more risk by disconnecting all the piping from the risers, which is connected to other platforms and the reservoir and also you introduce more risk by taking out and you need to disassemble a large portion of the structure, you don't know what the impact is of residual stress if you remove – a large cost construction on both the tripod deck, to take the tripod deck out and bring a new deck you need to remove that complete structure and that structure is in place to keep the top part of the legs together, it is part [of] the integrity but if you remove you have a high risk that residual stresses will give a lot of deviations in the structure.
But also removing the topside piping connected to the risers brings more risk and the transport of the complete tripod deck in a plane subject to wind load introduces more risk. So in the ranking of safety objectives and doing a risk assessment for the construction methodology, I would never change out the tripod deck and the piping and the structure involved. If it is not damaged, it is not needed, it brings more risk and is more expensive".
Technip
in its written closing, Mr van Beek did not accept that the proposition that the tripod deck removal was a reasonable repair proposal. His response to that proposition was that the tripod deck removal and the installation of a new one was "not necessary because it is simply not damaged". He also said in his evidence that there was no reason at all to do this.
G6: Reduced Scope – repair costs
Technip
itself had originally proposed a jack-up vessel (i.e. a barge). When asked about this towards the beginning of cross-examination, he was asked whether it would have been a "technically appropriate way of doing it". His response was: "if it would have been allowed you could use a jack-up vessel to do it, correct". He explained that the reason that he had given for not using it was that KJO had rejected it. He did not at this stage in his evidence provide any technical reason as to why a jack-up barge could not be used: he referred only to KJO's refusal to accept a jack-up vessel and its requirement for a DPV vessel. In his evidence on the following day, however, Dr Lamport gave an explanation as to why a DPV was required. He suggested that when the wells were first drilled (i.e. back in the 1960's), a jack-up rig would have left impressions in the sea floor, and that the use of a jack up barge would create another set of holes which, if they start overlapping, could cause big problems including safety problems. He said that he had considered why
Technip
was not allowed to use a jack-up, and why KJO requested a DPV, and "so I said oh, why was that and that is the reason I came up with".
Technip
the cost of using a more expensive DPV or a jack-up rig in preference to a jack-up barge, in circumstances where the latter was technically suitable. Dr Lamport had earlier in his evidence indicated that there was no technical reason why a jack-up barge could not be used, and his later evidence about holes seemed to me to depart from that evidence. On the evidence, I see no technical reason why a jack-up barge could not have been used, and I accept Mr van Beek's evidence that this was a suitable means by which to carry out the repair.
Technip)
generated their engineering assistance estimate for the construction phase. Dr Lamport referred to a figure of US$ 523,000, which was a figure given by or on behalf of KJO in 2019. He said that this cost was "most likely associated with a third-party consultant, such as Atkins, providing assistance to KJO". The cost therefore "most likely includes for an Atkins representative to be offshore during at least a portion of the offshore repair work, which is fairly standard practice for an owner". He said, however, that given that "no back-up documentation has been found, I have taken the lower and upper range for KJO's estimate as US$ 500,000". By contrast Mr van Beek said, in the joint report, that since KJO would not be "executing engineering, already done by
Technip
and reviewed by DNV … the provisions for review of engineering are already included in the other owner's costs in this statement". He said that the costs agreed to compensate the owner are well covered in other sections.
Technip
has failed to prove that it was liable for this amount to KJO. Dr Lamport's evidence, summarised above, indicates uncertainty as to exactly what these costs are, and in my view there is no sound basis for a conclusion – based on Dr Lamport's view of reasonableness – that
Technip
incurred a liability to KJO in this amount.
Technip
did not consider that a further dimensional survey was required, and their position was that they would not need a further survey if they were to do the repairs. The evidence does not in my view establish that another contractor would have required a further dimensional survey. I was therefore not persuaded that the substantial cost of a further survey was reasonable.
G7: Miscellaneous costs
Technip
to AGOC in October 2019, where the substantial majority of this sum was VAT (US$ 753,477) with withholding tax amounting to US$ 34,542. Dr Lamport said in cross-examination that he was not a VAT expert, and that he had "assumed
Technip
would know how to calculate this number so, you know, if they said they had to do it that way that is the way it is". He went on to say that he had assumed that
Technip
knew what they were doing.
Technip
had not adduced any evidence either of the applicable VAT regime or of how it would apply to items making up the cost estimates. Nor was there any competent evidence as to whether any VAT would be capable of being reclaimed by the paying party. There was therefore no evidential basis for any VAT amount in any cost estimate. I agree. Indeed,
Technip's
evidential difficulty with this aspect of their case may explain why VAT and withholding tax were not addressed in their closing submissions.
Technip's
October 2019 letter) by reference to the quotation from CCC for the repair work. Since I have not proceeded on the basis of that quotation (which formed the basis of Dr Lamport's figures), but rather have accepted Mr van Beek's Reduced Scope, I see no reason to disagree with Mr van Beek's figure for withholding tax of US$ 16,662.
Technip
in relation to CCC's work. This was a figure based on a contract price which, as
Technip
submitted, arose from a competitive tender, and this was followed by CCC reducing its quoted price. Although Mr van Beek had criticisms of the amount of work carried out, I was not attracted by these criticisms. As Mr Cortas explained, a comprehensive survey was required, in order to get the most complete data for the purposes of repair. Overall, I considered that it was reasonable for
Technip
to have CCC do the survey which they did, and that the cost incurred came within the range of reasonableness.
Technip,
if liability had been established under the Policy. For that purpose, I have – in the case of items 14 – 23, simply included the final figure.
CONCLUSION
Technip's
claim under the Policy fails because of limb 1 of the exclusion in the Existing Property Endorsement.
Technip's
claim would have succeeded in the sum of US$ 10,377,059.
| Item | Description | Dr Lamport | Mr van Beek (Reduced Scope) | Mr van Beek (Agreed Scope) | Judge's Decision |
| Scope definition | |||||
| 1 | DNV survey[2] | US$328,458 | US$328,458 | US$328,458 | US$ 328,458 |
| 2 | CCC offshore survey* | US$2,530,000 | US$1,371,347 | US$1,371,347 | US$ 2,530,000 |
| 3 | Insurance for offshore survey* | US$87,995 | US$87,995 | US$87,995 | US$ 87,995 |
| 4 | TPAD internal costs* | US$2,346,530 | US$1,187,171 | US$1,187,171 | 0 (No longer claimed) |
| 5 | TPAD survey costs* | US$88,126 | US$88,126 | US$88,126 | 0 (No longer claimed) |
| 6 | Atkins survey | US$503,928 | US$503,928 | US$503,928 | US$ 503,928 |
| 7 | KJO owner's cost | US$100,000 | US$100,000 | US$100,000 | US$ 100,000 |
| 8 | Salaries, travel cost of ESD and shareholders attended meetings by KJO | US$200,000 | US$100,000 | US$100,000 | US$ 100,000 |
| 9 | Scope definition subtotal | US$6,185,037 | US$3,767,025 | US$3,767,025 | US$ 3,650,381 |
| Safeguarding (if required) | |||||
| 10 | Well safeguarding | US$7,140,000-US$14,280,000 | US$5,435,762 | US$5,435,762 | 0 |
| 11 | Safeguarding risers and pipelines | US$626,020-US$1,105,544 | US$88,320 | US$88,320 | 0 |
| 12 | Safeguarding topside piping | US$273,847-US$380,411 | Included in no. 11 above | Included in no. 11 above | 0 |
| 13 | Safeguarding subtotal | US$8,039,867-US$15,765,955 | US$5,524,082 | US$5,524,082 | 0 |
| Platform Repairs | |||||
| 14 | Mobilisation/demobilisation | US$1,174,000 | US$361,600 | US$440,000 | |
| 15 | Project management and engineering | US$275,000-US$316,250 | US$212,160 | US$224,640 | |
| 16 | Offshore repairs | US$7,701,500-US$8,856,725 | US$4,221,686 | US$6,401,125 | |
| 17 | - Tripod deck removal | - Inc. | - Not required | - Inc. | |
| 18 | - Jacket repair works | - Inc. | - Not required | - Not required | |
| 18a. | - Divers | - Inc. | - Inc. US$17,189 | - Inc. US$60,161 | |
| 19 | - New tripod deck installation | - Inc. | - Not required | - Inc. | |
| 20 | - Topsides piping materials | - Inc. | - Not required | - Inc. | |
| 21 | - Topsides offshore hook-up/comm. | - Inc. | - Included to extent required | - Included to extent required | |
| 22 | Marine spread stand-by costs | Inc. | US$162,720 | US$264,080 | |
| 23 | Adjustment for repairs not attributable to Allision | (US$82,380) | (US$164,398), already included | (US$164,398), already included | |
| 24 | Platform repairs offshore subtotal | US$9,068,120-US$10,264,595 | US$4,958,166 | US$7,329,845 | US$ 4,958,166 |
| 25 | Technip Additional Engineering* |
US$229,667 | US$229,667 | US$229,667 | US$ 229,667 |
| 26 | Engineering during construction phase | ||||
| 27 | - KJO | US$500,000 | Included in no. 29 below | Included in no. 29 below | |
| 28 | - Technip |
US$425,000 | US$554,440 | US$665,328 | US$ 554,440 |
| 29 | Owner's management and supervision | US$1,329,000 | US$422,400 | US$422,400[3] | US$ 422,400 |
| 30 | Third-party inspection services | ||||
| 31 | - KJO | US$144,255-US$186,300 | Included in no. 29 above | Included in no. 29 above | |
| 32 | - Technip |
US$29,700-US$44,550 | US$44,500 | US$44,500 | US$ 44,500 |
| 33 | EPC contractor's fee, overhead and profit | Included in other costs | Included in other costs | Included in other costs | |
| 34 | Dimensional survey | US$1,876,250-US$1,959,275 | Not required | Not required | |
| 35 | Adjustment for repairs not attributable to Allision | (US$78,214) | See no. 23 above. | See no. 23 above. | |
| 36 | Contingency | US$1,981,760-US$2,182,219 | US$54,939 (in addition to weather downtime per no. 22) | US$59,676 (in addition to weather downtime per no. 22) | US$ 310,458 |
| 37 | Cost to replace J-tube | Not required | Not required | Not required | |
| 38 | Platform Repair Subtotal | US$15,505,537-US$17,042,392 | US$6,264,112 | US$8,751,416 | US$ 6,519,631 |
| Miscellaneous costs | |||||
| 39 | Geotechnical investigation | Not required | Not required | Not required | |
| 40 | Insurance | US$500,000 | US$190,385 | US$284,481 | US$ 190,385 |
| 41 | Withholding Tax and VAT | US$788,019—-S$906,222 | WHT: US$16,662 VAT: US$0 |
WHT: US$17,598 VAT: US$0 |
US$ 16,662 |
| 42 | Performance bond | Not attributable to Allision | Not attributable to Allision | Not attributable to Allision | 0 (not pursued) |
| 43 | Miscellaneous costs subtotal | US$1,288,019-US$1,406,222 | US$207,047 | US$302,079 | US$ 207,047 |
Note 1 In this section, I will fully capitalise terms where I am quoting a provision where they are so capitalised. However, where I am not quoting a provision, I will only capitalise the first letter of relevant defined terms such as “Work” or “Subcontract” or “Contractor” or “Subcontracting Plan”. [Back] Note 2 Costs marked with an asterisk are claimed as Additional Losses. [Back] Note 3 Mr van Beek estimated US$422,400 for the Reduced Scope; he did not produce a separate estimate for the Agreed Scope. [Back]