Case No: 1999 Folio 935
Neutral Citation Number: [2001] EWHC 518 (Comm)
IN THE HIGH COURT OF JUSTICE
QUEENS BENCH DIVISION
COMMERCIAL COURT

Royal Courts of Justice
Strand, London, WC2A 2LL

Date: 28th March 2001

B e f o r e :

THE HONOURABLE MR JUSTICE DAVID STEEL

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AKTIELSELSKABET DAMPSKIBSSELSKABEL
SVENDBORG AND ANOTHER
Claimants

-	and -

MOBIL NORTH SEAL LIMITED AND OTHERS
Defendants

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MR S.C. BOYD Q. C. and MR C. SMITH (instructed by Holman Fenwick & Willan for the Claimant)
MR L. RABINOWITZ (instructed by Norton Rose for the 1st to the 5th Defendants)
MR D. MATTHEWS (instructed by Middleton Potts for the 6th to the 9th Defendants)

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JUDGMENT: 

Mr. Justice David Steel:-

Introduction

1	The Defendants are oil companies carrying on business in the oil and gas industry.  For convenience I will refer to them jointly as Mobil.  The Claimants (“Maersk”) are the owners of anchor handling vessels.  The dispute between the parties arises in connection with the purported termination in January 1999 by Mobil of a charter agreement made between Maersk and some or all of the defendants for the hire of an anchor handling support vessel for use in connection with drilling activities being undertaken in the North Sea.  The focus of the dispute between the parties is the proper construction of provisions in a Change Notice Amendment Agreement executed in March 1998 amending an earlier Charterparty dated 11th October 1996.

2	I should make it clear that nothing in this judgment is intended to trespass upon, let alone decide, the question whether the sixth to ninth defendants were parties to the charter party or whether those defendants are also liable in respect of any sums found to be due from the first to the fifth defendants.

3	All the defendant companies had interests in licences within the North Sea and in the area West of the Shetlands.  The first, second and third defendants had an interest in a licence block known as Tranche 6 lying approximately 120 kilometres north west of the Shetland Islands. Drilling in this block in due course was given the notation “fourth well” or “well slot”.  The first, fourth and fifth defendants together with the sixth to ninth defendants had an interest in a licence block known as Tranche 61 in a nearby part of the west of Shetland area.  Drilling in this block was in due course given the notation “fifth well” or “well slot”.

4	On the 12th July 1995 Mobil entered into an agreement with R & B Falcon (“R&B”) for the provision of Jack Bates, a mobile off-shore semi-submersible drilling unit.  It was intended the Jack Bates be used by the defendants in connection with drilling in the west of Shetland licence areas.  The engagement of Jack Bates necessitated the chartering of appropriate anchor-handling tug supply vessels and on the 14th May 1996 an invitation to tender in respect of such vessels was distributed on behalf of Mobil to various supply vessel owners including Maersk.

5	This led in October 199 to the charter by Mobil from Maersk of an anchor handling vessel known as Maersk Promoter.  The charter party provided that delivery would be around the 1st April 1997 at Aberdeen. The period of hire was expressed as “five firm wells each of average duration of 90 days (to include mobilisation and de-mobilisation at each well change and at commencement and end of programme)”.  The employment of the vessel was described as “support of charterers operations with particular reference to the semi-submersible drilling rig Jack Bates”.

6	The charter party also contained a cancellation clause in the following terms: -

“Clause 4.3.  Without prejudice to any other right of charterer under this charter or at law, in the event that charterer’s contract for the rig specified in Part 1 box reference 11 is terminated, charterer may terminate this charter immediately by giving prior notice in writing of such termination to owner.  In the event of such termination charterer to be under no obligation to make any payment to owner in respect of any period of time occurring after the date of termination.”

7	In late 1997 and early 1998 there were discussions between Mobil and Maersk relating to the provision by Maersk, in substitution for Maersk Promoter, of a larger and more sophisticated anchor handling vessel for use in connection with the fifth well of the five firm wells covered by the original agreement.  As already recorded, this fifth well was in Tranche 61.  These negotiations led in due course to an amendment to the original charter party entitled Agreement/Change Notice (Amendment).  This was executed in March 1998.

8	The relevant terms of this agreement, which are at the heart of the dispute between the parties, are as follows:-

“Box 5
Date and Time of Delivery
Circa 24th July 1998 (to replace Maersk Promoter prior to rig move from the fourth to the fifth well slots of current Jack Bates drilling programme.  With notice periods as per clause 4.2. Per clause 4.2 of the Maersk Promoter is an acceptable substitute.

Box 7
Port and Place of Delivery
Aberdeen or otherwise as mutually agreed.

Box 9
Period of Hire
5th well slot of current Jack Bates drilling programme and two years firm from end of fifth slot.

Box 9A
Termination Notice
As per Clause 4.3.

Box 12
Charter Hire Rate and Currency
Promoter £9,015 per day including lubes but excluding fuel to point of tight tow from fourth to fifth well slot of current Jack Bates drilling programme.  Thereafter rate as per clause 45 applies until arrival back in Aberdeen following completion of the rig move...
Maersk B Class £17,600 per day including lubes but excluding fuel (fixed and firm) to end of firm period in box 9).

Clause 4.3 delete and insert “Without prejudice to any other right of the Charterer under this charter or at law, in the event that the Charterers contract for the rig specified in Part 1 Box reference 11 is terminated, Charterer may terminate this charter immediately by giving prior notice in writing of such termination to Owner.  In the event of such termination Charterers shall be under no obligation to make any payment to Owner in respect of any period of time occurring after the date of termination except the following
1. If termination of the charter takes  place during the fifth well and first year of the charter Charterer shall be liable to Owner for ninety days notice or completion of the current well whichever is the greater and a termination fee of £1.9 million . . .

Clause 43(i).  In the event that a break in the programme occurs and the vessel is sub-chartered to a third party, any income generated will be credited by Owner to Charterer against charter hire up to the rate contained in Box 12. Any sum in addition to this shall be shared 60-40 between Charterer and Owner respectively.

2.  In the event the vessel is sub-chartered at any other time other than in compliance with provisions contained in 43.1 the same terms and conditions will apply except that any additional sums generated in excess of the rate contained in Box 12 should be shared 50-50 between the Charterer and the Owner respectively.

3. Any sub-chartering to be arranged by Owner, but with full agreement of the Charterer.”

Clause 45 Owner shall exclusively provide Charterer with additional vessels for rig moves of the Jack Bates anchor handling mooring assistance as required. . . .

Clause 47 (i).  Owner will supply and install one 3 and 9/16th inch gypsy and guide wheel on the Maersk B Class . . .

Clause 3.1.  The Owner shall let and the Charterer shall hire the service of the vessel for a period as indicated in Box 9 commencing at the time and on the date when the vessel is delivered to or otherwise placed at the disposal of Charterer as provided in Box 5.

Clause 39  This charter shall be governed and construed in accordance with the laws of England.  Any controversy or claim relating to the interpretation or performance of this charter or the breach thereof shall be litigatable in the High Court of Justice in London. . .

9	During the spring and summer of 1998, Mobil sent Maersk appropriate notifications narrowing the window for commencement of the charter until notification was given on the 29th May 1998 that the “firm commencement date” was to be the 4th October 1998. By then the relevant Maersk B class vessel had been identified or nominated as the Maersk Blazer (in fact Maersk Blazer was delivered on the 28th September as a convenience to Maersk and a lower rate of hire was paid in respect of the period from the 28th September to the 4th October).

10	As at the 28th September 1998 the Jack Bates was still engaged in drilling work at the fourth well (tranche 6).  The move to the fifth well in tranche 61 was not anticipated for some weeks.  It was the evidence of Mr Middlehurst called on behalf of Mobil (who at the relevant time was the West of Britain Drilling and Operations Superintendent) that during the course of October and November 1998 there was increasing concern on the part of Mobil about the capability of the drilling rig.  It is fair to say that the detail of these concerns remained somewhat obscure.  Whatever those problems may have been it is common ground that drilling at the fourth well was completed by the 4th December 1998.

11	In the meantime a “Rig Move Procedures” document had been signed off by the parties on 24th November and on the 1st December Maersk Blazer commenced loading chain extensions for use in due course at the new location.  Thereafter Maersk Blazer proceeded to the position of Jack Bates and commenced assisting in the lifting of the anchors at the fourth well location.

12	On the evening of the 14th December the number 2 anchor line of the Jack Bates mooring system parted and on the following morning the number 7 anchor line also parted. A decision was taken by Mobil that Jack Bates should be towed to Invergordon for repairs.  This tow took place between the 21st and 23rd of December.

13	Immediately following the failure of number 7 anchor line, Mobil wrote to R & B as follows:

“We refer to events of the evening of December 14th, 1998 and the early hours of December 15th, 1998 on the Jack Bates necessitating emergency response whereby three anchors were lost two of which were lost complete with chains following the catastrophic failure of their respective mooring lines. This re-emphasises our concerns regarding the ability of the Jack Bates to operate effectively and in accordance with the contracts in the West of Britain environment.  Moreover the current condition of the rig means that the proposed drilling programme for tranche 61 cannot now be commenced let alone completed in the initial term.  In short the rig is not fit for purpose to carry out the work under the contract and we query the fundamental safety of the rig.

We hereby invoke Clauses 2.3, 2.5 F and G of the contract and therefore require R & B ... to rectify to the satisfaction of Mobil by no later than 5pm London time on the 20th December namely within 5 days of the date of this letter the defaults in performance and breaches of obligations. . .”

14	R & B immediately replied to the effect that they could not accept that there was any breach of the relevant agreement.  But on the 21st December 1998 Mobil purported to terminate the Jack Bates contract.  Initially, there was clearly some uncertainty as to how long the repairs in Invergordon were going to take.  The initial estimate of two weeks had gradually increased to something in the region of eight weeks by the 24th December.  Maersk arranged for a sublet of Maersk Blazer on the 29th December having made arrangements agreeable to Mobil relating to the equipment which had been laden on her for use in tranche 61.  On the 6th January 1999 Mobil wrote to Maersk referring to the “termination” of the rig contract and giving notice “in accordance with Clause 4.3 of the Mobil time charter party”.

15	By an Order of this Court dated the 23rd March 2000 the following issues were ordered to be determined:-

“1 Whether Mobil was entitled to rely on Clause 4.3 of the charterparty and in particular whether mere termination of the Jack Bates agreement was sufficient to give rise to a right to terminate under Clause 4.3 of the charterparty.

2 Whether if entitled to rely on Clause 4.3, Mobil validly did so.  In particular

(a) whether the charter party obliges Mobil to give notice of termination “immediately” following termination of Jack Bates rig agreement

(b) whether if such an obligation existed Mobile complied with it

(c) accordingly whether Mobil’s purported termination was effective or whether it amounted to a repudiatory breach

3 If Mobil validly terminated under Clause 4.3

(a) whether termination took place during the “fifth well and first year” as contemplated by Clause 4.3(1)

(b) accordingly whether the claimants can rely on Clause 4.3 (1) of the charter party.

4  If Mobil were not entitled to terminate the charter party in the manner in which it did whether

(a) in circumstances where the Jack Bates agreement had been terminated, the claimants are not entitled to recover more than is provided for in Clause 4.3(1) and

(b) the claimants were obliged to accept the repudiation of the charter party and claim damages on this basis.

Mere termination

16	It was the Claimants’ submission that Clause 4.3 was only applicable if the Jack Bates charter was lawfully terminated.  Thus, so the argument ran, the clause had no application in the event that there was a repudiatory breach of the rig charter (at least in so far as any repudiatory breach on the part of Mobil was concerned).

17	I see no reason to accord to the word “terminated” anything other than its ordinary meaning of coming, or being brought, to an end, however that result may have occurred.  In the event that the circumstances permitting termination were to be confined to those where there had been a legitimate and consensual contractual cancellation, I would expect the clause to say so.

18	The invocation of commercial common sense by the Claimants does nothing to resolve matters in their favour.  The underlying purpose of the charter party was expressly to support Mobil’s operations with the rig.  It seems to me entirely consistent with commercial common sense that Mobil should be able to dispense with the services of the tug in any circumstances where the rig contract ceased.

19	Whilst I hoist in the implications of a repudiatory breach on the part of Mobil, so also do I need to bear in mind the significance of a repudiatory breach on the  part of the rig owners.  Commercial common sense drives one to the conclusion that a repudiatory breach by either party accepted by the other constitutes a “termination” within the meaning of the clause and I so hold.

“Immediately”

20	The Claimants submitted that Clause 4.3 required immediate notification of termination of the charter consequent upon termination of the rig contract.  The short answer is that it is not what the clause says.  Some such phrase as “by giving immediate notice” might be apt, but in any event, such construction gives rise to startling if not absurd results.  It would require the notice to be given in effect simultaneously with the termination of the rig charter, something which even in the clearest case would be impossible.

21	The obvious meaning is that notice under the clause is to be of immediate effect.  There is nothing inconsistent with this in the proviso to the clause which merely defines the scope of the payments to be made on termination by reference to ninety days hire.

Reasonable time

22	It is common ground, if my earlier conclusions are correct, that there was an implied term to the effect that any right to terminate in the wake of termination of the rig contract was to be exercised in a reasonable time.

23	The rig contract was terminated on the 21st December.  Clause 4.3 was invoked sixteen days later on the 6th January.  I am not persuaded that such a period was unreasonable:

(a)	The period overlapped with the Christmas and New York holiday periods with all the inevitable disruptions that that involved.

(b)	For much of the relevant period negotiations were under way between Mobil and Reading & Bates for the resumption of hire of the rig albeit on different terms.

(c)	There was the immediate need for complete demobilisation of the rig before releasing the tugs.  The rig reached Invergordon on the 23rd December and the special anchor chain originally intended for use on the fifth well was not unloaded until the 26th December.

(d)	The prognosis for the rig remained uncertain. The estimate for the lengths of repairs progressively increased from two weeks on the 17th December to something nearer eight weeks on the 24th December.

(e)	It was not until the 28th December that Mr Middlehurst was able to visit the rig and thereafter report back to management.  In the meantime Blazer discharged the bulk of Mobil’s equipment on board her.

In this context the decision to terminate made after the New Year holiday weekend was reached in my judgment within a reasonable time.

Waiver

24	The alternative case of the claimant was that, before purporting to terminate on the 6th January, Mobil had elected not to exercise its rights of termination under Clause 4.3 and had affirmed the contract.

25	On this issue I derive no assistance from the content of a discussion between Mr Danielson and Mr Middlehurst which occurred prior to the cancellation of the rig contract.  It was solely concerned with the use to which the Maersk Blazer might be put during the period of repairs to the rig and, if it be relevant, I am not persuaded that there was any discussion as to terms upon which the tug might have bee sublet.

26	Following the termination of the rig contract, it is clear that the initial expectation on the part of the Claimants was that the rig contract would be renegotiated.  After Mr Middlehurst had inspected the rig on the 28th December and a clearer picture as to the repair period emerged, there was a conversation between him and Mr Blencowe, the area general manager of the Claimants.  With a view to making use of Maersk Blazer for alternative work, various proposals were put to Mr Middlehurst about the special equipment that remained on board the Maersk Blazer.  Those proposals were not quarrelled with by Mr Middlehurst.

27	The outcome as stated in Mr Blencowe’s statement was that “it was certainly not clear they were contemplating termination of the Blazer contract”.  This impression falls a long way short of establishing an unequivocal representation the contract would not be terminated.

28	The emphasis of the Claimants’ argument during the course of the hearing transferred to later discussions between Mr Middlehurst and a Mr Sorensen at about the time of the termination of the rig contract. There is a note by Mr Sorensen of that conversation in the documents which reads:-

“Talked to Bill Middlehurst week 53 to discuss the employment of Maersk Blazer during Jack Bates stay at Invergordon.  It was agreed we could now employ the vessel without consultation with Mobil on the basis that the rate fixed was above £18,600 and periods should be limited to mid-February 1999.  Bill informed that he would go on holiday and a Jim Hibell would substitute. Bill mentioned that a courtesy call when fixing may be a good idea.” (a note recorded by Mr Sorensen on the 7th January.)

29	The precise timing of this conversation remained obscure.  Indeed the conversation was not fully investigated since the issue of waiver was only raised at a very late stage and was pleaded in only the most general terms. There was no statement from Mr Sorensen.  His status within the company remained obscure.  In my judgment the Claimants have fallen a long way short of establishing an election.  Indeed the letter written by the Claimants on the 8th January reveals that any representation made to Mr Sorensen was not perceived by the claimants in the manner now suggested.

30	I conclude accordingly that the charter party as amended was validly terminated on the 6th January 1999 pursuant to the provisions of Clause 4.3.
 
During the fifth well and first year

31	I turn now to what I perceive as the major battleground between the parties.  It was the Claimants’ case that the provision for compensation upon termination operated as from the time that Maersk Blazer came on hire whether or not at that stage the fifth well had itself commenced. The Claimants had an alternative case which is that, by the time of cancellation, the fourth well had finished (as is indeed common ground) and that therefore (it was contended) the fifth well had begun.

32	In summary form the Defendants’ case was as follows:

(1)	The phrase “fifth well” has an established meaning in the oil industry.  Furthermore in accordance with industry practice, the fourth well should be viewed as ending and the fifth well beginning when all anchors had been recovered on the rig and a tight tow had been established.

(2)	In any event, it is clear from the provisions of box 12 as to the initiation of an adjusted rate of hire for Maersk Promoter that such was the contractual demarcation in the present case.

(3)	Since delivery of  Maersk Blazer was to be at Aberdeen prior to the rig move from the fourth slot, it followed that between the time of delivery and the commencement of the fifth well, termination under Clause 4.3 gave rise to no obligation to make the prescribed payment.

33	As regards the understanding in the industry as to the scope of the fifth well, the parties called the authors of various reports to give oral evidence.  I intend no discourtesy to the witnesses concerned when I say I found their evidence to be of little assistance.

34	The usual reason for needing to identify the end of one well and the beginning of another is to allocate expenses as between different investing partnerships in specific wells.  Even in the context of a rig charter there appears to have been no consistency of nomenclature.  The disparities are if anything even more marked in the relevant context of the charter of an anchor handling vessel.

35	In my judgment, I must seek simply to construe the terms of the charter.  In doing so I must obviously have regard to the factual context. But again apart from recognising the fact that a higher specification vessel was being introduced for the particular purpose of the fifth well, there is little of guidance.  Likewise considerations of commercial common sense do not afford any guidance.  Certainly the construction advanced by either party could not be categorised as commercially absurd.

36	In the event, the issue as is so often the case, is a short one, not susceptible to elaborate argument.  The starting point seems to me to be that the relevant charter is an amendment of an earlier charter in respect of the Maersk Promoter.  This earlier charter also specified delivery at Aberdeen.  The period of hire (box 9) provided:-

“5 firm wells, each of average duration of ninety days (to include mobilisation and de-mobilisation at each well change and at commencement and end of programme).”

37	The equivalent box in the amended charter party as already recorded read “fifth well slot of current Jack Bates programme and 2 years firm from end of fifth slot”.  This  latter period of hire included, in my judgment, “mobilisation at commencement”.  I say that because :

(1)  it is proper to construe the period by reference back to the unamended charter

(2) the period prescribed in box 9 by necessary inference includes the period running from the time of delivery as prescribed in box 5 any other construction would result in hire not being payable during that period

(3) indeed such is confirmed by printed Clause 3.1:-

“The owner shall let and the charterer shall hire the use and service of the vessel for a period as indicated in Box 9 commencing at the time and on the date when the vessel is delivered to or otherwise placed at the disposal of charterer as provided in box 5”.

38	It follows, in my judgment, that the period prescribed in Clause 4.3(i) should be construed as matching the period in box 9 (less or course the second year).  Thus even if the termination occurred in the mobilisation period leading up to the move from the fourth to fifth well slots, the obligation to make compensation arose.

39	This conclusion makes it unnecessary to consider the claimants’ alternative case. It is also not necessary to deal with an issue as to the entitlement to keep the charterparty as amended alive in the event that it was not contractually terminated.