CHAPTER EIGHT - SOME LEGAL QUESTIONS
In the course of the proof in these cases a great many legal questions arose. Some of these relate to specific areas of the case and are dealt with where they arise. Some relate to the interpretation of the indemnities and will be dealt with in the chapter relating to indemnities. However some of the points I have to consider can be dealt with as separate issues and it is convenient to treat these in this chapter.
8.2. Evidential Issues
8.2.1 Computer Programmes
A matter which arose on a number of occasions and indeed prompted various objections by the defenders was the evidence required to set the basis for expert evidence on the results of various computer programmes they employed. At times there were debates on the evidence required to establish computer input and output data but at the end of the day the main question was the evidence required to establish the validity of the programme itself. Indeed anticipating correctly that the defenders would press these issues the pursuers addressed me at some length on the matter in their initial submissions.
The computer codes which caused the defenders concern were the FLACS programme relied on be the witness Dr Bakke and the BLOWDOWN programme which was used by the witnesses Dr Richardson and Dr Saville. Mr Clark who produced a chart showing the chemical composition of various flows used the CHEMSHARE programme but the defenders took no objection to this, perhaps because they did not really quarrel with the results of the exercise. The question is essentially whether or not there exists an obligation on the pursuers to lodge copies of the computer programmes their experts have used. To put the matter in context these programmes are likely to be lengthy and complicated, written in computer code, and to be totally unintelligible to the lay person. Thus for example we were told by Dr Bakke that the FLACS code contains 10,000 lines of computer code. The BLOWDOWN code we were told contains 70,000 lines of computer material. This information gives some idea of the scale of what is involved. A further consideration arises. The detail of most of the complicated models used by experts are closely guarded commercial information and those owning the intellectual property in them would be most reluctant to have external experts having access to their valuable secrets. As can be readily understood considerable sums of money are employed in evolving such programmes and the owners of them earn profits by allowing interested parties to use them. In such transactions the user of the code does not see the detail of it.
Needless to say the pursuers in fact did not produce either the FLACS or BLOWDOWN programmes.
Dr Bakke used the FLACS programme to calculate his pressure pulse and his results were at the foundation of the conclusions of Dr Palmer. In relation to this programme the input material was made available to the defenders but apart from the results set out in Dr Bakke’s Report no output data was produced. In fact the output data was destroyed towards the latter part of 1989 so that it could not be made available. An interesting point is that Dr Bakke was one of the co-authors of the FLACS code. The actual simulation which was the subject of his evidence in these cases was initially carried out at the behest of the Inquiry Team of the Cullen Inquiry.
The pursuers’ contention on the other issue was that there is no obligation on them to lodge a computer code provided that it is an appropriate tool for the task being assigned to it. That proposition of course may beg a number of questions.
No matter how well contrived a code may be theoretically, to gain general acceptance it has to be validated by empirical methods. This means that the assessment of the worth of a code tends to depend at the end of the day on how well it performs in practice. In any event the evidence was that even the best finite element code will only produce an approximate result. Dr Bakke said that the FLACS code could be as much as 30% out one way or another. Of course it is possible that a distinction may be drawn between codes that are so well-known that it can be held that they have general recognition and codes which are less well-known and can perhaps be regarded as exclusive. Some computer codes can of course be bought off the shelf. No-one suggested that the FLACS code was of that category. Likewise however it was never suggested that it could not be made available to any person prepared to pay a commercial price for it.
As far as the FLACS code was concerned this certainly was not unknown to the defenders’ experts and Professor Magnussen said he knew about the existence of the code, knew about Dr Bakke’s involvement with it , and was aware of publications relating to its development.
The pursuers contended that Dr Richardson and Dr Saville were not in fact experts originally instructed by them since they had prepared their original material on behalf of the original Cullen Inquiry Team. Thus just as the pursuers had approached them and questioned them about the evidence they could give it was open to the defenders to do the same. They could in particular have asked them about the code they used. In fact Dr Bakke also began by giving evidence on behalf of the Government at the Cullen Inquiry although he had later accepted a retainer for the pursuers. Dr Richardson and Dr Saville had felt themselves unable to accept instructions from the pursuers. However there may have been a measure of misunderstanding about this in that the defenders understandably were not clear about the position of the witnesses in question and therefore hesitated to approach them. The pursuers led Dr Palmer and Dr Saville and chose to bring out the evidence relating to the BLOWDOWN code. If they wanted to use material dependent on the code they require to persuade me on general grounds of principle that the evidence is acceptable and I do not think that an exploration into the exact status of the witnesses in relation to their instructions really casts too much light on the matters I have to decide. In any event I was left in some uncertainty as to exactly how the witnesses under consideration came to be regarded as the pursuers’ witnesses.
From Dr Bakke’s Report (66/1 of process) which he himself spoke to we are told the critical elements of what he used as input for his employment of the FLACS code. Thus although the binary input material was not produced we have evidence from the person who organised the computer exercise as to what he had put into it. He could of course have been questioned about this. There is a machine which converts the binary output of the FLACS code into graphic material and the latter material was produced. Dr Bakke explained that this conversion had been carried out as part of his exercise. If the defenders had wished they could have asked Dr Bakke about the detail and quality of the programme which had carried out the conversion. We were told little other than it was called VIEW. The pursuers contention was that the application of VIEW was simply an extension of the FLACS programme because that is how FLACS is used - namely to produce graphic material. Thus the material which represented the conclusion of the computer exercise had been produced.
In my view there was evidence given as to what had gone into the computer and evidence as to what had come out at the conclusion of the FLACS run. Of course I have to assess the quality of that evidence. In a sense that can be done quickly for I found Dr Bakke to be a totally reliable and well qualified witness. The question however still remains as to whether the programmes that had been applied to reach that result ( FLACS and VIEW) were reliable. I do not think that it was ever suggested that the reliability of the computing machines themselves had to be established. There was no evidence to suggest that the binary material from the main FLACS programme had ever been printed out. It was simply carried forward in the computing process so that after having been converted by the VIEW programme a result finally emerged in graphic form. Moreover, according to Dr Bakke the binary material would have been meaningless if it had not been reduced to graphic form.
The FLACS programme had been developed by the Christian Michelson Institute in connection with a variety of oil companies. The two dimensional version of the programme had formed the subject of Dr Bakke’s PhD thesis. (He had used the three dimensional version - FLACS 3D - for the work I am concerned with but he had also been a co-author of this). The code had been validated by reference to about 2000 experiments using different geometry although as yet none of these had been extrapolated to a full scale situation. However the tests had shown the validity of the code over a range of scaling. Dr Bakke himself used the code for an exercise involving a physical scaled-down model). Dr Bakke considered that FLACS was the best code available for what he had to do and no expert nominated another code as being better. Indeed he made reference to a recent review of predictive methods for gas explosions which concluded that at present FLACS was the best available tool for pressure prediction. It had been used in connection with at least 20 oil platforms. In respect of the validation exercises these formed the basis for Dr Bakke’s opinion that the code was likely to be accurate to about 30% or better. It was not suggested by the defenders to Dr Bakke that his code had not been properly validated.
Dr Bakke explained that FLACS is owned now by Christian Michelson Research (a Norwegian organisation) together with a number of oil and gas companies. He did not think that the owners would voluntarily release details of their code. How a Norwegian Court would respond to a Scottish Commission and Diligence, or to any question of confidentiality was not explored. Dr Bakke testifies that if he had to assess an evaluation based on a computer code such as FLACS what would most interest him is to what extent had the code been validated. Dr Bakke agreed in cross-examination that one factor in assessing the worth of a code would be to consider how accurately it will replicate the Module involved in the exercise. This would be an engineering value judgment. The initial conditions within the Module (that is to say wind conditions, leak conditions , cloud size, concentration and matters of that sort ) are other factors about which choices have to be made. The questions arising from the validity of the physical laws built into the code such as for example the application of the Navier Stoke Equations would be resolved by the empirical tests on the code. Dr Bakke explains that the FLACS code uses discretization in space and time and by varying the discretization say by making control volumes bigger or smaller, or making time steps longer or shorter the results of the code exercise can be varied. The optimum values for such parameters should be derived from empirical tests. Indeed Dr Bakke says "for a situation like this experiments are crucial". Moreover the results should be evaluated by reference to what one would expect from general engineering experience. However the detailed monitoring is done in the initial validation process. Thus I think it is possible to conclude that at best the use of a code such as I have been discussing is not going to produce a result that can be relied on within fine limits. On any view the benefit of the code is going to be dependent on engineering judgments applied to the input material. The value of the code itself will depend on an evaluation of the validation process. However such a code if used with appropriate engineering skill can produce approximate results which can then be tested against general engineering judgments.
In the present cases the input material which Dr Bakke spoke to such as the material configurations of the model had themselves been calculated by the use of computers in this case using a code called " HIDDEN" and figures relating to the geometry of the Module were worked out using a code known as Computer Aided Design Scenario Programme (CASD). The defenders did not mount any attack on the validity or reputation of these codes and the enormity of the task involved in producing the programmes of every code used in a computer exercise is well illustrated by reference to these ancillary codes. The pursuers argued, I think with some justification, that HIDDEN and CASD are part of the general suite of FLACS programmes. Dr Bakke explained that he had cross-checked some of the geometry thrown up by his computer exercise by physical measurement relating to some of the features of the Module
It requires to be observed that the defenders if they desired could have checked such of the input material as appears in Dr Bakke’s Report by their own computer programmes or by measurement but no detailed criticisms were advanced of his actual results. The assumptions fed into the computer are set out in 66/1 of process. Thus the principle of referring to the codes without producing their programmes is attacked but it was not suggested that the codes had not been used in an appropriate way.
The pursuers accept that only output material thought to be relevant to the problems in hand had been produced and that other material was available which had not been produced. I have no reason to suppose that the parts of the results which they decided to produce do other than represent a fair reflection of the output material relevant to Dr Bakke’s evidence. Certainly the defenders never suggested what additional material could have affected the implication of the results which were produced. I can only decide any point depending on the computer material on the basis of what was produced and of course had there been expert evidence to suggest that additional material not produced would or could have produced different conclusions then I should have had to consider that but that did not happen.
If the defenders were correct in their submission that the evidence emanating from the FLACS exercise is not admissible then that would eliminate Dr Bakke’s estimate of pressure pulse and that in turn would eliminate any value in Dr Palmer’s calculations since he based these on the pressure pulse.
Considering the position in relation to the BLOWDOWN programme it has to be observed that this had evolved from a thermo-dynamic programme called PREPROP which had been developed by Dr Saville. Dr Richardson explained in his evidence how he and Dr Saville had been approached by Shell to develop a validated blowdown model and the evolution of the programme began about 1985. The validation was achieved by Dr Saville and Dr Richardson carrying out experiments at Imperial College. Further large scale validation tests had been carried out both at Imperial College and at the Spade Adam site. Moreover the BLOWDOWN programme had been used to predict the blowdown of a number of offshore platforms. The programme is used primarily to analyse blowdown on oil platforms and petroleum and oil shore installations. The programme is reasonably well known and is used in a third or even a half of Chemical Engineering Departments in Britain. Papers on it have been published in the Transactions of the Institute of Chemical Engineers. In 1993 these were awarded the Moulton Medal as the best paper of the year in any institutional publication. The programme has been used by about 40 oil platforms. Shell use it on all their platforms and British Gas also use it. I can safely conclude that BLOWDOWN is a programme widely acknowledged as an appropriate tool in the oil and gas industry and that the programme has also been fully validated. The programme has not been published because no publisher would consider publishing 70,000 lines of computer code and in any event because Imperial College have an effective monopoly of the programme they use this advantage to their profit. Clients who use the programme are given the results and details of the material surrounding the exercise but they are never given details of the programme. Dr Saville confirmed that PREPROP and had been effectively analysed. Of course BLOWDOWN could not function without PREPROP.
Dr Richardson explained how BLOWDOWN would be used. The programme was interactive so that a separate input file was not prepared but once the exercise began the computer asked questions and the information required was fed into it. There is no production of input material as such but the input is detailed in the front page of the output. In 1989 the machine ceased to function and most of the material on the hard disc was lost. The computer over a period produces a mountain of paper. The exercise we are concerned with was originally produced for the Cullen Inquiry at the instigation of the Crown. After the Inquiry it was thought by Dr Richardson’s associates that there was no need to retain the output material and in a clean-out of their office the material was destroyed. It has to be noted that Dr Richardson explained fully in his evidence what had been done in relation to the geometry of the situation he had looked at and the essence of the output was contained in two Reports which were produced and which had originally been prepared for the Cullen Inquiry.
In relation to the loss of the BLOWD0WN output files the defenders sought to rely on Scottish and Universal Newspapers Limited v Gherson’s Trustees 1988 SLT 109. In that case the contents of certain accounts were material to the pursuers’ case and in particular the pursuers’ witness claimed that items in the accounts had been erroneously taken from the business’s prime financial records. Objection was taken to this evidence on the basis that it was not the best evidence. The pursuers argued that the records had been lost without their fault. The core of the opinion of the Inner House is given in the Opinion of Lord President Emslie where at page 113 he declares:
"From these passages I take the true rule applicable to a case such as this to be that secondary evidence of the contents of the missing records will be admitted only if it is shown that they have been lost or destroyed without fault on the part of the pursuers who had effective control of the records when the Action began".
There can be no doubt as to the authority of what I have just quoted. However even ignoring the facts surrounding the loss of the computer outputs in this case there are distinctions between the present cases and Scottish and Universal Newpapers . In that case the evidence being led was central to the issues between the parties. The Lord Ordinary had held that the absence of the prime financial records would be likely to prejudice the defenders who would be unable to test the evidence of the supposed errors in the transcription from the records to the accounts. The witness who was objected to was not independent but was an accountant employed by the pursuers. The pursuers had had the critical documents in their control when the litigation began. In the present case the documents were not in the pursuers’ hands when the cases I am dealing with began. Indeed the pursuers at no time had any control over these documents since they had not originally been prepared under their instructions. The computer exercise was not an essential issue in the case but merely an expression of the use of a calculating tool that had been used by an independent expert as the basis of his opinion evidence. The input and output evidence would alone have no ex facie significance since they were only part of a large computer exercise and only had content if the person who carries out the exercise explained how the inputs had been chosen. The details of the exercise had been recorded in Reports by independent experts before the present cases were begun. Whether or not these differences might serve to bring these cases into a different perspective from Scottish and Universal Newspapers need not concern me for I think that the present cases are quite different in respect of the attribution of blame for the loss of evidential material. Mr MacAulay for the pursuers was prompt to accept that if a party had control of documents at the beginning of a case he cannot object to a prohibition against secondary evidence of their contents if carelessly they are lost. The documents we are concerned with here were destroyed in December 1989 and a small number of the cases in respect of which the present seven cases are to be regarded as test cases may have been raised in August 1989. However that date was even before Lord Cullen’s Inquiry was concluded. At the time when the first actions which affect these cases were raised it was not even clear that the defenders would resist the fact that the explosions began in Module C and I was told that this was the stance they took at the Cullen Inquiry. I was informed that the present defenders were represented collectively at the Inquiry and that they did not resist the hypothesis that the explosion was caused by a leak at PSV 504. I was referred to 12/352 of process. But no matter for the issues between the parties were only clarified as the pleadings in the present cases evolved. It was only at that stage that the defenders advanced the hypothesis that the explosion may have originated in Module B.
In any event Dr Richardson gave qualitative evidence which covered the same questions as the results produced by BLOWDOWN and in that respect he was not relying on the code at all. He gave evidence that from hand calculations he could show that the re-pressurisation of the Condensate Injection Pump could be effected very quickly, that the fluid inside the condensate system would not be seriously restricted by the internals of the pump and that leaks of certain sizes could occur. He regarded BLOWDOWN as a confirmation that his hand calculations were approximately right. However it can be said that the evidence relating to particular leak apertures depended heavily on BLOWDOWN as did the detailed evidence of the effect of the pulsation dampeners. On the other hand Dr Richardson’s conclusion which was that the volume of the relevant condensate system was 400 litres is consistent with the evidence of Mr Wottge. Of course it can be said that even supposing that the pursuers could have recovered the relevant documents from Dr Richardson in 1989 , which in itself is open to doubt, then if that is so, the defenders for their part could also have recovered these documents if they thought that their absence might at some stage prejudice them. They had had the Reports which they knew came from these documents. They had the possibility of access to Dr Richardson as a witness outlining they way in which he had conducted his BLOWDOWN exercise. He had the Reports which had not earlier been impugned to confirm his recollection and they at no stage challenged his integrity.
There was perhaps some issue as to the actual facts relating to the instruction of Dr Richardson and Dr Saville. However I can do no better than to refer to what the defenders themselves submitted to me had been the factual position. About mid-1990 the defenders’ agents took steps to retain both these experts. To their surprise some months later the witnesses advised the defenders that they had in fact been retained by the pursuers. Whatever had led to this confusion the said witnesses eventually decided that they would act for neither party although they were prepared to be brought to court to speak to the contents of their Reports.
There is clearly some doubt relating to the instructions received and accepted by Dr Richardson and Dr Saville but what seems clear is that these witnesses had not accepted instructions from either party at the time the documents were destroyed.
The pursuers of course urged me to admit the BLOWDOWN evidence but argued that in any event the qualitative evidence was sufficient to establish that a two jag operation could have generated sufficient gas by way of a leak to have caused the explosion.
The defenders suggested that there are three categories of use for computers. They can be used to record data without the need of human intervention. The Spectra-Tek programme was described as being of this type. It was said that what this programme prints out may be regarded as real evidence. However Counsel had to concede that even this type of computer exercise depends on the reliability of the material programme. Unless it is properly programmed it will not store and regurgitate facts accurately. The best evidence that such a programme was reliable would be evidence that it has been used extensively and works. In any event the defenders accepted that in general the Spectra-Tek programme was acceptable. However it should not be assumed that the Spectra-Tek was an uncomplicated programme because it was recording a variety of data from different installations and correlating this. The defenders did however make an incidental point. They suggested that Dr Drysdale’s explanation for delay in the escape of condensate into Module B depended on the failure of ESV 208. It was submitted that if this valve had failed to close this would have been recorded on the Spectra-Tek system at Claymore and that the pursuers had failed to produce these records. I have dealt with the question of Dr Drysdale’s evidence but in any event I am not satisfied that the recording at Claymore would have coped with the situation where the valve failed to close only after the devastating effect of the accident which would have of course affected the telemetric system. It was certainly observed to have failed after a few seconds. In any event I am making no finding that valve ESV 208 failed to close.
Another category of computer use was said to be where data is recorded by the computer and the data is put in manually. Thus Piper would regularly send information to the beach and this would be entered in the computer system. It was accepted that to prove this material would involve some hearsay evidence unless the persons who entered the material in the computer were led as witnesses. However the defenders did not explore just what evidence would be required in the situation under consideration. In general it seems to me that there must be many cases where it would not be practicable to lead the person who generated the data and the person who fed it into the computer so that there must be some practical limits as to what proof can be expected in this kind of computer evidence.
It was submitted that the third type of computer situation is where the computer is used by experts to carry out calculations or simulations. It was claimed that in this kind of situation the general rules relating to expert evidence should be applied. Certainly in this kind of situation one can get a distorted result if one factor is in-putted wrongly. The kind of computer models used by experts of course generally requires more than normal discrimination and judgment in the selection of in-put material. Thus the expert will have to prove how the input material was arrived at and the justification for selecting what was put in. However I am not sure that the three categories of computer exercise referred to by the defenders’ Counsel can be distinguished quite as neatly as he attempts. Even in a simple office system distorted results will arise if the proper material is not fed into the computer. Thus it was argued that the first requirement in considering computer evidence given by an expert is to consider the input. That may be so but it cannot be exclusive to expert computer evidence. Of course it was said that the best evidence of in-put and out-put material is in the print-outs of such material.
After the proof of input should come proof of the sufficiency of the programme used. Since the expert’s opinion must be tested by inquiring if it is intelligible, convincing, and tested it was contended that this necessarily involves the production of the computer programme. If the programme had been tested by experiments then the direct data relevant to these experiments should have been produced and proved. It was argued that there is no mechanical difficulty about producing a programme because it can be copied onto disk. However that in itself raises questions about copies. Also according to the strict standard of proof desiderated by the defenders does the defender require of prove that the computer copies accurately? Not all computers are totally reliable in this respect. Moreover who supplies the copy where the programme is owned by a third party. In relation to confidentiality of programmes it was said that it is for the pursuers to choose a programme that they are able to prove. It was said that commercial confidentiality is not a ground for resisting disclosure. I was referred to Santa Fe International Corporation v Napier 1988 SLT 430. It has to be noted that although the confidentiality in that case affected a third party the recovery claimed was in relation to a party. The point was that there had been what the Court described as a private promise of confidentiality and it was the effect of this that the Court was considering. It is well established law that a private contract of confidentiality must yield to the public interest. It should also be noted that recovery will not be ordered unless the material sought is shown to be essential. I was referred to Section 45 of the Copyright, Designs and Patents Act 1988 which provided that use in judicial proceedings is not a breach of copyright. Where material is protected it can only be used for the purposes of the litigation itself so it was said that the holder of the Copyright has protection
I was referred to another authority that I was told was the only reported case about computer evidence in Scotland and that was Northern Metco Estates Ltd v Perth and Kinross District Council 1993 SLT (Lands Tribunal) 28. The Claimant’s expert had used a computer programme to arrive at a method of value. However he did not produce the input data, the details of the computer process or the output data. The expert only gave a general description of the procedure and some limited information about the input and output data. The programme which he used had been designed to carry out an investment appraisal of business projects. It had been developed by Leisure Consultants (Surveyors) for the appraisal of leisure projects. The Tribunal held that there was not enough information before it to justify the acceptance of the results of the computer exercise. Of course in the case there was no indication that the programme had been devised by a team of highly specialist experts as in the present cases. There was no indication that it had been extensively validated nor that it was acknowledged by the scientific community.
The defenders also referred to the matter of the output data. In the case of Dr Saville’s programme the output data had been destroyed. Dr Richardson gave express evidence that he had recorded the results of the computer exercise from the output data. It was also argued that in relation to the flow diagram (numbers 13/40 and 55 of process) which was prepared by Mr Martin Clark the output data had not been produced. The notes on the latter document were not the same as those in the former but I am prepared to accept that they were intended to apply to both. Note 5 states "All data should be considered approximate. Data was produced from a computer simulation of the operation based on the best estimates available" Much of the input data spoken to by Mr Clark was clearly hearsay but the defenders made no issue of that. Moreover Mr Clark claimed that he had run computer tests to check certain aspects of the exercise so there was validation. The original output was not produced but Counsel was prepared to accept that the said productions reflect the results of the computer simulation. The validation was post-disaster so by that time the actual flows were not available for physical analysis. The defenders’ complaint here was that the validation runs had not been produced. At the end of the day Counsel accepted that the point he was making may go to weight of evidence rather than to any intrinsic incompetence. Mr Clark seemed to be well qualified for his job and I do not find it difficult to suppose that probably his charts are sufficiently accurate for the purposes of these cases. Nevertheless the results do have to be treated with some care since small adjustments to their accuracy can result in materially different results. The defenders did not seek to recover any documentary evidence of the validation tests so the pursuers has no notice that their chart was likely to be questioned.
I have no difficulty in deciding that the evidence relating to the various computer exercises which the defenders challenged is admissible. Nowadays there are numerous occasions when parties advance as evidence results that have been derived from a computer. Every computer is governed by the programmes fed into it. It would be extraordinary, if the extreme case is taken , that every time a party wanted to rely on a figure derived from a computer the whole computer programme had to be produced. Apart from other consideration this would be a wasteful exercise since in the average case there would be no quarrel about the adequacy of the computer programme. If not all computer programmes have to be produced to prove a case which relies on computer generated evidence then the question would arise as to where to draw the line. The defenders suggest that the line should be drawn where an expert has to rely on a computer simulation for his opinion. However I think such a rigid rule is not justified as the true test. A party really requires to decide the amount and quality of evidence required to establish the authenticity of any computer programme likely to be challenged. If for example the programme is obscure or untried or its lack of reliability is notorious then the party relying on the programme may require to produce the programme itself if the Court is to be persuaded that the programme can be relied upon. However I do not accept that the validity of a programme can only be established by the binary details of the programme itself. As Dr Bakke said the true test of the utility of a code is the extent of its validation and how it works in practice. Thus even in the situation where the binary details were produced a judge may hesitate to ascribe too much credit to a programme without knowing how it has been found to perform. Thus if parties fail to produce the programmes itself (and this may in many cases reflect all that it is possible) they will have to depend for acceptance of the code on matters such as the general acceptance of the programme within the scientific community, the extent to which the programme has been validated, and how it has operated in practice. At the end of the day I do not see the problem as exclusively technical and it would be for parties to decide what evidence they consider is required to establish the credentials of a particular programme and leave it to the Court to decide the sufficiency of that particular evidence.
In the present case the programmes have been supported by expert witnesses of considerable credit and experience. Indeed they lent their own authority to the values of the codes since they had participated in their evolution. They gave evidence that the programmes in question had been extensively validated and that they had worked in practice. There was no suggestion that any of these programmes had been the subject of doubt or criticism by the appropriate professional communities. Nor can I accept that as a generality when it is claimed that a programme has been validated it is necessary to produce the validation data. This may be required in special circumstances but not as a rule. The quality of validation tests will often depend on the reputation and experience of the persons who conduct the tests. Experts often refer to scientific experiments to prove their view but it is not generally necessary to produce the experimental data. If the opposing party is not satisfied about validation he can of course ask the expert about it. In the present case the programmes being used are the product of major research and are being used in significant situations. If an expert of the quality of Dr Bakke gives evidence to the effect that the programmes have been subject to extensive validation tests I think I am entitled to accept that evidence in the absence of any contrary indication.
If the defenders had come along and produced the results of their own exercise which differed from the pursuers’ results then the pursuers would have had to consider what steps were necessary to reinforce their claim that their own code should be accepted. If a situation arose where there was material which cast doubt on a code used so as to make it essential to consider the detail of the programme in depth then if a party found himself unable to produce the actual programme then this perhaps is a consideration which should have been taken into account before reliance was placed on it. It would be very unfortunate if in esoteric areas of science where there may not be too many acceptable programmes available a party was precluded from using a programme and had to settle for an inferior programme simply because the programmed details are not readily available. Of course the party has to make a choice. If the programme is available the party may be in a better position to meet a criticism of it. Conversely if the programme is not or cannot be produced the weight of the evidence at least in certain situations may be much less. The defenders say that without an actual programme available to them they may not be able to test it. A question may arise if a party is confronted with evidence derived from a complicated computer programme and there has been insufficient time to consider it. However whatever the solution to that problem it did not arise here. The defenders had timeous access to the use that Dr Bakke, Dr Richardson , and Dr Saville were going to make of computer programmes. If they wanted to suggest that these programmes were obscure or had no standing in the relevant fields of expertise then they could have called their own experts in support of such a point of view. If they thought that it would be useful to examine the programmes theoretically rather than to place weight on the practical experience of the programme then they could have attempted to recover the programmes by Court order. They could have instructed their own computer exercise and shown, were it the case, that different results emerged. It is noteworthy that at no stage did the defenders suggest that any other particular programme or programmes would be more reliable than the ones actually used.
Likewise I do not think that the pursuers are precluded from using BLOWDOWN because the input and output print-outs were destroyed. At the time these records were destroyed the pursuers had no right to them or control over them. It is not suggested that they knew of their pending destruction. They were not in a professional relationship with the owners of the records at the time they were disposed off. We are here dealing with an extremely complex situation as the proof itself has demonstrated and I do not think it reasonable to suggest that at the relevant time the pursuers should have anticipated the importance of these records to their case. The records did not bear upon any issue between the parties at the time. In fact the result of the Cullen Inquiry was not even known. I think this case is very different to Scottish and Universal Newspapers Limited where the authenticity of the accounts was the central issue in the litigation, where the relevant primary documents had been under the party’s own control, and where the documents in question were their own business records which they had allowed to be lost without acceptable explanation.
8.2.2 Examination of Witnesses
A matter that arose frequently in these cases was the effect of failing to examine or cross-examine a witness on a factual point. The defenders were prompt to argue that if a witness was not challenged or cross-examined they were entitled to assume that the relevant matter was not at issue. Thus they say that they were entitled to refrain from cross-examining a witness if his evidence did not appear to be challenged and equally from leading such other evidence as they may otherwise have led. However at various stages they made points that had not been put to the pursuers’ witnesses and when this happened they were not so keen on the application of strict rules. The fact is that in a vast Proof such as this turned out to be it was not always possible for parties to predict precisely points that might emerge at a later stage of the case and generally I was prepared to show some indulgence, allowing disputed evidence to be received under qualification and sorting out questions of prejudice at the end of the Proof. However during the Proof I indicated at certain points that if a party felt a circumstance had developed which might justify recalling a witness I would be ready at least to consider any motion for such a recall. This did not in fact generally happen and I can understand why this might have been so. Some of the experts were obviously busy people residing at a distance from the Court and recalling them may have imposed practical difficulties apart from the question of expense. Some of the eye-witnesses obviously found that it was an ordeal to attend at court and re-live the difficult events of the accident and it may not have been fair to them to recall them to Court. There was also a patent reluctance to further prolong what was an exorbitantly long case. In any event I doubt if further evidence from recalled witnesses would have affected the outcome of the case.
There was some resort to the leading of additional evidence after proof was closed. Thus the defenders raised in relation to Texas jurisdiction the matter of equal treaty rights. This complicated and difficult matter had not been put by the defenders to the pursuers’ experts and long after these experts had returned to from whence they came - generally America - the defenders not only raised the issue but also sought leave to lodge further productions. I allowed this subject to the pursuers’ right to lead additional evidence and the pursuers did this by leading Professor Baade.
The law on this aspect of the case is succinctly stated by Sheriff Macphail in his book on Sheriff Court Practice ( at page 567) and I have no difficulty in accepting his expression of the relevant rules. He states " it has been authoritatively pointed out that if it is intended later to contradict a witness upon a specific and important issue to which that witness has deponed , or to prove some critical fact to which the witness ought to have a chance of tendering an explanation or denial, the point ought normally to be put to the witness in cross-examination. If such cross-examination is omitted , the witness may have to be recalled with the leave of the court, possibly on conditions as to expenses, and in some cases the omission may cause fatal damage to the case
".....Whether failure to cross-examine on any matter implies that the cross-examiner accepts the witness’s evidence as credible and reliable on that point appears to depend on the tenor of the cross-examination on other matters and on considerations of fairness. Failure to cross-examine a witness on a material point has been said to preclude the cross-examiner from leading evidence to contradict the witness, but that drastic rule does not appear to be followed in modern practice, no doubt because the court is able to prevent prejudice to the other party by such means as recalling the witness for cross-examination and awarding expenses or allowing proof in replication , or admitting the evidence subject to comment".
That exposition of the law seems to me to be more flexible than the position that the defenders were sometimes asking me to take and in that respect I agree with it entirely.
I think this cases must be viewed against a background where men who were in fear for their lives were being asked to recollect events which they had only a limited and very short opportunity to observe. Differences in detail were inevitable and I do not think it was incumbent on a party in relation to all such evidence to suggest to a witness that he was unreliable if it was obvious that the recollection of the witness was candid, represented the best he could do, and was unlikely to be altered. In some such cases there was evidence of a different quality from which support could be derived for one version of detail rather than another. Of course the situation may be such that a comment can be made adverse to the weight to be given to the evidence.
Where as in these cases there were occasions where important technical points were not put to witnesses well able to express an important opinion about them then of course the Court may be reluctant to accept all that the witness has said without the possibility of contradiction. The pursuers, for example, emphasised that many of the points made by Professor Reid were not put to Dr Palmer who was effectively his counterpart. These so far as they may be material have already been commented upon. Of course the fact that a matter was not put to a particular witness is not necessarily a matter for criticism because it was obvious that as the years enveloped the case new points evolved.
In relation to the points I have been discussing I was referred by the pursuers to McKenzie v McKenzie 1943 SC 109, Stewart v Glasgow Corporation 1958 SC 28 and Dawson v Dawson 1956 SLT (Notes) 58. These cases it was said support Sheriff Macphail and I do not quarrel with that.
8. 2.3. Conflict on Foreign Law
One short point was taken by the defenders in relation to the ascertainment of foreign law. They contended that if there was conflicting expert evidence about foreign law it is open to the Court to assess that evidence by itself examining the cases said to be applicable. In this connection I was referred to Anton on Private International Law ( 2nd Edit) pages 774 to 777 and the case of Kolbin v Kinnear 1930 SC 737. I did not understand the defenders’ submission to be challenged and I think it is justified.
CHAPTER NINE INDEMNITIES
The key question is whether on the basis of the facts surrounding the accident which I have held established the various pursuers are entitled to recover under the indemnities granted by contractors in their favour. Senior counsel for the pursuers argued that OPCAL and the fellow members of the operating consortium were liable to pay compensation to the victims of the accident or their families. The primary contention of the pursuers is that the accident was caused by a leakage of condensate from the valve PSV 504 and that this was directly due to the negligence of the fitters working on the valve. This being so (it was said) the defenders had a clear liability to indemnify the pursuers under the contractual indemnities. However even if the pursuers were unable to prove that the accident was attributable to the said valve the defenders were still contractually obliged to indemnify the defenders. The contention was that the accident was on any view triggered off by an initial explosion. That being so it was possible to infer that the pursuers had been in breach of the off-shore regulations and thus liable to make reparation in respect of those killed or injured as a result. Looking to the regulatory regime in 1988 the pursuers and the members of the consortium were faced with claims which could reasonably be regarded as at least having a material prospect of success. Thus it was claimed that the defenders could only escape liability if they could bring the situation within the ambit of the exception provisions of the indemnities and establish that the accident was caused by the sole negligence or wilful misconduct of the party to be indemnified It was contended that the defenders had failed to prove that either branch of the exception provisions were applicable to the facts of the accident.
9.2 Indemnity terms
The contracts which had been entered into between the platform operators and the seven defenders involved in the leading cases were all agreed by Joint Minute. These contracts contained a number of cross-indemnities and in particular they each contained indemnities in favour of the pursuers. The indemnity provisions in each of the contracts are broadly similar but there are differences in some of the contracts which are significant. I was asked by senior counsel for the pursuers to treat the contract entered into with the contractors London Bridge Engineering Limited as containing indemnity provisions which are generally representative of those relied upon by the pursuers in the various actions. The material contract is 12/283 of process. The indemnity provisions in the contract are to be found in article 17 of Exhibit A. What is described as "CONTRACTORS INDEMNITIES" at Article 17.1 sets out that :-
"The Contractor shall indemnify, hold harmless and defend the Company and its parent, subsidiary and affiliate corporations and Participants, and their respective officers, employees, agents and representatives from and against any claim, demand, cause of action, expense or liability (including but not limited to the costs of litigation) arising (whether before or after completion of the work hereunder) by reason of:-"
Thereafter the contract defines a series of situations that would bring the indemnity into operation. Thus provisions are set out which cover Intellectual Property Infringement, Third Party Injury and Property Damage, and Pollution. The paragraph upon which the pursuers found is however paragraph (c) which is entitled " Injury to Employees and Damage to Property of Contractor". That provides as follows;
"Injury to or death of persons employed by or damage to or loss or destruction of property of the Contractor or its parent, subsidiary or affiliate corporations, or the Contractor’s agents, sub-contractors or suppliers, irrespective of any contributory negligence, whether active or passive, of the party to be indemnified, unless such injury, death, damage, loss or destruction was caused by the sole negligence or wilful misconduct of the party which would otherwise be indemnified"
In this contract the "Company " were OPCAL and the " Participants" were the other members of the consortium. Article 19 defines "PARTICIPANTS" as follows;-
"The Contractor recognises that the Company is the operator for a consortium (the members of which area collectively described in this Contract as "Participants"). The interest of the Participants in the consortium is limited to a certain percentage fixed by agreement between themselves."
The Contract then goes on to provide:
"Notwithstanding the number of names, styles or titles of the individual members of the consortium or their limited interests therein, the Contractor hereby waives any right it may have to require that claims hereunder for indemnities or damages should be pursued by the individual Participants and agrees that all claims for indemnities or damages shall be pursued by the Company as the Operator."
Article 17.3 defines "wilful misconduct" as follows:-
"For the purpose of this Article "wilful misconduct" shall mean an intentional and conscious disregard for:-
a. good and prudent practices normally associated with the type of operations envisaged herein,
b. of any of the terms of this contract, not justified by any special circumstances, but shall not include any error of judgement or mistake made either in acting or failing to act by any director, officer, employee, agent, contractor or subcontractor of the party to be indemnified provided such party acted in good faith."
It should be noted that the indemnity granted in Article 17.1d for " Third Party Injury and Property Damage" has an overall limit of £500,000 Sterling in respect of performance of the Contract at an onshore location and £1 million in respect of performance at offshore locations.
In Article 4 of the contract "SCOPE OF WORK" is defined in the following terms:-
"Subject to all the terms contained within this Contract, Company requires and Contractor agrees to provide the following ("the Work"):-
Contractor shall provide safety operators to work, as instructed by the Company on Piper ‘A’ and Claymore ‘A’ Platforms or such work location(s)as may be advised by the Company.
The Work to be performed shall be carried out in accordance with the requirements of Exhibit ‘C’- Scope of Work and to complete satisfaction of Company"
Exhibit ‘C’ contained detailed provisions outlining the work to be performed by the safety officers supplied by the Contractor .
In Article 1.2 of Exhibit A work is defined in the following terms " ‘work’ shall mean all the obligations of the Contractor to be performed by the Contract Staff hereunder as more particularly described in Exhibit C hereto"
Unlike the case with certain of the other contracts there is no provision for the Company undertaking responsibility for the transit of the Contractor’s property.
Article 17.2 sets out cross-indemnities granted by the Company in favour of the Contractor. After setting out the indemnity granted by the Company to the Contractor in terms effectively the same as the indemnity in favour of the Company the contingencies which the indemnity covers in relation to injury to Employees and Damage to Property is set out as follows:-
"Injury to or death of persons employed by or damage to or loss or destruction of property of the Company, Participants or their respective parent, subsidiary or affiliate corporations, irrespective of any contributory negligence, whether active or passive, of the party to be indemnified, unless caused by the sole negligence or wilful misconduct (in case of injury or death) or wilful misconduct (in the case of property damage, loss or destruction) of the party which would otherwise be indemnified ."
Thus in the case of the Company’s indemnity in respect of damage to the Contractor’s property the Company has apparently not required a specific exclusion in the case of sole negligence Article 5 of the Contract provides that it be construed and interpreted exclusively according to Scots Law.
There are Insurance provisions and these are substantially the same as shall be discussed in relation to other contracts. The Public Liability insurance has to provide cover for £500, 000 for each incident arising out of the performance of the work.
It should perhaps be noted at this point that not all the contracts were due to be performed exclusively on oil platforms in the North Sea. However the other contracts contained provisions which were effectively very similar to the London Bridge Engineering contract except for two Contracts which I shall be discussing later and even in similar Contracts there were certain differences
The contract involving the contractors Wood Group Engineering Contractors Limited is to be found in number 16/11 of process. In this contract the contractors were to provide a variety of platform support duties as set out in the contract. In fact the deceased employee Michael O’Shea was provided as an electrician. The range of services to be provided by the employees of Wood Group means that there were a wide range of Regulations or Codes covering the operations they were specifically to perform which included electrical work, scaffolding work, rigging and helicopter operations. Indeed the contract contains extensive provisions as to how the performance of the contractual operations are to be regulated on both sides. In the case of the Contractor’s indemnities under this contract the indemnities are preceded by a provision in the terms following;-
"Contractor shall indemnify, hold harmless and defend the Company and its parent, subsidiary and affiliate corporations and Participants, and their respective officers, employees, agents and representatives from and against and all suits, actions, legal or administrative proceedings, claims, demands, damages, liabilities, interest, costs (including but not limited to the cost of litigation ) and expenses of whatsoever kind or nature whether arising before or after completion of the Work and in any manner directly or indirectly caused, contributed to in whole or in part, by reason of omission or negligence whether active or passive of Contractor, or anyone acting under Contractor’s direction, control or on Contractor’s behalf in connection with or incidental to the Work. Provided always that the Contractor’s total liability arising pursuant to this indemnity shall not exceed £1,000,000 per occurrence"
There then follows a second paragraph to the Preamble which is in terms almost equivalent to what is set out in relation to the Kelvin Catering Contract but contains what may be a significant difference in that it is preceded by the words "In addition". The implications of this I shall discuss later.
The particularisation of the indemnities in favour of the Company which then follow are in essential respects the same as those in the contract last considered . The Contract is also equivalent to the Kelvin Catering Contract (which will shortly be discussed) in different respects.
The Insurance provisions in the Contract which relate to Public Liability provide for compulsory cover of £ 5 million for each incident arising out of the performance of the work.
The contract between OPCAL and Northern Industrial & Marine Services Company Ltd. is contained in number 10/17 of process. The indemnity provisions are for practical purposes the same as those in the London Bridge Engineering case except in relation to Article 13. 3.1 where the definition of wilful misconduct contains a punctuation difference which could be significant. The definition is:-
".....‘wilful misconduct’ shall mean an intentional and conscious disregard for:-
(a) good and prudent practices normally associated with the type of operations envisaged herein,
(b) of any of the terms of this Contract :
not justified by any special circumstances, but shall not include any error of judgement or mistake made either in acting or failing to act by any director, officer, employee, agent, contractor or subcontractor of the party to be indemnified provided such party acts in good faith"
The presence of the colon and following gap raises a possible question as to whether the exception for special circumstances applies both to sub-paragraphs (a) and (b) rather than to (b) alone as may be the case with other contracts.
The indemnity granted by the Contractor in respect of " Third Party Injury and Property Damage" contains an overall limit of £ 500,000 per occurrence.
In addition unlike the contracts earlier discussed, this contract in Article 13.3.2 contains a specific definition of "sole negligence" namely :-
"sole negligence" shall mean the exclusive negligence of the party to be indemnified and shall not apply where any other party bears a proportion of the negligence". The defenders contended that it does not matter if the reference to any other party signified any other party to the contract or any other party at all. Their submission was that the critical factor was that it was necessary that the Contractor had contributed to the accident by negligence or breach of statutory duty. If the Contractor was only liable because of some statutory duty not involving negligence then a contribution to the accident by the Company which did involve the latter’s negligence would be sole negligence. However it is somewhat strange to use language in this way if another third party has been negligent and has also contributed to the occurrence. He is apparently not to be accorded what might seem to be his due status as "any other party". It is only when the Contractor himself is partly responsible in law for the accident (and by way of negligence) that OPCAL will be indemnified and thus excused. In my view it would be difficult to construe "any other party" as meaning "any other party to the contract" since if that were intended it would have been more natural to say "the other party" or " any other party to the contract "or even" any other party for whom the other party has responsibility hereunder" As it is the words used are wholly unqualified and to read into them qualification is a rather strained exercise
The contract under consideration was for the provision of a winch and operator in connection with the installation of the Chanter Caisson Riser.
Number 10/21 of process is the contract with the contractor Eastman Christensen Ltd. The contract was fairly extensive (£3 million) and was for the supply of directional drilling services.
In Article 6 of Exhibit ‘B’ OPCAL assumed the risk of loss of, or damage to, materials provided by the Contractor " except when such loss or damage is due to the negligence or wilful misconduct of Contractor or its servants, agents or subcontractors in which case Contractor shall repair the damage or replace the materials or equipment." In that case the exception is based on "negligence" rather than "sole negligence". The core indemnity provisions are in terms equivalent to those in the Kelvin Catering Contract (still to be discussed). The general preamble here, ( Article 15 of Exhibit B) has a limit imposed of £1 million. This means that when we get to the specific provision about Third Party Injury and Property Damage then unlike the position in the next Contract considered there is no limit imposed in that provision. The limitation provision comes at the end of the first paragraph of the Preamble and refers to "this indemnity". This might be a strange place to put it if it is to be regarded as applying also to the second paragraph of the preamble. On the other hand if each paragraph is to be regarded as a totally separate indemnity then there would be no limitation applying to claims arising under the second paragraph. The answer may be that the second paragraph is to be regarded not as a totally separate indemnity but as an extension of the first indemnity. A part of the indemnity that is an alternative to the first paragraph and therefore to be regarded as without prejudice to its terms which create an obligation in its own right. This perhaps becomes better illustrated when we look at the second paragraph of the preamble in the Wood Group Contract because it begins with the words "In addition but without prejudice to the foregoing generality". The words " in addition" do not appear in the other contracts such as the Eastman Christensen and the Kelvin Catering Contract but they are important because they show that the second paragraph of the preamble even is expressed in the last-mentioned. The contract is in terms which fit comfortably with it being not a particularisation but an addition. The defenders say that the liability limitation which appears at the end of the first paragraph of the preamble in the Wood Group Contract would not apply to the second paragraph at all if it were a separate indemnity. Although the second paragraph adds additional indemnity rights as I have already said I do not think it necessarily need to be regarded as a separate indemnity not covered by the liability limitation. What we would have is a composite indemnity. Indeed the individual specific indemnities are in one sense separate indemnities stipulating separate qualifications to each of the particular contingencies covered. In the Wood Group Contract the limit for liability for third party injury is £5 million which of course is different to the limit imposed by the first paragraph of the preamble. It could therefore be argued that the limit in the first paragraph does not apply to the individual indemnities which are specified after the second paragraph but I need not decide that point . Certainly it is difficult to see how a specified limit of £5 million can be without prejudice to a limit of £1 million per occurrence unless possibly the larger amount is intended to cover a situation where there have been at least five " occurrences". In addition the third party indemnity covers matters not included in the first paragraph of the preamble such as negligence by a supplier or the supplier’s employees. It may be that the £1 million per occurrence limit is only intended to effect the losses occasioned by the Contractor’s own negligence and not that by its suppliers but if so the limit provisions are very clumsily expressed. The Contract contains provision for General Public Liability Insurance with a ceiling on liability of £5 million. This is not confined to losses arising from a supplier. Thus there is a general liability with a total limit of £1 million per occurrence, third party liability provisions with a total ceiling of £5 million and Public Liability insurance with a total limit of the same amount. However the question of the application of the limitation does not arise so that I do not need to form a concluded view about this. In respect of the insurance provisions I shall discuss these further in relation to other contracts.
Number 12/16 is the contract involving the contractor Kelvin International Services Ltd (formerly Kelvin Catering Ltd). This contract was also a large contract (£5, 750,000) and covered the provision of catering, housekeeping and laundry services on the Piper Alpha and Claymore platforms. Whereas the pursuers treated the London Bridge Engineering Contract as the key Contract the defenders took the Kelvin Contract for this purpose and they analysed it in detail. They pointed out that in the basic provisions it was stated that OPCAL were acting as agents for the Participants as defined in the Contract. It was also provided that the company (OPCAL) was the operator for a consortium of companies of UK petroleum licences in the North Sea. I was asked to note that none of the Participants were identified. The Preamble continues "Whereas the company, as part of its interest in oil and gas exploration, development and production is desirous of having the services defined herein carried out by the contractor". The defenders insisted that the Contractor was carrying out what were essentially services for the operation of the platform. I think this is quite right. The implication that the defenders sought to draw is that the contract was for the mutual benefit of the parties and the Operators were not doing the Contractor any kind of favour in permitting the Contractor’s men to work on the platform. I was asked to note that "the Work" is to be contrasted with "the type of operations envisaged herein" when the latter phrase is used in relation to "wilful misconduct". Indeed Article 3 is entitled "Scope of Work" and it defines the "work" to be carried out by the contractor. The execution clause shows that the contract was executed by OPCAL and Kelvin Catering Ltd and these are defined as " the parties hereto". Thus it would seem that only those who signed were intended to be parties to the contract. In Exhibit A what are headed "Special Terms and Conditions" are set out. Article 7.1 of the Exhibit makes clear that although the contractor is an independent contractor he is working at all times subject to the instructions, guidance and standards of the Company. For practical reasons and to comply with their strict statutory responsibilities it is obvious why the Company requires such a provision. Article 15 provides that the company will transport all the Contractor’s materials and equipment between the shore base and the offshore work site. The Contractors personnel are to be similarly transported by the Company. The defenders asked me to note these provisions and also provisions in Article 15.3 about the provision by the Company of accommodation and other facilities. I think the point that was being made by the defenders was that the Company had obligations under the Contract not directly related to the execution of the work. Thus when I come to consider the meaning of "wilful misconduct" as defined in the Contract it was said that it would be odd if the Company’s obligation to refrain from such conduct only extended to the actual work being carried out in terms of the workscope. Exhibit B contained the General Terms and Conditions of the Contract (as distinct from the Special Conditions). It is provided that the Exhibit embodies the entire agreement between the Company and the Contractor and also that the parties shall not be bound by any statement, representation, promise, inducement or understanding of any kind or nature not set forth. Once again therefore there is very clear confirmation that the only "parties" to the Contract are the Company and the Contractor. Article 3 provides that "the Work shall be performed on any of the Company’s offshore installations etc." If "the type of operations envisaged herein" only relates to "work" then the Company would have no express contractual obligation to avoid "wilful misconduct" in let us say the provision of safe accommodation or the supply of helicopter transport. Indeed in Article 6 it is provided that upon delivery to the Company’s shore base they shall assume the risk for damage to or loss of materials and equipment furnished by the Contractor except where the loss is due to the "negligence or wilful misconduct" of the Contractor or its servants . The reference to an exclusion of recovery in the event of "negligence" is interesting because it demonstrates that where a party causing loss by his own negligence is not to recover there is a specific provision made for this and it also shows that a distinction is made in the contract between "negligence" and "sole negligence" The defenders pointed out that here was a provision where the question of "wilful misconduct" arose in a situation which had nothing to do with "Scope of Work" as defined in the Contract. Article 9 makes provision that all work performed by the Contractor is to be subject to the inspection and approval of the Company, Article 13.1 provides in effect that the Contractor will ensure that when work is to be performed on the Company’s premises or offshore locations the employees of the Contractor and others persons acting for the Contractor will conform with the Company’s safety regulations and procedures ; and also in 13.2 that employees and sub-contractors will be properly qualified to do the work. It has to be said that the standards imposed are said to apply to "the work" and not to "the operations". Article 13.3 imposes an obligation to provide certain training vouchers and is stated to be "Without Prejudice to the generality of sub-Article 13.2". The defenders argues that this shows how "without prejudice to the foregoing generality" is a formula often used to indicate that a particularised instance is qualified or governed by the general requirements of the particular words which are referred back to.
The relevant indemnities in the Kelvin Catering Contract are in Article 15 and Article 15.1 contains a general preamble to the Contractor’s indemnity. This is in its terms essentially the same as the preamble in the Eastman Christensen contract although there is not the same limitation of liability. The defenders contended that as in the Eastman Christensen Contract the first paragraph of the preamble to the Contractor’s indemnity made it clear that the claims covered were those in whole or part by reason of omission or negligence whether active or passive of the Contractor. Thus at least in the first part of the preamble it was stipulated that the negligence of the Contractor was a prerequisite of indemnity rights. Of course up to this point the general preamble is not dealing specifically with claims arising from the death or injury of the Contractor’s employees.
After the first paragraph of the preamble in the Kelvin Catering Contract (as in the Eastman Christensen Contract) we find a further paragraph equivalent to the indemnities to be found in other Contracts. Since the defenders asked me to consider its specific terms I shall repeat it and it is in the following terms:
"Without prejudice to the foregoing generality, the contractor shall indemnify, hold harmless and defend the Company and its parent, subsidiary and affiliate corporations and Participants, and their respective officers, employees, agents and representatives from and against any claim demand, cause of action, loss, expense, or liability (including but not limited to the costs of litigation ) arising ( whether before or after completion of the Work hereunder) by reason of:-".
Then follow five particularisations of the circumstances when there will be indemnity . The defenders contend that the general requirement of the initial paragraph of the preamble that there should be negligence by the Contractor is an overriding requirement that applies to all five of those particularisations. Insofar as some of the particular indemnities add to the right of the indemnified party by providing that contributory negligence by the Company will not affect the indemnity contributory in such cases must mean "contributing to negligence of the Contractor in causing the accident". Certainly all five specified indemnities are sub-heads of Article 15.1.
The pursuers contend contrary to this that the first part of the preamble to Article 15 contains an indemnity separate to what follows in the second paragraph. I find the defenders’ arguments difficult to accept. Thus the first contingency calling the indemnity into operation as outlined in 15.1 is non-compliance with Laws. If the whole indemnity is governed by the first paragraph of the preamble then there could I suppose be a breach of law brought about by an omission. On the other hand a loss occasioned by a deliberate breach of the Law would not be covered by the terms of the indemnity. The defenders sought to argue that a deliberate breach of law would be an omission in the sense of an omission to carry out the duty to observe the law. However logical that may be the common understanding of an omission when associated with negligence is failure to take an active step required in pursuance of a duty to take care. The suggestion that it is necessary that the breach of the law is covered by the indemnity if it is caused by an "omission" involves a blatant tautology because a breach of law by definition must be caused by an omission to observe the law. The same comment would apply to the indemnities in sub-head b (intellectual property infringement). Such a result would be rather absurd.
Sub-head c of Article 15.1 relates to "Injury to Employees and Damage to Property of the Contractor." The provision is equivalent to that found in other Contracts and is in the following terms:- "Without prejudice to Article 6 hereof, injury to or death of persons employed by or damage to or loss or destruction of property of the Contractor or its parent, subsidiary, or affiliate corporations, or the Contractor’s agents, sub-contractors or suppliers, irrespective of any contributory negligence, whether active or passive of the party to be indemnified, unless such injury, death, damage, loss or destruction was caused by the sole negligence or wilful misconduct of the party which would otherwise be indemnified.". If, as is argued, the reference to "irrespective of any contributory negligence" is to be taken as referring only to situations where there is contributory negligence by the Company in relation to the Contractor’s negligence then again we may have a tautology because the first paragraph of the preamble sets out quite specifically that the indemnity is to cover any negligence "caused, occasioned or contributed to in whole or in part". The defenders would no doubt argue that it would be necessary to provide that the Contractor’s position is not to be affected if the other contributor happens to be the indemnified party.
Article 15.1 sub-head d deals with Third Party Injury and Property Damage. Thus the Company are to be indemnified in respect of claims against them ensuing from such loss. Article 15.1 sub-head e indemnifies the Company against claims arising out of pollution damage.
In Article 15 .2 of the Kelvin Catering Contract the Company grants indemnities in favour of the Contractor. They provide that "The Company shall indemnify, hold harmless and defend the Contractor and its parent, subsidiary and affiliate Corporations, and their retrospective officers, employees, agents and representatives from and against any claim, demand, cause of action, loss, expense or liability (including but not limited to the cost of litigation) arising (whether before or after completion of the Work hereunder) in relation to the Contract by reason of". Thus there is not the double paragraphed preamble which there is in the indemnity in favour of the Company. The Company are only giving the Contractor an indemnity arising "in relation to the Contract". However if the defenders’ submissions are well founded for some reason the Company are giving an indemnity in wider terms than the Contractor granted because it is not a condition precedent that the Company should have caused or contributed to the loss by omission or negligence. The general indemnity provision I have just quoted does cover "a," injury or death of persons employed by or damage to and loss or destruction of property of the Company, Participants or their respective parent, subsidiary or affiliate corporations, irrespective of any contributory negligence, whether active or passive, of the party to be indemnified, unless caused by the sole negligence or wilful misconduct (in the case of injury or death) or wilful misconduct (in the case of property damage, loss or destruction) of the party which would otherwise be indemnified. The next indemnity (which is for Pollution Loss caused by any facility of the Company) also has an exclusion for wilful misconduct but no specific exclusion for sole negligence of the Contractor
The defenders argued that looking at the indemnities favouring each of the contracting parties they certainly do not have the structure of "knock for knock" arrangements as found say in motor insurance. The defenders suggested that in motor insurance the purpose of "knock for knock" agreements is that they save complex investigations into the cause of accidents. Since each underwriter will win or lose according to the laws of chance the advantages and risks will tend to balance out. If "knock for knock" is aimed solely at the avoidance of detailed investigation then the reciprocal indemnities certainly do not achieve that. The present cases have illustrated that cogently. On the other hand the indemnities if not perfectly balanced may achieve respective benefits that the parties are prepared at least within certain limits to tolerate. It is difficult to know to what extent the cross-indemnities achieve a rough balance. OPCAL will have more personnel on the platform than Kelvin Caterers. On the other hand if only OPCAL’s employees suffering loss while doing work related to the Kelvin Catering Contract can implicate the indemnity there may be a degree of balancing out through this. Moreover it may simplify the parties’ economic arrangements if they can know in advance where any loss in connection with their employees is likely to fall. There was quite important evidence from Mr Crain in that connection. Mr Crain was the Senior Counsel with the United Texas Petroleum Group and obviously had wide experience of the petroleum industry. He gave unchallenged evidence that it was common practice throughout the industry for parties involved in contracts with offshore implications each to accept the whole risk for loss connected with their own employees. He stated that the economics of the industry is designed to take account of that practice and that in particular contractors’ rates were adjusted to allow for it. The defenders contended that such evidence is irrelevant. However it is well established that the circumstance surrounding the completion of a contract may affect construction. In many of the cases to which I was referred there was judicial comment that any suggestion that a party would agree to offer an indemnity covering loss caused by the negligence of the indemnified party was difficult to believe. In these present cases there is evidence that, to put it no higher, confirms that at least in some contracts with contractors it is practice to have what in effect are cross-indemnities designed to achieve a situation where parties are responsible for their own employees. It must of course be the case that individual interests may choose not to follow such a practice. The only effect of Mr Crain’s evidence is that were I in a situation where the Contracts seemed to point towards parties bearing responsibility for their employees in all or most circumstances it would be difficult to reject this approach purely on the view that it produced a result which was intrinsically absurd.
The Kelvin Catering Contract contains a definition of " wilful misconduct" in article 15.3 which is in the same terms as the definition which I have already quoted in the London Bridge and Engineering case. There is no definition of "sole negligence" in this and five other of the Contracts.
In relation to Article 16 of the Kelvin Catering Contract we find that there are certain contractual obligations which relate to insurance. The defenders contended that the mandatory insurance provisions make sense if their construction of the indemnities is accepted. On the other hand if Kelvin were required to indemnify in respect of say an act of negligence by an employee of Score then the compulsory insurance arrangements would not cover them.
Article 15 of the Kelvin Contract provides that "The Contractor shall, at its sole cost and expense, procure and maintain (and shall require its sub-contractors to maintain in effect) during the contract period, insurance coverage with insurers under forms and policies satisfactory to the Company as specified in article 16. 2 hereof". At article 16.2 we can find the particular insurance that is required. The first is "Employer’s liability and workers compensation insurance to comply with the statutory requirements". That provision highlights that there are indeed statutory requirements and of course the insurance described would cover the Contractor’s liability to its own workmen. The second insurance that is required is General public liability insurance in respect of the persons and property of third parties to the extent of at least £ 2 million for each incident arising out of the performance of work". It is suggested by the defenders that this provision would cover the liability to third parties and their property which is the risk which the indemnity provides for. There is a further provision in 16.1 that "Such policies other than Workers Compensation and Employers Liability must include the company and the participants as additional insureds and shall provide that the policies will indemnify the additional insureds against claims brought by any other of the insureds". The last proviso seems to be to ensure that an assured is covered in respect of a claim brought against him by another assured in respect of a contribution to the payment made by the latter to a third party in settlement of a claim Then there is again a further provision "Such policies other than Workers Compensation and Employers Liability must also provide that this insurance shall be primary and not contributing with any other insurance available to the Company or its Participants". The Contract also provided for the furnishing by the Contractor to the Company of certificates vouching that the stipulated insurance has been effected. There is also to be a waiver of subrogation in favour of the Company. The defenders contended that the insurance provisions in the other Contracts (which apart from the case of the British Telecom Contract) are similar in effect should be regarded as complementary to the indemnities and that they support the defenders’ construction. The Contract further provides that certificates, notices and other communications regarding insurance and insurance claims shall be sent to the Company and be marked "For the attention of the Insurance Co-ordinator". This was said to show yet again that the Compulsory insurance was for the benefit of OPCAL. The defenders argued that the Public Liability policy would give OPCAL adequate protection in respect of the third party claims it covers. I do not believe that it is intended to be a substitute for the indemnity. The insurance stipulations in the Contract would at first sight cover claims by third parties against the Contractor. Normally these would be based on negligence or breach of statutory duty on the part of the Contractor. This would mean that if OPCAL were involved at all it would be as contributors to the Contractor’s negligence or breach of duty. There would be contributory negligence and this would not affect OPCAL’s claim under the indemnity. I had rather thought that this is just the situation where the defenders would accept that the indemnities would bite. Of course it could be said that a situation could arise where the claim against the Contractor was based only on statutory liability without negligence and that therefore on the defenders’ argument the Contractor would not be obliged to indemnify OPCAL if they were co-defenders not only on the basis of sole negligence (which would be excluded anyway) but alternatively on the basis of non- negligent statutory liability. This scenario is I suppose possible but with the Contractors not being the Operators of the Platform may seem rather remote. It would perhaps be odd if the insurance provisions were just designed to give OPCAL protection against that risk.
The final Article in the Kelvin Catering Contract that the defenders referred to was Article 25. It was headed "Company and Contractor Representatives". Then it proceeded "Prior to commencement of the Work, Company shall designate in writing a staff management representative who shall have authority to act for and on behalf of the Company and Contractor shall designate in writing a senior representative who shall have authority to act for and on behalf of Contractor in all matters connected the implementation of this contract. Any change in either party’s representative shall be noted..........".
The contract between OPCAL and British Telecommunications Plc. was for the refurbishment of Offshore Microwave Antennae and is number 16/16 of process. In relation to indemnities its general terms are the same as in other contracts although it is worded rather differently and this may be significant. OPCAL is referred to therein not as "the Company" but as "the Customer". Paragraph 8 of the contract places certain limitations on B.T.’S liability including a total limitation in amount of £1 million. In Clause 10 which is the general indemnity provision regulating the indemnities for offshore work in Sub-clause 1 we find that the Clause is to apply at all times during the transportation of the equipment, BT personnel and BT materials between the Customer’s Onshore premises and Piper Alpha and during performance of the work by BT on Piper Alpha. The defenders submitted that the reference to "during performance of the work" was not merely temporal and suggested that the involvement of BT in the accident through act or omission was an essential prerequisite of the indemnities which follow. However I think the phrase "at all times" is a clear indication that the clause is intended to be temporal in effect. If it was the intention that the indemnities were only to operate during the actual performance of work the words "at all times" would be superfluous. Moreover It would not make sense if a claim were to be available if an engineer was overcome by fire while working on antennae but not available if he was overcome by fire while in his cabin. The indemnities include non-compliance with the law and it is difficult to see how in many instances that could be connected to actual performance of the work. The indemnities are to operate during transportation and then during the period of the work on the platform. Thereafter Clause 10.1 grants indemnities in favour of the pursuers similar to those granted in the other contracts The defenders also made reference to the terms of Clause 8 in Appendix A since Clause 10.1 begins "Notwithstanding Clause 8.1 but subject to the remaining limitations of Clause 8 of the attached Appendix A". Clause 8.1 sets out
"BT accepts liability for the faults in the equipment and its own negligence to the extent stated in paragraphs 7, 8.3, 8.4 and 8.5 but not otherwise. Except where expressly contained in these conditions BT has no obligation, duty or liability in contract, delict (including negligence or breach of statutory duty) or otherwise".
The defenders contended that the reference in Clause 10.1 to "Notwithstanding Clause 8.1" must refer to the first sentence of 8.1. Clause 8.4 which is one of those incorporated in the first sentence of 8.1 sets out "BT does not exclude or restrict liability for death or personal injury resulting from its own negligence". Thus they say that the indemnity in Clause 10.1 is intended only to cover a situation where a BT employee is killed or injured by the negligence of BT . I find this argument difficult. It is the terms of clause 8.1 which limits the Contractor’s liability overall. However Clause 10.1 supersedes 8.1 so that the limiting effect of the latter does not apply to the former. The remainder of the limitations in Clause 8 are to survive. This would for example include Clause 8.5 which places an overall limit on liability of £1 Million. It will include Clause 8.6 dealing with consequential loss or damage. However Clause 8. 4 is not a limitation at all unless it is read along with 8.1. In fact Clause 8 .4 is an expansion of obligation.
There are also limitations relating to indirect and consequential losses and these limitations are expressly incorporate into certain of the indemnities. I shall have to look at this in some detail later. It has to be noted that the contract is of relatively small value (£40,000). The indemnity provisions apart from the question of indirect and consequential loss are essentially the same as in the London Bridge contract. However in the definition of "wilful misconduct" in Paragraph 10.4 it should be noted that there is no disjunctive between the sub-paragraphs dealing with good and prudent practices and disregard of contractual terms respectively. Senior counsel for the pursuers indicated that he did not seek to found on that feature of the contract. It may also be noted that the Contract does not provide for compulsory insurance by the Contractor. The reason that this Contract is somewhat different in form from the other Contracts is that whereas the other Contracts were drafted by OPCAL at their Aberdeen office the British Telecom Contract is in a form which is standard to British Telecom although a number of features which are used in the OPCAL standard form of contract have been incorporated into this. The defenders argued that despite the different genesis of this contract OPCAL must be regarded as the proferens if they are seeking to benefit from the indemnity.
The final contract relates to Stena Offshore Ltd. (who were formerly Northern Coasters Ltd). It is number 10/2 of process. This is again a large contract (£3 million) and covers the provision by the contractor of diving services and associated equipment. Unlike the other contracts, in the introduction to this contract there is no reference to the Participants, but the fact that OPCAL are operators for a consortium of companies is stated. It is also made clear that the parties to the Contract are the Company and the Contractor. In an Article relating to consequential damages which I shall be examining later there is a reference to "damages" whereas the equivalent provisions in the other Contracts refer to "losses". Moreover in this contract there is a definition of "sole negligence" in the same terms as the Northern Industrial & Marine Services contract. Otherwise however the Contract is in essentially the same terms as the others with the shorter preamble. In the indemnity covering "Third Party Injury and Property Damage" there is a limit on liability of £2 million. There are however somewhat different Insurance provisions in Article 16.01. These read "Contractor shall obtain and maintain in effect at its sole cost during the entire progress of the work under this contract, and shall require all the parties having contracts for the work with contractor or its subcontractors to obtain and maintain in effect during the entire progress of the work under such contracts, insurance with coverage not less that the following minimum insurance: a. Workmen’s Compensation and Employers Liability Insurance covering all employees regardless of citizenship or point of hire for injury, illness and death, and for occupational disease to the extent required by law, including coverage under both common and maritime law, benefits to be at least equal to those required by law in the country in which the work is to be performed by native personnel, and, in the case of ex patriots in the country of hire said country has jurisdiction over the employee. Employers Liability Insurance with limits of liability as required locally but in no event less than pounds sterling £2 million per occurrence. b. General Public Liability (including automobile) covering liabilities to the persons and property of third parties to a minimum limit of pounds sterling £2 million in respect of incidents arising out of the performance of the work". Then there is provision for aircraft liability insurance and marine insurance. In 16.02 it is provided that "Company shall either self insure or shall obtain and maintain at its sole cost during the entire progress of the work under this contract, insurance covering platform, pipeline and terminal facilities and all parts and materials thereof under or in course of storage, transit, installation or operation. No Insurance will be afforded by company for contractor’s tools or equipment". In relation to the foregoing the defenders made the point that OPCAL had not seen fit to demand compulsory insurance to cover the kind of liabilities that would arise under the pursuers’ construction of the indemnities.
It should be noted that all the foregoing contracts have cross -indemnity provisions as already described and are regulated expressly by Scots Law.
9.3 Construction of Indemnities
9.3.1 Parties‘ Contentions
Senior counsel for the pursuers argued that on a proper construction of the indemnities the defenders had an obligation to indemnify the pursuers (representing respectively the original operators and the other members of the consortium) in respect of the amounts paid to victims and their families as compensation for the accident. It was claimed that the pursuers had proved that the accident had been caused by a leak of condensate from the PSV 504 valve but because of the comprehensive scope of the regulations governing Offshore platforms the pursuers would be liable to make reparation to victims even if a specific cause for the accident could not be established. It seems certain that the accident was initiated by an explosion and in that situation it is difficult to see how the platform operators and their co-owners could have hoped to avoid civil liability for the accident under the regulations. The defenders could only escape from liability under the indemnities if they could prove that the accident was caused by the sole negligence or wilful misconduct of the indemnified party. It was argued that the references to contributory negligence and sole negligence in the Contractors Indemnities signified that it was intended to indemnify even against the negligence of the indemnified party. The existence of cross-indemnities pointed strongly in the same direction. It was suggested that the proposed construction of the indemnities made commercial sense. The regulatory regime for Platforms imposed absolute liabilities and the indemnity arrangements were to ensure that each party looked after their own employees on a "knock for knock" basis.
The defenders for their part contended that the provisions of the indemnities fell to be construed in the light of all the provisions of the Contract being considered and that if this was done then the indemnities did not bear the wide meaning which the pursuers sought to attribute to them. It any event, it was said, a proper construction of the Contracts demonstrates that the contracts are not intended to realise "knock for knock" arrangements as argued by the pursuers. The provisions in the Contracts, if examined, would be found not to be truly reciprocal. Unlike situations where each party is expected to make its own arrangements to cover its risk these contracts make certain specific provisions for insurance. It was said that on a proper construction of the indemnities in the case of a particular defender he only indemnifies where he has contributed to the death or injury of his own employee either personally or vicariously. The Courts are, it was contended, hostile to indemnities so that an indemnity will be construed strictly against the party seeking to rely on it. If the defenders have an alternative construction that is rational and plausible it will be preferred. Moreover there will be what is essentially a presumption against indemnifying a person for loss caused by his own negligence. A further point on construction made by the defenders was that reciprocity of obligations under the indemnities will not in itself destroy the presumption against a party being indemnified for the consequences of his own negligence. It was said that on a construction of an indemnity a requirement that the loss be wholly or at least partly caused by the fault of the indemnifier himself may be implied even although there is no express provision to that effect. Finally on the matter of construction guidelines it was said that even if the indemnifier has to indemnify in certain circumstances where he has not caused or contributed to the injury or death of his employee the indemnified party cannot rely on a breach of statutory duty where there is also a finding of common law negligence. I was asked to note that even in the "friendly actions" which followed upon the settlements in these cases there was a finding of negligence against OPCAL.
The defenders submitted that indemnities fall to be construed contra proferentem and indeed I do not think there is much doubt about that generality. Moreover I accept that for a contract to be ambiguous does not mean that its construction presents some insoluble difficulty but rather that the contract would comfortably bear more than one sensible construction.
It was clear in my view on the evidence that the Company were the proferens in this matter except in the case of the BT Contract where the Contractor’s style of Contract was employed. I also accept that in the case of any indemnity the contract should be construed against the party who seeks to enforce it. Just how rigorous this rule is I shall come to consider. It is also obvious from the authorities that the Courts will not readily suppose that a party would be prepared to indemnify the indemnified party against his own negligence. Whether this is to be labelled a presumption, as the defenders claimed, or a practical guideline based on common sense may not matter. I see it as no more than an indication as to how a Court might look for assistance in the construction of a Contract in what might be readily supposed acceptable to the parties to such a contract and at the end of the day if the terms of the contract show that indemnification against a party’s own negligence is what was obviously intended then that intention will be given effect to.
The authorities were reviewed which governed the effect on indemnities if the contingency giving rise to the claim for indemnification had been caused by the negligence of the party claiming a right to indemnification. In Alderslade v Hendon Laundry Limited 1945 1KB 189 it had been held that in a case where a contracting party wishes to limit his liability when the loss to be indemnified is caused by negligence this requires clear terms in the absence of which the indemnity clause will be construed as relating to a liability not based on negligence. It was contended that the law had been developed further in Canada Steamship Lines Ltd. v The King 1952 AC 192 where at page 208 Lord Morton of Henryton had set out rules of construction considered by the Court to govern such indemnity provisions. It was accepted that if there was doubt an indemnity has to be construed against the person in whose favour it is made. It should also be noted that Lord Morton observed "In the end you are driven back to construing the clause in question to see what it means". This is a comment which in my view should not be lost sight of. In Hamilton & Co. v Anderson & Co. 1953 S C 129 the Court held that when a claim for damages is based on breach of statutory duty the claim is nevertheless a claim incurred at common law and not the statute as it is the common law and not the statute which creates the right to recover damages in respect of the breach. North of Scotland Hydro-Electric Board v D & R Taylor 1956 SC 1 was a Scottish case which applied the tests laid down in Canada Steamship Lines Ltd. It was also confirmed that in Scotland indemnities will be construed contra proferentem. Walters v Whessoe (1960) 6 Building Law Reports was another case which applied the Canada Steamship Lines tests. McGill v Pirie & Company (Paisley) Ltd. and Ors 1967 SLT 152 is an example of a case where negligence was held to be included in an indemnity although there was no express reference to negligence in its terms. The Lord Ordinary held that otherwise the indemnity would have no content. I think this approach is important. In some cases the fact that an indemnity covers the negligence of the indemnified party can be spelled out in specific words and that certainly would satisfy the tests set by the cases. In other cases although the indemnity may not be expressed with such lucidity it is beyond doubt that the parties to the contract intended negligence by the indemnified party to be covered. This is because there is no alternative construction available which would make sense between the parties so that it may be inferred beyond doubt that the indemnity incorporates negligence. No matter how unlikely it is that a party will be indemnified against his own negligence (even assuming that to be the position) then if it is quite clear that the indemnifier was prepared to take on that very responsibility the evident meaning of the indemnity must be put into effect. McGlynn & Others v Robert Rome & Son Ltd. 1968 SLT (Notes) 16 is another Outer House case to the same effect and indeed the indemnity was held wide enough to cover not only direct negligence but also vicarious negligence. Smith v UBM Chrysler (Scotland) Ltd. 1978 SC (HL) 1 was also referred to. In that case the principles applicable to exemption clauses were held to apply to indemnities. It was also held that a party in whose favour the indemnity clause was made (the proferens) was entitled to indemnity against the consequences of his own negligence or that of his servants only where the indemnity clause contained an express proviso to effect, where the words of the clause in their ordinary meaning were wide enough to cover negligence on the part of the proferens or the head of damage could not be based on some ground other than negligence. At page 16 Lord Keith of Kinkel observed that the principles being considered do not represent rules of law, but simply particular applications of wider general principles of construction, the rule that express language must receive due effect and also the rule omnia praesumuntur contra proferentem. A point that may be significant is that Lord Fraser of Tullybelton thought that the existence of insurance requirements covering the negligence of the party seeking indemnity would militate against indemnity because it is unlikely that such party would require double protection. On the other hand I can observe that in a case like the present case (apart from statutory obligations to insure) it may have been thought that an individual Contractor might not be able unassisted to meet the scale of claims that could arise. Lord Fraser also stated that a breach of statute can be regarded as equivalent to common law negligence if the breach would essentially involve such negligence. In the present case the pursuers do not dispute that if the cause of the accident as they advance it is accepted then they would be vicariously liable in terms of the negligence of Mr Vernon so that the last comment of Lord Fraser may not have much significance in terms of the facts in this case.
I do not doubt that an indemnity that protects a party against what may prove to be serious claims arising out of his own negligence must be expressed in very clear words if it is to be given effect to. In Nelson v Atlantic Power and Gas Ltd 1995 SLT (Notes) 102 in construing the indemnity the Lord Ordinary had placed great weight on the fact that the indemnity clauses had reciprocal provisions which suggested that the only content which could be given to them was that they were intended to simplify the arrangements of both parties on a knock for knock basis. Each party would assume liability for the injury to their own employee thus avoiding the need for a protracted inquiry. Accordingly although there was no express mention of the indemnities covering negligence on the part of the indemnified party the indemnities should be read to cover such negligence. The Inner House agreed with the Lord Ordinary’s approach on the construction question. Nevertheless it should be noted that there was a concession that all that was required to bring the indemnity into effect was loss, injury and damage caused to some extent by the owner’s breach of statutory duty. Accordingly in the decision of the case the issue of negligence was irrelevant However in E. E. Caledonia Ltd v Orbit Valve Co Europe (1984) 1 WLR 1515 a question arose not unrelated to the present case. The plaintiffs were essentially the same as the pursuers in the present cases and having made a settlement with the family of a victim of the Piper Alpha disaster they sued the contractor who employed the deceased under an indemnity in the contract with the contractor. In that case it was possible to go to court on agreed facts which were to the effect that the death was caused by the negligence of the plaintiffs’ employees as well as breach of statutory duty. The terms of the indemnities were substantially different from those in the present cases and in particular they contained no mention whatsoever of negligence, contributory or otherwise. The difference between the forms of indemnity and those in the present cases may be explained by the fact that the form used in the Orbit case was that reserved for relatively small contracts. Basically the indemnity provisions provided that the parties to them would indemnify in respect of injury or damage to their own employees. It was held by the Court of Appeal that the indemnity provisions operated as an allocation of risks between the plaintiffs and the defendants, each party being bound to bear the risk of his own negligence. The Court regarded Nelson as a decision dependent on the concession made that negligence was irrelevant to the determination of the case. It was indicated that otherwise they would have had trouble with some of the views of the Inner House. The pursuers argued that the E. E. Caledonia case was distinguishable because the terms of the indemnities were so different but if there were any conflict between it and the Nelson case it was suggested that I was bound by the latter.
The defenders referred me to Ailsa Craig Fishing Company Ltd v Malvern Fishing Company 1982 SC (HL) 14. The respective owners of the fishing boats Ailsa and Malvern sued each other for damages after the boats while moored had become entangled in Aberdeen Harbour and sank. The security firm Securicor had been commissioned to supervise the boats in harbour and each party brought them into the action for prospective relief. Securicor’s Contract contained provisions excluding liability in certain circumstances and further provision limiting any liability. Questions arose as to the meaning of these provisions. Lord Wilberforce in the House of Lords said:
"Whether a clause limiting liability is effective or not is a question of construction of that clause in the context of the contract as a whole. If it is to exclude liability for negligence it must be clearly and unambiguously expressed".
It was said that such a clause will also be construed contra proferentem. His Lordship proceeded, "one must not strive to create ambiguity by strained construction, as I think the appellants have striven to do. The relevant words must be given, if possible, their natural, plain meaning." Then there is an indication that clauses of limitation of liability are not regarded by the Courts with the same hostility as clauses of exclusion and this was said to be because they must be related to other contractual terms including the risks to which the defending party may be exposed, the remuneration which he receives, and possibly also the opportunity of the other party to insure. The implication of what he is saying seems to be that in relation to limitation it may be that a limitation of liability is perfectly rational because of the kind of considerations he refers to. However the critical import of what he says seems to be that you apply stricter standards to the construction of an exclusion clause than would be the case with a mere limitation clause. An exclusion clause represents a much more comprehensive avoidance of responsibility. Lord Fraser of Tullybelton declared in relation to limitation clauses
"Such clauses will of course be read contra proferentem and must be clearly expressed, but there is no reason why they should be judged by the specially exacting standards which are applied to exclusion and indemnity clauses. The reason for imposing such standards on these clauses is the inherent improbability that the other party to a contract including such a clause intended to release the proferens from a liability that would otherwise fall upon him".
Thus we have a very authoritative confirmation that the standard to be applied to indemnity clauses is strict and exceeds in strictness the standard that would be applied simply on the basis of contra proferentem
The defenders also referred me to Bovis Construction (Scotland) Ltd. v Whatlings Construction Ltd 1995 SLT 1339. This was another case in the House of Lords about a clause limiting contractual liability. Again it was held that a clause limiting liability must state clearly and unambiguously the scope of the limitation and would be construed with a degree of strictness albeit not to the same extent as an exclusion or indemnity clause. This case seems to encourage the existence of three degrees of ambiguity, that of normal applications of contra proferentem, a stricter approach to clauses such as limitation clauses and an even stricter construction in the case of exclusion clauses and indemnities. The distinction between these degrees may sometimes be elusive in practice but it seems to me that the practical question I have to determine is whether the indemnities could bear any sensible construction alternative to the one which the pursuers support. I think that even with the strict standards of indemnity construction the Court need not support a construction which does not make sense but on the other hand will not apply the indemnity unless there is no doubt that it means what those relying on it propose. In terms of the defenders’ arguments the matter would be academic if these are well-founded because they claim that in any event the construction of the provisions which they offer is perfectly obvious.
Senior counsel for the pursuers argued that in the Contractors’ indemnities in the present cases there was express reference to contributory negligence being covered and to sole negligence being excluded from the cover. This showed quite clearly that it was the express intention of the parties to the contract to have the indemnity apply at least in respect of negligent acts which did not come within the exception provision relating to sole negligence. Thus on a proper construction of the indemnity the language covers any liability arising from a breach of statutory duty or from negligence . It was said that the operators, the Participants or any other party named as being entitled to the benefit of the indemnity had enforceable and separate claims under it if they suffered loss through the relevant contingencies. Even if parties such as employees of the operators had not been parties to the Contract with the Contractor the indemnity provisions had clearly been inserted in part for their benefit and they would have been entitled to claim under it under the ius quaesitum tertio. Under a proper construction of the indemnities the negligence of an indemnified party such as an employee or agent was not to be attributed to another indemnified party such as the Operators. The objectives of the parties was obviously to lay down a "knock for knock" situation where each party would assume responsibility for its own employees except in the narrow category of cases set out in the exception provision. It was contended that the background to offshore operations was to be sought in the legislative framework. The governing Act is the Mineral Workings (Offshore Installations) Act 1971. Section 11 of the Act imposes civil liability for breach of statutory duty where personal injury (including fatal injury) occurs. The Offshore Installations (Operational Safety, Health and Welfare) Regulations 1976 (S.I. 1976 No 1019 were enacted in terms of that Act. Regulation 32.-(1) provides that it shall be the duty of the Installation Manager and of the owner of the installation and of the concession owner to ensure that the provisions of the Regulations are complied with. This is an absolute duty. Regulation 32(2) imposes a duty on every employer to ensure that an employee working on an offshore installation complies with duties imposed on him by the Regulations. Regulation 32 (3) provides that it shall be the duty of every person working on an offshore installation not to do anything likely to endanger the safety of himself or of others on the installation nor to render unsafe any equipment used on it. Again the duties are absolute and the statutory duties must be considered against an objective test. Reference was made to MacMillan v Wimpey Offshore Engineers and Constructors Ltd 1991 SLT 515. It was argued that a failure to fit the valve PSV 504 securely would be a breach of Regulation 32(3). However even if it was merely proved that condensate had been introduced into the valve at a time when this should not have happened then even without proof of negligence this would be a contravention of Regulation 32(3) because the test is an objective one. A breach of the Regulations would be implied if it was proved that the accident had been caused by an explosion. Indeed the defenders plead specifically that if the accident did not occur in the circumstances averred by the pursuers but occurred in Module B or in a manner and circumstances unknown then it was due to the sole negligence of the pursuers. Any act of negligence would fall under Regulation 32 (3) (a). Regulation 33 gives rise to civil liability if there is default in observing the Regulations.
9.3 .2 Res Ipsa Loquitur
The rule of Res Ipsa Loquitor could have relevance to these cases in certain circumstances. The pursuers were at pains to point out that in the present case the rule has no significant application. The matter would arise in a situation where it was held that the pursuers had failed to prove just what circumstances had caused the explosion on the platform. In that case of course blame for the accident could not be attributed to Mr Vernon or the Score personnel. The pursuers argued that even were that situation to arise they could recover under the indemnities. They argue that in the event of an unexplained explosion they would still have been liable to pay damages to the victims or their families on the basis of the statutory provisions. In that case no negligence would arise because the Regulations impose absolute duties which arise irrespective of negligence. Thus according to the pursuers an unexplained accident would have given rise to a situation where the pursuers would be entitled to recover under the indemnities. They would have suffered a loss but this could not be ascribed either to sole negligence or to wilful misconduct unless the defenders were able for their part to prove a scenario for the accident from which either of the exceptions could be inferred. Ignoring for the moment any question of onus of proof the defenders contended that in the event of an unexplained explosion the rule of res ipsa loquitur would apply. The pursuers had the management and control of the platform. Platforms which are properly managed and controlled prima facie do not blow up. Thus applying res ipsa loquitur negligence would be presumed against the pursuers as Operators of the platform unless they could exonerate themselves by showing that there was a particular cause of the explosion which was not their fault. If that is a correct view an unexplained explosion leaves a position where the pursuers are presumed to be negligent but negligence cannot be established against anyone else. This say the defenders is a blatant case of sole negligence. Thus it is important for the pursuers to refute the application of res ipsa loquitor were the factual situation such where it might be critical. The main contention advanced by the pursuers to counter the supposed application of res ipsa loquitur was that an offshore platform must be distinguished from the kind of factory premises where it has been held to apply. On a platform perhaps the majority of personnel are employed by independent contractors (as indeed were all the victims who affect these cases). In such a case there is ample scope for conduct over which the Operators have no control so that it cannot be assumed that any unexplained accident can be attributed to their fault even at first sight.
In any event claims were made against the Operators which had a reasonable prospect of success and the indemnifiers had a contractual duty to defend and protect the pursuers against such claims. In fact the defenders’ expert witness Mr Greene, a Texas attorney, said that if the claims in question had come to Texas he would not have considered it expedient to defend the claims on the merits. Of course this begs the question as to the application of the exception from the indemnities in the case of the sole negligence of the person to be indemnified
The pursuers referred me to Devine v Colvilles Ltd 1969 SLT 154. In that case the pursuer was injured when working at Ravenscraig Steelworks on a platform about 15 feet above the ground. A violent explosion occurred and the pursuer got such a fright that he jumped to the ground and was injured. In this House of Lords case Lord Guest at p. 154 gave an account of the applicability of the maxim res ipsa loquitor which it was contended should be regarded a authoritative. His lordship said:
" The respondent accepts that his only case against the appellants is on the basis of the maxim res ipsa loquitur. The doctrine emanates from the well know passage of Erle CJ in Scott v London & St. Catherine’s Docks (1865) 3H & C 596 at p.601 (which incidentally was a dissent). There must be reasonable evidence of negligence. But where the thing is shown to be under the management of the defendant or his servants, and the accident is such as in the ordinary course of things does not happen if those who have the management use proper care, it affords reasonable evidence, in the absence of explanation by the defendants, that the accident arose from want of care."
The pursuers attempted to differentiate Devine from the present situation in that it was argued that in Devine the whole steelworks were in the exclusive control of the defenders so that any departures from reasonable care must be attributable to the factory managers. It was said that an oil platform is different because men from many different employers would be working there under a degree of independent control. Moreover the case being considered accepts that in a Steelworks an explosion would not usually occur in the normal course of things. The case for the pursuers at its highest is that there is no question of the relevant maxim applying if there are others working on the premises who are not under the direct control of the defenders. However in Devine it is clear from the facts that there were employees of a third party present at the steelworks when the accident occurred. In fact these were directly involved in the supervision of the plant that might have caused the accident. That plant was almost new and representatives of the manufacturers remained in a supervisory capacity after the plant came into operation. This appears from the Session Papers. The argument that the presence of these third parties might have diluted the application of res ipsa loquitur was held by the House of Lords to have no merit.
I was referred also by the pursuers to Carruthers v MacGregor 1927 SC at p.816. In that case a builder had contracted to carry out plastering work on a house being erected. This was done to the plans and specifications of an architect. Another contractor had undertaken to carry out joinery work. When the builder had finished his work the owner accepted it but at a later stage the walls began to crack. When the builder sued for the cost of his work the owner counterclaimed for loss allegedly caused by the use of faulty materials by the builder. The builder replied that the problem had been caused by the use of unseasoned material by a roofing contractor. Since none of the causes of the damage to the house was established at proof, and since either deficiency may have caused the damage it was held that the breach of contract had not been established against the pursuer. It seems to me that the ratio of the case is that the finger of responsibility could not be pointed exclusively at the builder. I think the point about the Carruthers’ case is that the maxim res ipsa loquitur is built upon sensible factual inferences. If it can be assumed as a matter of fact that any deficiency in the building is at first blush attributable to the fault of the person carrying out and controlling the work then unless the initial inference can be displaced the maxim will apply. On the other hand in Carruthers any initial inference had been displaced because, as the judgments vouch, the giving way of the walls of a house may be due to many different causes not all attributable to the fault of the builder. A fault in the design of the house was quoted as an example. I think an important observation is that if the contractor had been responsible for building the whole house then the result of the case may have been different. The important circumstance in Carruthers is that no one contractor had more responsibility for the emergence of a sound house than any other. The literal meaning of the maxim is that the thing tells its own story. There must therefore be a story explaining the accident which at first look is more likely than any other. This may of course not amount to a specific explanation for the accident. Thus as in the Colville case the pursuers did not know what had caused the explosion. What they were able to show is that equipment under proper management does not usually blow up.
The defenders referred me to the case of Ballard v North British Railway Co. 1923 SC (HL) 43. In that case the accident (a runaway train and wagons) had been caused by some defective coupling. The defenders managed to show that the deficiency in the coupling could have been caused by latent fault in manufacture which they could not reasonably have discovered. However it appears that excessive strain was placed on the coupling because the train was going too fast so that the prima facie inference of negligence was held not to be displaced. It was emphasised that res ipsa loquitur should not be invested with any special mystique as a doctrine of law. It is basically a statement of how one would go about reading the message to be derived from a review of the whole evidence. In general one would expect those in control of a workplace best to know about its state at the time of the accident and of course also what was going on.
The pursuers make a further point. The contend that the claims under the indemnities cover not only their own loss but the loss sustained by the Participants. In fact each Participant paid a proportion of the total settlement payments (or at least their insurers did). The Participants acted prudently in associating themselves with the settlement because as Participants they were under an absolute statutory duty in respect of dangers on the platform. On the other hand, so it was argued, the Participants were not in control of the platform so that no inference of res ipsa loquitor could affect them. This means that the Participants could have a statutory liability to make reparation to the victims without any negligence being established against them. Of course the pursuers argue that each party named in the indemnity has a distinct and separate right of recovery under it and I shall have to look at that.
In my view the applicability of the maxim res ipsa loquitur does not depend on any technical categorisation of the defender into employer, occupier, manager, or whatever. What does matter is that the defender should have the responsibility for the control and management of the equipment which causes the accident. If a party has the control and management of something which is at risk of blowing up but would not normally be expected to do so if it is managed with reasonable care then if an explosion occurs it will be assumed that the managers have been negligent unless they can displace the presumption by establishing facts from which it would be reasonable to infer an explanation that is consistent with no negligence on their part.
In the present case there can be no doubt that OPCAL had the kind of control over the platform and its equipment as would leave them with the primary responsibility for seeing the platform did not blow up. They were operating under a statutory regime which charged them with a heavy responsibility for safety aboard the platform. In fact OPCAL’ Offshore Installation Manager had a control equivalent to the master of a ship. The responsibilities of OPCAL did not only extend to their own employees alone. Thus they had elaborate safety procedures covering the safety of all on the platform. They selected the contractors they were prepared to have working on the platform. They contracted to retain rights of overall control and supervision of these contractors. They hedged all work on the platform other than routine work with an elaborate system of permits to work so that they had direct control of where, when, and under what safety precautions any potentially dangerous work on the platform was performed. The possibility of explosion on the platform was well recognised by all those who worked there. For example there were elaborate systems of gas and fire alarms and essentially the amount of hydrocarbons on the platform demanded constant care. On the other hand it was thought that with proper care explosions should not occur. Were this not so it would not be possible to carry out any operations on the platform. Indeed if the operations could not be carried out so that careful and proper precautions would generally avoid the risk of explosions they should not be carried out .
Moreover as Lord Justice Clerk Grant observed in Devine,
"Plant which is properly operated and properly maintained does not normally explode. If it does that seems to me to afford reasonable evidence, in the absence of explanation from those who had sole control and management of the plant, that the occurrence arose from want of care".
An explosion did take place and it would be for OPCAL to demonstrate that this did not occur through any fault on their part. The mere occurrence of the explosion in itself is sufficient prima facie to give rise to an inference of negligence. Moreover the degree of care required from those in charge of hazardous operations is a particularly high one. This was vouched in the speech of Viscount Haldane in Ballard. In Muir v Glasgow Corporation 1943 SC (HL) 3. Lord Macmillan observed that the nature and extent of a hazard is relevant to the degree of care which is going to be called for. In Inverness Harbour Trust v British Railways Board (Unreported 26 February 1993) the Lord Ordinary, Lord Kirkwood, observed,
"culpa involves not only a duty to take reasonable care but that the particular duties of care incumbent on a Defender will vary infinitely according to the particular circumstances of each case, particularly the degree of risk involved and the extent of the damage which could result".
I agree absolutely.
The defenders also referred me to the case of Stephen v Thurso Police Commissioners (1876) 3 R 535. The point of the case is that the pursuer had fallen over a pile of rubbish left at night unlit in the street. The commissioners had contracted with contractors for the cleaning of the streets and sought to argue that it was these contractors who were responsible for the accident. It was held that it was the commissioners who retained a complete control over the operations. If the contractors in the present case had in no way been subject to the control of the Operators then it may have been possible to advance a contention that the party having the effective control of the situation had not been identified but that is in no way the case. The liability of an employee for the actings of third party independent contractors is examined in Marshall v William Sharp & Sons Ltd. 1991 SLT 114. This held that even where there is an independent contractor who causes an accident the principle employer may be liable if the contractor is under the effective control of such employer. Moreover if an independent contractor is engaged to perform work that is intrinsically hazardous the employer does not divest himself of responsibility for anything that goes wrong with the work. I was referred to the cases of Bower v Peate (1876) 1 QBD 321 and Dalton v Angus (1881) 6 AC 740. The principles also apply to cases of personal injury. In this connection the defenders referred me to G.A. Estates Ltd v Caviapen Trustees Ltd (No 1) 1992 SLT 1947. The Court in this case approved the view that where work is necessarily attended with risk the employer cannot free himself from liability by binding the contractor to take effectual precautions. A further case was Anderson v Brady and Ross Ltd. 1964 SLT (Notes) 11 and this essentially was to the same effect as the case previously mentioned. Thus looking to these authorities, even if it could be argued that the primary cause of an accident was the actings of a contractors’ employee that in itself would not discharge the controlling party’s obligation to exonerate himself from the inference arising through res ipsa loquitur.
I do not agree that the fact that not all the personnel employed on the platform were OPCAL’s personnel affects the position in this case. It is perfectly obvious the considerable safety rules on the platform were in place not only to benefit OPCAL’s employees but rather to protect anyone on board the platform who might have been affected by any of the operations going on there. In terms of general safety OPCAL had assumed responsibility for all who worked on Piper Alpha. I cannot accept that if it can be shown that persons were working on the platform who were not employees of OPCAL then this could affect the operation of res ipsa loquitur. Were the position otherwise it would only require the manager of particular premises to bring in a contract electrician for their whole responsibilities to be considerably diluted.
With regard to the position of the Participants they had a joint share in the oil concessions and OPCAL must therefore be taken to be acting as their partners or agents. They would therefore be accountable for any negligence attributable to OPCAL.
In any event it has to be noted that it would be difficult to say that there had been a breach of any of the statutory regulations I was referred to if what happened is simply not known. Of course the indemnities would not apply unless the Consortium had some liability to meet the claims that were made against them either at common law or under the statute.
Moreover in this case the pursuers do not offer to prove either that on a balance of probability there was an alternative cause of the accident inconsistent with their own negligence (for their case is not that someone else was exclusively liable for the accident but rather that Score were jointly negligent) nor even that although it was not possible to prove an alternative cause of the accident there were facts proved from which it could be inferred that however the accident was caused there was no negligence on the part of the defenders.
I was also asked to note that in the "friendly" actions that were to be raised against OPCAL they received the right to have the pleadings in the actions approved by them. When the pleadings in the various actions had been reviewed and approved by OPCAL they purported to be based on OPCAL’s negligence and no attempt had been made to restrict the grounds of liability to breach of statutory duty. Senior Counsel for the defenders accepted that he could not place too much weight on that point and I consider that this was a wise concession.
The position therefore is that in my view the pursuers would inevitably be held negligent in respect of the accident. They have advanced no explanation for the accident which could exonerate them. The only explanation that they have advanced for the accident accepts that they had a measure of blame for it. Thus unless they can prove a cause of the accident which supports their case that Score were also to blame for the accident the inference would have to be that they and they alone were at fault. In that situation the exclusion in the indemnity in respect of sole negligence would obviously apply. Therefore as the defenders argue it is critical to the pursuers’ case that they have proved that the accident happened in the general way that they have averred.
9. 3.3 Defenders’ Contentions on the Meaning of Participants.
The defenders laid emphasis on the fact that the core indemnities only gave cover in respect of "any claim, demand, cause of action, loss, expenses or liability arising by reason of", then follow the perils in respect of which indemnity is given. It was argued that the meaning of the reference to "Participants" in the indemnity clauses bears on the meaning to be attributed to the words I have just quoted. The contract involving London Bridge Engineering Ltd can be taken as being illustrative of all the contracts and also of the defenders’ argument. Counsel paid regard to the Preamble which was to the effect "This Contract, effective from the first day of January, one thousand nine hundred and eighty-eight, is made between Occidental Petroleum (Caledonia) Limited, as the operating company (hereinafter called the "Company") acting on behalf of the Participants (as hereinafter defined) with a Registered Office at 16 Palace Street, London SW1E 5BQ, England and an operating office at 1 Claymore Drive, Bridge of Don, Aberdeen AB2 8GB, Scotland and London Bridge Engineering Limited (hereinafter called the "Contractor") with a Registered Office at 16 Abbots Lane, London SE1 2UT and an operating office in Aberdeen Business Centre, Willowbank House Willowbank.....". Thus as I have already mentioned it can be noted that OPCAL entered into the contract not only on its own behalf but also acting on behalf of the Participants .
The next paragraph of the Contract proceeds "WHEREAS Company is the operator for a consortium of companies of UK Petroleum Licences in the North Sea .....". Thus from these provisions we see that OPCAL acts as operator for the participants and that they are part of a consortium having Petroleum Licences in the North Sea. The Contract provides that "Participants" shall have the meaning specified in Article 19 and that sets out "The Contractor recognises that the Company is the operator for a consortium (the members of which are collectively described in this Contract as ‘Participants’)". OPCAL being members of that consortium are not merely agents and Operators but are themselves Participants. The contract provides that "The interest of the Participants in the consortium is limited to a certain percentage fixed by agreement between themselves". It is to be noted that other than in the case of OPCAL itself the identities of the participants are not disclosed to the Contractor; nor are the proportionate interests disclosed. The defenders place weight on the provisions of Article 2 which I have already referred to namely "Notwithstanding the number of names, styles or titles of the individual members of the consortium or their limited interests therein, the Contractor hereby waives any right it may have to require that claims hereunder for indemnities or damages should be pursued by the individual Participants and agrees that all claims for indemnities or damages shall be pursued by the Company as the Operator". Thus it will be noted that the arrangement described is not an option but a mandatory requirement. It means in my view no more than that the individual Participants cannot sue their own claims but that all claims arising out of the contract for indemnity or damages will be presented by OPCAL as Operator (if need be in the interests of the Participants). The Contractors do not know the identity or interests of the Participants and they do not want to be involved in sorting out individual interests or claims. Indeed the practicality of the situation is illustrated by the fact that we know from the evidence that since Piper Alpha was built there have been from time to time substantial changes in the composition of the Participants. This means in relation to indemnity that all OPCAL require to establish is that they as Operators (or those that under the contracts they represent) have suffered the loss - that is to say that they were liable. The matter is further illuminated by the terms of Paragraph 3 which are,
"Contractor further agrees that the quantum of indemnity or damages awarded for breach of this contract or in any way arising out of, or in connection herewith shall be calculated by reference to the aggregate of the individual interests of the Participants which aggregate interest shall equal 100%."
It would not be unreasonable for the contracting parties to suppose that any loss under for example an indemnity would in the first instance involve OPCAL since they are the parties actually operating the platform and that in any event when OPCAL sue the whole loss arising from the situation must be incorporated in their claim leaving it to the Participants themselves to sort out the individual interests. OPCAL are looking after the interests of the participants but the Contractor only wants to be accountable to OPCAL. If the situation were simply that without special contractual provision OPCAL were suing as agents for individual Participants then the loss suffered by each individual Participant would require to be set up and that would undoubtedly greatly complicate the Contractor’s position. The effect of this is that OPCAL are always the party to be indemnified. The preamble to the indemnity specifically covers loss sustained by the Participants. Thus the Contractor "shall indemnify, hold harmless and defend the Company and its parent, subsidiary and affiliate corporations and Participants" and this means that the Contractor cannot escape the indemnity by saying that in the last resort it is the Participants who will bear the loss. The contractual provisions are not a very elegant way of providing for the position which I say is applicable but it is difficult to see what alternative view can be attributed to these provisions.
The pursuers attempted to demonstrate the particular interests of the separate participants in the settlement outgoings and prospective recoveries but this in my view is not relevant to the issues before the Court.
The reference in the core indemnities to sole negligence and wilful misconduct is to the effect that indemnification will not apply if such negligence or misconduct is "of the party which would otherwise be indemnified". The indemnities are to the effect that the Contractor " shall indemnify, hold harmless and defend the Company and its parent, subsidiary and affiliate corporations and Participants, and their respective officers, employees agents and representatives from and against etc." Thus in conformity with what the pursuers argued in respect of each of the subsidiary parties covered by the indemnity having a separate indemnity, then if a participant was sued by the claimant unless that participant was guilty of say sole negligence there would be no defence on that account available to the indemnifier. I have already dealt with whom I consider to be the true parties to the contract and in the light of that I cannot accept the pursuers’ views. Prima facie employees of OPCAL or other Participants have no enforceable interest in the contract. It is quite clear from the provisions of the contracts that the Contractors were expecting OPCAL to be the only party they were accountable to and that is consistent with the law of contract. How OPCAL dispose of any funds recovered under the indemnity in relation to the subsidiary parties is their business. However in respect of their indemnity to OPCAL the Contractors have agreed to indemnify OPCAL not only in respect of loss sustained directly by them but also in respect of certain other areas of loss in which OPCAL are assumed to have an interest such as loss suffered by a subsidiary company. The reference to "of the party which would otherwise be indemnified" must relate to OPCAL or the Contractor since these are the only parties who can actually directly recover under the indemnity. However since OPCAL are able to recover for entities in respect of which they are agreed to have an interest if any of these entities have themselves caused the accident by sole negligence then that would bring the exception into operation. This makes sense. OPCAL have the right to recover for losses suffered by those parties in which they have a declared interest. On the other hand they must have attributed to them any defence that could be raised against that party had they been able to recover under the indemnity in their own right. Moreover and directly related to the facts of these cases any sole negligence of OPCAL, the contracting party, must be attachable to any claims where OPCAL seek indemnity for a related party such as for example a Participant. All this makes sense. OPCAL entered into the Contracts with the Contractors. Since they were the Operators in most cases if there was any negligence or wilful misconduct it would arise from their own behaviour. One can envisage a case where perhaps a Participant would preclude an obvious safety measure by refusing to pay their share of the cost but that kind of situation would be rare. In any event if any of the associated interests have claims made against them this can only happen because in one way or another OPCAL has involved them in their Contracts. It is OPCAL who are the immediate beneficiaries under the indemnities and they cannot escape any defences that might affect their operation. OPCAL have the advantage that they are not excluded from indemnity by their "contributory negligence" . It is indeed of the essence of their case that contributory negligence would include negligence for which they have vicarious responsibility. In these circumstances the references to " sole negligence" can only be taken as including vicarious liability for negligence. The position urged upon me by the pursuers does not make sense. If a part of OPCAL claim arises say because of an action raised by an injured employee of the Contractor against a Participant (which could happen because of statutory responsibility) then according to the pursuer the Participant could recover under the indemnity because only OPCAL had been negligent. On the other hand had that same Contractor’s employee chosen to pursue his claim against OPCAL then OPCAL would not be able to recover because the sole negligence defence would be available. This would be a curious situation and could not have been intended by the parties to the Contracts.
It should be noted that if each of the interests mentioned as being covered by the indemnity had a separate claim they would each require a separate conclusion if for no other reason than that damages suffered by a particular party would need to be considered in each case and the defences available to the defenders would vary with each claim. In fact the pursuers in their pleadings do not specify the loss claimed by each individual Participant. Nor do they have conclusions for each Participant.
9.3. 4 Effect of " Friendly Actions" on Indemnities
The defenders spent some time making submissions on the events which according to them brought the indemnities into operation. As will be seen when the settlement terms are considered what parties agreed in terms of each claimant is that the amount to be paid to each claimant was to be determined by the application of agreed formulae. However once the actual amount to be paid was finally determined as a pre-requisite of actual payment the claimant was to raise an action against the members of the consortium in the Court of Session. These actions were to be regarded as "friendly actions" or "confirming actions" and were not to be defended. Once a decree for the agreed amount of damages was incorporated in a decree then the amount would be paid to the claimant. The decrees were to pass on Joint Minutes and there was to be provision for immediate extract. Thus in effect the settlement terms were being paid under decree of court but only under the terms of the overall settlement. The decision to take decrees was motivated by a need on the part of the American lawyers to obtain from the claimants a discharge that could not be impugned. Before these actions were raised the terms of the summonses were approved and revised by the defenders in the actions. The claims of minor children were to be protected by the appointment of a Curator ad litem and the Scottish levels of certain claims were to be decided by an agreed arbitration procedure. The actions made provision for the payment of interest.
The grounds of jurisdiction in the summonses of the friendly action were Scottish jurisdiction as indeed in my view would be inevitable. The grounds of fault alleged against the defenders are both common law negligence and statutory grounds relating to offshore platforms. These grounds are plainly all grounds recognised under Scots Law. The grounds of loss claimed are also condescended on as would be expected.
Under the terms of the indemnities the Company could claim to be indemnified against "claims" and indeed the pursuers contended that it was in respect of such "claims" that the defenders were bound to indemnify the pursuers. However the defenders argue that this approach was based on a misconception. The pursuers had paid out in terms of Court Decrees. Once the decrees in the "friendly" actions had been pronounced such decrees superseded any pre-existing claims and what the pursuers had found themselves confronted with were not "claims" but rather "liabilities". In fact the way in which the pursuers have pleaded the position in the present cases is that they paid out the claims to the various victims on the basis of Court of Session decrees and in the death cases " in full satisfaction of the relatives’ claims". The defenders contended that these decrees cannot be regarded merely as the mechanics of settlement. In fact they supersede and extinguish the settlement terms. The implication which the defenders seek to draw from the existence of these decrees is that if any question of reasonableness arises it can only be evaluated on the basis of Scottish levels of damages.
Mrs Lesley Gray gave evidence as to how the settlements had been agreed and put into effect and this was not disputed. The damages paid out to the victims were paid out on the basis of the sums eventually found to be due under the decrees which would pass by consent. Indeed I can accept the defenders’ submission that it was a condition precedent of payment to the victims that an extract decree was granted in the confirming actions. If no payment had followed upon presentation of a decree then the appropriate procedure for a claimant would have been to have enforced the decree. It was submitted that the discharges which the claimants were to give before the decrees proceeded expressly acknowledged that the decree would supersede the underlying claims. The Memorandum and Terms of Agreement which regulated the settlement provided for the payment of solicitors’ fees on the basis of the Table of Fees for Extra-judicial Settlement and the defenders argued that these arrangements were superseded first by the Joint Minutes and then by the actual decrees. Mrs Gray gave evidence that she had been expressly advised by Mr Silva that OPCAL required a discharge that would not merely stand up in a Scottish Court but one that would stand up in an American Court. This is why the settlement required the formal approval of the Scottish Court.
Number 12/296 of process is a letter the terms of which are generally representative of the letters with cheques in settlement which were sent to the various claimants after decree had passed. The letters incorporated cheques in conformity to the principal sums due under the relative decree and the solicitors fees said to have been calculated in terms of the extra-judicial scale set out by the Law Society of Scotland. It has to be noted that the cheques were not sent expressly in satisfaction of the decrees but are said to be "in full and final settlement of your claim". The defenders suggested that the payments might be regarded almost as voluntary in that at the time they were made no claims existed.
The defenders asserted that the effect of OPCAL allowing a decree to pass against them was to turn a previously unliquidated claim into an ascertained and liquidated liability for the debt. I was referred to Comex Houlder Diving Ltd v Colne Fishing Co Ltd (1989) SC (HL) 85. The case concerned claims for contribution between joint wrongdoers. The Respondents had paid out money on the basis of an order of a US Court allowed to pass on settlement of a claim for reparation . They sought inter alia a declarator they were entitled to contribution by the Appellants in terms of Section 3 of the Law Reform (Miscellaneous Provisions ) Act 1940. The House of Lords held that the effect of a decree against a defender in an action of damages, whether following upon a contest or pronounced by agreement was to turn a previously unliquidated claim into an ascertained and liquidated liability for a debt and there was no sound reason in principle or from considerations of convenience why a defender who had incurred such a liability following upon an agreed settlement and had paid the debt should be deprived of the right to seek contribution under the 1940 Act. However Section 3(2) of the 1940 Act was concerned with Scotland only and was not concerned with actions that might be raised in foreign courts nor did it seek to create rights enforceable in foreign courts. The defenders observed that the case being considered illustrated that the existence of a decree was not merely a matter of the mechanics of a settlement. The defenders submitted that in deciding Comex the Court were simply applying general principles. It should be noted however that Comex turned on the interpretation to be placed on a particular Statutory provision. The result of the decision, however, would appear to be that if OPCAL had gone to a Texas Court and been found liable to damages they could not have sought a contribution say from Score in terms of the 1940 Act.
A further case the defenders referred me to was Lockyer v Ferryman (1887) 4 R (HL) 85. The importance of the case from the point of view of the defenders is that Lord Selborne made it plain that where there is res iudicata the original grounds of action are gone and can only be restored by getting rid of the res iudicata. I was also referred to Young v Young’s Trustees (1957) SC 318 and Hynds v Hynds 1966 SC 201. These cases reinforce the applicability of res iudicata and the defenders used them to illustrate that the passing of a decree has an important bearing on parties’ rights.
The defenders argued that it was open to them to take points which could have been available to them if they had been convened as third parties to the actions. The amount of the decree it was claimed had no effect whatsoever on the defenders being res inter alios. In this respect I was referred to the Memorial Stair Encyclopaedia Volume 10 at paragraph 585 and I have no difficulty with the opinion given there that decrees in civil proceedings cannot as a general rule be used in subsequent actions concerning the same issue in fact but involving different defenders. Thus I accept that the decrees in the "friendly actions" are in no sense res judicata against the present defenders. The decrees are of course evidence of what was decerned against the defenders in the original actions.
The defenders contended that the true issue between the parties was not what was a reasonable settlement of the claims but rather what was the true liability that OPCAL had towards the claimants. By the time the Operators settled the reasonableness of the Texas evaluation of the claims it was irrelevant because the original claims had been overtaken by the decrees and it is only the reasonableness of the decrees that can be in issue. Seeing that the decrees are decrees of a Scottish Court they can only be evaluated in terms of Scots Law.
The defenders also laid stress on the judgment in Comyn Ching & Co Ltd v Oriental Tube Co. Ltd (1979) 17 Building Law Reports 47 (a case I shall again refer to in greater detail). Lord Justice Brandon said (at p 92),
"I agree that the appeal should be allowed for the reasons given by Lord Justice Goff and would only add some brief observations on two matters. The indemnity relied on by the Plaintiffs is an indemnity against claims. That expression is somewhat telescopic; what it means is an indemnity against loss sustained in consequence of claims. A loss will be sustained in consequence of a claim if it arises from a reasonable settlement of a claim which has some prospect or a significant chance of success"
The defenders argued that the loss which the pursuers have sustained was sustained not in consequence of a claim but in consequence of a liability. That liability was expressed in a Scottish decree and in an action where the pleadings raised no question of Texas damages. Reference was also made to Biggin & Company Ltd v Permanite Ltd (1951) 2 K B 314. In that case the Plaintiffs settled the case agreeing to pay the Dutch Government a certain sum and they sought to recover their loss from the Defendants attributing it to breach of contract on their part. It was held on appeal that the amount paid under the settlement being admittedly an upper limit prima facie led to the conclusion that, if reasonable, it should be taken as a measure of the damages, and whether or not it was reasonable, was a question to be determined by evidence. The defenders used the case as an authority for the view that notwithstanding a judgment (or indeed a settlement negotiated) the party seeking indemnity must call evidence to establish the reasonableness of any money paid out. In a Scottish case Winchester v Ramsay and Anr (1966) SLT 97 it emerged clearly that an indemnifier can take points that were not advanced in the litigation giving rise to the indemnity. This is consistent with Aitken v Norrie 1966 SC 168 where it was held that third party procedure is only a procedural mechanism and does not affect parties’ substantive rights. Thus if the contractors had been introduced into the friendly actions as third parties they could have challenged the quantification of the pursuers’ conclusions. It should perhaps be noted that the pursuers have never claimed that the defenders are barred from disputing the reasonableness of the sums for which decrees were permitted to pass. The defenders also referred me to Barton v William Low and Company Ltd and Ors. 1968 SLT 27. The Lord Ordinary (Lord Stott) there held that even where the pursuer himself makes no case against a third party convened by the defenders the third party may attack the relevancy of the pursuer’s pleadings against the defenders. However where the indemnifier has not taken advantage of the opportunity afforded to him to intervene at the time of any settlement then, as I shall discuss later, a question of onus arises as to any eventual challenge to the settlement.
The defenders further argue that the pursuers had not set out in their pleadings the basis upon which damages would have been quantified in Texas. In any event such pleadings would have been irrelevant because a Scottish Court will only quantify loss according to its own rules. The position of the defenders can be tested in that as indemnifiers they might have been called into the "friendly actions" as third parties. If that had happened any plea taken by the present defenders that the quantification of damages was excessive could only have been determined by the rules of Scots Law. The defenders maintained that quantification of a claim litigated in a Scottish Court is always exclusively a matter for the rules of the lex fori. They referred me to Professor Anton’s Treatise on Private International Law at page 749. The author there says "It may be said that, under the common law of Scotland, while the liability to pay damages for a particular type of injury or loss is a matter of substantive law governed by the lex causae of the obligation, the quantification of the damages, the modalities of their payment and liability for interest are in general matters for the lex fori". He refers to an illustration by Lord McLaren in Kendrick v Burnett (1897) 25 R 82 who postulates that in the case of compensation for the loss of goods different countries may prescribe different measures of compensation. His Lordship proceeds (at p88),
"Without wishing to express a definite opinion, I think the judge trying the case supposedly would take the measure of damages given by the law which he administers, which might possibly be different from that in which the parties to the cause were subject ratione domicilii. Measure of damages is, I think, part of the law of evidence and as such would seem to pertain to the lex fori".
Professor Anton lays down various general principles (at page 742) in the Introduction to the chapter headed "Procedure and Evidence". One is that there is a distinction between rules of substance concerned with the nature of a party’s rights and rules by which he may enforce these rights. As the author states "In every Action coming before it a Scottish Court will apply its own procedural rules and will decline to apply the procedural rules of any foreign system which may govern the substance of the dispute." He continues " the parties cannot in a case where the merits fall to be determined in the Scotch Courts insist, by virtue of an agreement, that these Courts shall depart from their ordinary course of procedure". Thus in the present cases if the Court in the "friendly actions" had been faced with having to determine a reasonable amount for its awards of damages in order to protect the interest of an indemnifier it would have been compelled to assess damages on the basis of Scottish rules. The defenders referred to the case of Hamlyn and Co. v Talisker Distillery (1894) 21 R (HL) 21. The case decided among other points that where a personal contract is entered into between persons residing in different countries where different systems of law prevail, the intention of the parties as expressed or implied in the contract will determine the system by which the whole or any part of the contract is to be governed. In his judgement the Lord Chancellor agrees that the parties cannot, in a case where the merits fall to be determined by the Scotch Court, insist, by virtue of an agreement, that those Courts shall depart from their ordinary course of procedure. In the same case Lord Watson observed that " It has never, so far as I am aware, been seriously disputed that, whatever may be the domicile of a contract, any Court which has jurisdiction to entertain an action upon it must, in the exercise of that jurisdiction, be guided by what are termed the curial rules of the lex fori, such as those which relate to procedure or to proof". The implication of the defenders’ submission which they accept is that if all their other points were ill-founded they could at worst only be liable to indemnify in respect of damages quantified according to Scots Law (which admittedly would be considerably less that what was actually determined as due in the decrees). The defenders indicated the Scottish total values of damages they would be prepared to agree in the death cases and in respect of Conclusion 1 in the actions were £231,750 in the case of Robert Carroll, £ 280,506.99 in the case of Neil Pyman, £199,426.05 in the case of John Duncan, £174,870.38 in the William Cowie case, £171,400 in the case of Michael O’Shea, and £121,449.23 in the case of Graham Whyte. The case of Andrew Carroll falls into a special category being an injury case. The pursuers did not take issue with these figures as a measure of the Scottish values were these to apply.
In considering the effect of the "confirming actions" the position taken by the defenders in my opinion is unduly theoretical. The Operators and Participants begin by being confronted by claims from the victims and their families. Certainly on any view at the beginning what the claimants sought must be regarded as being incorporated in "claims". Accepting the pursuers’ general approach to the indemnities the position is that the Company secured these indemnities to ensure that if they found after an accident that they were faced with having to pay out compensation to any of the employees of the Contractors or their families then subject to certain exceptions the Contractors would re-imburse the Company. Plainly after the accident the Company were faced with the likelihood that the claimants would raise proceedings in the Texas Courts and since they considered that this was likely to create a larger risk than paying out settlement sums that might be accepted they chose to enter into certain arrangements to settle the claims. Indeed this is what they did. In terms of the claims for indemnity against the Contractor the true issue is not whether the "claims" became converted into a "liability" but rather the more practical question if the sums paid out to the claimants were reasonable in the light of the Company’s prospective loss. The two issues are the real risk of liability against them being established and the steps that can reasonably be taken to minimise that risk. Thus as will be discussed later settlement terms were hammered out and agreed between the Company (and Participants) and the claimants. All that followed was to carry these arrangements into effect. The defenders argue that the effect of the " friendly actions" was to translate the " claims" into "liabilities". This may be so but it was done in consequence of the extra-judicial settlement terms and the question remains was the procedure accepted by the Company a reasonable mode of combating the claims that were being made against them. The decrees plainly became the measure of the liability of the defenders in the "friendly actions" but this was only agreed to accomplish what was regarded as a fair total settlement. Not a settlement of "liabilities", because when negotiations began there were no liabilities, but a settlement of "claims". Moreover the Company were presented with massive total claims and obviously very prompt action was necessary if a spate of actions in Texas was to be avoided. Looking to how claims of that complexion might be handled in a reasonable fashion I do not think that a finely tuned settlement could be expected. The Company had to act in a reasonably practical way and make practical decisions under pressure. On any view this was the reality of the situation which faced them.
The amounts of the decrees could in no way be regarded as the product of arms’ length litigation. The decrees were only allowed to pass because they were part of an agreed formula. It was not in my view unreasonable that the Company should have consented to these decrees. They had been advised that it was necessary for there to be decrees to protect against the risk of further claims being made in America. If such claims had arisen and the Company had sought to recoup the loss from the indemnifiers no doubt the latter would have been prompt to complain that they had not been protected by the organisation of effective releases from the claimants. Nor do I think it helpful to test matters as I was urged to do by considering the rights of any third party brought into the friendly actions. This example is quite unrealistic. These actions were organised under the general settlement and no doubt the claimants would have withdrawn from it had the Company introduced third parties who could cause delay and affect the amounts of the eventual liabilities under the decrees. It is of course correct that in a situation where third parties were in the actions they would have been free to advance their own pleas even in opposition to the defenders in these actions. However there was no prospect of that situation arising and the Company were content to leave their claims to indemnity to a separate process where all pleas available to the indemnifiers could be advanced as has in fact happened. The amounts in the decrees were agreed as due in the Joint Minute and thus the Court would not be concerned as to under what system of law they were computed. If the Company and Participants were in fact paying out after the claims had become a liability the practicality is that they had incurred this liability as part of the process of settling the claimants’ claims. This is perfectly clear from the pursuers’ pleadings. Moreover I was referred by the pursuers to Halsbury’s Laws of England (4th Ed.) paragraph 354 where it is suggested that if an indemnifier is notified of a proposed settlement and refuses to act then he will in general be estopped form denying the reasonableness of the compromise. As will be seen the contractors in the present case were informed of the settlement proposals and merely reserved their position. The pursuers suggested that in a situation where the indemnifiers did not offer to ‘hold harmless and defend’ OPCAL against the claims that were being made against them then their failure to intervene even on the ground that they were reserving their position could amount to an acceptance of the reasonableness of OPCAL’s act in settling on the terms available to them. I was referred by the pursuers to Duffield v Scott (1789) 3 Dunford and East Term Reports 374. This is really a case on the effect of not giving the indemnifier any notice of your intention but that does not arise here. However Justice Park said,
"if a demand is made which the person indemnifying is bound to pay, and notice is given to him, and he refuses to defend the action, in consequence of which the person indemnified is bound to pay the demand, that is equivalent to a judgement and estops the other party from saying that the defendant in the first action was not bound to pay the money."
That case certainly is quite strong in favour of the pursuers but whether with the development of the law it remains a complete statement of the law is another matter. Another case I was referred to was Smith v Compton (1832) 3 Barlow and Adolphus Kings Bench Reports 407. The issue in the case was similar to the issue in Duffield. The observations of Chief Justice Lord Tenterden were as follows; "I am of the opinion that there should be no rule. The only effect of want of notice in such as case as this, is to let the party who is called upon for an indemnity to show that the plaintiff has no claim in respect of the alleged loss, or not to the amount alleged; that he has made an improvident bargain; and that the defendant might have obtained better terms if the opportunity had been given to him". A much more recent case is Ben Shipping Co Ltd v An Board Bainns (1986) 2 Lloyds LR 285. The case was decided by Mr Justice Bingham (as he then was) sitting in the Commercial Court of the Queens Bench Division. Arising out of a charter-party claims were made by Bills of Lading holders alleging damage to cargo and proceedings were issued against the owners in South Africa. The owners informed the charterers who were indemnifiers and invited them take over the defence of the proceedings. The charterers declined the invitation and the owners settled the case. A dispute over the indemnity was referred to Arbitration. The arbitrators held that the charterers were not estopped from disputing the validity of certain items of the owners’ liability. On the matter being referred for the opinion of the court Mr Justice Bingham observed "it was good sense and common practice for a defendant to give notice of a claim against him and any proposed settlement to a person against whom he intended to seek an indemnity or a contribution, if such person is not joined as a third party; but this is not a rule of law and the arbitrators were right in rejecting the owner’s estoppel argument". His Lordship thought that cases such as Duffield had lain fallow and that the rule they purported to support in any case only applied to certain indemnities. Indeed the pursuers rather modified their submission so that finally it was that if the contractors did not object to the proposed settlement then prima facie it can be taken as a measure of the value of the claims made against OPCAL. Lord Bingham recognises that cases may arise where the indemnifier may not accept that the indemnity has anything to do with him. That may well be the case in relation to the contractors in these cases. He concludes by saying that if the indemnifier has had notice of a claim under the indemnity and does not intervene then if later he wants to take issue with any part of the compromise the onus would be on him. The pursuers say that if the defenders had wanted to take issue about the effect of the arbitrations in the personal injuries case then not having raised any point about it at the time they should have raised the matter in their pleadings so that the pursuers could have considered their position over the matter. I think following the views of Lord Bingham this is right. However the matter is complicated in this case because the defenders strongly argue that the indemnities do not cover Texas levels of damages and of course the settlement figures depended on the assumption that they did. Nevertheless one important component of the settlement in injuries cases was the arbitration procedure for fixing Scottish values. Since the contractors disabled themselves from expressing any objection to this particular procedure at the time of settlement if they want to raise it at this date the least they could do was to give notice. I deal with this further in Chapter 11.8.6.
In relation to the fact that OPCAL and the Participants settled for Texas values the question of challenge is rather different. I think that on a balanced view of the negotiations and the involvement of the contractors they were reserving their position in relation to the Texas enhancement of values and the pursuers appreciated this.
The defenders argued that any items claimed by the pursuers could only be properly recoverable if they could be related to the liability ultimately constituted.
The Joint Minute that preceded the said decrees was as set out in 12/93 of process in the London Bridge action. Express provision is made for interest and it is declared that there will be no expenses due to or by either party.
Thus in relation to the effect of the " friendly actions" on the pursuers’ right to recover the enhancement element created by their view that Texas damages would have been exigible I would not refuse to admit a settlement influenced by Texas values on this ground alone.
The claims represented a certain practical monetary risk (which from the point of view of the party claimed against is that which counts) and the friendly actions were simply part of the mechanism necessary to confine these claims to what the pursuers claim are reasonable amounts.
9.3.5 Canons of Construction
The defenders advanced various general rules of construction other than those particular to indemnities which I have already referred to and they said that these also applied to the indemnities. The first of these was the contra proferentem rule as it applies generally in contract. In this regard I was referred to the case of Youell v Bland Welch (1992) 2 Lloyds LR 127. Reliance was placed on the dicta of Lord Justice Staughton. His Lordship said "in case of doubt, wording in a contract is to be construed against a party who seeks to rely on it in order to diminish or exclude his basic obligation, or any common law duty which arises apart from contract". The second rule he refers to is that "in case of doubt wording is to be construed against the party who proposed it for inclusion in the contract: it was up to him to make it clear". I have no difficulty with his Lordship’s succinct analysis although in the first of his rules he does not require a proferens in the strict sense as he does in the second. As in most of such cases the problem is in the application of the rules. It is accepted in this case that the Company specified the terms of the Contractors’ contracts except in the case of the British Telecom contract. I was also referred to Gloag on Contract 2nd Edit. p. 400 where the learned author points out that in insurance contracts where a party proposes to insure agrees to a general condition that if any of the statements made to him were untrue the policy should be null and void, it has been held that the word "untrue" must be read as meaning " untrue to the declarants’ knowledge and belief." This principle has been applied fairly generally where the framing of the disputed terms is in the hands of the creditor. However Gloag makes the point that in ordinary contracts where the parties are contracting on an equal footing it may be assumed that the ultimate terms are arrived at by mutual adjustment. He takes what is perhaps a narrower view of what can be called the rule of construction contra proferentem and indicates that for the rule to apply there must be a proferens. However whatever it is called I see no reason to doubt that Lord Staughton’s first rule would be recognised in Scots Law. Indeed the extension of the rule of construction contra proferentem to cover reliance on an exception clause is recognised in Chitty on Contracts 27th Edit. at paragraph 14-009, p 641.
The defenders also sought to rely on the eiusdem generis rule. This rule is explained in Chitty (op. cit.) at par. 12-074 at page 596 and Gloag (op cit) at p. 403. I do not think that the scope of its application was disputed. The defenders compared this with the rule noscitur a sociis which is to the effect that in relation to contractual interpretation every word should be taken in conjunction with words that accompany it.
The next rule that the defenders cited was that general words may be limited in their application by the context. I was referred to The Thames and Mersey Marine Insurance Company Ltd. v Hamilton Fraser and Company (1887) 12 AC 484. It was held that when a Donkey Pump suffered damage either by negligence or by accident neither eventuality was covered by a policy that insured against the "perils of the sea" and against " all other perils, losses, and misfortunes that have or shall come to the hurt, detriment, or damage of the subject-matter of insurance". The court held that in their widest sense the words I have quoted covered what may have happened but that they had to be construed in the context of the whole provisions of the contract. Lord Chancellor Halsbury stated that there are two applicable rules of construction which are firmly established in our law. One is that words, however general, may be limited with respect to the subject-matter in relation to which they are used. The other is that general words may be restricted to the same genus as the specific words that precede them. Senior Counsel for the defenders contended that these rules have application in the construction of the present indemnities. In The Admiralty v Burns 1910 SC 531 the Admiralty had a power to take back certain leased lands subject to compensation at an agreed rate. The question was whether the purpose for which the lands were required were one of the purposes giving right to a right of resumption. Lord Kinnear refers to the rules of construction in Thames and Mersey Marine Insurance Co. and held that the case was distinguishable from the case before him since it was a Marine Insurance case and policies of such a nature have been the subject of much judicial construction so that persons entering into them must be taken to have accepted these established meanings. Lord Kinnear states that the rule of eiusdem generis although an established rule of construction is only a guide and should not be applied slavishly so as to force a meaning on the contract where it is clear that the parties intended something different. Senior Counsel for the defenders accepted that the canons of construction he had been referring to were merely particularisations of the general rule and that to arrive at a meaning one must really read the whole contract. As Lord Kinnear very helpfully puts it "we are to begin by reading the contract itself, taking it as a whole, considering the true meaning of the particular clause with reference to its language, to its place in the contract and to the general scope and purpose of the contract itself". Another case referred to by the defenders was The Abchurch Steamship Company v Hugo Stinnes 1911 SC 1010. A demurrage clause in a charter-party exempted from the time specified for loading a number of causes of delay. These were all exceptional events including floods, riots, and storms. One of the exemptions was "detention by cranes" or "any other unavoidable cause" It was held that delay in getting a crane due to congestion of shipping and consequent delay in getting a crane was not one of the exemption causes of delay. Delays resulting naturally in the ordinary routine working of the port were not excepted. I doubt if the case adds much to the other cases noted since it was decided largely on its facts. The case of Comex Houlder Diving Ltd ( supra) was again referred to but in the present context. It was said to be an example of a case where fairly general words were construed in a limited way.
In further support for the proposition that in construing a contract the whole terms must be considered I was referred to Gloag (op cit) at p399. The author said " as a general rule the whole contract, and any writings which may legitimately be given in evidence, may be looked at to determine the meaning of a word or phrase. The meaning of any expression is to be arrived at on a consideration of the context and on its relation to the whole deed. Even if words are used which are not, in any ordinary sense, ambiguous, yet if it is clear that the party used them throughout the contract with an exceptional meaning, they will be read with that meaning wherever they occur . it is an argument not without weight, though far from conclusive, that the construction is to be preferred which gives a meaning to every word and clause of the contract." I doubt if there could be much quarrel with that. I was also given a reference to McBryde -The Law of Contract in Scotland p 426
In Federal Commerce v Molena Alpha (1979) AC 757. Lord Wilberforce observed that a clause should be read as a whole not in two separate parts.
The defenders submitted that in cases like these where a number of contracts have to be construed each must be construed according to its own terms. Moreover a construction that avoids redundant language or tautology in general is to be preferred. A construction that gives practical content to all the words used in a contract is to be preferred as is a construction which leads to a reasonable result. I find no difficulty with the very well understood rules which are specified in this paragraph.
9.3.6 Construction of some Phrases in Indemnities
The defenders were at pains to point out that there are certain obvious differences between the Indemnities in favour of the Company and those in favour of the Contractors. Looking to the action against London Bridge Engineering Ltd., Article 17.1 (the Contractor’s Indemnity) has five sub-heads whereas in the Company’s Indemnity there are only two. The Indemnity in 17.1 provides that "The contractor shall indemnify, hold harmless and defend the company and its parent, subsidiary and affiliate corporations and participants, and their respective officers, employees, agents and representatives from and against any claim, demand, cause of action, loss, expense or liability (including but not limited to the costs of litigation) arising (whether before or after the completion of the work hereunder) by reason of" and continuing in sub-paragraph (c) "injury to or death of persons employed by or damage to or loss or destruction of property of the contractor or its parent, subsidiary or affiliate corporations, or the contractor’s agents, sub-contractors or suppliers" It was pointed out that in the Contractor’s indemnity there is reference to "arising (whether before or after completion of the work hereunder) by reason of" whereas in 17.2 the wording is "arising (whether before or after completion of the work hereunder) in relation to this contract by reason of". The defenders used this to seek to persuade me that it cannot be argued that there are entirely reciprocal indemnities. The defenders contended that the pursuers are effectively construing "all claims, demands, causes, of action, loss or expense or liabilities" as referring to any jurisdiction anywhere or in any court elsewhere. I think this must be a fair representation of the pursuers’ case since they neither aver nor argue that the phrase is to be regarded as only applying to a specific jurisdiction such as Texas. Senior Counsel compared the Pursuers’ approach with the wording in the form of release and discharge (number 12/297 of process). This states "it being understood that this - the decree equates to a dismissal with prejudice all claims and actions which may have been brought in their individual or collective behalf in any Court, anywhere, arising out of the accident, personal injury and death of the decedent". This was advanced as an example of the kind of construction the pursuers are seeking to put on the indemnity. The defenders’ case on this point in a nutshell is that the pursuers are only entitled to recover Scottish levels of damages or claims, loss, or liabilities constituted or quantified under Scots Law.
They sought to apply their approach to the expression "claims". They referred to the case William Hamilton & Co. v Anderson & Co 1953 SC 129. In that case contractors carrying out certain work in a shipyard undertook to indemnify the shipbuilders against all claims and costs which the latter might incur at common law or under the Workmen’s Compensation Acts in respect of personal injuries to any of the contractor’s employees. The worker was injured under the Factories Act and the Lord Ordinary held that the claim though based on breach of statutory duty was also a claim at common law since the statute reflected the common law. The interest in the case was said to rest on Lord Russell’s dictum that a "claim" in its ordinary meaning is a demand made in the assertion of a right. In fact the pursuers accepted that a demand had to be reasonable to have force as a "claim". The defenders argued that the reasonableness of a claim can only be decided by reference to a particular legal system. It was said that a right cannot exist in a vacuum.
The defenders also made submissions into the meaning of " cause of action" as used in the indemnities. I was referred to the case of Sevcon Ltd. v Lucas Cav Ltd (1986) 1WLR 462. This House of Lords case concerned the identification of a "cause of action". This aspect of the case is dealt with by Lord Mackay of Clashfern at p.464. His Lordship refers to a definition by Lord Esher namely " every fact which it would be necessary for the plaintiff to prove, if traversed, in order to support his right to the judgment of the Court". Thus a solicitor would have a cause of action for payment of work done as soon as the work finished although he could not commence an action for the recovery of his fees until the expiration of one month after he had delivered a bill for his fees. The defenders argued that cause of action, claim, liability and demand can only have meaning when viewed in the context of a Court which is itself part of the legal system. Thus in order to ascertain if there is a cause of action reference has to be made to a particular legal system. It was claimed that there can only be a cause of action by looking at what a particular legal system would consider necessary to establish the following factors: (a) that you have sustained a loss recognised by that system, (b) that that loss was sustained as a result of a legal wrong recognised by the system, (c) that the wrong was committed by a legal person recognised by the legal system (d) that the person recognised by the legal system, is subject to the jurisdiction of a court within that legal system, and (e) that the loss is capable of being quantified according to the rules of that system. In Musurus Bey v Gadban and Ors (1894) 2QB 352 the extent of an Ambassador’s immunity from process was the matter under consideration by the Court. Lord Justice Smith held that there cannot be a cause of action unless there be a person in existence capable of suing so that there can be no cause of action (in terms of the Statute being considered in the case) until there is someone who can be sued. His Lordship observed "‘cause of action’ says Chief Justice Best ‘is the right to prosecute an action with effect; no one has a complete cause of action until there is somebody that he can sue’". Sugden v Sugden (1957) 1 All ER 300 was a Court of Appeal decision. Lord Justice Denning held that there can be no cause of action under Section 1(1) of the Law Reform (Miscellaneous Provisions) Act 1934 until an order for maintenance has been made. His Lordship expressed the view that causes of action are rights which can be enforced, or liabilities which can be redressed, by legal proceedings in the Queen’s Courts and extend to rights enforceable to proceedings in the Divorce Courts provided that they really are rights and not mere hopes or contingencies. All these references were really given by the defenders to reinforce their point that it is only by reference to a particular legal system that one can discover if a cause of action exists in that system. The defenders’ point is essentially correct but that does not mean that the question whether a cause of action would be recognised by a particular foreign system requires in relation to the enforcement of a Scottish indemnity to be decided by litigation in a Court of that system. It may be a matter for appropriate evidence in a Scottish Court.
Next the defenders sought to give a construction to the word "liability" as used in the indemnities. I was referred to Smit Tak v Youell (1992) 1 Lloyds LR 154. The case involved insurance cover which indemnified the assured against any "liability they may incur, contractual or otherwise in connection with any and/or all the assured’s activities anywhere in the world". On a question as to whether a particular series of events gave rise to a claim under the policy Mr Justice Sheen, sitting in the Queen’s Bench Commercial Court, held that if the statement that a liability policy provided cover against the risk of a liability to a third party for the breach of some legal duty was correct, the Plaintiffs had to show that they incurred liability to the Government of Dubai as a result of a breach of their legal duty, and that that liability had to be capable of being enforced by ordinary judicial process; if the underwriters were liable on the policy their liability could only have arisen on the happening of some fortuitous event occurring in connection with Smit’s activities which created liability to a third party. The point of the case was that the liability incurred did not arise from any wrongdoing on the part of the assured so that there was no strict liability as meant by the policy and the plaintiffs’ claim failed. It was also held that commercial pressure alone did not justify considering a claim as a liability as covered by the policy. The "liability" which the insured were seeking to recover was the cost of removing a wreck. It is perhaps significant to note that in order to assess whether what had been complained against the assured was a liability the Court had regard to expert opinion on the law of Dubai. The factual conclusion reached by the judge of first instance was that the plaintiffs had no legal liability under Dubai law to remove the wreck. In the appeal Lord Justice Mustill observed that "the ordinary meaning of liable in a policy of insurance is legally liable". It had been argued that B is under a liability to A if A has the power to compel B to perform an act by the lawful use of the lawful machinery of the state. Lord Justice Mustil rejected this contention. His Lordship distinguished between the two senses in which "lawful" could be used. The pressure that had been exercised by the Dubai Government against the plaintiffs to bring them to remove the wreck was lawful in that the Government of Dubai were not overstepping the law. However they were not lawful in the sense that the law would render its assistance to make them effective. The appeal failed.
There was also reference made to Government of India v Taylor (1955) AC 49 another Appeal Court case. In that case the Government of India sought to prove in the voluntary liquidation of a company registered in the United Kingdom but trading in India for sums of Indian tax which arose on the sale of assets in India. It was held that claims on behalf of a foreign state to recover taxes due under its laws were unenforceable in English Courts and that "liabilities" for which a liquidator is required to provide in the liquidation of a company under the Companies Act did not include a claim unenforceable in the English Courts. However it should be noted that Lord Keith of Avonholm and Lord Somervell of Harrow held that although liability to Indian tax may be a liability under the Companies Act it is not one which is enforceable in relation to assets in England in a liquidation there. Viscount Simonds thought that the case raised two issues. The first was whether there was a rule of law which precludes a foreign state from suing in England for taxes due under the law of that State. He thought the answer to that was in the affirmative as Justice Vaisey had held. The second question was whether a claim for Indian taxes was a "liability" within the meaning of section 302 of the Companies Act 1948. Again his Lordship agreed with Justice Vaisey in answering this question in the negative. The expression "liability" is thus construed narrowly only to cover liabilities enforceable in the English Courts.
In relation to the holding that foreign taxes cannot be recovered in an English Court Viscount Simonds states that this arises from a Rule of Private International Law which is also observed in foreign countries. Thus the company in liquidation could not on the day before that liquidation have been sued in England for Indian taxes. It therefore would seem surprising if the statutory law of liquidation enabled a foreign government to recover in an English liquidation taxes which it could not have recovered against the company itself. I find no difficulty in following any of that line of reasoning but how far it takes the present defenders is another matter. The crux of the judgment is that "liabilities" as used in the relevant Company legislation could not readily be construed as covering liabilities not enforceable under English Law. The case certainly shows that merely because there is reference in an Act or document to "liability" it cannot be assumed that liabilities everywhere of whatsoever character are comprised.
The defenders next considered the significance to be attributed to the words "loss and expense" as they are employed in the indemnities. Given that these words are associated with words such as "claim" and "liability" it was suggested that they must be confined in their meaning to such loss or expenses as would be legally enforceable. Any recoverable expense has to be limited to those relating to a claim, demand or liability arising out of the injury or death of an employee of the Contractors.
The defenders claimed that to evaluate the possibility of victims being able to enforce their claims in Texas it would be necessary (as indeed was done) to canvas in the evidence the Texas Wrongful Death Statute, the law of Texas relating to in personam jurisdiction, the Constitutional law both of Texas and the United States, the law of Texas relating to choice of law, practice and procedure applied by the Texas State Courts relating to the quantification of personal injury and wrongful death claims and, as was asserted, even the arrangements for the election of judges in Texas, to name but some of the questions. The defenders would have little difficulty in persuading me that the introduction of what I may call the Texas factor involved some very protracted, complex and difficult questions. Indeed it took many months of proof to explore these questions. On the other hand it has to be acknowledged that many of the other areas of the case were equally difficult and required very protracted proof.
I was asked to consider the implication of the fact that the contract provides:
"The Contract shall mean the following documents which are, by this reference, incorporated into and made part hereof which shall be read as one document and which in the event of ambiguity or contradiction between said documents shall be given precedence in the order listed: i Form of Agreement; ii Exhibit A - general terms and conditions"
and so on. Thus if there is any ambiguity the Form of Agreement is to prevail.
Under the heading "Governing Law" the Contract provides in Clause 5 "This contract shall be governed by, construed and interpreted exclusively according to Scots law. The parties agree to submission to the jurisdiction of the Courts of Scotland to the exclusion of the laws and Courts of any other Country". The defenders submitted that the first sentence of that provision contains a choice of law clause and that the second sentence contains a forum selection clause. However the defenders extend the meaning they attribute to the second sentence in that they say this means not only that the parties submit to the exclusive jurisdiction of the Courts of Scotland but also to exclude the law of any other land. Thus it was contended that in deciding any question that arises between the parties and relating to the Contract I can have regard only to Scots Law. Under this submission I could pay no attention to the requirements of Texas Law. Under reference to Gloag on Contract 2nd Ed. p.399 it was contended that in seeking a construction for a contract a construction is to be preferred which gives content to all the words used. Thus it was argued that content needs to be given to the reference in Clause 5 to the phrase "to the exclusion of the laws". The defenders also contend that their construction of Clause 5 makes sense because what the parties are doing is to simplify the resolution of any questions between them arising out of the indemnities.
A question arises from the terms of the third paragraph of Clause 21 of the indemnity contract we have been considering. This provided that "The Contractor shall defend, indemnify and hold harmless Company from and against any and all taxes on income, profits or gains ...... imposed by any government or taxing authority on the contractor". On the face of it one might have difficulty in deciding liability in relation to that particular indemnity without reference to foreign tax liability. The defenders sought to counter this point by contending that the distinction between government and taxing authority may refer to the difference between government and local authority or even Government and Customs and Excise. However in Scotland it is not the practice for local authorities to seek to recover "taxes on income profits or gains" (and the same could be said of Customs and Excise) so that a more natural reading would be to read the word "any" as meaning all governments whether British or not. Moreover it is clear from other provisions in the contract that it is not assumed that the Contractor is resident in the United Kingdom for tax purposes. Thus it is provided that,
"Where the Contractor is resident in the United Kingdom for UK tax purposes, the Contractor warrants that he will remain so throughout the period of the Contract. Where the Contractor is not resident in the United Kingdom for UK tax purposes, the Contractor undertakes to apply within seven days hereof for a certificate of exemption".
Then there are provisions concerned with certain accounting procedures the Contractor is to take if there is no Certificate of Exemption and these are designed to ensure that the Contractor meets his UK tax obligations. Thus the Contract contemplates that the Contractor may have a tax base outwith the United Kingdom and it would be odd if the Company are taking steps to protect themselves from loss through any failure on the part of the Contractor to meet tax liabilities if tax payable to a foreign Government were excluded. The defenders said that in the light of the Government of India case no foreign government could sue OPCAL for taxes owed by a Contractor but OPCAL have credits which arise abroad and it is not inconceivable that they could be sued for foreign taxes abroad. As a last resort the defenders fall back in this matter on the contra proferentem rule but that presupposes that there is a real ambiguity which on this matter is not in my view the case.
A further pointer to the fact that parties anticipated that the Contract could have a foreign dimension arises from the terms of Article 3.1 in the London Bridge and Engineering Contract. This deals with reimbursement of third party costs where the contractor has made payment in a currency other than the contract currency. Such costs are to be paid in the currency in which the cost is incurred subject to a limit. However in respect of the article the foreign costs recoverable in foreign currency is the subject of a limit.
The defenders argued that the indemnities cannot be regarded in the same light as insurance policies since insurance is a contract uberrimae fide so that every risk would have to be disclosed in an insurance policy and that would include any vulnerability to being sued abroad. This is one reason why the Contractor would want to restrict the scope of any indemnity given. However the indemnifiers can protect themselves by specific Contractual provisions about undisclosed risks affecting the prospect of foreign litigation and as we shall see they may to some extent at least have done so.
A point heavily relied on by the defenders was that a Scottish Court will not consider the procedural rules of a foreign jurisdiction nor will it quantify loss or damages other than by reference to Scots Law and procedures. As I have already pointed out there is no doubt that the exploration of Texas law and levels of damages in this case was a massive operation aggravated by the fact that the Court started the investigation knowing nothing about the structure of the Texan system and Texan laws and procedures. I was reminded of the view of Professor Anton that quantification is a procedural matter exclusively for the lex fori and in a general sense the pursuers did not dispute this. The defenders reminded me that in Professor Anton’s book Private International Law (2nd Ed.) at p 742 the author said,
"In every action coming before it, a Scottish Court will apply its own procedural rules and will decline to apply the procedural rules of any foreign system which may govern the substance of the dispute. There is authority moreover for the view that ‘the parties cannot, in a case where the merits fall to be determined in the Scottish Courts, insist, by virtue of an agreement, that these Courts shall depart from their ordinary course of procedure’".
The author proceeds "these principles proceed upon intelligible practical grounds: a legal system’s rules of procedure are usually complex and inter-related and to isolate particular foreign rule and apply it against the very different background of Scottish procedural rules would be absurd". Thus in relation to the Texas damages the Court is being asked to decide what a Texan jury would have awarded by way of damages and apart from other considerations this is not a possible task for a Scottish Court. A Scottish Court is never required to apply Texas rules of quantification in order to assess what is a reasonable settlement under Texas law.
On this point reference was again made to Hamlyn & Co. v Talisker Distillery (1894) 21R (HL) 21. It was held in that case that parties cannot by contract impose on the Court a requirement to apply the rules of quantification of a foreign system. It was said that in this case not only have the judges not have contracted out of foreign law but they have expressly agreed that Scots Law alone should apply to the Contract. I was also referred to McElroy v McAllister 149 SC 110. In that case the pursuer’s husband had received fatal injuries as a result of a road accident in England. Proceedings having been raised in Scotland it was held that the rights of parties fell to be determined in accordance with the lex loci delicti which was the law of England. It was further held that as the right to claim solatium was excluded by the lex loci delicti. Lord President Cooper said in the case
"In proposing as I do that we should refuse this reclaiming motion, I do not consider that any hardship is being inflicted upon persons in the position of this Pursuer, or that we are taking any but the inevitable course. If a person suffers a wrong in a foreign country, the primary Court from which to seek address is the Court of that country, which will presumably provide the remedy which the lex loci delicti affords and which knows how to do so. Difficulties may of course arise in founding jurisdiction against the defender in the foreign forum. But I should consider that risk slight where the foreign forum is England. In any event the risk of being unable to found jurisdiction is a risk which every pursuer must face, irrespective of the locus delicti.... Moreover it is useless to minimise the practical difficulties which would arise were we to entertain an Action such as this, and attempt to carry it to a conclusion. It would be necessary for a Scottish Judge and perhaps a Scottish jury to assess the Pursuer’s claim in conformity with the evidence, perhaps conflicting, of expert witness on a branch of English Law of which we have no judicial knowledge. With a view for giving in the first time in the history of our Courts remedies unknown to the law of Scotland. It is difficult to imagine a proceeding more inconvenient or less calculated to do justice to either party.".
These are strong sentiments and few could quarrel with the force of the practical problems which his Lordship refers to. However the differences between that case and the present case have to be noted. In McElroy the Court was being asked to determine conclusively an amount of damages. In carrying out that task Scottish procedures have their own fixed rules. In the present case in terms of a Contract the defenders (so it is argued) have to indemnify against particular claims or liabilities. These claims were compromised and the question is whether that compromise is reasonable. Does it represent a fair measure of the liabilities that may have been exigible from the Company. The Court is not being asked to carry out the particular exercise of fixing and determining an amount of damages. If the Court were involved in that exercise then there are only Scottish procedures available to accomplish it. To decide upon the reasonableness of a compromise may seem a similar sort of exercise but it is not the same exercise. The question of the indemnities has to be decided in a Scottish Court applying Scottish law. What would be a reasonable amount to settle claims for is in relation to Texas claims is a question of fact and when the ascertainment of such fact involves the exploration of a foreign system of law, Scots Law provides that the way to do so is to have the foreign system proved by evidence. I shall return to this point. It should be noted that an implication of the defenders’ contentions is that if OPCAL, an English Company, had been threatened with action in the English Courts and settled on the basis of English Law (which is presumably the law that would have been applied by the Courts in the litigations) then in the Scottish action under the indemnities OPCAL could only have claimed Scottish damages even although these would have brought out different figure to English law. Thus in respect of those litigants who sued them in England they could have been unlucky and found themselves out of pocket. If other litigants had sued them in Scotland then there would have been no discrepancy between the amount paid out and what would be recovered under the indemnities.
The defenders referred to a case mentioned in Biggin & Co v Permanite (supra). This was the case of Gebert-Borgnis v Nugent (1885) 15 QBD 85. In the case a sub-purchaser had an order from a French court holding him liable to pay the equivalent of £28. He sought to recover this from the supplier. Lord Justice Bowen did not regard this order as being conclusive. The question is whether the order was reasonable. It should be noted that the question posed not only in that case but in Biggin & Co was not what the exact amount of loss suffered by the party who wished indemnification but rather whether the settlement or payment under Court order was reasonable. Of course as was observed in Biggin & Co in order to prove that a settlement or Court order was reasonable it is generally necessary to have the actual loss which is the subject of the claim proved at least to a degree sufficient to test the situation. However Biggin & Co and Gebert Borgnis were both breach of contract cases so that the loss being explored was the measure of damages which the sub-purchaser could recover under the breach of contract. In that situation the amount that an English Court would award is the criterion of what the party against whom breach of contract is alleged should pay. The plaintiffs were suing the defendants for damages not suing to recover a sum due under an indemnity. In the present case the sum recoverable under indemnity is set out in the risks against which the indemnity is granted. It can be said that in that situation the amount due under a demand is not the amount that might be awarded by way of damages according to the Scottish law of contract but rather the true value of the risk represented by the demand.
The defenders contended that under the actual terms of the Contract the likelihood was that any reparation claims by employees of the Contractors would be pursued in Scotland (or possibly England). Prima facie the basis of jurisdiction against a defender is domicile and OPCAL’s domicile insofar as it could be derived from the terms of the Contract was Scottish or English. However these arguments have to be viewed against the reality that the day following upon the accident Oxy had already consulted Texas solicitors and a team of Texas attorneys were wending their way towards Scotland in an effort to persuade any claimants to sue in Texas. The Scottish Solicitors who were actually instructed for the various claimants also quickly realised that the prospect that the claims could be presented in America was a matter that required to be explored. Indeed a number of these solicitors had personal experience of presenting claims in America. Moreover the parties had taken the trouble to include a forum selection clause in the Contract which would seem to indicate that the prospect of the parties themselves choosing to litigate outside Scotland was foreseen.
Reference was made by the defenders to the evidence of Mr Snape to the effect that OPCAL ‘s business activities were in the North Sea. Mr Snape’s responsibilities were centred in the management of the North Sea platforms, the Flotta Terminal and administrative premises in Aberdeen. There was also a warehouse facility in Peterhead and a helicopter facility at Aberdeen Airport. On the other hand a number of the Senior personnel in the OPCAL hierarchy were American. The Contractors in the test cases for their part were domiciled in Scotland or England and certainly I agree that their description in the Contracts would appear to bear that out. However when the families of one of the victims (Mr Busse, a Texan) brought their claim in a Texas Court, as they did, Eastman Christensen (also defenders in one of these cases) were brought into the action. The circumstances under which Eastman Christensen were thus convened are not very clear. It was maintained that all of OPCAL’s operations took place in Scotland. This was certainly true of the oil production operations but as we shall see a different question arises in relation to sales operations. Certainly in relation to the Contractors in the test cases it can be said that the work they contracted to carry out was largely to be performed on the North Sea platforms or otherwise in Scotland although at least in some Contracts OPCAL had the right to specify other work locations. The work on offshore installations clearly envisages such locations in United Kingdom waters as various references to the need to observe United Kingdom statutory provisions would indicate.
The defenders made reference to another of the indemnities to be found in Article 17. This is an indemnity given by the Contractor and is found under the heading "Non -compliance with Laws". The relevant indemnity declares that indemnity is given against any claim, demand, cause of action, loss, expense or liability arising whether before or after completion of the work and arising as a result of "Claims by governmental authorities or others of any actual or asserted failure of the Contractor to comply with any law, ordinance, regulation, rule or order of any governmental or judicial body". There was no equivalent indemnity offered by the Company so that in this case at least we are not dealing with reciprocal indemnities. The defenders argued that the reference to governmental body meant British Governmental body and although I have no concluded view on this their argument on that point may be right. The law relating to where the Contractor would be working would at least in most cases be Scots Law. The indemnity was probably intended to cover a situation such as where the Company was exposed to a fine because of some contravention of the law by the Contractor.
The Contractor also gives an indemnity in respect of intellectual property infringement and again there is no reciprocal indemnity. The indemnity is described as covering "Intellectual Property Infringement (Including Patents and Copyrights)" and what is to be indemnified are "Actual or asserted infringement or improper appropriation or use by the Company, Participants or Contractor of trade secrets, proprietary information, know-how, copyright rights (both statutory and non- statutory), or patented or unpatent inventions or for actual or alleged unauthorised imitation of the work of others, arising out of the use of methods, processes, designs information or other things originating with the Contractor, or its employees, agents, vendors or sub-contractors, and furnished or communicated to the Company by the Contractor or used by the Contractor in connection with performance of the Work and which may have not been specified by the Company". In Article 13 of the Contract we see that the
"Contractor grants to the Company a royalty free, non-exclusive licence to make use and practice all processes, inventions, know-how, equipment and apparatus specified for or otherwise provided by the Company by the Contractor in the performance of the work whether or not they are the subject of patents, licences, or other proprietary rights owned by the Contractor, or for which Contractor holds a licence from the owner hereof. Company may extend, assign, or sub-licence the right and licences granted hereunder to Participants and to third parties for use solely in and for the facilities or operations in respect of which Contractor provides services under this Contract provided that any such parties agree in writing to be bound by the provisions of this Contract in respect thereof".
The defenders seemed to consider that these provisions helped them in respect that they argued that since operations would be in Scotland any relevant licences would be granted in Scotland and so that any license or patent infringement would take place in Scotland. The defenders argued that under the rules of the Brussels Convention of 1968 any action giving rise to a claim under this Article would require to be raised in the Court of the defenders’ domicile or in the Court where the right was infringed. In any event the most likely form of proceedings would be interdict which would have to be pursued in Scotland since that is where the operations took place.
I think the defenders are unduly optimistic in asking me to accept the indemnity covering Intellectual Property as pointing to the fact that the parties contemplated that questions affecting the indemnity would be determined by exclusive reference to Scots Law. In fact that indemnity highlights how the Company’s position would be seriously diluted if indemnities were to receive the narrow construction urged upon me by the defenders. The clear objective of the Company in relation to that indemnity is to ensure that it would not be out of pocket as a result of any breach of Intellectual Property rights arising from having employed the Contractors and their equipment. On this basis if expenditure under foreign law or actions is a possibility it is difficult to see why the Company would be prepared to meet such loss itself. I do not agree that the only readily foreseeable contingency are claims or actions based on Scots Law and raised or to be raised in Scottish Courts. Many claims would of course relate to loss caused under Scots Law but it is by no means unforeseeable that foreign claims should arise. There is ample evidence in the case that much of the equipment used in North Sea exploration comes from Texas or elsewhere in America or even from Germany. OPCAL would not necessarily know what agreements entered into by the contractors governed licences or royalties for the use of such equipment. Any prorogation of jurisdiction agreements in such contracts would equally not be known. If a foreign owner of a right decides to sue say for recovery from OPCAL of royalties unpaid on equipment OPCAL have benefited from without right it is difficult to predict where they may raise such action. OPCAL may be a British company but it would be surprising if the Contractors did not know that they were part of a large international group, namely the Occidental Group. I think it is a matter of general commercial knowledge that many of the companies extracting oil from the North Sea are at least attached to large multi-national groups of companies. It could not be a surprise to the Contractor that OPCAL sold some of their oil to foreign customers. It would therefore equally not be surprising if OPCAL had credits abroad that might be vulnerable to attachment to found jurisdiction abroad. Moreover if in a claim questions of ownership of intellectual rights were disputed by foreign companies it might not be possible to assess a claim by reference to Scots Law alone. The Participants were protected by the indemnity and the Contractor did not even know who they were for they are not identified in the Contracts. Indeed we know that the Participants change from time to time. Thus it can be said that if anything the indemnity covering infringement of Intellectual Property may show how impracticable it would be for the Company to protect itself against claims that could only be assessed according to Scots Law and to have no recourse in respect of awards against them of foreign damages.
There is a further indemnity granted by the Contractor in Article 17.1(d) and this covers the situation where the Contractor’s act or omission has made the Company liable to a third party. There are financial limits placed on this particular indemnity. It was claimed that there was nothing inherently contradictory in having such an indemnity decided according to Scots Law. There is a further indemnity in Article 17.1(e) against claims arising against OPCAL in respect of pollution caused by discharge from the Contractor’s equipment. Here again the defenders contend that any claimants against OPCAL would in all likelihood be Scottish or English.
One of the undertakings the Contractor gives in Article 17.1 is "to hold harmless". The defenders argued that it was implausible that the Contractor would agree to litigate anywhere in the world where a claim might arise because this would be an open -ended guarantee. Some of the Contracts are fairly small in scope. In the case of Ahasi (a US Supreme Court decision which I shall be looking at later) Justice O’Connor referred to "the unique burdens placed on one who must defend himself in a foreign legal system". Of course the same burden could arise for the Company or one of its employees if an action was raised against either of them in a jurisdiction with which it was not familiar. Moreover the Company takes on a similar responsibility in the Indemnities it gave to the Contractor. The defenders argued that OPCAL may already be exposed to Texas law or have the resources to deal with a claim there but of course an action in a foreign jurisdiction would not necessarily be in Texas.
The defenders made it clear that even if Clause 5 of the Contract were construed narrowly so as not to confine a Scottish Court to applying Scots Law on a matter of quantifying loss Scottish Courts would not apply other than Scots Law and procedures. Scottish Courts simply will not give effect to foreign rules of quantification. Moreover they claimed that it would not have availed the pursuers to have litigated in Texas and waited until their loss was quantified by a decree of a Texas Court. This is because a Texas decree would not be effective against a third party and the pursuers would still have required to quantify their loss under Scots Law. However if the defenders are right about that there would have been a problem even if the indemnity had said in the most specific terms that it applied to claims in Texas. It was said that the problem the pursuers would then have would arise from granting the Scottish Courts exclusive jurisdiction.
The defenders considered the effect of the fact that the indemnity given in the Robert Carroll claim Contract was said to be in favour of the Company and its "parent, subsidiary and affiliate corporations and Participants and their respective officers, employees, agents and representatives". It has to be noted that the Participants do not appear to get the protection afforded in respect of their own parent and associated corporations. The Company’s indemnities are in favour of a similar range of persons. It is perhaps notable that there is no mechanism specified for the enforcement of any claim for indemnity by any parent or affiliate corporation or indeed employee for that matter other than through a claim by OPCAL. Nor is there any provision in the insurance clauses for insurance protection to be offered by the Contractor to such parent corporation etc. There are no definitions given of parent, subsidiary, or affiliate corporation except in the case arising from the injury to Andrew Carroll where the contractual provisions are rather different. In the Andrew Carroll Contract (number 10/2 of process) it is provided in Section 22 that,
"Except with the prior written consent of company, Contractor shall not enter into any purchase order or sub-contract for performance of the work or procurement of materials, equipment and supplies, except with a parent, subsidiary or affiliate corporation, as defined in sub-section 22.03 etc."
It is also worth noting that the said Section has a provision that in entering into any sub-contract or purchase order the Contractor shall ensure that the sub-contractor or purchaser is legally qualified to do business in any jurisdiction in which it performs any portion of the work. Notwithstanding that most of the work would be performed on offshore platforms it is not inconceivable that the Contractor would ask a foreign supplier to make or maintain some necessary equipment for him. In that event a question may arise as to whether the supplier is legally qualified to do business at the source of supply which could well be Texas (where most oil related equipment seems to come from). It would not avail much to look to Scots Law to determine if a supplier was qualified to do business in Texas. Thus the provision being discussed may suggest that the legal horizons of the parties are rather wider than the defenders have been contending. The defenders argue that the reference to being legally qualified to do business in any jurisdiction is really an elliptical way of stipulating legally qualified in Scotland since that is where all the work is to be performed. If that is so it may be surprising that some phrase such as legally qualified in Scotland or the United Kingdom was not employed. The definition given in Section 22.03 is interesting for it is as follows "as used in this contract, parent means any corporation or other entity with majority ownership of the common stock and voting control of a party; subsidiary means any corporation or other entity with respect to which the party is the parent; and affiliate means any corporation having the same parent as a party". Strictly of course the definition only applies to the Andrew Carroll contract. However allowing for the effect that it may provide one possible definition which parties would be prepared to accept in any of the contracts I am not entirely sure that the implication of the definition is quite as straightforward as the defenders suggest. In referring to a parent company we are away from the biological notion of a parent. It is at least arguable that a corporation may own common stock and exercise voting rights through an intermediary company. Indeed that arrangement represents what happened in relation to OPCAL. In practical terms one would suppose that the parties enjoying the indemnities are concerned to cover the liability of other entities in such relationship with them so as to cover their own interest should an action be raised against them. The interests to be covered might well include parties owning and controlling the indemnified party or enjoying common ownership. However the defenders argue that the contra proferentem rule should be applied. They point out that the immediate parent of the Company and the corporations owned by the same parent corporation have no obvious Texas connection. The defenders argue with some justification that the term affiliate corporation has no clear meaning in Scots Law. As I have suggested the term could on one view be held to apply to any corporation in sufficiently close relationship to OPCAL to attract claims referable to the actings of OPCAL. There is another definition of Affiliate in the Joint Venture Agreement between the participants (number 12/384 of process). There it is provided that "Affiliate" means a second company or other entity that directly or indirectly or indirectly through one or more intermediaries controls or is controlled by or is under common control with the first company. "Control" means ownership of more than eighty per cent of the shares entitled to vote of a company. I am inclined, were it critical, to think that the definition parent, subsidiary, and affiliate in the Andrew Carroll Contract would be applied to cover the case of ownership through an intermediary holding corporation. It is difficult to see what protection a mere holding company carrying out no physical operations or even direct control would require. I was told in evidence that OPCAL is owned by Occidental Petroleum (Great Britain) Inc. (OPGB). This is a holding company with no employees. Its only function was to hold the stock of OPCAL. OPGB was registered in California and has an office in London. Mr Silva gave details of the stock control structure in the OXY Group above OPGB. This was long and complicated and many of the corporations concerned were based in America. In the hierarchical structure there were a number of corporations described as holding corporations and others that were operating. Moreover the shareholding arrangements were periodically changed. The share controlling structure of the Group may be rational enough but it does not make for simplicity. Mr Silva said that at the time of the accident there were about 700 companies in the OXY Group. OPCAL itself had apparently three subsidiaries. Occidental Petroleum (UK) Ltd, (OPUK), Occidental (Scapa) Ltd (OPS) and Occidental of Britain Ltd (OBI). OPUK was a British company. It was another "shelf company". OPS was registered in England. OBI we were told is a Californian company. The defenders argued that there could be no ius quaesitum tertio in respect of affiliate corporations. They quoted Professor McBryde (op cit) par. 18-08 to the effect that whereas a ius quaesitum tertio can be granted to a class the class must be identifiable. It was suggested that "affiliate" is too vague an expression to indicate a class. However I am not sure that the foregoing facts are really important in this case. The defenders are at pains to suggest that there is nothing in the reference to parents, etc. that would suggest that parties might have been thinking of the risk of a Texas link. Indeed they argue that the parent of OPCAL is OPGB and of course this could not have business links with Texas or elsewhere for that matter since it carries out no business function. However not only other corporations are protected but also employees, officers, and agents of the Company . These could be sued by a claimant if they were concerned in the events leading to an accident. There was little doubt that many of the top management of OPCAL had Texan or American connections and that included Mr Snape to a degree. It is certainly quite possible that this would be known to the contractors entering into contracts with OPCAL some at least of whom had long-standing arrangements to work with OPCAL.
A case which has particular significance for the problem under consideration is The Scottish National Orchestra Society v Thomson’s Executor 1969 SLT 325. In that case Scottish executors administrating certain estate of a deceased who died domiciled in Sweden remitted certain funds to a Swedish administrator to enable him to pay certain Swedish death duties. The pursuers who were beneficiaries challenged this payment as being in breach of trust. The Swedish administrator was required to hand bequests to Swedish beneficiaries free of all Government duties. The judge of first instance, Lord Robertson, held that the Scottish executors had acted properly in remitting funds to Sweden for payment of government duties there. The interest in the case for my purposes is that in deciding the case Lord Robertson decided the amount of fiscal duties payable under Swedish law. He heard expert evidence about this and the experts disagreed. In these circumstance his Lordship was urged to make no finding but instead he chose to differentiate between the conflicting expert evidence. He took the view that foreign law was under Scottish evidential rules a matter of fact to be proved by evidence like any such question of fact. Moreover he declared that if there is a conflict between foreign experts as to what their law is, then the court is entitled to look at it and decide what is the more probable interpretation. In respect of the latter point he referred to Kolbin and Sons v Kinnear & Co. 1930 SC 724.
The defenders contended that if they were correct that the Scottish level of damages was the appropriate one then expenses such as the Cullen Enquiry expenses which may be allowed on the view that a reasonable approach could reduce the possibility of the claimants going to litigate in Texas should not be recovered under the indemnities. If the indemnifiers were not liable for Texas levels of damages then likewise they should not be responsible for any expense incurred in trying to prevent proceedings in Texas. In any event insofar as the Conclusion 4 expenses are concerned these should if allowable be calculated according to Scottish levels of damages.
Although the question is not entirely free from difficulty I have decided that the arguments advanced by the defenders in this section of the chapter would not if considered in isolation preclude me from taking into account Texas levels of damages in computing any sums due under the indemnities. These arguments in essence give rise to two questions. The first is the meaning of the indemnities themselves. What claims, demands, liability or loss did the parties to the Contracts intend them to cover? The second question is assuming that the indemnities were intended to cover foreign losses would the Scottish Court be prepared to evaluate these except by reference to Scots Law? The defenders argue that in order to give expressions like "claim" and "demand" content they must be evaluated according to a particular legal system. This is no doubt correct but the question of how you arrive at the relevant legal system remains. Assuming that the indemnities were intended to give protection against such claims or demands wherever they arise then the protected party would not be interested to know how they might be evaluated in terms of a particular system of law that bore no relevance to the risk they present. What the indemnified party is interested in is how much the claim or demand is likely to cost him and this of course will depend on where it can be enforced. In my view the evaluation of a claim, demand or loss has to be made by reference to the practical prospect of it becoming an enforceable liability. In the Smit Tak case the court had to assess liability in the context of the law of Dubai and evidence of the position under that system was entertained.
The defenders argued that the terms of Clause 5 of the Contract preclude the court having to consider a system of law other than Scots Law in relation to any matter at all which affects the Contract. Each of the two sentences in that Clause contains a distinct provision. The first sentence declares that the contract shall be governed by and construed and interpreted exclusively according to Scots Law. This merely means that contractual rights shall be determined by Scots Law. The pursuers do not dispute this. Thus if the determination on construction is that the indemnities apply to claims anywhere and a claim based on a threat of litigation in Texas is made against the indemnified party the Court would apply Scots Law to decide if the claim is recoverable under the indemnities. If the claim is covered then what interests the party seeking redress under the contract is what level of risk does the claim represent. That is a factual question and if the resolution of that question depends on looking at a different system of law then Scots law has procedures for deciding questions of foreign law which bear upon the factual issues in a case.
The second provision in Clause 5 provides that the parties agree to submission to the jurisdiction of the courts of Scotland to the exclusion of the laws and courts of any other country. That sentence at first sight applies to Court selection. If the reference to the exclusion of laws is given the wide meaning attributed to it by the defenders then one might have expected it to appear in the first sentence which deals with choice of law. Indeed the wide construction urged on me by the defenders would really render the terms of the first sentence otiose. Moreover that construction would not sit comfortably with other provisions in the contract. Thus for example the indemnities against tax liabilities imposed by an government would be seriously compromised. If such a liability arose and was not one that would arise under Scots Law OPCAL would need to bear it without practical possibility of recourse. As I have already observed the same would apply if OPCAL found themselves at risk for the Contractor’s breach of a foreign Intellectual Property right. In my view the true effect of Clause 5 is to provide that not only will the jurisdiction of the Scottish Courts be prorogued but that it shall be to the exclusion of recourse to the courts of any other country and of the applications of any law which might entitle a party to go to such courts.
Looking to the contingencies which bring the indemnities under Article 17.1(c), (or its equivalent in other Contracts) into operation I see no occasion to limit these to a situation where their value must be assessed under Scots Law. Bearing in mind the practicalities of the situation the parties are each seeking to protect themselves against any claims arising out of injury to or the death of, the employees of the other except in certain circumstances. It is difficult to see why they might choose to confine the indemnities only to such level of loss as might arise under Scots Law rather than to the actual loss they are confronted with. Thus if OPCAL were faced with a statutory claim arising entirely as a result of the Contractors’ negligence it may seem an odd result that they could be covered for Scottish levels of damage but if the claim was pursued in such a way as to make their loss substantially greater they would be seriously out of pocket. A more logical result would be that the parties considered that in circumstances where they bear all (or perhaps some) of the responsibility for the loss they agree to bear it themselves but otherwise they want to be relieved of all loss. In this regard I am ignoring any limitation of the indemnities in respect of indirect and consequential damages and I shall consider that later. It must be emphasised that the issue is the construction of the indemnity contracts between the parties and that subject only to contractual terms it is not a matter of deciding where liability for loss may fall such as in the operation of the common law relating to damages. This will be treated again in relation to other submissions of the defenders. Whatever may be the obligations under the application of principles of uberrimae fidei to certain contracts no-one suggested that that principle applies to the Contracts under consideration. Thus it is up to parties themselves to assess the extent of the obligations they are each assuming and if desired to make any provision needed to limit them. Moreover if the values of claims and liabilities the indemnities are concerned with are to be assessed according to Scots Law what about threats by claimants involving recourse to the English Courts. A least that could be anticipated because many of the personnel on the platform were English and OPCAL has a place of business in England. Thus it would not make much sense to exclude English claims from the indemnities. However there is no specific provision for this in the Contracts and if the value of English claims (being claims outside Scotland) are held to be admissible under the indemnity provisions where does one draw the line. Would Irish claims be recognised? It is not at all improbable that some of these could arise. In Article 4. 6 of the London Bridge Engineering Contract it is provided that "Contractor shall be responsible for obtaining all relevant entry permits, visas, injections, inoculations" and so on. These provisions alone show that it was accepted that some of the Contractor’s workers could have foreign connections and that fact alone must point to the possibility that some would seek to sue in their own countries. However it must be pointed out that the particular provision I have identified is unique to the London Bridge and Engineering Contract. In the Stena Contract (number 10/2 of process) there is a stipulation in Article 12.02 that the contractor shall pay "consular fees for personnel". In the contracts generally there is a ‘Force Majeure’ clause and the occurrences that are specified as falling within the clause include " prohibitions or restraints of governmental authorities’. This is yet one further sign that the possibility of an international dimension was not totally out of the contracting parties’ minds. Nor would the questions that arise necessarily be capable of determination without some recourse to foreign law. The ‘Force Majeure’ clause is rather watered down in the British Telecom Contract which of course is in many respects radically different from the other Contracts. That contract also had no Taxes indemnity nor an exchange control provision.
I can understand that in certain cases a risk under a contract could be so remote that it leads to an inevitable inference that parties could not be assumed to have intended it. However I do not think that this is such a case. The pursuers were obviously not a parochial organisation with interests exclusively in Scotland. They were part of a multinational group of companies with wide ranging interests. Anybody commercially connected with the oil industry would know this and indeed it is common knowledge that this is the general situation in relation to the companies which have the resources and expertise to explore for and extract oil. It is also well known that the oil industry is likely to have connections with America and Texas in particular. The Contractors were prepared to give indemnities covering claims advanced against participants, companies in various degrees of relationship to OPCAL, and miscellaneous employees and officers and the identity of these and their capacity to attract claims abroad would not be known to the Contractor. Much of the equipment used by OPCAL was in fact related to Texas sources and they had regular recourse to Texas in respect of such matters as maintenance of equipment and technical advice. Among the participants were Texaco and Union Texas Petroleum. It would not be too difficult to suppose that companies like these are likely to enjoy some degree of Texas connection. If the contractors were interested to know who the Participants were they could have asked. It must be well known in the industry that OPCAL ship their oil out of the Flotta terminal so that clearly they are doing substantial business outside Scotland and this would be of a volume that given the nature of the commodity being sold could give rise to large credits abroad that could be attached. The Contracts themselves with provisions for tax claims in any country, tax residence outside the United Kingdom, payments to contractors in foreign currency, and indemnities covering a whole variety of Intellectual Property rights clearly acknowledge that they are dealing with a situation where international factors may arise. Indeed another such indication is given in Article 3.1 where it is declared that no provision of the Contract shall restrict any of the parties to the Contract from acting in accordance with the control exchange legislation or regulatory requirements of any government which are from time applicable to transactions under this contract. In fact it has to be noted that there occurs a reference to "any government" in a situation where the use of the phrase is obviously meant to include any foreign government. The interpretation of the indemnities which the defenders urge upon me are even more restrictive than that. As I have already noted it is eminently likely that OPCAL which has an office in England and is registered there could find itself confronted with a claim in the courts of that country. If that were to result in a decree against them based on English levels of damages (which may well exceed Scottish levels) it would be a rather unsatisfactory result for the indemnified party that they could only hope to recover Scottish levels of damages. In fact I think it is within public knowledge that some of the claims by victims of the accident have been raised in England so that any anticipation of this would not have been misplaced. OPCAL for their part certainly knew that there was at risk of facing actions outside Scotland. The very day after the accident it brought Texas attorneys into the case. The claimants for their part quickly intimated an interest in pursuing their actions in Texas and organised themselves to this end. Some of the solicitor witnesses, particularly those from England, seemed only too well acquainted with the risks of foreign claims in serious accident cases involving a number of victims. It would be surprising if some of the knowledge was not available to any solicitors who revised the Contracts on behalf of the parties. If the parties were concerned to limit the scope of their liabilities they could have done so in the Contracts. Indeed I shall come to consider the implication of certain specific limitations which were expressed in the Contracts but at the moment I am considering the general position. It should perhaps be noted that the risk of foreign litigation was not confined to Texas and after the accident there were possibilities of litigation in Louisiana or California. It is certainly true to say that the scale of the risk under these indemnities was perhaps not appreciated by the parties. Presumably no-one anticipated that an accident of such catastrophic severity could occur but the surprise was one of scale rather than kind. Thus it is my view that when they entered into the contracts the parties were aware that a variety of reparation claimants could be involved (including those resident or domiciled abroad), that claimants would be likely to litigate where they thought it would be to their best advantage, and that there must be some risk that claims could arise abroad. Apart from the Article 20 provision which I shall consider later there is nothing in the contract that suggests a departure from the plain wording of the indemnities so that in general I would consider that they would be apt to cover all demands etc. arising out of the contingency to be protected even should they be based on the prospect of foreign litigation.
Given then that I construe the indemnities as covering at least certain claims based on foreign systems of law the question remains whether a Scottish Court would entertain an action that required the computation of damages under foreign law and procedures. It is I think clear that a Scottish Court will not make a finding of quantification of damages by assessing them under a foreign system. That was obviously the finding in McElroy. As I have said earlier Biggins & Co and Gerbert Borgnis are of limited applicability since they are cases where damages for breach of contract were claimed not indemnity claims. However in the present cases the Court is not being asked to issue a decree incorporating a quantification of damages. Assuming that the indemnities entitle the pursuers to recover their loss in respect of claims against them advanced in a foreign jurisdiction then no question arises as to entitlement to recover such sum and the issue is how is it to be determined. The question is the amount of the loss which the pursuer settled for reasonable and that is a question of fact. The court is not being asked to decide precisely what a Texas Court would have awarded but rather to evaluate the degree of risk if the claims had gone to a Texas Court. Of course the distinction between the situations I have referred to may be narrow but it is a distinction nevertheless. In order to assess the reasonableness of the settlement I would have to consider the kind of figures that Texas Law and procedures may have thrown up but I do not need to apply Texan procedural rules but simply assess the evidence of experts as to the kind of decision a Texas Court may have arrived at. The problem I am faced with is the same kind of problem Lord Robertson was faced with in the Scottish National Orchestra Society case and I agree with his approach. Certainly the questions of foreign procedures and practice that are raised in this case are very difficult. However Lord Robertson also had to confront evidence about difficult and contested problems of foreign law and what is more the factual questions that arise in this case relating to Texas law are certainly no more difficult than some of the extremely complex technical questions I have also to decide in these cases. Moreover the defenders’ argument ignores what would have happened if the indemnities had specifically referred to cover for Texas claims. The defenders say that in that event the parties would not have provided that any litigation be in Scottish Courts. However the parties may well have wanted to retain the arrangement that rights under the Contract be determined under Scots Law and in Scottish Courts. It is difficult to suppose that in these circumstances the Scottish Courts would not arrive at a determination as to what would be a reasonable evaluation of the Texas claim. There must be many insurance policies between British companies where the risk insured would cover claims that might arise in foreign courts. For example there may be an employers’ liability insurance covering employees who do some of their work abroad. If an employee brought a litigation in a foreign court in respect of an accident which took place overseas then the claim would have to be assessed in accordance with local rules. Moreover it may be prudent for the assured to settle the claim. It would be extraordinary if such a policy could not be entered into because in the event of dispute the value of the insurance recovery could only be arrived at by applying British measures of damages.
The defenders argued that the Contractor could not enjoy the benefits of being a third party in any litigation in Texas. I do not altogether follow this line of argument. Certainly any decree pronounced against OPCAL would not be binding against the indemnifier. This would also be the position if the claim were settled in Scotland. The Company if convened to a Texas court has to surmount the difficulty of presenting its defence under Texas law. The same would apply to the Contractor even if brought into the Texas action as a third party. The pursuers require to prove as a matter of fact that their settlement was reasonable. Just as the pursuers can lead evidence to establish the necessary facts about foreign law and procedures the Contractors can attack such evidence and advance any pleas available to them. This is indeed what they have done.
9.3.7 Indirect and Consequential Loss
The defenders advanced an argument that if a claim is advanced for indemnification against a potential jury award before a Texas jury then the claim relates to indirect or consequential loss which would be irrecoverable under Article 20 of the Contract involving Robert Carroll (equivalent clauses are in the other Contracts although the provision in the Andrew Carroll case is radically different). The relevant Article is headed "Consequential Loss" and sets forth; "Notwithstanding any provision herein to the contrary, in no event shall either the Contractor or Company be liable to the other for any indirect or consequential losses suffered, including but not limited to, loss of use, loss of profits, loss of production or business interruption". It was argued that in the first place the contractual indemnity is, in effect, an obligation to pay the loss arising from or caused by the relevant peril specified in the clause. I was reminded that in Comyn Ching Lord Justice Brandon observed that the obligation to indemnify is telescopic language for an obligation to indemnify against loss arising from or caused by the claim. I was also referred to McBryde (op cit) at par 12-32 on page 278 where the author says "An indemnity clause performs a different function from an exclusion clause. Under an indemnity clause a person who has had or may have to make a payment to a third party, seeks to recover his loss from the other party to the contract". It was pointed out that Article 19 of the Contract envisages that claims for indemnity or damages may be brought and it deals with the arrangements for pursuing such claims. However it is to be noted that in the language of the Article "indemnity" is differentiated from "damages" In Gloag on Contract (2nd Ed.) p 696/697 the passage cited is quite important because it sets out with clarity the law on recoverable damages for breach of contract. The learned author says;
"the cases so far cited have related to the question how the immediate and obvious loss resulting from a breach of contract may be estimated in money. In them the ruling consideration was to discover the amount of loss necessarily resulting to the party whose contract has been broken. But the consequences of a breach of contract may be far reaching; it may involve loss in a particular case which would not usually follow from a similar breach in the majority of cases. Then the reimbursement of the injured party is no longer the sole consideration; it comes in conflict with the equally general principle that it is unfair to saddle a contracting party, even though he may have broken his contract with consequences which could not reasonably have been in his contemplation at the time he entered into the contract, and which if realised might have led him to elect not to enter into the contract rather than run the risk. In such cases a distinction, never more than approximate, may be drawn between items of loss which may be said to flow naturally from the breach of contract, and the items which, though they have actually resulted, may be ascribed to the exceptional circumstances of the particular case. For the general rule as to the items of damage for which a party who has broken his contract may be held responsible the following extract from the opinion of the Court of Exchequer in Hadley v Baxendale has been constantly referred to in Scotland as well as in England."
Where two parties have made a contract, which one of them has broken, the damages which the other party ought to receive in respect of such a breach of contract should be either the such as may fairly and reasonably be considered arising naturally, i.e. according to the usual course of things, from such breach of contract itself, or such as may reasonably be supposed to have been in the contemplation of both parties at the time they made the contract as the probable result of the breach of it. Now, if the special circumstances under which the contract was actually made were communicated by the Plaintiffs to the Defendants, and thus known to both parties, the damages resulting from the breach of such a contract which they would reasonably contemplate, would be the amount of injury which would ordinarily follow from a breach of contract under such special circumstances so known and communicated. But, on the other hand, if these special circumstances were wholly unknown to the party breaking the contract he, at the most, could only be supposed to have had in his contemplation the amount of injury which would arise generally, and in the great multitude of cases not affected by any special circumstances, from such a breach of contract. For had the circumstances been known the parties might have specially provided for a breach of contract by special terms as to the damages in that case; and of this advantage it would be very unjust to deprive them. This passage distinguishes the two classes of loss which may directly result from a breach of contract - (1) loss which may be called ordinary or generic, which would follow in the majority of cases from a similar breach of a similar contract and (2) loss spoken of as special, consequential, or collateral, which would not have resulted had not the circumstances been exceptional. In a negative form the rule is that a party is not liable for consequential damages unless he has had notice at the time of contracting that the circumstances were exceptional. It may perhaps be stated shortly that a party who breaks his contract is liable for these consequences which a reasonable man, possessing the knowledge which the party had at the time of contracting would have anticipated" I quote that at length because I do not think it is disputed that it is an authoritative statement of the law on the matter and indeed is the cornerstone of the defenders’ contentions on this. It must be noted that the author is dealing with rules applicable to the incidence of damages at common law for a breach of contract.
A central submission for the defenders was that because of Article 20 the same limitation or rules have to apply to the loss recoverable on a breach of contract and are by virtue of agreement to be applied to the recoverability of losses claimed under the indemnity. It was said that guidance could be obtained from the case of Comyn Ching and that case had been a pure indemnity case. Except that the plaintiffs were suing to recover under an indemnity amounts for which they had settled certain claims against them. It was held on appeal that the indemnity covered claims having a reasonable prospect of success. The case was referred to by the defenders in this context as authority for the proposition that what is recoverable if action is pursued under an indemnity is the "loss" arising out of the claim that was made against the indemnified party. Thus it was said that "loss" is something that is an inherent part of what is recovered when an indemnity is pursued. The claim the defenders made was that OPCAL were seeking to recover from the Contractor a "loss" which arises by reason of the claims made against them and it was submitted that by reason of Article 20 they cannot recover any indirect or consequential loss arising out of the claims. However it may be worth repeating what Lord Justice Brandon actually said in Comyn Ching & Co Ltd. He said "A loss will be sustained in consequence of a claim if it arises from a reasonable settlement of a claim which has some prospect or a significant chance of success". His Lordship’s comments demand to be looked at closely. He is specifying the "loss" that requires to be established to pursue an indemnity affecting "claims". All that requires to be proved is that the settlement was one that was reasonable and had some prospect of success. In the computation of the relevant loss no question of remoteness arises because the central fact is that an enforceable claim has been made against the party who enjoys the indemnity and the fact that such claims could arise is what prompted the indemnity. If any question arose as to whether an indemnity gave protection against particular kinds of claim that would have to be decided from the terms of the indemnity. The defenders further contended that the enhanced level of the claim was not attributable to the direct consequences of the claim but to special circumstances affecting OPCAL. A loss arising from a claim brought in Texas was said to be a different type of loss from that in a claim brought in Scotland. It was argued that the foundation of the rules about consequential and indirect loss is fairness and I accept that in the computation of damages in breach of contract this may well be so. I was referred to a passage in Keeting on Building Contracts (6th Ed.) at p204. This as might be expected is directed to building contracts. The passage is used to vouch the propositions that contractual clauses excluding consequential loss must be construed in terms of their own wording and context, that these clauses are not uncommon in the construction industry, and that in general consequential loss is likely to approximate to the rules of Hadley v Baxendale. It was argued that the effect of Article 20 was to exclude recovery of any consequential loss even if special circumstances had been communicated to the indemnifiers. Emphasis was placed on the incorporation of the words "in no event" in the Article. I was referred at some length to the case of Millar’s Machinery Company Ltd v David Way & Son 1934 Commercial Cases at p.204 a decision of the Court of Appeal. This was a breach of contract case. and like a number of other such cases I found it of limited direct significance. One point of interest is the observation of the Court of Appeal to the effect "On the question of damages the word "consequential" has come to mean "not direct". However it has to be noted that the Court construes the term not by reference to Hadley v Baxendale but by reference to the terms of the contract. Thus depending on the terms of the contract expressions such as "consequential" may have particular meanings applied to them. The contract was for supply of a machine and there were guarantees given. The machine supplied proved to be defective. The contract contained the provision "We do not give any other guarantees and we do not accept responsibility for consequential damages" . The losses which the Plaintiffs sought to recover were the return of the deposit on the machine, the cost of buying a replacement machine, the cost of erecting the replacement machine and the loss occasioned by the plaintiffs having to buy processed gravel to meet a contract with the local authority. The Court decided the case very much on the construction of the guarantees which the suppliers had given and which were intended to limit their liability for damages. Mr Justice Branson considered that the cost of buying a new machine, insofar as this cost more than the contract price, was recoverable as a direct loss. The purchasers were merely restoring themselves to where they would have been if an effective machine had been delivered in the first place.
The defenders argued that the indemnities contained a provision that the indemnifiers should "hold harmless" the Company against any claims. It was argued that the indemnifiers might refuse to honour that obligation and thus be in breach of contract. If the Company were to sue the indemnifiers for damages in respect of that breach then damages would have to be computed taking account of Hadley v Baxendale and Article 20. I do not entirely follow that argument. If the indemnifiers failed to hold the Company harmless or to defend them against claims then the Company might sue for enforcement of the Contract but if they sought damages this would be for the cost of defending themselves or possibly any extra liability incurred because the indemnifier had failed to honour their responsibilities. Given the nature of the obligation breached what could be more direct than what it would cost the indemnified party to defend the case themselves. If as the defenders claim the indemnities do not cover Texas claims then no question of consequential damage would arise because the indemnifiers could not have any obligation to protect against claims not covered by the indemnities. On the other hand if contrary to this the indemnities cover all claims relative to death or injury to the Contractor’s employee wherever arising then if a claim is made against the Company in Texas the link between a failure to honour the indemnity and any extra expenditure thus imposed on the Company does not to me seem remote but very direct. These views set off from the point that the indemnifiers have a contractual responsibility to honour claims wherever they arise even in Texas. The defenders seem to be moving from the issue as to what extent it is foreseeable that the contract would render them liable to indemnify in respect of Texan claims to the foreseeability of a particular amount of loss if the indemnity is not honoured in respect of a contingency occurring which it is designed to cover. If the indemnifiers have obliged themselves to hold harmless against claims made in Texas it is difficult to see how the fact that this may involve expense in Texas could be described as loss which is too remote. The defenders contended that it would be an odd result if a decision by the defenders to sue for breach of contract in respect of the indemnity would produce one result whereas an action to recover under the indemnity would produce an entirely different result. That may be so but would only arise if the action for damages for breach of contract was truly an action for indirect damages. If a party was in the position where the risk covered by the indemnity had arisen then if the indemnifier failed to take steps to hold him free from harm or defend him from the potential loss then he could sue for implement of the contract. The implementation of the aspect of the indemnity being considered would involve the indemnifier in a certain amount of expense. If instead of suing for implement the indemnified party sued for breach of contract then one would expect the damages to be co-extensive with the financial burden of implementation. The part of the damages which represent what it would have cost to implement the contract can only be direct loss. In any event in the present actions the pursuers are not suing the defenders for breach of contract but for implementation of the contract. However this whole area in my view is dependent on the definition of the risks indemnified against to be found in the Contracts.
The defenders contended that the indemnity in Article 17.1(d) was in respect of damage to the property of a third party brought about by the acts or omissions of the Contractor. Such a claim could it was suggested give rise to one of the losses excluded by Article 20 such as loss of profits for a damaged piece of equipment. This it was said would be a claim under an indemnity which was clearly and explicitly struck at by Article 20.
I was referred to Saint Line Ltd. v Richardsons, Westgarth & Co. (1940) 2KB 99 a decision of Mr Justice Atkinson sitting in the Kings Bench. This was a case which concerned a breach of a contract that had a damage limitation clause excluding liability for indirect or consequential loss. His Lordship observed "it must be remembered that where a party seeks to protect himself from a liability for damages recoverable by law for breach of contract he must do so in clear and unambiguous language". Thus his lordship is dealing with damages "recoverable by law" and not a claim for rights due under the terms of a contract. Moreover apparently such clauses will be construed strictly. His Lordship further observes "direct damage is that which flows naturally from the breach without any intervening cause and independently of any special circumstances". One definition of "consequential damages" which is given is "losses or injuries which follow an act, but are not direct or immediate upon it". Again, however the Court fails to find a serious difference between "direct" and "consequential". There is a reference in the Report to The Oxford Dictionary definition of ‘consequential’ as ‘in the nature of a consequence merely; not direct or immediate; eventual’.
Wraight Ltd. v P.H. & T ( Holdings) Ltd.(1968) 13 Building Law Reports 26 was a single judge case decided by Mr Justice Megaw. Under a building contract on termination of the contract Wraight became entitled to certain specified sums including any direct loss and/or damage caused to the Contractor by the determination. It is to be noted that it was held that the words "direct loss etc." should be given the same meaning as they would have say in a breach of contract’. His Lordship proceeds to say "In my judgment, there are no grounds for giving to the words ‘direct loss and/or damage caused to the contractor by the determination’ any other meaning than that which they have, for example in a breach of contract or other question of the relationship of a fault to damage in a legal context". Of course his Lordship’s observations apply to the particular terminology of the contract he is construing. However it has to be noted that in the case the judge is effectively relating the termination of the contract to a fault and the reference to direct loss and/or damage to a sum that becomes payable in respect of that assumed fault. The words "direct loss and or damage" were plainly intended to cover what was payable under the terms of the contract and given the clear parallel in the situation between the nature of the commitment to pay under the contract and a breach of contract it is perfectly reasonable to construe these contractual terms as they would be construed in relation to damages. In the present case the Company’s rights do not derive from any act of fault on the part of the indemnifier so a parallel with damages would not necessarily be apposite.
The next case I was referred to was Croudace Construction Ltd v Cawoods Concrete Products Ltd (1978) 2 Lloyds LR 55 in the Court of Appeal. This involved a contract for the sale of certain building materials. The suppliers in the contract declared that they were not in any circumstances to be liable for any consequential loss or damage caused by any deficiency in the goods supplied. The rubric states that the purchasers "claimed to be indemnified" for certain claims that their sub-contractors were able to make against them because of delay in the original supply. However the case is not actually for contractual indemnity but for loss alleged to have occurred on a breach of contract. The case discusses at length the meaning of "consequential" in the contractual term which seeks to restrict liability for the results of various contingencies but I do not find it particularly helpful for the situation it relates to is damages for breach of contract. FG Minter Ltd v Welsh Health Technical Services Organisation (1980) 13 Building Law Reports 1 was another case of the Court of Appeal. The Court there were concerned with the construction to be placed on the words "direct loss and expense". I find this case more interesting because it relates not to an action for damages under a breach of contract but an action under a building contract. The contract provided in essence that upon an authorised variation of contract a subcontractor could recover "direct loss or expense". It has to be observed that what was involved here was essentially an agreed alternative for a claim that would otherwise have been raised against the Employers for departure from the original contract. The reference to indirect loss was quite clearly intended to apply to the departure from the original terms of the contract and to that alone. Thus the Court required to give content to the terminology within the context of the provision where it was used. The departure point was the variation of the original contract and the question was what was a direct consequence of that. The situation was sufficiently close to breach of contract to justify the conclusion of the Court that the meaning of the expressions in relation to damages generally was what the contracting parties had intended. It can be said that in the case of a pure indemnity such as we have in these cases the object is not to determine the financial implications of a change in a building contract brought about by the Employer himself but rather to be relieved of specific financial liabilities which can be defined in relation to the occurrence of particular events. Again however we are thrown back upon the definition of the scope of the indemnities. In F G Minter the plaintiffs were not merely seeking to recover extra expense they had been put to by the changes in the scope of the contract but financial charges which they claimed arose from the situation they had been put in. Of course in a building contract the most direct loss is the change in building costs that a change of plan would cause. Moreover the Court proceeded on a concession that the words under consideration ought to be given the meaning they would have in a breach of contract case.
The next case the defenders cited was Piggot Foundations Ltd v Shepherd Construction (1993) 67 Building Law Reports 48. This was another building contract case and decided by an Official Referee. The judge decided (and this accords with the other authorities) that the difference between direct and consequential damages usually corresponds for practical purposes to the distinction between direct damage which is the first limb of Hadley v Baxendale and consequential which is the second. This case may have an important bearing on the present cases. Finally a Scottish case was cited namely Ogilvie Builders Ltd v City of Glasgow District Council 1995 SLT 15 decided by Lord Abernethy in the Outer House. Again the case involved a building contract and the question was what direct loss and expense the contractor could recover under the terms of the contract. The dispute again concerned the position of financial loss incurred by the contractor as a result of interference with the regular progress of the contract works. Thus again the contract is making a provision perhaps close to a provision for liquidate damages. This might suggest a particular construction in the contract in question. The case was dealt with as a case to which Hadley v Baxendale would apply. The judge held that the rules set out in that case were concerned with remoteness rather than causation and I would not necessarily disagree with that.
In discussing these cases the Defenders’ Senior Counsel spent a considerable amount of time reviewing the somewhat difficult and abstruse reasoning employed in arriving at various definitions of "direct loss", "indirect loss" and "consequential loss". In other words he sought to analyse Hadley v Baxendale in great detail. I have not analysed these submissions closely because, I do not consider them critical to the problem I have to consider. The conclusion he urged me to arrive at is that in terms of Article 20 any losses which are " consequential" within the meaning of the second leg of Hadley v Baxendale are not recoverable even if there is intimation of exceptional circumstances. In terms of the Article only direct and predictable losses would be recoverable . Others would be precluded in terms of the Article. In any event, were it relevant, OPCAL had not given intimation of the special circumstances surrounding the situation.
I was referred to the case of Victoria Laundry (Windsor) Ltd v Newman Industries Ltd; Coulson & Co Ltd. (1949) 2 KB 528. In that case launderers had purchased a large boiler with a view to attracting some large dying contracts. The boiler was not ready for effective use within the stipulated time. The purchasers sought to recover alleged loss of business profits. The suppliers knew the nature of the purchasers’ business and that they had the intention of putting the boiler to early use. The trial judge held that the loss of business was a special circumstance which had not been communicated to them and that the loss of profits were not therefore reasonably foreseeable. This was reversed on appeal. In the Court of Appeal, delivering the judgment of the Court, Lord Justice Asquith observed "It is well settled that the governing purpose of damages is to put the party whose rights have been violated in the same position, so far as money can do so, as if his rights had been observed. This purpose, if relentlessly pursued, would provide him with a complete indemnity for all loss de facto resulting from a particular breach, however improbable or however unpredictable. This in contract at least is too harsh a rule". However it must be noted that his Lordship is relating his remarks to damages for breach of contract where the loss recoverable is regulated by certain rules of common law and is subject to its own equities. Moreover it begs the question as to what the position would be if there was a contractual provision which could be regarded as "a complete indemnity".
The defenders placed considerable store on the case of Koufos v Czarnikow Ltd (1969) 1 AC 350 and analysed the case at length. The case is a House of Lords case and thus of considerable authority. It involved a charter party. The charterers were carrying sugar and in breach of the charter party the ship deviated on route with the result that it arrived at its destination late. The Charterers claimed that they had missed the intended market for their sugar and sued the shipowner for damages. The holding was that the sole rule as to measure of damages for any kind of breach of contract is that the aggrieved party is entitled to recover such part of the damage actually caused by the breach as the defaulting party should have reasonably have contemplated would flow from the breach. The difficulty in the case is the resolution by the judges of what is meant by "reasonably have contemplated". The views of the judges on the detailed approach that should be adopted are not always readily reconcilable and the defenders entered into a considerable debate in an effort to clarify the precise significance of the case. I do not intend to attempt to resolve some of the serious issues that Counsel presented to me as arising from Koufos because as I shall eventually discuss I do not consider the import of the distinctions that judges were making in the case actually bear upon the questions affecting the indemnities which I have to decide. However it may be useful that I mention certain salient features of their Lordships’ views. Lord Reid indicated that the question for decision was whether a plaintiff can recover as damages for a breach of contract a loss of a kind which the defendant, when he made the contract, ought to have realised "was not unlikely to result from a breach of contract". He proceeds "I use the words ‘not unlikely’ as denoting a degree of probability considerably less than an even chance but nevertheless not very unusual and easily foreseeable." He makes it perfectly clear in his opinion that he is seeking to illuminate the rules as to remoteness of damages as set out in Hadley v Baxendale. Referring to Baron Alderson’s judgment in the case he observes,
"He clearly meant that a result which will happen in the great majority of cases should fairly and reasonably be regarded as having been in the contemplation of the parties, but that a result which, though foreseeable as a substantial probability, would only happen in a small minority of cases should not be regarded as having been in their contemplation".
Thus it is normality rather than foreseeability that Lord Reid seems to regard a critical. He reminds us of the distinction in regard to foreseeablity in the law of Tort in that the defendant there would be liable for any type of damage which is reasonably foreseeable even in the most unusual case. The defenders maintained that the reason for the distinction in the recovery of damages between contract and delict is that in contract two parties have entered into mutual obligations which they can regulate and make stipulations which can be accepted whereas your neighbour for the purpose of the law of negligence is someone you may never have heard of. Of course if an indemnity is against claims and liabilities resulting from actions against OPCAL whereas they had some control over the terms of the indemnity they certainly had no control over the claims that could emerge against them. Lord Reid makes an observation which has been widely recognised and applied. He said " I do not find ...... any warrant for regarding as within the contemplation of the parties any event which would not have appeared to the defendant, had he thought about it, to have a very substantial degree of probability". Lord Reid expresses his views clearly and with force so that insofar as the decision in Koufos has a bearing on the present case I should be content to rely on his articulation of that decision.
The defenders followed up Koufos by a reference to another House of Lords case Balfour Beattie Construction Ltd v Scottish Power Plc. 1994 SLT 807(and 1992 SLT 811 in the Outer House, and in the Inner House 1993 SLT 1005). This was another breach of contract case. The question was again whether the loss had been within the reasonable contemplation of the parties. Lord Jauncey of Tullichettle who gave the leading opinion in the House of Lords took the view that the case was not so much about the law as application of the law to the facts and I respectfully agree with that. In the Inner House it was emphasised that provided that the type of loss is what the parties would have contemplated the fact that the scale of loss is more than might have been expected does not matter. Senior Counsel for the defenders accepted that such was the position but only in a case like Balfour Beattie Construction Ltd. In the House of Lords Lord Jauncey regarded with approval the test of reasonable contemplation formulated by Lord Reid in Koufos (namely that the event complained about would have appeared to the defendant as not unlikely to occur). Thus Lord Jauncey (apparently supported by the other judges in the appeal) selected the formulation of Lord Reid as representing the law as it emerged from Koufos. The appeal against the determination of the Inner House succeeded essentially on the view that the Inner House had erred in imputing to the defenders technical knowledge at the time of the contract which had not been communicated to them. Lord Jauncey said that it would depend on particular circumstances how much of the facts surrounding each other’s businesses contracting parties may be assumed to know.
The defenders asked me to consider the case of H. Parsons (Livestock) Ltd v Uttley Ingham & Co Ltd (1978) 1 QB 791 although it was contended that in some respects the case may be unreliable. This was a breach of contract case and the plaintiffs were suing for damages including loss of profit. In the Court of Appeal the appeal succeeded and it was held by Lord Justice Scarman and Lord Justice Orr that damages for breach of contract were recoverable in respect of injury or loss, where the parties, given the situation at the time of the contract, would have contemplated as a serious possibility the type of consequence, not necessarily the specific consequence, that ensued on breach of contract. I highlight that finding because it is intrinsic to my resolution of the problems raised by these arguments that the defendant must have in contemplation the type or kind of loss that is claimed but not necessarily the specific consequence. It would of course often be quite impossible to have in contemplation the specific loss that will occur if a breach of contract takes place.
Lastly as an authority I was referred to on this branch of the case was Magrie Holdings Ltd v City of Edinburgh District Council 1994 SLT 971. The case is not easy to extract general principles from but in any event it was a case involving a claim for damages for delict. It was accepted by the defenders that notwithstanding that the pursuers in Magrie may have seen the matter differently all they required to establish in a delict case was that the loss founded on was reasonably foreseeable. Nevertheless they implicated principles derived from Hadley v Baxendale.
The pursuers sought to meet some of the points raised by the defenders by referring me to authority. In particular I was referred to Scott Lithgow Ltd v Secretary of State for Defence 1989 SC (HL) 9. In this case the facts were that Scott Lithgow had contracted to build certain submarines for the defenders. These were to be fitted with cables manufactured to certain specified standards and BICC Ltd were the sub-contractors who supplied the cables. The cables were found to be defective and Scott Lithgow sued BICC Ltd for damages. The action was compromised for a lesser sum than what it cost Scott Lithgow to replace the cables. Scott Lithgow then sued the Ministry of Defence for the balance of their loss under indemnity provisions. In terms of these provisions the Minister of Defence were to indemnify Scott Lithgow against loss, damage, and liability suffered by them. Questions were raised in the case as to the application of Prescription to the claims under the indemnities. Insofar as this case may have any interest it relates to the point that the time from which prescription ran had to be determined since this was related to the date when the indemnities came into effect. It was held that the indemnity becomes enforceable when the casualty occurred ( in that case when the cables were found to be defective). Before the Inner house it was acknowledged by the Court that the point of time when the indemnity became enforceable was to be determined by the terms of the indemnity contract. As was observed "Here we are concerned with a contractual obligation to indemnify and the date when that obligation is to become enforceable is to be found only upon consideration of what the parties have agreed in their contract". In the House of Lords Lord Keith observes " It is to be observed in passing that Scots law has not adopted the English view that the right of action in the event of non-payment under a policy of insurance is one of unliquidated damages". I think in the case of an indemnity it is difficult to see why the principle should be different. What I take Lord Keith to be saying in his judgment is that as far as a promise of indemnity is concerned the indemnifiee’s primary right is to enforce a contractual term. In Firma C-Trade SA v Newcastle Protection and Indemnity Association (1991) 2 AC 1 the nature of claims under indemnities in English law as described by Lord Keith is discussed. The case involved claims for indemnity by a ship owning member against a Protection and Indemnity Club. The owner was sued in Florida for loss of cargo and allowed judgment to pass against him which the Club failed to satisfy. The result was that the member was wound up. The cargo owners then sued the Club for direct indemnity for the unsatisfied judgment under the Third Parties (Rights against Insurers) Act 1930. When the matter eventually came before the House of Lords they held that on a construction of the Club’s rules payment by the member to the cargo owners was a condition precedent to payment of indemnity by the Club to its member and there was no principle of equity which enabled these express provisions to be disregarded or overridden. It was also held that since the member had not acquired rights against the club the cargo owners could not have transferred to them under the statute any better right against the Club than the member had . In relation to the effect of such indemnities the Court draws a distinction between rights at law and rights under equity and of course this distinction does not trouble Scots Law. The position in England, however seems to have been that claims for indemnity had to be pursued by way of actions for damages and that specific performance of the contract could not be ordered other than by the intervention of equity. The theory was that the indemnifier had failed to prevent the indemnified party from suffering damage. In Scotland, in contrast, the primary remedy that a party has under a contract is to sue for specific performance (Stewart v Kennedy (1890) 17R (HL) 1). Thus the present actions are not actions for breach of contract arising out of the defenders’ failure to honour the indemnities. They are actions for implement in the sense that the pursuers seek to recover the sums allegedly payable under the indemnity contracts. That according to the pursuers is why Hadley v Baxendale does not apply to the situation. The pursuers argued I think with some force that because of the development of the rules of equity in relation to indemnities it may not matter much in practice whether an indemnity is sued for in England or Scotland but the distinction I have been referring to may have a bearing on certain decisions in England. However in Firma C -Trade SA Lord Jauncey stated "the measure of the indemnity must be determined by reference to the terms of the contract" I have no hesitation in following that approach. It has to be observed that it would be curious that because an indemnifiee were to choose to seek to enforce the indemnity and compel the indemnifier to hold him harmless he should be in a different position if he seeks to recover his outlay because of the application of Hadley v Baxendale. I have already expressed some views on this.
The Pursuers argued that even if Article 20 applied to indemnities the amount of a loss suffered by the indemnifiee would be as direct a loss as could occur - that is the amount for which they had to settle the indemnified contingency, a claim against them by an injured workman employed by the contractors or by the relatives of such a deceased workman. I was referred to Border Harvesters Ltd v Edwards Engineering (Perth) Ltd 1985 SLT 128 (although I did not find the case particularly helpful except insofar as it illustrates the difference between an immediate result of a breach and what could by the chain of causation ensue). The pursuers argued that the losses detailed in Article 20 are not indirect or consequential in the sense developed in the Hadley v Baxendale type of cases but referred to the causative relationship of loss to the event. Thus for example "loss of use" would almost be an inevitable consequence of damage to property and therefore provided the loss in question was of a degree such as would normally result it would not be struck at under the remoteness rules of Hadley v Baxendale. This shows that what Article 20 is striking at is not remoteness in any sense involving the contemplation of the parties but rather one step removed along the causative chain. This could also be demonstrated by "loss of production or business interruption". If equipment is damaged these are not heads of loss which even in a breach of contract case would fall into the category of indirect or consequential loss under the rules regulating damages. In terms of what would be expected these losses would be almost inevitable.
The pursuers accepted that whatever the applicability of Article 20 to the indemnities in this case they were not necessarily intended to apply only to breach of contract. For example an employee of the contractor could negligently damage equipment belonging to the Operator. If that happened the Company could only sue for the repair or replacement of the equipment and not any consequential loss of profit. The contractors’ nervousness about loss of profits is understandable. A minor degree of damage to equipment could cause shutdown of the whole plant which could involve colossal losses.
The pursuers referred to the case of Wroth v Tyler (1974) 1 Ch 30. The case raised questions arising out of a rise in house prices and it was argued that within the rules of Hadley v Baxendale what is required is not merely the contemplation of a particular head of damage but of a particular scale in relation to quantification. Mr Justice Megarry observed,
"Here the parties contemplated a rise in house prices, but not a rise of an amount approaching what in fact took place. A rise which nearly doubled the value of the property was, as the evidence showed, outside the contemplation of the parties and so it could not be recovered".
This was the argument which was put to the judge. He continued,
"I do not think that this can be right. On principle it seems to me to be quite wrong to limit damages flowing from a contemplated state of affairs to the amount the parties can be shown to have in contemplation, for to do this would require evidence of the calculation in advance of what is often incalculable until after the event."
He also observes that the Hadley v Baxendale rules are more concerned with type of damage than with quantum. He proceeds "a plaintiff invoking the so-called "second rule" in Hadley v Baxendale need show only a contemplation of circumstances which embrace the head or type of damage in question, and need not demonstrate a contemplation of the quantum of damages under that head or type". I think this case gives the pursuers limited help. Claims made by victims of an accident may give rise to a type of loss that could occur irrespective of the country where the claim originates. However the effect of an action in Texas is not just a question of adding up figures and arriving at quantum. It imports a whole and different system of quantification including exposure to a Texas jury. Although the contractor might not be able to calculate how much any loss that materialises will add up to he may consider that there is a difference between a Texas jury and certain other systems that would not purely be a question of calculating the loss. The very same loss would be quantified quite differently in Texas as compared with say Scotland. Thus a supplier who supplies defective goods may contemplate that the purchaser may sue him for loss incurred on sub-contracts. However if he finds that there is a very lucrative sub-contract outside the normal range of value he might have anticipated this is not merely a matter of quantum. It involve a loss of a different kind to what he had had in contemplation. I consider that if the position were that there had been say a breach of contract and the pursuers claim required to be considered in terms of the Hadley v Baxendale rules, and assuming that unbeknown to the contractors OPCAL had rendered themselves particularly vulnerable to Texas jurisdiction by their dealings there, then I would regard that fact as being sufficiently beyond the contemplation of the parties to make the loss irrecoverable as an element of damages. The pursuers refined their argument by claiming that for quantification purposes the Texas Court would apply the lex fori so that the heads of damages would be the same as in Scotland and the only question is the total they are quantified at. I think this defies common sense. The claimants were not clamouring to litigate in Texas just for the convenience of having their claims quantified there. They considered that the Texas system would give them a seriously improved result and in this they were probably right.
The defenders analysed the pleadings and evidence in an attempt to show that there was nothing in either from which it could be inferred that the contractors were aware that proceedings in any claim by employees of the contractors or their families were likely to be taken in Texas or be concerned with Texas levels of damages. In relation to the alleged oil sales of OPCAL oil through Texas the evidence suggests that Mr Silva the Company’s Texas attorney did not find out about this until about September 1988 that is until about six to eight weeks after the accident. It is the case that Mr Silva did not seem to know about OCSI’s activities in relation to the sale of OPCAL oil until about the same time after the accident. However although he did not know all the particulars he knew from his considerable knowledge of the OXY Group that there were likely to be facts in existence that would expose OPCAL to Texas Law. It was submitted that if OPCAL were doing business in Texas after the accident then the contractors had no reason to know that this would happen. The defenders drew attention to the averments that in relation to choice of law that a Texas Court would probably have concluded that the application of the most significant relationship rule would result in Scots Law being the law applicable to liability. Any actions raised in Texas by claimants would have been determined by a Jury and in respect of the quantification of damages the Scottish procedural rules and the values likely to be awarded there would not have been allowed. Again it was suggested that these details of Texas Law and procedure would not have been known to a Scottish contractor. However it must again be noted that after the accident it was not the Oxy Group who suggested that the claims be litigated in Texas. That would have been the last thing they wanted. It was the claimants’ representatives who suggested this and at an early date. However the defenders argued that it was not the claimants’ knowledge at the date of the accident that counted but their knowledge at the date when the Contracts were entered into (mainly in 1987 and 1988 with the Eastman Christensen contract in December 1986). This I think is correct although the knowledge they had in July 1988 may reflect on what they appreciated earlier. Apart from the British Telecom contract the contracts were prepared by OPCAL in their Aberdeen office. The defenders claimed that the onus was on the pursuers to aver and prove that the defenders would at the time they entered into the contracts have appreciated the risks of Texas litigation and the enhanced level of damages that this could have involved. There was no evidence that at the time the contracts were entered into there was a record of parties injured in the North Sea having successfully sued OPCAL in Texas. It was submitted that the contractors would have known that OPCAL were a Scottish company, and that the work was to be performed in Scotland so that the likelihood was that any cause of action would originate in Scotland, and the contractors would also have been entitled to consider that any claims were likely to be made in the Scots Courts. However since OPCAL was also domiciled in England it may well have been within the contemplation of parties that proceedings by claimants may also have been pursued in that country. I was referred to what Lord Morris said in Koufos. At page 397 his Lordship observed,
"If a party has suffered some special and peculiar loss in reference to some particular arrangement of his which were unknown to the other party and were not communicated to the other party and were not therefore in the contemplation of the parties at the time when they made their contract, then it would be unfair and unreasonable to charge the contract breaker with such special and peculiar loss".
Be that as it may his Lordship was stating equities which arise in relation to breach of contract. Mr Silva gave evidence about a case raised in Texas against OPCAL by a man called Billy Cobb who had been injured in the North Sea. This action had failed for want of jurisdiction but Mr Silva explained that it had not been well handled by the Plaintiff’s attorney. He had been a single practitioner without the resources to recover and use the substantial amount of material that would be needed to establish jurisdiction in such a case. The outcome of the case was not regarded as significant and indeed the Court did not send it for publication. In another case Gutierrez v Raymond International in which Mr Silva had acted for defendants the plaintiff again failed to secure Texas jurisdiction but Mr Silva once more discounted this as being an imperfectly handled single practitioner case. I was left in no doubt from the evidence that in major litigation in Texas experienced practitioners will outlay substantial sums of money to pursue the case with great vigour and thoroughness. They have of course a substantial interest to do so. Mr Silva claimed that the two cases I have mentioned would not have affected his view of the risks to OPCAL in the 1988 negotiations and I would be prepared to accept that. At no time did he act like a man who thought that the claimants would have serious difficulty in establishing Texas jurisdiction against his client. The representatives of the Participants who gave evidence did not seem to have much, if any, recollection of the Cobb case but they did recollect that there had been some litigation against OPCAL which had not been typical and had failed. The defenders referred me to certain Texas cases which they claimed had a bearing on the particular argument they were presenting. The first of these was Couch v Chevron International Oil Co 672 South West Reporter 2nd Series page 16 (Number 86/2 of process). In that case an attempt to persuade the Texas Court to entertain an action brought by a Scottish seaman injured in the North Sea failed. In the appeal before the Supreme Court in Texas (reported in number 86/3 of process) the appeal was refused. In McFee v Chevron International Oil Co. (1988) 753 South West Reporter 2nd Series 469 the State District Court in Texas had refused to admit jurisdiction and an appeal to the Court of Appeals failed. Among the findings of the Court was that it was not foreseeable that the original sub-contractor would be acquired by a Texas company three years later and that the Texas business activities of a wholly owned subsidiary could not be imputed to the parent company. The defenders cited these cases to show that even someone familiar with attempts by North Sea workers to raise proceedings in Texas would not necessarily have concluded that this was likely to be possible.
The Scottish solicitor and witness Mr Burnside was the lawyer who had been instrumental in organising the PADG. His experience was in Reparation work. He explained in his evidence that in the early days following upon the disaster those experienced in relation to the Chinook Disaster considered that with the numbers of people being involved in Piper Alpha it could be worth while to form a group of claimants. He explained that this had happened before in multi-victim cases such as the Manchester Air Disaster. The Chinook Disaster had occurred in November 1986 and Mr Burnside had been involved in the consequent claims. Forty five persons had died and two were injured. The claim had brought him into contact with American lawyers. He had had another case for a client where because of involvement with America he had been able to secure for a paraplegic client damages in excess of the sums that he would otherwise have expected. In Piper Alpha he had realised from an early stage that the case might have an American connotation. One of the solicitors acting for claimants in the Piper Alpha cases had a Manchester connection and had very good American contacts and had been at least indirectly involved in the Chinook and Manchester Airport cases. Mr Pannone took immediate soundings from a New York attorney Mr Stuart Speiser and had been advised that there was an American angle that could have an impact of the levels of damages which could be recovered. There was a perception (which turned out to be fully justified) that there would be American Attorneys coming to Britain intent on persuading the claimants to enter into contracts to allow them to handle the litigations. The Chinook cases had been raised in Pennsylvania and took about four years to settle at a time well into 1990. The settlement had been at about twice Scottish levels although no allowance had been made for interest and contingency fees would have had to be paid which are assessed at 30% of the sums recovered. It has to be noted that some of these foreign cases involved alleged failure of equipment with a clear American connection so that the prospect of litigation in America may have been more immediately obvious.
Another Scottish solicitor acting for claimants was the witness Mr Christie who practised in Aberdeen and when he gave his evidence was aged 46. He had considerable specialist experience of Reparation work. Prior to the Piper Alpha disaster on more than one occasion he had been involved in claims where there was an American connection and in at least one a Texas connection. We did not enter into the details of these cases.
The experience of the pursuers’ solicitor and witness Mrs Lesley Gray was also explored. Mrs Gray had been involved in Court work since about 1975 and had some experience of international litigation. Before the Piper Alpha Disaster (which has occupied her whole time since 1988 and still does) she had acted in a small number of cases involving mid-Atlantic settlements (that is settlements at a level of damages above Scottish levels).
Of course there is evidence that the contractors had at least some insurance covering the claims that are the subject of these cases and we do not know the terms of such insurance, what information the insurers may have required before accepting the insurance, or what advice they may have passed to their clients.
The defenders submitted that even if the contractors had known that OPCAL has some connection with Texas they may have considered that there was no likely risk that claims would be made against them in Texas. It would appear that an individual would have problems in undertaking the requirements implicit in establishing Texas jurisdiction and it may well never have occurred to someone unfamiliar with the vagaries of the Texas legal system that a substantial number of victims could create a situation where there could be a much better chance of securing jurisdiction. The Court it was said should not look at what might happen in a rare situation but rather should concentrate on the ordinary course of things. Mr Snape for example thought that the death of Mr Sutherland was an exceptional and very serious event. Of course Mr Snape as the person responsible for the operation of OPCAL would hope to create a situation where there were no serious accidents but nevertheless the Company may have wanted insurance and indemnities to cover themselves if that aspiration was not realised.
The defenders also reviewed the evidence of the witnesses who were English solicitors with a view to exploring the state of their knowledge with reference to the risk of claims being pursued against OPCAL in Texas. One of these witnesses was Mr Griggs who is the senior partner of Ince & Co in London. The firm are specialists in maritime and aviation law (with the emphasis on Insurance) and have extensive international connections. He is very well qualified. He had had experience of disaster litigation including the Chinook and Manchester Airport Disasters. He had also been involved in the Herald of Free Enterprise Disaster and the British Midland Air Crash at Kegworth as well as the Shetland Braer Disaster. These last-mentioned disasters of course post-dated the Piper Alpha catastrophe. The Manchester disaster was his first experience of mid-Atlantic settlements. I think it has to be acknowledged that Mr Griggs had the opportunity to know about international disaster litigation than most solicitors would have. He confirmed that immediately after the accident his instructions were coming from the headquarters of the Occidental Group in America. He mentions that one of the contractors Bawden had no doubt that they were vulnerable in the United States and they settled. Another of the English witnesses Mr O’Callaghan was aged 52 when he gave evidence and was highly experienced. He was a specialist in litigation being a partner in Davies, Arnold and Cooper, solicitors, London. He specialises in litigation particularly with an Insurance content. He had been connected with litigation with an international dimension and the first of such experiences was in the late 1970s when he acted in an action raised against the Express Lift Company in California. The case involved a man who had his foot trapped in a lift at Dover. He claimed to have acted in such litigations on many other occasions so that I was happy to accept that he was exceptionally well informed about litigation with an international dimension. His instructions in the present cases came from the insurers of Thomson North Sea Ltd and this insurance connection may be noted for it is relevant to other matters. The witness Mr Sprague was another solicitor who was a partner in Ince & Co and had also been connected with quite a lot of litigation with an American angle to it. He had acted for Occidental since 1975. He was all along aware of the need for concern about the risk of OPCAL being sued in America. He had acted for American Underwriters of companies with American jurisdiction for many years and he was aware that they were concerned about the risk of US jurisdiction. He thought that many companies that had American connections were very sensitive about being sued in America because American Courts have what he described as " a fairly exorbitant jurisdiction". Mr Sprague indicated that Mr MacMillan (who was a representative of the Insurance Committee, the name given to the group said to be representing many of the contractors) had indicated during a conversation that some of the contractors other than Bawden may have had American connections. Thus although there was no concrete evidence about the matter it is possible that some of the contractors had American associations which could have exposed them to jurisdiction in the American Courts and these certainly may well have been familiar with some of the problems that arise during litigation in America.
Mr Wilkes was another English solicitor who gave evidence. He was 37 years old when he gave his evidence and was a partner in Beechcroft Stanleys in London. The vast majority of his work was insurance related litigation. He had been involved in litigation connected with America on a number of occasions. Before 1988 he had had cases in Florida and Denver with potential connections with Texas and California.
I am in little doubt that the specialist English solicitors who gave evidence would even prior to 1988 have been aware that claims against OPCAL - and in particular multiple-claims - would give rise to a question about OPCAL’s exposure to American jurisdiction. Moreover they would have realised that claimants would have attempted to take advantage of any vulnerability in this respect. Thus they would have recognised that the possibility of employee claimants threatening to take proceedings in America was at least a risk which would have to be considered. They may not however have been able to say that the possibility of litigation in America was more than a risk and they may well not have been able to assess the measure of the risk. Moreover I do not think it necessarily follows that the average solicitor in the Aberdeen area would have had similar knowledge. Some - perhaps only a limited number - would probably have had some knowledge of the problem. The knowledge of the English solicitors and their connection with the Insurance world would suggest that the latter would be familiar with the risk that some litigants would seek to go to America if the defenders had even a remote American connection.
The evidence showed that the probability was that a Texas Court would confine any award of damages to heads of damages recognised in Scotland. Thus punitive damages (available in Texas cases) would not be allowed if the claims had been pursued in Texas. It was clear from the evidence that if a jury were allowed to award punitive damages then this could considerably increase the amount of damages that would be awarded. Mr Fisher, a Texas attorney highly experienced in plaintiff’s litigation made no allowance for punitive damages in the figures he gave for prospective loss. Mr Crain another witness who was a Texas lawyer did not think that punitive damages entered into the issue. Nevertheless there was evidence to suggest that a Texas Jury would attempt to make some allowance for punitive damages by introducing them indirectly to any award. Mr O’Callaghan said this was a risk although of course he could not claim to have had the direct experience of Texas litigation as say Mr Fisher and even Mr Crain. The same observations apply to Mr Wilkes. The defenders argued that this risk of punitive damages was another consequential and indirect loss which made it inappropriate to allow the pursuers any level of loss based on Texas values. However I think that if punitive damages are not allowable in Texas Courts in litigations such as would have arisen if the claimants had gone to Texas then it must be assumed that the Texas Court will take steps to ensure that its own rules are followed. The vast number of American cases that I was referred to and which will be discussed later did not suggest that the Texan appeal system did other than try to enforce its own laws. Provided that there is no award of punitive damages as such how a Texas Jury would quantify damages is a matter for their own procedure. Of course the defenders are arguing that the risks of enhanced loss inherent in Texas litigation generally are themselves to be treated as consequential and indirect loss but I do not see that the particular issue of punitive damages adds much to the debate. If I am wrong in my assessment of the risk of an award of punitive damages being made then of course this would improve the pursuers’ claim that the settlement figures were reasonable. It should be noted that Mr Silva (who was the attorney controlling the settlement negotiations from the point of view of the pursuers and who advised on Texas law) said in evidence that in his estimate of the likely levels of Texas damages he made no allowance for punitive damages. However the PADG representatives were claiming that they would recover punitive damages but this was probably just a negotiation ploy. In fact the level of compensation offered to the claimants in settlement took no account of punitive damages at least in the view of the Texan lawyers who were advising on the risks in Texas in respect of levels of damages. Mr O’Callaghan and Mr Wilkes may have thought privately that there was some risk of a punitive element entering into the damages. The reasonableness of a settlement is of course an objective matter and does not depend on the subjective views of some who might be parties to the settlement.
A submission made by the pursuers was that the distinction between litigation in Scotland and in Texas is not a matter of difference in kind or type of risk but just a matter of quantum of damages. This was resisted by the defenders. They pointed out that in cases like the Victoria Laundry (Windsor) Ltd the sub-contracts were under review because their particulars brought increased values of damages into account. This distinction was acknowledged in Koufos. If some sub-contracts are especially lucrative this could clearly affect the level of damages but the risk of enhanced damages also puts the sub-contracts into a different category of risk. The defenders referred to Cory & Others v The Thames Ironworks Company 1868 LR 3 QB 181. The holding in that case was to the effect that,
"where on the sale of a chattel, the buyer intends it for a special purpose, but the seller supposes it is for another and more obvious purpose, the buyer can recover, as damages for the non-delivery according to the Contract the loss of profit which might have been made from the purpose supposed by the seller, provided the buyer has actually sustained damage to that or a greater amount."
The value of that authority to the defenders is that it supports their claim that if they are not liable for damages at Texas levels the pursuers would nevertheless be able to recover Scottish levels if the indemnities apply. I would see no difficulty with this principle in an action for damages for breach of contract. On the other hand, so it was argued, if Texas enhanced levels applied to the loss but it was held that the sums offered in settlement were too high then any recoveries would have to be reduced to Scottish levels for there are no pleadings or evidence to support values between the settlement levels and Scottish levels. The case of Duff & Company v Iron & Steel Company (1891) 19 R 199 essentially supports what was decided in Cory & Ors.
The defenders relied upon a further case of recent date Brown v KMR Services Ltd (1995) 4 All ER 598 before the Court of Appeal. The case is particular because the defendants were being sued both under breach of contract and reparation. A Lloyd’s name had suffered substantial losses because the agent of the syndicate of which he was a member had involved him in high risk underwriting . It was held that the member’s agent was in breach of contract in failing to warn his client of the exceptional dangers inherent in the kind of insurance he had been involved in. It was also held that the primary head of recovery in cases involving direct or consequential loss was the loss liable to result from the breach of the contract in ordinary course. It was held that notwithstanding that the scale of the loss was unprecedented this did not prevent the plaintiff from recovering damages in respect of it since the loss was of a type or kind that was foreseeable and therefore not too remote. The defenders I think raised this case largely for defensive reasons and their argument was that reliance on foreseeability was taken account of because the plaintiff had rights not only under breach of contract but also in respect of the defendant’s negligence.
In relation to the contract involving Northern Coasters trading as Stena Offshore (number 10/2 of process and concerning the injured party Andrew Carroll) the defenders conceded that their arguments based on remoteness of damages would not apply. That was because of differences in the indemnity contract. In the Contractor’s indemnity in the Andrew Carroll case (at page B/36 OF 50) the Article equivalent to Article 20 in the Robert Carroll case (Article 19 at page B/40) is headed "Consequential Damages" and not "Consequential Losses" as in the death cases. The Article itself reads " Notwithstanding any other provision of this Contract in no event shall Contractor, its sub-contractors Company or Participants be liable to the others for any indirect or consequential damages which may be suffered by the others in connection with the performance of this Contract".
The Contract involving British Telecom also has distinctive features. This is perhaps not surprising. The Contracts were all drafted at OPCAL’s offices at Aberdeen except the British Telecom Contract which was based on forms provided by that contractor. The Contract is 16/16 of process. In that Contract the provision about consequential damages is applied expressly to the indemnity provisions. Clause 8.6 of the Contract provides "In any event in no circumstances shall BT be liable in contract, delict (including negligence or breach of statutory duty) or otherwise for loss (whether direct or indirect) of profits, business or anticipated savings, or for any indirect or consequential loss or damage whatever." Clause 10.1 expressly applies the provisions of Clause 8 (other than Clause 8.1 which does not concern us) to the indemnities set out in the Clause. The defenders contended that there could be no doubt that Clause 8.6 applies to the indemnities. including those that are the subject of these actions and of course this must be right.
At this point in his argument Senior Counsel for the defenders having summarised his arguments in relation to the effect of his submissions on Conclusions 2 and 4 for the convenience of the Court set out the amounts which would be brought out were his contentions followed.. For Conclusion 2 in relation to the Robert Carroll case the figure was £ 7,467.75. In the Pyman case the figure was £8, 869 .58. In the Duncan case the figure would be £6,538.73. In the Cowie case it was £5,809.98. In the O’Shea case the figure was £5,732.75. In White it was £4,296. 82 and in the Andrew Carroll case £5,328. In relation to Conclusion 4 the figures are Robert Carroll, £6,493.75; Pyman, £7,712.67; Duncan, £5,685.65; Cowie, £5,052,18; O’Shea, £4,988; White, £3,736.23; and Andrew Carroll £ 4,633.75.
9. 3. 8 Indirect and Consequential Loss - Conclusions
The parties’ submissions in relation to indirect and consequential loss raise difficult and important questions. Since many of the defenders’ contentions are derived from Hadley v Baxendale and the decisions which follow it I shall first deal with the implication of their approach in this connection. In relation to breach of contract parties may decide to modify their obligations in the event of a breach of contract and such contractual modification of the common law rules can affect the damages that may become due at least to a degree. However apart from specific provision the damages that can be recovered upon a breach of contract must depend on the common law as expounded in a number of cases including in particular Hadley v Baxendale. On entering into a contract the parties in essence indemnify each other in respect of certain consequences of a breach. However in the absence of applicable terms in the contract the indemnity is implied not express. Thus the extent of the cover from the implied indemnity also has to be the subject of implication. One of the critical question of course is what type of loss does the indemnity extend to. In contracts such as contracts of indemnity the risks of loss protected against will be specifically defined but not in most breach of contract cases. This is what Hadley v Baxendale achieves. It sets out the categories or types of losses that the implied indemnity may be taken to embrace.
The so called rules of the case are applicable to the implied indemnity situation as it arises upon breach of contract. On the other hand when exploring recoverable losses under a contract of indemnity, be it insurance or more general indemnity, there is no need to imply the losses covered for they are defined in the contract. Indeed this is what a contract of indemnity is all about. Unless perhaps to get assistance in the construction of any ambiguous terms that may be used in the definition of indemnity where this is applicable, there is no reason why Hadley v Baxendale should enter into the matter. It has been observed that Hadley v Baxendale simply adopts what is fair and reasonable. This may be so in relation to breach of contract where the question is what can parties be reasonably assumed to have undertaken should a breach occur. However in indemnity cases, including insurance, the same equities are not applicable because there parties have the opportunity to specify the risk the indemnifier will take. If the indemnifier considers that the risk he is being asked to assume is unfair he can insist on modifying it. There may even be equitable type control at least for certain kinds of contracts. Thus in insurance contracts the contract may be avoided if their was non-disclosure of a material known risk.
However the defenders claim that the indemnities must be construed in the light of Article 20 in the Contracts that have a provision in similar terms and of the somewhat different but related provisions in the Stena Offshore case and the British Telecom case. The case which causes least difficulty is the Stena Offshore case relating to Andrew Carroll. In that case the only possible limitation in the extent of the prescribed indemnities is a clause excluding indirect and consequential loss in the computation of damages. In the light of that provision the defenders conceded that the Andrew Carroll case has no express provision in the Contract limiting the relevant indemnities in respect of indirect or consequential loss. On the other hand the British Telecom case has a provision which appears specifically to limit the relevant indemnity in respect of indirect and consequential loss so that at best on this point the case is the most difficult from the pursuers’ point of view. The remainder of the cases fall somewhere in between the two poles representing Stena Offshore and British Telecom and the point is just where do they stand. The defenders argue that the general cases by virtue of Article 20 specifically exclude indirect and consequential loss as defined in the cases emanating from Hadley v Baxendale, that claims that would involve enhanced Texas damages would be just such an indirect loss, so the conclusion I ought to come to is that the indemnities would not cover the element of the settlement which reflects enhanced loss. The pursuers say that if the Article 20 type provisions apply at all to the indemnities we are considering then what is claimed under the indemnities is in any event a direct rather than an indirect loss and as a result of their construction the indemnities should cover all types of loss incurred by OPCAL as a result of the death or injury of contractors’ workmen, provided of course the losses do not result from the kinds of casualty that are specifically excluded such as sole negligence of the Company. It is quite interesting to observe the chronology of the Contacts. The Eastman Christensen Contract was entered into in December 1986. The London Bridge and Engineering Contract was entered into in October 1987. The Wood Group Contract was entered into in November 1987 The Stena Offshore Contract was entered into in December 1987 as was the British Telecom Contract. The Northern Industrial and Marine Service Co Ltd entered into their Contract in March 1988 and the Kelvin Catering Contract was dated in June 1988. These contracts apart from that in the British Telecom form were all drafted by OPCAL and at least to an extent were standard contracts. The Andrew Carroll Contract is conceded to be in a form that provided no limitation on the extent of the indemnities as defined in the Indemnity Clauses themselves. If the pursuers were prepared in the Andrew Carroll Contract to have an extended view of the indemnities one might wonder why in a number of Contracts entered into about the same time they would have accepted the limitations in the indemnities which the defenders urge me to accept. There is now the fact that each Contract must be regarded in relation to its own terms and has to be assessed in terms of how both parties to it would have understood it. For all that is known OPCAL may have extended their indemnities in the Andrew Carroll case because of some special risks or practices peculiar to the Diving industry. We do not know how this anomalous contract came about.
As a starting point in the consideration of the application of Article 20 it is necessary to retain in mind the observations in Saint Line that if a party wishes to protect himself against a risk he must do so in "clear and unambiguous" language. The Article declares that "Notwithstanding any provision herein to the contrary, in no event etc." Then there is a reference to "being liable for any indirect or consequential losses suffered". Thus in considering the application of the provision one would look at the Contract and consider what liabilities the contractors had assumed under the Contract and then inquire if any of these involved the Contractor for liability for indirect or consequential loss. Now it is certain that in Article 20 there is no express reference to it applying to indemnities and the indemnity provision themselves do not have any intrinsic reference to any limitation for indirect or express loss. I have considered if this could suggest that it was not intended to apply to indemnities. In this connection it is interesting to look at the British Telecom Contract. In that Contract in Condition 8.6 of the Conditions of Sale there is a specific exclusion of liability for "any consequential loss or damage whatever". It is thus notable that the term "loss", at least in that contract, is used as being capable of covering something other than mere damages for breach of contract for "damages" are listed as a separate item. Moreover the fact that the stipulations of Condition 8.6 are specifically declared to apply to the Contractor’s Indemnity does not signify much because the Contractor’s Indemnity is to be found in the Contract in Clause 10 of the Special Terms and Conditions. These Terms and Conditions are in a quite separate part of the Contract from the Conditions of Sale where Condition 8.6 is to be found. That means that if the parties wanted to make clear that Condition 8.6 was to apply to a quite distinct part of the contract it would be necessary to say so. Condition 11.1 of the Conditions of Sale contains another Indemnity relating to Infringement. In relation to that indemnity Condition 8.6 is not expressly applied. This of course is because the exclusion and indemnity in that case occur is the same section of the Contract.
In my view the effect of the references in the Contracts we are considering to the exclusion of all loss caused by indirect damage is to impose a restriction on the scope of the indemnities. What the Contractor is in effect saying is that he has given the Company an indemnity in respect of certain contingencies but only to the extent that he is not called upon to indemnity in respect of direct or consequential loss. This means in my view that when looking at the terms of the Indemnity in the London Bridge and Engineering Co Contract the indemnity is by its own terms restricted. There can be no doubt that before an indemnity gives rise to a material benefit to the Company the Company must have suffered "loss". There must be something equivalent to a liability to pay money or in the case of a claim or demand something which gives rise to a need to take action which would cause the Company to be out of pocket. Otherwise the indemnity would be meaningless. Thus the indemnities create a situation where the Contractors can be called on to give compensation for certain losses in the event of the contingency covered by the indemnities arising.
The pursuers’ main contention was that even assuming the limitations I have been considering apply to the indemnities the implementation of the indemnities by the Contractors can only be a direct loss. Certainly if a prescribed indemnity is fulfilled according to contractual terms it is difficult to see this as being other than a direct loss. I think that if Article 20 did not exist this would govern the position and what I have said earlier I hope sets out my reasons for believing this. However in my view except in the Andrew Carroll Contract provisions equivalent to Article 20 do exist and are applicable. It seems to me that there is a degree of circularity in the pursuers’ arguments. On the one hand they are saying that all they are asking for is implementation of the terms of their indemnity so that this must be a direct loss. So far so good. However their approach does not answer the critical question namely what are the terms of the indemnity? If the terms of the indemnity do not cover indirect loss then there is no point in calling a loss which is not covered a direct loss.
This must of course lead to a consideration of the meaning to be attributed to the references to indirect and consequential loss in the loss restriction provisions. The pursuers argue that the references to various financial losses in Article 20 support the view that the Article was only looking at the immediacy of a loss. At first sight I regarded this as quite an attractive approach because there is no doubt that the exclusions specified are generally losses that only arise as a consequence of the main loss such as where there is damage to property. If Article 20 had detailed certain specific losses such as loss of use, loss of profits etc. and then continued and any other indirect and consequential loss then it is possible (I put it no higher) then I might have been able to conclude that a reference to indirect and consequential loss would be qualified by the kind of losses that are specified. However this is not how Article 20 is set out. The primary statement of the exclusion is that of "indirect or consequential loss". What follows is simply a narration of certain types of loss which are included. However the pursuers cannot be saying that their indemnity will never cover losses such a loss of profits. That may be one implication of the pursuers’ case that causally indirect losses are excluded. If one looks at some of the other indemnities one finds for example that relating to Intellectual Property Infringement (Article 17.1(b)) that provides that the Company will be indemnified by the Contractor if the company suffers loss through any violation by the Contractor of copyright and similar intellectual rights. However in many if not all cases it would be difficult to imagine any claim against the Company that was not in essence for damages for loss of use of the copyright or for profit lost through the violation of the copyright. If such claims were not covered the Indemnity would have little practical content. However this difficulty disappears if Article 20 is construed to mean that not every loss of use claim is excluded but only such a claim as would fall into the category of indirect or consequential loss. Thus if the defenders’ arguments are well founded loss of use or profit would only be excluded if it were so remote that it could not be regarded as an ordinary casualty covered by the indemnity.
Even if there was any attraction in the view that Article 20 is only intended to cover losses that are not an immediate result of what underlies the victim’s claims I require to consider the application of the rules of contra proferentem. The terms indirect and consequential loss are almost terms of art. Since at least Koufos they have a clear meaning in relation to damages for breach of contract. There are at least a number of cases where judges have gone to breach of contract cases to acquire a meaning for the expression being considered even in cases which are not themselves damages cases for breach of contract. The views of Mr Justice Megaw in Wraight Ltd illustrate such an approach. Thus to put it no higher if at least there is a possibility from the terms of the Contracts that the parties were using the phrase "indirect and consequential loss" as its meaning was developed in cases such as Koufos then the defenders would be entitled to the benefit of that construction. I think that the phrase we are considering is open to the construction in question. Indeed it is difficult to find a construction more apt in relation to the terms of the contracts. I may say that I see nothing in the terms of the British Telecom Contract to justify arriving at a different conclusion.
The question therefore now arises if there is anything in the Contracts in question or the proved circumstances to bring the loss being claimed within the ambit of the exceptions for indirect or consequential loss. For reasons that I have elaborated on elsewhere I consider that it was perfectly foreseeable and a natural consequence of the indemnities that a pursuer might claim damages on the Texas scale. As I have already said the claimants clearly could come from a variety of countries and it must have been contemplated that some would seek to bring proceedings outside Scotland. Given the general likelihood that such proceedings could emerge I do not think it matters that it would be difficult to predict just where. Looking at the terms of the Contacts and the circumstances surrounding them the Contractors could have had no reasonable confidence that any claims advanced in the event of an accident would necessarily relate to Scotland alone. Apart form other considerations the contractors were likely to know that some of OPCAL’s employees, or agents (both covered by the indemnities) were foreigners and the identities of the participants were not even known. On the other hand simply because claim relating to another jurisdiction was made or an action raised in such a jurisdiction does not mean that jurisdiction would have been easy to establish. The contractors may well have considered with justification that an action raised outside Britain would not necessarily have succeeded. The terms of the Contract alone would suggest that OPCAL made some effort to establish their domicile in Britain and in fact we know from the evidence that Texas companies are keen to exclude any possibility that they would be sued in Texas. It seems plain beyond doubt that if one is a defendant in many circumstances, and particularly in reparation cases, it is not a good place in which to be sued. The state of the Contractors’ knowledge in relation to OPCAL’s connection with Texas was not entirely clear. The issue was not raised in the pleadings and much of the evidence on the matter is incomplete. Thus there was for example no evidence either from the pursuers or the defenders as to what may have been disclosed to the Contractors in the negotiations for the Contracts. Some of these at least appear to have had long-standing relationships with OPCAL. We do not know what questions may have been asked by the contractors before they entered into the Contracts. We know from the evidence that many of the Contractors were insured in respect of the indemnities and indeed I think it was made clear that the insurers have an interest in the present litigations. We do not know the terms of the relevant policies nor whether they expressly cover foreign claims and litigation. Of course just as an indemnifier may qualify the risks that will be covered by an indemnity so insurers may qualify the risk which they offer to cover. However there is one area of evidence which was lead by the pursuers in order to promote their case in relation to Texas jurisdiction. This was to the effect that OPCAL have sales agents in Texas and that all their oil sales are controlled from there. This information as I shall later explain would have had a very critical effect on the claimants’ prospects of establishing jurisdiction in Texas. To know that claimants may seek to sue you in Texas is one thing. To know that OPCAL are particularly vulnerable to being sued in Texas because they carry on part of their business there is quite another thing. If OPCAL had gone to the contractors and said not only might some claimant seek to sue us in Texas but it is likely that they will because they could establish jurisdiction were they to do so, the fact that OPCAL certainly considered themselves very vulnerable to Texas jurisdiction may well have caused the Contractors to ponder about granting the indemnity. The pursuers argued that it is all the one type of risk and that any special risk in Texas is just a matter of scale. I do not think this is so and cases of breach of contracts of sale can illustrate this. Thus it is within contemplation that if a supplier defaults the purchaser may incur liability to sub-purchasers. However if the sub- purchases are so valuable that they elevate the risk in relation to damages to a degree well beyond what might have been expected in the normal course of thing then the loss will be regarded as a different type of loss. For reasons we have already discussed the implications of litigation in Texas are especially serious for the person to be sued. Were it not for that the pursuers would not be able to justify the terms of their settlements. Thus an Operator who has an established vulnerability to being sued in Texas is an out of the ordinary risk. I think even on the limited evidence before me I can confidently conclude that the Contractors would not be aware of OPCAL’s sales arrangements in Texas. This does not seem to have been something that they broadcast. Even their attorney Mr Silva who had acted for them for years only found out about the sales’ arrangements some time into the settlement negotiations. Thus I think the loss involved in Texas enhancement of damages is of a type well beyond what the Contractors were thinking about when they entered into their Contracts.
On the other hand for reasons which I think I will have made clear above were it not for Article 20 and its equivalent I should have considered that the Contractors’ liabilities covered the added risk inherent in the prospect of Texas litigation. The Contractors would then have offered an indemnity plainly within the defined casualty to be covered. They would have to meet it. If they had concerns about it they would have had to obtain any information they required before entering into the contract. In contracts of insurance (simply another form of indemnity) the insurers cover the insured risk defined in the Policy even if it is of an unexpected sort. Of course in insurance the insurers have the protection of the rules about uberrimae fidei and non-disclosure and that is essentially how the insurer would deal with any serious information about the risk which was not disclosed. However not all forms of contract have rules relating to non-disclosure. Thus for example in guarantees to a bank it has been held that the guarantor can not complain if the Bank does not disclose information relative to the risk. This is on the principle that the guarantor should take steps to satisfy himself against the risk before deciding to issue a guarantee. The defenders did not argue that the rules relating to non-disclosure could apply to an ordinary indemnity although I do not think the this matter has been conclusively decided. Of course insurance may be special in that the policy proceeds on the basis of a proposal so that it may have been easier to provide a rule that a failure to provided all relevant information in the proposal is equivalent to a form of misrepresentation. In any event non-disclosure would have to be pleaded and proved for the onus is on the person who seeks to displace the contract and the remedy is avoidance of the contract. It therefore can be understood why the defenders sought to modify the indemnity in the Stena Offshore by reference to principles drawn from Hadley v Baxendale but as I have said this approach is not justified.
In conclusion then if the pursuers other than is Stena Offshore were successful in proving their right to recover under the Contractors’ Indemnity I would award them only Scottish levels of loss. This is because I consider that it an unusual and very material circumstance unlikely to be unknown to the relevant Contractors that not only do OPCAL conduct their business operation in the North Sea but that they control all their oil sales through Texas. That OPCAL should purchase goods in Texas and have contractual arrangements there is perfectly predictable in the oil world but that they should actually conduct part of their business there is mush less foreseeable. On the other hand if the Stena Offshore case were to succeed and I was convinced that the settlements had been proved to be reasonable I should award amounts inclusive of Texas enhancement values. Where losses are recoverable at Scottish values then I would consider that the Conclusions relating to expenses would require to be scaled down to reflect these values.
9.4 Construction of exception provisions in Indemnities
9.4.1 Parties’ General Contentions
It was contended by the pursuers that the onus of proving the sole negligence and wilful misconduct exceptions rest with the defenders. The defenders’ pleadings on the matter of the exceptions were said to be irrelevant but even were this not so there was no evidence to justify a finding in fact that the accident had been caused by sole negligence or wilful misconduct on the part of any of the parties to be indemnified . Once the pursuers have established that the accident had been caused by either breach of statutory duty or negligence for which the parties claiming indemnity were legally liable in civil claims then if the defenders want to rely on the exception provisions it is for them to establish their applicability. Reference was made to Walker and Walker - Law of Evidence in Scotland at p67 and to the maxim ei qui affirmat non ei qui negat, incumbit probatio. It cannot be expected that the pursuers are required to prove a negative. The defenders recognise the onus upon them by seeking to raise the questions of sole negligence and wilful misconduct in their pleadings. The defenders plead a case of negligence against the Operators but the also plead a case of vicarious negligence based on the alleged negligence of Robert Vernon, OPCAL’s servant. In any event the defenders’ reliance on the exception provisions is specifically pleaded as being dependent on the circumstances of the accident averred by the pursuers - that is to say an explosion caused by a leak from a badly fitted blind flange on PSV 504. Walker and Walker (supra) at p68 does not give a very conclusive answer to the question of onus as to the application of exception provisions . In Archibald v The Plean Colliery Company and Others 1924 JC 77 it was held that in a charge based on a statutory provision where an element was introduced by the word "unless" such element did not constitute an exception which the prosecutor was exempted from disproving but rather was a substantive part of the charge. It was claimed that in this case a distinction is drawn between a provision which is essentially an intrinsic part of the offence and one which is independent of it and thus may be considered an exception. In Chalmers v Speedwell Wire Company Ltd. 1942 JC 42 the effect of a phrase prefaced by "unless" was again considered. The appeal concerned the construction of a statutory Regulation to the effect that transmission shall be securely fenced "unless" certain specified circumstances obtained. It was held that the word "unless" was apt to introduce an exception to the general duty to fence the machinery. Lord Justice Clerk Cooper expressed the view that the first branch of the relevant subsection describes the genus of the duty incumbent on factory occupiers whereas the second branch prescribes an exception or qualification whereby a species within that genus is withdrawn from the generality of the opening requirement. In Nimmo v Alexander Cowan & Sons Ltd. 1967 S.C. (HL) 79 a statutory duty to make a workplace safe as far as reasonably practicable was under consideration and it was held that it was for the defenders to aver and prove that they had made the workplace safe as far as was reasonably practicable. In a dissenting judgment Lord Reid observes that the matter of onus is no mere technicality for the party on whom the onus rests must aver and prove the applicability of the exception. He further indicates that in the case before him he gets no assistance from the general presumption that a person is not required to prove a negative. Lord Wilberforce (also in a dissenting judgment) emphasises that it is a general principle that exceptions are to be set up by those that rely on them and the question is essentially if the words under consideration define the offence or do they provide the employer with a possible excuse or exemption. Reference was also made to Glenlight Shipping Ltd. v Excess Insurance Company Ltd 1983 SLT 241. In that case a driver drove a motor car into the sea off a ferry . He was drowned . The pursuers (his employers who were claiming under an insurance policy) claimed that he thought the ferry had reached the pier. The insurers repudiated liability. They claimed that the death was caused by a deliberate act and therefore was not an accident. It was also contended by the defenders that the death resulted from the deceased having wilfully exposed himself to needless peril (which was also an excluded contingency). The deceased had been drinking prior to his accident. The defence failed in both its branches. The view was expressed that exception clauses such as those in the case should be construed contra proferentem. However Senior Counsel for the defenders in the present cases contended that the relevant dicta were based on insurance cases and that the same rules do not apply to indemnity situations. In this connection the defenders referred to Sangster’s Trustees v The General Accident and Employer’s Liability Assurance Corporation Ltd (1896) 24 R 56. In Gorman v The Hand in Hand Insurance Company (1874) I.R. (XI CL) 224 the insurance policy provided that the insurers should be responsible for loss by fire "unless the fire were the work of an incendiary". It was held that the onus of proving that the fire was due to an incendiary fell on the defendants who sought to rely on the exception. Further in Munro, Brice & Co. v War Risks Association Ltd. (1918) KB 79 Bailhache J. followed the reasoning in Gorman. In the case Slattery v Mance (1962) Ll Rep. 60. Mr Justice Salmon, as he then was, expressed similar views. It was argued by the pursuers’ counsel that the general duty of indemnification was widely expressed and was owed as a separate duty to a number of persons. The use of the word "unless" points clearly to the provision of an escape route for the indemnifiers. The situation is one regularly found in insurance obligations. The defenders’ resort to the exception provisions is irrelevant because they have not averred circumstances which fall within these provisions as properly construed. "Sole negligence" means negligence exclusive to the particular party to be indemnified and does not relate to a situation where another party has also contributed to the loss by negligence. In the provision for "wilful misconduct" the requirement to observe " good and prudent practice" only relates to operations which are envisaged in the contract entered into with each particular contractor. This qualification should be given its narrow and literal meaning. The contracts containing the indemnities provide for the supply by the respective Contractors of a variety of clearly specified equipment and services. The services include winching services, diving services, catering services, the provision of services by safety operators, telecommunication services, and electrical work. In each case the work to be carried out under the contract is clearly set out and each category of work has its own well understood standards. If the parties to the indemnity contracts had wanted to apply the prescribed standards for misconduct to every operation on the platforms or other workplaces they could have readily widened the scope of the provision by stipulating "good oilfield and engineering practices". Pursuers’ counsel went through each contract in the seven leading actions and sought to demonstrate how each of the operations prescribed for the contractors in these contracts had statutory regulations, recognised codes of practice, specific contractual provisions or other clear means by which proper practices could be identified. The operation of the condensate pumps, and the general system of permits to work and handing over procedures, had nothing to do with the operations specified in the seven contracts.
It also has to be noted that in relation to the contractual provisions covering insurance there is a provision to the effect "All such policies may be suitably endorsed as to territorial and/or navigational limitations to include the entire scope of the operations contemplated by this contract". The question is does this reference to "scope of the operations contemplated by this contract" lend any support to the contentions of either party as to the meaning of the phrase in the definition of "wilful misconduct". It can certainly be said that a Contractor may be reluctant to insure for operations beyond his own job responsibilities.
The defenders for their part did not accept that the provisions about wilful misconduct or sole negligence in any way were exceptions nor that the onus of establishing these matters lay with the defenders. They do however accept that onus must be a matter of construction in each particular case and that I agree with. The position adopted by the pursuers was that what was provided for were blanket indemnities so that the matters I have referred to must be regarded as exception clauses or exclusion clauses or escape clauses. The defenders on the other hand claimed that what was set out were indemnities which contain inherent qualifications in the definition of their terms. The indemnities in favour of the Company it was argued are operative only when the relevant death or injury is caused or contributed to by negligence or breach of statutory duty of the Contractor in question. It was submitted that the fact that the terms of the indemnities do not expressly cover the Company’s negligence, but obliquely raise the matter of negligence by references to the indemnities operating irrespective of contributory negligence, opened up the question of construction.
On the matter of onus of proof the guidelines are quite clear . If a provision is intrinsic to the right conferred then the party seeking to establish the terms of that right in order to constitute a claim under it must prove it.. However if a general right is conferred and it is clear that there is an exception to that general right rather than an expansion of its intrinsic context then the onus would be on the party seeking to rely on the exclusion. Of course the problem lies not in defining the principles but in applying them and that is why the construction of each individual contract is paramount. In this case the answer on onus must to a degree depend on the relationship between the use of the phrase "sole negligence" and the phrase "contributory negligence" and I shall deal with the matter later in this chapter..
9.4.2 Wilful Misconduct
The pursuers argued that they could get help as to the meaning of the phrase "wilful misconduct" from certain authorities. They referred to Lewis v Great Western Rlwy Co. (1877) 3QBD 195. In that case the plaintiff, Lewis, entered into a contract with the railway company for them to carry cheeses at owners’ risk. There were two rates applicable to such contracts. A higher rate when the railway undertook the normal liabilities of carriers and a lower rate when the carriers were relieved of all liability except that arising from the "wilful misconduct" of the railway company’s servants. These servants packed the cheeses in a manner that caused them to be damaged during transit although they did not know that this would be the result of these packing procedures. The argument for the plaintiffs was that the packers by acting deliberately were guilty of wilful misconduct. Lord Justice Bramwell in his judgement in the Court of Appeal (at p206 ) stated "Wilful misconduct means misconduct to which the will of a party is something opposed to accident or negligence; the misconduct, though not the conduct, must be wilful. It has been said and, I think correctly, that perhaps one condition of wilful misconduct must be that the person guilty of it should know that mischief will result from it". The judge then proceeds to consider that knowing that mischief will result may not be an exclusive requirement if for example the wrongdoer does not know that what he is doing will cause mischief but acts out of blind indifference to the consequences of his deliberate act. Lord Justice Brett approaches the question from the point of view that the person guilty of the act must know that it is wrong.(p210). He seems also to accept that reckless conduct can amount to wilful misconduct. It was held in the case that the cheese packers had been guilty of wilful misconduct. I think the importance of this case is that it suggests, that the phrase wilful misconduct when construed without reference to specific definition will not cover conduct merely because it arises deliberately as distinct from accidentally or inadvertently, but requires that the conduct can also be categorised as wrongful - that is there must indeed be " misconduct". A reckless indifference to what may result can be such misconduct. An omission to act can be "misconduct" as well as an act. A Scottish case was also referred to namely Bastable v North British Railway Company 1912 SC 555. In this five judge case the Lord President in his judgment cast doubt on the correctness of Lewis. He did not like the expression wilful misconduct to be used as a term of art indicating a distinct category of wrongdoing and I can understand this. He preferred to fall back on the underlying Scottish principle of culpa and to see wilful misconduct, recklessness and negligence as being different aspects of actionable culpa. However it is recognised that there are significant qualitative differences in various manifestations of culpa. The Lord President seems to categorise wilful misconduct as gross negligence and that concept carries its own burden. There is definitely an important difference in degree between inadvertently colliding with another motor car and deliberately ramming it. If a party agrees to indemnify another in respect of his own negligence it seems to me quite reasonable to suppose in an appropriate case that the indemnity is not necessarily extended to the grosser forms of culpa such as what would in non-technical language be described as wilful misconduct or recklessness. If one does not regard Lewis in the light of setting out distinct torts but as giving guidance on what may be regarded as different degrees of culpa it may still be possible to derive some useful assistance from the case
However the cases I have looked at refer to how the phrase would be construed at common law. The question is where as here the phrase is given a contractual definition does that definition supersede the ordinary meaning of the phrase. The pursuers’ argument was that it did. The implication would be that if during a rigging operation a rigger deliberately ignored normal precautions and dropped a load on another rigger’s head that would be a departure from good and prudent rigging practice and thus be a deliberate violation of prudent practice connected with rigging. Even on the pursuers’ view the "wilful misconduct" exception would apply. On the other hand if the rigger intentionally hit another rigger over the head with a crowbar this would not violate any good and prudent rigging practice and the indemnifier would not be able to escape liability. I find this a peculiar result and the answer may well be that the contractual definition is not intended to be inclusive of all the circumstances giving rise to an exception but merely to make additions to what otherwise would be implied. As we know there is authority that in the absence of clear contrary indication an indemnity will not be presumed to be intended to cover the negligence of the claimant under the indemnity. That being so it is obvious that a similar rule of interpretation must apply to such grosser culpa as could be described as wilful misconduct. Thus although wilful misconduct in its undefined sense is not specified as being a ground of exception from the generality of the indemnity that generality would not in the absence of a contrary indication be extended to a party’s own deliberate act of negligence of such gross degree that it could be described as wilful misconduct anymore than lesser culpa such as carelessness of the party being indemnified would be covered in the absence of contrary indication. Moreover it is obvious that at least any implied exclusion of the indemnity would have to be averred and proved by the party who wanted to rely on it. A person claiming under an indemnity could hardly be expected to prove as a matter of course that he had not harmed someone deliberately. If the onus rests on the indemnifier in relation to implied exclusion it may be wondered why any extension of them by contractual provision should not give rise to the same result in regard to onus. In any event because it may be clear that a party is prepared to indemnify in respect of acts of carelessness it does not in my view follow that it must be automatically implied that the indemnity is being offered against wilful misconduct which implies a different degree of culpa.
In respect of wilful misconduct the pursuers seek to invoke the rule of construction expressio unius exclusio alterius and to use this rule to exclude any reference to wilful misconduct outside the contractual definition. However what is expressed in the contract are the parameters for misconduct arising out of departure from good practices or contractual observation and to that limited extent the rule may well apply.
I was also referred to Lord Justice Asquith’s definition of intention in Cunliffe v Goodman (1950) 2 K B 237 and the validity of this was not disputed. Thus to act intentionally one must intend to bring about a result which one is aware will be the consequence of the act.
It was claimed that the defenders had no averments setting out the source of any practice standards desiderated nor had they specified how the pursuers or the participants failed to follow such practices. The witness Fearon had been the only witness who purported to speak to standards of practice in the industry but his evidence had been objected to and led under reservation. The pursuers’ counsel contended that it did not follow that a departure from the operators’ prescribed practice was a departure from good and prudent practice. Thus the pursuers founded on the case of Horobin v British Overseas Airway Corporation (1952) 2 All ER 1016. That case, which is a single judge case, involved a direction to a jury that for there to be wilful misconduct it was not enough that the pilot whose conduct was under review in the case departed from the company’s rules because he may have had a reason for doing so and that reason may not have made his conduct an unsafe practice amounting to wilful misconduct. I have no difficulty in accepting that the mere fact that a worker on an oil platform departs from the Operators’ Safety Rules in itself may not be a departure from good and prudent practice although there would have to be rather special circumstances to give rise to exoneration in that situation. A worker for example could find himself in a situation where some departure from established practice was inevitable and the only question was what would be the least harmful course to follow.
The defenders complain about the supposed absence of proper induction procedures but do not specify why the provision of such induction is essential for good and prudent practice. For example the deceased Carroll was himself a trained safety operator and it is not clear why he should have required an induction course. The gravamen of the defenders’ case about permits to work was not that the pursuers’ system was defective as a system but that the operators had failed to implement their system. Moreover it was submitted that the exception referable to wilful misconduct cannot apply at all to the permit to work procedures since these procedures are concerned with general platform organisation and in fact do not refer to operations specified as being within the scope of individual contracts. The same applies to the defenders’ claims that the handover system was not effective and also to the cases based on a supposed failure to monitor and audit the permit to work and handover systems. Moreover there are no averments of what would be a good and prudent practice in the North Sea in 1988 in relation to the operation, monitoring, and auditing of permits to work and handovers. It was contended by the pursuers that the tests must be good and prudent practice in the Oil industry. Thus OPCAL’s practice cannot be assumed to be a measure of good and prudent practice in the industry generally. Nor can their lack of an established practice be taken to violate good and prudent practice. Thus the fact that OPCAL may not have monitored their permits to work or handovers has not been shown to be a departure from what was recognised as good and prudent practice on platforms generally. What is regarded as a reasonable compromise based on the practicalities of the situation may be acknowledged as good and proper practice in the industry although perhaps not the optimum practice. There was no evidence that it was normal or considered necessary to have such arrangements. There are many statutory regulations governing work on oil platforms. In fact the statutory regulation of permits to work apply only to "hot work". There is no statutory need to provide a permit to work system for "cold work". On the auditing and monitoring of handovers there are no averments to the effect that the pursuers failed to follow their own system nor is it said how the pursuers should have known that some other specific practice was required. Moreover the defenders have not specified what the rules or guidelines for handovers should have been. Any standard of good practice must be a comparative one applying to more than one party and the defenders have not set out such standards. Moreover as I have suggested desirable improvements in fact can be impracticable. Thus OPCAL and British Petroleum were each engaged in attempting to introduce job analysis systems but the Factory Inspector said this was causing each of them to be "bursting at the seams" The pursuers would have led evidence of their compliance with proper standards if they had been told what these were. The defenders complain that the employee Vernon failed to follow proper practice by subjecting a blind flange to on-line pressure without first pressure testing the flange. However the defenders failed to lead evidence of any practice of pressure testing blind flanges. It was submitted that it is for the defenders to aver what the proper practices associated with the relevant operations were. In any event before a departure from good and prudent practice can be said to be intentional and conscious a party has to be aware what the appropriate practice is. The conduct would require to be more than mere recklessness if it is to be judged under the specific exclusion (although recklessness might have been regarded as excluded by inference if this is averred). Moreover (it was argued by the pursuers) there are neither averments nor proof that the Participants showed any wilful misconduct and their claim to indemnification is a separate right which has to be assessed separately from anything the operators may have done. The Participants would have the possibility of claims against them as agents of the operators under the Joint Operating Agreement and accordingly it would make commercial sense that they should want separate and independent indemnities. I have already expressed the view that any interest the Participants may have in the indemnities is not a direct interest and therefore I do not think that it is necessary the Participants’ involvement in the accident need be pleaded. If any question of wilful misconduct arose it would be the conduct for which OPCAL must be accountable that would matter.
It was contended by the pursuers that for the defenders to establish that OPCAL itself had been guilty of wilful misconduct as defined in the indemnities in relation to permits to work they would have to show that they had acted contrary to good and prudent practice and that in addition their actings had been consciously and intentionally contrary to such standards. They would require to show (so it was argued) which particular person or persons were to be identified with the company itself so that it could be determined whether or not the relevant actings were carried out consciously and intentionally in their disregard of the alleged proper practice. If an employee deliberately departs from proper practice this is not a deliberate act on the part of the Company. Any misconduct on the part of the employee Vernon could not be attributed to the Company. The defenders have pleaded no relevant case of sole negligence or wilful misconduct on the part of any of the Participants. Moreover the pursuers also argue that in the definition of "wilful misconduct" the phrase "normally associated with the operations envisaged herein" refers only to the workscope set out for each individual contract. Thus for example in the Kelvin Catering Contract if OPCAL had deliberately not made proper arrangements for the operation of the kitchen and as a result a Kelvin employee had suffered an accident and sued OPCAL the indemnity would not apply since the exclusion of wilful misconduct would operate. On the other hand if OPCAL deliberately failed to take normal safety measures in relation to haulage and as a result a rigger dropped a load on the head of a Kelvin employee then according to the pursuers this would not be an accident caused by wilful misconduct as defined in the Contract. I must say that I find this an odd result and would fail to see the justification for making such an artificial distinction. The defenders distinguish between " Scope of Work" as set out in each contract and the "operations envisaged" which would be exploration for and extraction of oil under specific licences. This to me makes sense and indeed is the only construction of the Contract that does make sense. The Contracts differentiate between work and the operations. Moreover the activities on the platform are so interrelated in terms of safety that I cannot see why parties to the Contracts would expect that an intentional departure from prudent practice in relation to the work being carried out by the Contractor’s employee should be treated differently from a departure in connection with the general operations which causes an accident
With regard to onus of proof the particular kind of misconduct envisaged by the Contractual definition would not necessarily be covered by any implied exclusion of intentional misconduct. Thus if a defender wants to rely on a suggestion that a particular accident was caused by circumstances falling within the contractual definition my view is that it is for that defenders to raise and prove it. Once again it would scarcely be the intention of the contracting parties that the Operator should have the task of proving that there was no wilful misconduct. The defenders seek to counter this point by claiming that on an oil rig OPCAL would have the responsibility for investigating an accident and thus should be in a position to prove exactly what happened. However if OPCAL in their averments were simply to state that their inquiries did not suggest any intentional misconduct then if the defenders wanted to challenge this they would be expected to state and prove the basis of their challenge. It would perhaps only be in a rare case that the issue would even arise. If the issue was raised to apply to a general implied exclusion of say malicious or intentional misconduct then the indemnifier would require to aver and prove it. I cannot see why the position would be different when an amplified exception provision is found in the Contract. The reference to wilful misconduct in the indemnities is not in my view an extension of the intrinsic nature of the risk indemnified. It is a particular exclusion in relation to the general indemnity. Of course just what may satisfy any onus on the indemnifier will vary with the particular case. If the conduct causing the accident is such a departure from acceptable conduct as to suggest that the person causing the accident must have acted intentionally in violation of the rules then the onus would shift. The defenders’ case against Mr Vernon is that if his conduct caused the accident it fell exactly into the situation I have just mentioned. However if in the present case I found myself unable to say that it was proved that wilful misconduct on the part of OPCAL contributed to the accident I could not as the defenders suggested exclude the indemnity on the ground that it is just possible that there was wilful misconduct.
I have already mentioned that OPCAL has the exclusive right to pursue actions under the indemnities in respect of losses suffered by the parties for which it has stipulated indemnity cover. Thus if the wilful misconduct founded on by the defenders is attributable to OPCAL or parties for whom OPCAL must account in terms of the indemnity the indemnity will not operate. In relation to breach of contract the definition of "wilful conduct" excludes "any error of judgement or mistake made either in acting or failing to act by any director, officer, employee, agent, contractor or sub-contractor for the party to be indemnified provided such party acted in good faith". This seems to suggest that without special provision the definition applies to every person for whom the Company might have vicarious responsibility. There is some logic in that point.
Since the two specified exceptions "sole negligence" and "wilful misconduct" raise connected issues in the next sub-paragraph I have dealt with other aspects of "wilful misconduct" although the sub-paragraph mainly relates to sole negligence.
9.4.3 Sole Negligence
Some of the points developed by the pursuers while affecting the whole question of exceptions to the indemnity bear in particular on the question of sole negligence. Thus an incorporated body can commit an act of negligence if it is done by a person such as a director who is in effect the directing mind and will of the corporation. I was referred to Lennards Carrying Co. v Asiatic Petroleum 1915 AC 705. Moreover if a corporation acts through a person who is authorised to act as the mind of the corporation there is no question of the corporation being liable for these acts vicariously as being the actings of a servant or agent. The person who thus acts is the embodiment of the corporation itself and any guilt is the guilt of the company. (Tesco Ltd v Natrass 1972 AC 705 per Lord Reid at p.170). However sometime after first addressing me on the case of Tesco the pursuers drew my attention to a later case namely Meridian Global Fund Managers v Securities Commission (1995) 2 AC 500. In that case certain transactions in securities had taken place and the question was the degree to which these could be said to be the activities of the Company. In the case which originated before the courts of New Zealand the trial judge held that the knowledge of one of the perpetrators of the relevant transaction should be attributed to the Company because as a result of his position within the Company he was the "directing mind and will" of the Company. The New Zealand Court of Appeal affirmed that decision. In the appeal before the Privy Council in delivering the opinion of the Court Lord Hoffman explained the meaning to be attributed to the case of Lennards Carrying Company. The circumstances under which the acts of a natural person could be attributed to a Company were normally to be determined by reference to the rules contained in the constitution of the Company and also those normally implied by company law and the law of agency. On the other hand when literal application of these rules would defeat their intended application then it was necessary to devise a special rule to determine whose act or knowledge or state of mind was to be attributed to the Company. Although the description of the person as the "directing mind and will" of a Company did not have to be apposite in every case, knowledge of an act of a Company’s duly authorised servant or agent, or the state of mind with which it was done would be attributed to the Company only where a true construction of the relevant substantive provision so required. It was held that in the case the Court were considering, allowing for the construction to be applied to the governing legislation, the knowledge of a particular individual involved in the transactions could be attributed to the Company irrespective of whether he could be described as "the directing mind and will of the Company". The particular individual was in fact subordinate to another in the Company hierarchy. What the case is saying essentially is that you have to look at the reality of the situation. Moreover there seems to be a watering down of the identification principle set out in the Tesco case. However the Court is careful not to leave the impression that simply because an individual has authority to take a decision for the Company from that fact alone knowledge of an act can in all circumstances be attributed to the Company. The defenders placed weight on this case and argued that in the circumstances of the platform the Lead Production Operator had to be regarded as the management’s’ duly authorised representative in charge of production during his shift. In relation particularly to "sole negligence" the pursuers contended that a director of a corporation acting in the course of ordinary duties as the company itself does not render himself personally liable unless he has assumed that risk. The question of what natural persons are to be treated in law as being the company for the purpose of acts done in the course of its business is to be found by identifying those natural persons who by the memorandum and articles of association and as a result of action taken by the directors, or by the company in general meeting pursuant to the articles, are entrusted with the exercise of the powers of the company (Tesco supra per lord Diplock at p.p.199/200). Yuille v B&B Fisheries (Leigh) Ltd (1958) 2 Ll Rep. 596, Fairline Shipping Corporation v Adamson (1974) 2 WLR 824, Trevor Ivory Ltd v Anderson (1992) 2 NZLR 517, and Lee v Lee’s Air Farming Ltd. (1961) AC 12, are all cases which discuss the personal liability of directors for tort in situations where they are purportedly acting on behalf of the company. It follows from these cases that a corporation can be solely negligent. Yuille was a case where Lord Justice Willmer was sitting in the Admiralty Division with a Nautical Assessor. The case involved the responsibility of the managing director in respect of an accident in which his employers were involved. However the defenders concentrated particularly on a finding that an officer of the company was capable in law of being a joint tortfeasor with the company itself. I find no difficulty with this if it means as a generality that the fact that the individual officer of the company has personal liability does not exclude the possibility that the employer is also involved in blame for the delict However the case is special to the extent that considerations particular to the Merchant Shipping legislation are involved. It was also held that the managing director, knew or had the means of knowing, the defects of the vessels which contributed to the accident. Thus the employers had failed to discharge the burden of proving that the accident had occurred without their fault or privity.
The defenders referred me to Rainham Chemical Works Ltd (in liquidation) and Others v Belvedere Fish Guano Company Ltd. (1921) 2 AC 465. (which is quoted with approval in Yuille). Two Directors of the defendant company were also sued in their individual capacity. Lord Buckmaster said in effect that the Directors are not liable simply because they are Directors of the company but if the tortuous acts of the company were acts expressly directed by them then they will be personally liable. The principle in effect is that a director is also liable for his acts or omissions as a servant of the company. Fairline was another case where it was held that a plaintiff owed a duty of care which was not excluded by the fact that he was a director of the contracting company The point that the defenders wanted to make from these authorities is that there can be sole negligence on the part of a company. Thus a director who is personally responsible for an act of negligence not only renders that Company liable but also attracts personal liability on the principle culpa tenet suos auctores. However it was contended, I think with justification, that there could hardly be a case of sole negligence by a company without an individual servant or agent also being personally liable for that negligence. Thus if the phrase sole negligence were to be confined exclusively to negligence by the Company as the pursuers contend then in a personal injury or death claim it is difficult to see that the phrase would have practical content.
The defenders discounted the case of Trevor Ivory Ltd on the view that it was not really a personal injury case but a negligent misstatement case. There may well be a distinction in regard to piercing the corporate veil where the alleged wrongdoing is negligent in the performance of a contract which the company itself has contracted to carry out. At p. 524 of the report the President of the Court makes a distinction between the case before him and a personal injury case. Another distinction drawn is between the question of the director’s limited liability as a shareholder , and the liability to a third party
In deciding the foregoing matters it has to be recalled that the indemnities are being considered in relation to the worst offshore disaster in British oil production history. That was never envisaged by the contracting parties. In normal circumstance the indemnities might have been applied to questions such as a Contractor’s workman tripping over a wire and in that situation it is not at all strange that the management supervisor should bear the responsibility for the Company. It is hardly likely that in the normal range of cases the indemnifiers would only want to exclude liability for the sole negligence of the Managing Director. In any event for reasons which I have elaborated upon I consider that under the indemnity the Company would be accountable for any negligence sole or otherwise committed say by an employee or an agent.
In relation to the question of "wilful misconduct" the pursuers sought to persuade me that Mr Snape had been delegated by the Company the ultimate responsibility for Safety and that therefore only his actings could be held as being the acts of the Company. In any event it was contended that the line of Company responsibility would be drawn at some level of management above Mr Vernon. The pursuers argued that any liability the company could have as a result of the actings of Mr Vernon could only be on the basis of vicarious liability. In the circumstance of these contracts it is difficult to see how it could be intended that negligence of the Lead Production Operator would disable the indemnity but not his wilful misconduct even allowing for the fact there is a contractual definition. of the latter. The common sense intention is that the exceptions "sole negligence" and "wilful misconduct apply" (unless otherwise provided) to the actings and omissions of all those covered by the indemnities with OPCAL who might have caused the accident. Just as with sole negligence, in relation to wilful misconduct we have specification of another type of act that will exempt the Contractor from liability and in the application of the excluding criteria it is difficult to see why its application should be much more restrictive than in the case of sole negligence (or contributory negligence for that matter). In any event the criteria for triggering off the exceptions to the indemnities do not apply exclusively to OPCAL but to all those under its aegis for whom it may be claiming. However if I was wrong about this and the exception relating to wilful misconduct applies only to the misconduct of "the Company" then in terms of Lord Hoffmans’s observations in Meridian the question of whose mind or knowledge is intended to act as the mind of the Company is a matter to be decided in terms of the deed including its content and policy. In the case of the practical realities of the causation of accidents where even intentional actings are likely to be relatively spontaneous rather than premeditated it would be curious to exclude premeditated acts such as stipulated Company policy but not the direct misconduct of the supervisors directly involved in the accident. It is up to the Company to ensure that its supervisors (who after all are responsible for controlling those practices) are acquainted with the requisite good and prudent practices of the industry and then it is up to these immediate supervisors to put them into effect. The Company authorises its supervisors, who in the performance of production functions are in direct control, to act for it in putting its safety procedures into effect. In my view the policy of the indemnities is clearly that certain negligence such as contributory negligence due to say mistake or inadvertence will be covered but not deliberate departures from recognised safety procedures. It should be noted that Mr Vernon was regarded as part of OPCAL’s line management team and that he had specific responsibilities for safety. He administered the permit to work system when he was on duty.
The pursuers made what is a technical point against the defenders. They base their argument on the terms of averments by the defenders in each case to the effect that if the accident was caused by a leak at PSV 504 then the death or injury to the workman affected was "caused by the sole fault et separatim wilful misconduct of the pursuers". Pursuers’ counsel demonstrated how at other points in their pleadings the defenders differentiate between the pursuers and the Participants. Thus, it was argued, the defenders have not pleaded any case that the Participants were solely negligent. Thus it was said there is no case to the effect that the Participants fall within the ambit of the exception provisions in respect of their own share of any loss suffered. This was emphasised by the fact that Mr Vernon was said to be an employee of the pursuers but neither a servant nor agent of the Participants. The pursuers are certainly correct to the extent that the defenders do not claim that negligence on the part of Participants directly caused the accident. but for reasons which I have already given they do not in my view require to. They argue that there would be no basis in law for attributing any negligence on the part of Mr Vernon to the Participants. Thus if an accident had been caused exclusively by Mr Vernon’s negligence the injured party could not sue the Participants in respect of res inter alios acta. All that really does not advance their submission. The pursuers’ arguments of course as I have already expanded upon have to be viewed against a situation where only OPCAL were the parties contracting with the Contractors and it was specifically provided that OPCAL alone would have the title and right to bring any actions affecting the interest of the Participants. The views I have been expressing here would apply equally to the question of wilful misconduct and for which individual’s activities the Company would require to accept responsibility for. If my views on the foregoing matters were not correct OPCAL would have been able to arrange their affairs so as to escape the excluding circumstances and this could never have been the parties’ intention. Moreover since a Company can only act through its authorised personnel if say an accident was caused by the negligence of one of OPCAL’s servants if the pursuers are right and a servant is to be regarded as a separate "party" the concept of "sole negligence" would be entirely defeated because there would be negligence of two distinct parties.
9.4.4 The Need for Negligence or Omission on the Part of the Contractor
It was a fundamental aspect of the defenders’ construction of the Contractor’s indemnities that before they operate the Contractor must be at least partly liable in law for the accident.
In addressing this submission the defenders first considered the position in the London Bridge Engineering Contract. It was of course said that the indemnity does not expressly refer to it being operative in the event that it is caused by the contributory negligence of OPCAL. The words used are " irrespective of any contributory negligence". These words suggest a link between the first part of the indemnity and the references to "sole negligence etc." Thus, it was said, the first part of the indemnity cannot be construed on its own as a distinct indemnity qualified by later words. The phrase " irrespective of any contributory negligence" must be construed on the basis of the juxtaposition of "sole" negligence. This I think is in a sense correct. This is not a case where the indemnity covers negligence but a particular aspect of negligence is thereafter exempted. In relation to an exception there is a generality stated and then the exception is regarded as a particular instance of the generality which is excluded. The approach here seem to be that the indemnity begins with a generality namely that all claims resulting out of death or injury to the Contractor’s employees will be indemnified. However that generality is in itself the subject of a practical exclusion for it will not be supposed that such an indemnity is intended to cover a loss .brought about by the negligence of the indemnified person unless it is clear that the parties intended such to be the position. In this case the parties have chosen to reinforce that general position to a degree by providing specifically the indemnity will not operate if the occurrence is due to the sole negligence of the Company. On the other hand it is provided quite clearly in my view that the indemnity will operate if the negligence of the Company was not sole negligence but rather contributory negligence. The way the two types of negligence are juxtaposed make it perfectly clear in my opinion that one is meant to be the counterpart of the other. In most situations that I can envisage if the Company was negligent that negligence would either be sole, or contributory to an accident where the negligence of another was a factor, and this is what the indemnity is reflecting. Contributory negligence is excluded from the normal approach to the negligence of the indemnified party as seen in some of the cases above. To that extent the reference to contributory negligence is an enlargement of the indemnity conditions. Sole negligence, the obverse, follows the normal rule and is excluded from the indemnity. If the Company settles claims against it by an employee of the Contractor then it would require to show that there was an obligation to meet the claims. This would firmly be the onus of the Company and in many cases the Company would have to show it was negligent in causing the accident to justify settling the claim. This is indeed what has happened in the present actions. In that situation then prima facie the Company alone is negligent and the indemnity is excluded. On the other hand there could well be a case where the Company has liability to the claimant because of a statutory liability of an absolute sort that does not involve negligence. If the statutory liability was shown by the Company to exist as a reason for settling the claims then the Contractor could still claim that the indemnity did not apply if it could establish that the Company was negligent and so liable at Common law as well as under statute. It makes sense that the Contractor would have to aver and prove how the Company were negligent since it would be difficult for the Company if it was required to disprove every possibility of its own negligence. If it is not shown that there was some negligence on the part of the Company (as could prima facie be the position in a statutory claim) then the question of contributory negligence would not enter into the affair. However once negligence of the Company is established prima facie the indemnity does not apply and if the Company seeks to show that this is a situation where the extended indemnity would operate because the Company’s negligence was contributory negligence the onus of proving that must be on the Company. Again it would not be realistic to expect the indemnifier to prove a negative, that is that no other party was negligent. Of course once evidence is out without objection the onus rather takes care of itself. It can also shift as evidence emerges. My analysis so far still leaves open the questions "sole" in relation to what and "contributory" in relation to what. However what I have said relates so far as it goes not only to the London Bridge Contract but to the others. It has to be noticed that what I have said means that in relation to contributory negligence at least there is effectively specific provision for the application of the indemnities in that situation and this takes the present case on its facts out of the constructional difficulties that arose in some of the cases I have referred to above. In particular the facts in these cases are materially different from E. E. Caledonia where the indemnities contained no incorporation of negligence. Thus in effect the issue of the onus of proving "sole negligence" is rather an artificial question. If there is a claim under the indemnities the indemnifier would have to show that this claim was prompted by negligence on the part of the indemnified party in order to defend the application of the indemnity. Then the indemnified party would require to invoke the particular inclusion of contributory negligence. If the indemnified party can show that any negligence on his part was contributory negligence then the issue of "sole negligence" becomes superfluous since there could not be sole negligence if contributory negligence is established - at least in the view I take of the matter..
9.4.5 Contributory Negligence
The meaning to be given to the phrase "contributory negligence" as it is used in the indemnities is one important key to its construction. The defenders argued that the phrase did not simply mean negligence which contributed to the accident. They submitted that the common use of the phrase in connection to the Law Reform (Contributory Negligence) 1945 is in relation to a pursuer whose fault has contributed to his accident along with the fault of the defender. Thus in Robinson v William Hamilton (Motors) Ltd 1923 SC 838 at 841 Lord President Clyde said "The technical meaning of ‘contributory negligence’ is negligence on the part of a pursuer which is itself jointly causative of the accident along with the negligence of the defender" That definition expresses what is well known. The defenders however contended that the phrase is sometimes used to describe contribution among joint wrongdoers. That may be so but I do not think it could be described as a term of art when used in that way. The defenders went on to submit that there would be little content in the phrase if it meant simply any negligence that contributes to an accident. I find some difficulty in following that. If the phrase is not used in its strict technical sense what else can it mean other that negligence which contributes to the accident unless there is material to justify another meaning. Certainly it is difficult to suppose that in the indemnities the phrase is used in its strict technical sense. On the other hand the word contributory I think is clearly understood to mean that the negligence contributing is not the only cause of the accident but is merely contributing to the fault of others in the causation of the accident. If the Company was sued by an employee of the Contractor and that employee (who would be the pursuer) had contributed to the accident the Company would be able to avail themselves of the indemnity even if they were found partly at fault (as they would require to be if there was to be any valid claim against them). On the other hand if the Contractor was brought into the action as a joint defender with the Company and the two defenders alone were found at fault that would not be contributory negligence in the strict sense and the indemnity would not be available were such a prerequisite. Such a result does not make sense and could not have been intended. On the other hand if contributory negligence is given a wider meaning to cover joint delinquents then there would have to be a good reason for applying it to one kind of joint delinquent but not another. The defenders submit that the phrase is intended to be confined to the position where along with the Company the negligence of the Contractor has contributed to the accident. In fact the defenders extend the matter because they say that there would also be contributory negligence if the Contractor merely had shared responsibility because of statutory liability not involving negligence. The defenders seek to link their construction with the insurance provisions and they argued that if the pursuers construction was right they would be imposing a liability on the Contractors not covered by the insurance provisions. If that reasoning is correct it would mean that OPCAL would get no cover at all under the indemnity if the contractor’s workman contributed to the accident but he had no claim against the Contractor. It is only if he had a claim against his employer that Employers’ Liability Insurance would arise. I think that Employer’s Liability Insurance is a legislative requirement providing for insurance by employers in respect of their liability to their own employees. The Employers’ Liability (Compulsory Insurance) Act 1969 obliges every employer to carry insurance covering his own workmen. It might be somewhat odd if the Contractor provided a workman who contributes to the cause of an accident but the Company do not include this contingency in the indemnity. In any event even if the Contractor had by his fault made some contribution to the accident if OPCAL were also negligent the injured employee might choose to proceed only against OPCAL who might then seek relief against the Contractors say by involving them as a third party. The pursuer might choose not to make his employers co-defenders. However in that situation it may be doubted if the Contractor’s insurers would pay more than what was strictly due to OPCAL by way of contribution. That would represent the only loss of the Contractor. This may be a small proportion of the loss. If the indemnity were nevertheless to apply (as under the defenders’ arguments I believe it would) the Contractor would have to indemnify OPCAL for the balance of the loss but would not be protected by that insurance. Its liability to OPCAL would arise out of the indemnity contract not out of any obligation to its own workman. I find it difficult to accept that the provision about the Contractor having Employer’s Liability insurance is designed primarily for the protection of the Company. On the other hand it is designed to protect the Company in the sense that the Company has a statutory obligation to ensure that contractors working on an offshore platform have Employers’ Liability Insurance. This is hedged with criminal sanctions. It arises under the said Act and the Employers’ Liability (Compulsory Insurance) General Regulations 1971 which was in force through 1988 as well as special regulations namely the Offshore Installations (Application of the Employers Liability (Compulsory Insurance) Act 1969) Regulations 1975 which apply specifically to offshore platforms. The Regulations require the employer to maintain insurance for £2 million for any one occurrence. Moreover the owner of an offshore installation requires to have on the platform a copy of the certificate of insurance confirming the Employers’ Liability Insurance. Mr Sprague made the point that Employer’s Liability Insurance could never have benefited the Company and such a policy would never have been issued for the joint benefit of the Company. Apart from other considerations an insurance company would not have regarded the Company as having an insurable interest. The above Act and regulations certainly give sensible content to the Company’s requirement that Employers’ Liability Insurance be maintained by the Contractor and also to other requirements in the Contracts about the provision of certificates. Moreover actions by the Contractor’s employees against OPCAL may well arise where even apart from the question of OPCAL’s interest questions may be raised as to whether the occurrence would fall within the scope of Employers’ Liability insurance at all. An injury incurred within the platform cinema may be such an example. Thus if OPCAL are intending to secure reasonable cover under their indemnities it might be surprising if the indemnities were not wider in scope than the insurance provisions affecting employers’ liability.
In relation to the public liability insurance one finds that there are important differences between the cover in the indemnities and the cover prescribed for the insurance. Thus whereas the third party indemnities are related to acts or omissions of the Contractor the public liability insurance is related to incidents arising out of the performance of the work. However at best this is a minor indication of intent. In the Eastman Christensen Contract there is an indemnity limit of £1 million in connection with the work, there is no specified limit for third party injury and property damage and yet there is provision for insurance for £5 million covering the latter. In fact it is difficult to see in the insurance provisions the neat correspondence between indemnity and insurance which the defenders seek to invoke to support their hypothesis.
The defenders argued that their construction has the advantage that it only exposes them to risks that are within their own control. However that may be a fairly neutral point. If the employee of a Contractor is injured because of the fault of an employee of another contractor OPCAL may be exposed to a claim under an absolute statutory liability so they too must deal with what is in realistic terms outwith their control. Indeed since the Contractor’s employee is the Claimant he could feasibly have a statutory case against his employer and that could give rise to a claim through circumstances beyond the Contractor’s Control.
The defenders make a further point that it would be difficult for the Contractor to investigate whether or not there had been contributory negligence. OPCAL control the platform and they alone are in a position to investigate the involvement of a third party to the Contract. However the Contractor may have to fulfil the onus of showing that OPCAL were negligent in relation to the accident. If the employee of one Contractor sued another Contractor the same sot of problem as the defenders mention would arise. The onus of establishing Contributory negligence would as I have said fall on the Company and they would have to give notice of the facts they relied on. A further consideration is that in terms of the indemnities the Contractor in appropriate cases would have to take over and defend the Company from claims. If the Contractor has that responsibility in practice under the pursuers’ submissions there would normally be little practical difficulty. The Contractor would take over the defence of Company unless the investigation consequential upon looking at the defence to the claim were to suggest that the Company had caused the occurrence by sole negligence or wilful misconduct. In terms of the defenders’ construction before the Company could even insist upon the Contractor taking over the defence of the claim they would have to establish against the Contractor that the Contractor had contributed to the accident by negligence. This does not seem a very practicable arrangement for parties to have accepted. However it is a matter of degree because however the indemnities are construed there is room for practical difficulties.
The defenders further argued that the pursuers’ case amounted to claiming a blanket indemnity unless sole negligence or wilful misconduct arises. This according to the defenders could produce a situation where the pursuers were seeking an indemnity for reckless conduct or even deliberate injury on their own part. It was suggested to me that these forms of conduct are qualitatively different from negligent conduct and I was referred to the unreported case of Ewan Graham Kennedy and Others v Glenbelle Ltd and Charles Scott & Partners which was decided by the First Division on 12th January 1996. I am prepared to accept that submission although each area may well shade into the other. Given the Courts reluctance to assume that an indemnity covers the negligent conduct of the indemnified party then I think it must be assumed that the deliberate, malicious or even reckless conduct of the indemnified party must be excluded in the absence of express provision to a contrary effect. I do not think the pursuers’ submissions were intended to suggest otherwise. I think the specific exclusion of sole negligence in the Contracts was to make it clear that in including contributory negligence in the indemnities the indemnifiers were not wholly waiving the normal assumption that they were not covering the Company for its own negligence. In respect of wilful misconduct the Indemnifiers were seeking to exclude conduct carefully defined which might not fall under any implied assumption that wilful misconduct would not be indemnified.
The defenders submitted that the relevant provision should be read " we will indemnify you and the indemnity will operate under certain conditions irrespective of any contributory negligence on your part unless that contributory negligence amounts to sole negligence or wilful misconduct". This gives a very curious meaning to contributory negligence; indeed one which offends any plain reading of the phrase. From the very submission of Defenders’ Senior Counsel it requires "sole negligence" to be read as a type of "contributory negligence". Of course the argument is that "contributory negligence" means "contributing to the fault of the contractor" but if the contributory negligence is sole negligence on the part of the Company then the indemnity will not apply. This it was said could arise if the Contractor was liable to compensate for statutory reasons not linked with negligence but the Company were contributing because they and they alone had been negligent. To me this seems a very tortuous way to describe contributory negligence and in the absence of other strong support in the Contract for such a view I would not even be prepared to regard that construction as a serious possibility.
The defenders found it difficult to see why the Contractor who was not himself to blame for the accident would want to indemnify OPCAL against loss if the occurrence was due to joint fault between OPCAL and another contractor. However the matter is not entirely irrational. OPCAL may take the position that they will undertake responsibility for the injury or death of a Contractor’s workman if it was caused by circumstances solely within their control and sole negligence would be an example of this. On the other hand if the acts of a third party have also been a cause of the accident then OPCAL may not have control of the situation. For example they do not select the third party’s employees. In such circumstances they may not want to have any responsibility for the loss to the Contractor’s employee. The defenders submitted that some help in the construction of the London Bridge Engineering indemnity covering Contractor’s employees can be derived form other indemnities. Thus it was said that in the third party injury and property damage indemnity (which is Article 17.1d of the Contract) there is specific provision that the occurrence must arise directly or indirectly out of the act or omission of the Contractor or its subcontractors. This, it was claimed, shows that the Contractor only intended to indemnify if he himself had some liability. It was contended that Smith v Chrysler was authority for the view that a provision in an indemnity can take flavour from other indemnities in the Contract. Of course in the indemnity being considered we are dealing with, for example, damage to the property of a third party. There would be no link with the Contractor unless the Contractor had contributed to the loss. The Contractor may be prepared to take responsibility for loss suffered by his own employees even if he has not contributed to the accident but loss to third parties would be quite different
The defenders submitted that in relation to "contributory negligence" in the long preamble to the Contracts the construction which they advocate gains support from the terms of the preamble. This point of course must depend on the contention that the two paragraphs in the preamble are linked and I have discussed this.
The defenders discussed the Northern Industrial Marine Service Company Ltd Contract as one of the two Contracts where there is a specific definition of "sole negligence". This definition of course has a bearing on what meaning is to be attributed to "contributory negligence". They contended that the presence of that definition does not affect their approach to the indemnities. I have already expressed a view on the construction of sole negligence. The clause has to be construed in terms of its plain language since there are no other comfortable constructions available. If the Contractors had wanted to say what the defenders suggest it would have been very easy to do so in better focused language. Thus this clause reinforces the pursuers’ view of the indemnities. It demonstrates that the pursuers view of "contributory negligence" can fit in easily with the express definition that the two Contracts contain.
The pursuers point out how awkwardly the defenders’ construction of the core indemnities sits with the part of these covering claims of damage to the Contractor’s property.(to be found in most of the Contracts). The Contractor has to hold harmless and defend the Company against claims and demands. Given the wording of the indemnity it could hardly have been intended to cover claims by the Contractor against the Company itself. In any event the Contracts contain provisions for allocating responsibility between the parties for loss and damage to the Contractor’s or Company’s Property in various situations. Thus the only reasonable explanation of the core indemnity provisions concerning claims arising from damage to the Contractor’s property is that the indemnity was intended to cover situations where the Contractor sues a third party for property damage and the third party brings in OPCAL as a third party either in terms of OPCAL’s statutory obligations or because they have allegedly been negligent. In such a situation I should expect the reference to contributory negligence to cover the situation between the third party and OPCAL. It would of course be possible that the Contractor would be additionally partly liable in negligence for the damage to its own property and according to the defenders if that happens (and that alone ) OPCAL could recover any contribution it requires to make to the third party. However this result would require a rather rare combination of events and it would be odd if this was what prompted the indemnities covering the Contractor’s property. The points about property indemnities are not in themselves conclusive but demonstrate again how awkwardly the defenders’ construction sits with what the indemnities actually provide.
Moreover there is an inconsistency that arises in the defenders’ construction of the phrase "contributory negligence". The defenders seem to be arguing that there could be contributory negligence if one party simply has statutory fault without negligence. On the other hand statutory fault by one party would not count if the other party was charged with sole negligence.
It should also be noticed that the indemnities are not designed to regulate claims for damages by the parties against one another but rather indemnification in respect of claims by third parties against either of the parties. Matters such as the contributory negligence of a third party are likely to be important in many claims.
The defenders argue that in the cases where there is a double indemnity in the preamble their arguments acquire even more force. I have already mentioned their contention that the second branch of the preamble must be governed by the first paragraph. In the case of the Wood Group Contract this is not reconcilable with the fact that the second paragraph is specifically stated to be an addition to the provisions of the first and indeed this can be seen when the individual indemnities are read. However even without these words it is in my view clear that what follows after the first paragraph are alternative supplementary provisions. The first paragraph confers a wide indemnity and it is in favour of the Company. It does not refer to specific situations and it indemnifies for any loss caused when the Contractor is at fault. It also provides for the Contractor indemnifying if it contributes by its fault to a claim and there is no reason for construing contribution in that context as excluding situations where the other contributor is a third party. If the reference to contribution is intended to be confined to situations where the Company is the other contributor then the drafting of the provision seems singularly inept. The second part of the preamble would be unnecessary if it did not add to this. It is not prejudicing what appears in the first paragraph but amplifying it. Looking to the defenders’ approach if the Contractor’s "omission" contributes to the claim against the Company the Company is to be indemnified. According to the defenders’ argument an omission would cover a statutory liability so in the long preamble cases prima facie the Contractor would be due to indemnify if there was a statutory liability. The defenders have the Contractor in fact qualifying this right not in the core indemnity in the preamble but in the added specific indemnities. First the indemnified party is given a specific addition to the indemnities in respect of contributory negligence. Now if this is construed to omit the negligence of a third party it must mean that contributory negligence can nevertheless arise when the only other contribution is non-negligent statutory responsibility. Otherwise the specific provisions introduced by the second paragraph of the preamble would be contradicting the provisions of the first paragraph if "without prejudice" means what the defenders say it means. Thus in the case of statutory liability without negligence if contributory negligence is to have any content it would have to refer to such negligence of the Company as contributes to the statutory fault. However if that view is taken then it is difficult to see how there could ever be sole negligence. The defenders’ interpretation of the long preamble simply does not add up. Their construction if that is what the parties to the Contracts wanted could have been set out in a straightforward manner instead of being obscured by phrases which are awkward to the situation and definitions that do not fit in well with what is supposedly aimed at. Moreover as I have said the obvious construction is to take sole negligence as being the obverse of contributory negligence. If that view is taken and the phrases are given plain meaning then the whole spectrum of negligence that might affect the situation between the parties is covered . Of course if the first paragraph of the preamble is a separate indemnity a question must arise as to whether "omission" does in fact cover non-negligent behaviour. My own construction would be that negligence or omission when paired together refer to negligence by act or omission. Were this not so then a question would arise if there was purely statutory omission by the Contractor and sole negligence on the part of the Company. The first paragraph make no exclusion in respect of sole negligence. Of course if omission means negligent omission then sole negligence would never arise. There are indications that the parties did not want to rely on a prohibition against implied negligence in these contracts where there are provisions about indemnity for damage to the oil well and all negligence by OPCAL is excluded. The approach of the defenders leaves it to implication what is to happen if OPCAL bears a small proportion of the negligence attributed to them and other third parties are co-defenders notwithstanding that the Indemnities bear to deal specifically with negligence by the Company. It also has to be noted that some of the specific indemnities refer to situations where the Contractor clearly has responsibility for any loss such as breach of the law. In others such as Third party Injury and Property Damage the involvement of the Contractor is not left to what is stated in the first part of the preamble but the Contractor’s precise role in the claim which is a prerequisite of liability is spelt out. These requirements do not coincide with what is set out in the first part of the preamble. It is thus a separate indemnity that has to be considered according to its own terms. Of course what is in the preamble is reserved as an alternative by the words " without prejudice to".
On the other hand unlike the situation affecting third parties there is in relation to the Contractor’s employees no such involvement by way of an "act or omission" prerequisite imposed on the Contractor. If the parties had wanted to make it a condition that the Contractor’s indemnity in relation to their own employees only arose if they had contributed to the accident by their own negligence then in accordance with the general scheme of the indemnities it would have been very easy (and important) to state this is clear terms. It is the defenders who are seeking to import it although the question then is why was the supposed need for some act or omission by the Contractor not specified as was the case in relation to the indemnities affecting third parties. It should also be noted that the indemnities given by the Company do not have the long preamble so that they would have to be construed without reference to the first paragraph. It seems intrinsically unlikely that "contributory negligence" in the Company’s indemnity could have a different meaning as between the Contractor’s indemnities and the Company’s indemnities . If the specific indemnities are to be construed consistently and as independent indemnities irrespective of the first part of the long preamble, as I think they require, this would leave the position in my view that the Contractors have to indemnify for every claim against OPCAL stemming from employees of the Contractors unless it emerges that the claim was derived from OPCAL’s sole negligence (meaning the Company’s negligence alone as that phrase would normally be taken to mean) or wilful misconduct or implied exclusions such as intentional act. Thus at the end of the day I consider that the indemnities with the long preambles do not confine the later specific indemnities to what is set out in the first part of the preamble. That being so I do not think that these indemnities are materially different to those in other contracts and I can find no warrant in any of them for construing "contributory negligence" as meaning other than its normal meaning as a contribution to an accident by way of negligence shared with another or others - in other words the opposite of "sole negligence".
9.5 APPLICATION OF EXCEPTIONS
In my view of the cause of the accident, although the negligence of Mr Vernon was a material cause of the accident, was not sole negligence in terms of the exception clause. On the contrary it was contributory negligence and as such incorporated in the contingencies subject to indemnification. Given my views on the cause of the accident the question of sole negligence really boils down to the construction of the indemnity and I have dealt with this.
The application of the clause excluding "wilful misconduct" raises distinct factual issues since in my view the defenders require to prove that the accident was caused by wilful misconduct within the meaning of the clause. Of course had it been proved that Mr Vernon must have been aware of the fact that PSV 504 was not in place, then that would have been conclusive. Mr Vernon obviously can be assumed to have known that the injection pump is not pressurised if the pressure safety valve is not in position. It was clear from the evidence that all the production operators were well aware of this. It follows that if he had jagged the pump in the knowledge that the safety valve was not in place then he intentionally departed from what was good and proper practice. To bring about an accident by a deliberate violation of a known safety rule would be excluded from the indemnity even if it did not contravene the precise terms of the specific exception. In any event if a safety procedure is obviously necessary if a distinct danger is to be avoided then I consider that it can be assumed that to violate this procedure is contrary to the good and prudent practice of the industry. It could hardly be consistent with such practice.
The defenders argued that once a permit to work is issued the Lead Production Operator is responsible for ensuring that no other activity which may affect the safety or security of the approved task may take place. I think this would be accepted by the pursuers. It was said that if there was a conscious departure from the permit to work requirements then there would be a departure from good and proper practice. It is the case that the permit to work procedures are intended to regulate dangerous operations. In general the defenders’ contentions on this matter too would be justified although there may be grey areas around the margins. Moreover at least in relation to hot work permits a permit to work system is not merely a normal incident of safe practice in the industry it is a statutory requirement. The defenders also contended that if somehow Mr Vernon had failed to be in a position where he was aware of the absence of the PSV this could only have happened because the Company itself had permitted departures from the strict systems. The defenders were at pains to point out that the question of wilful misconduct must not be judged on the strength of one individual aspect of the case but on the accumulation of factors. They submitted that if Mr Vernon had allowed himself to get into a situation where he was unaware of the missing PSV then this must be because the Company by creating an atmosphere of slackness induced him not to act with appropriate care. Thus Counsel reminded me that there was to be a full Safety Audit including the permit to work system in 1986 but it was never carried out. It is perfectly true that this audit had been postponed although there had been other audits of a less comprehensive nature. Thus Texaco carried out a safety audit on the platform in 1987. There was a problem with availability of personnel to conduct the audit. This may or may not have been excusable but it is quite a leap from that to say that if the audit had been effected Mr Vernon would have known that the Safety Valve was absent at the point of time when he required that information. Obviously something went wrong on the night of the accident and Mr Vernon must have been negligent for that to occur but this falls far short of proof of the kind of recklessness or deliberate misconduct which the defenders urge me to find established. Whatever the defenders say the pump had been put out of action for maintenance and indeed it was expected that the Voith coupling would be repaired on the night of the accident. Despite some distinctly vague evidence that it would always be possible to bring a pump back from maintenance it is not difficult to suppose that information that the PSV was also being calibrated might not have much impact on an incoming Lead Production Operator. If he did not concentrate on the information it might be a mistake but I doubt if it was a deliberate decision to violate a safety procedure. We do not know if Mr Vernon carried out a general inspection on the night of the accident. Even if he did there may have been more apparently significant matters to occupy his attention than the rather dense piping in the area of the PSV 504 which was apart from the major production facilities. As for the scaffolding we were told that this was to be found all over the platform and might well not have been considered worthy of attention by a lead hand doing a routine round.
Auditing and monitoring of safety measures was obviously an important matter and I would not like it to be thought that I would excuse any inadequacies in regard to these procedures. However the problem is that I do not see how it could be inferred beyond reasonable doubt that if the Company had better monitoring or audit arrangements then the accident would not have happened. The point is that in the circumstances of this case it cannot be assumed that Mr Vernon’s state of mind had anything to do with the inadequacies in the pursuers’ systems.
For reasons which I have expanded upon above I do not accept the defenders’ submission that the indemnities are only triggered in circumstances where the Contractors themselves bear at least part responsibility for the accident. There is no presumption that in an unqualified indemnity an indemnifier is only taking responsibility for his own negligence and the present indemnities do not say this. I consider that the Company would fall to be indemnified if claims are made against it in respect of death or injury to the Contractor’s personnel (subject of course to the exceptions). It would also be able to recover if such claims were made against parties such as the Participants in respect of whom OPCAL have reserved rights and responsibilities. Normally an indemnifier would not be presumed to have granted an indemnity covering the negligence of the indemnified party. Other similar situations such as reckless or malicious conduct would by implication be excluded by the same principle. However in the present cases the Contractor has assumed responsibility for indemnifying if the Company by its own negligence has contributed to the accident although it has expressly excluded (in accordance with what would have been the normal implication) sole negligence. The reference to "contributory negligence" is not to be restricted to a contribution to the negligence of the Contractor but is to be taken to cover any situation when a party other than OPCAL or its associated components also has contributed to the cause of the accident by negligence. It would normally be the subject of implication that the indemnity would not cover loss by the wilful misconduct of the indemnified party but the Contractor has supplemented this exclusion in respect of certain defined misconduct.
The pursuers would have the primary onus of showing how the accident occurred. Otherwise it could not be contended that any claims against it had to be met. As a technical argument this becomes immaterial in this case for I have held that the pursuers have established the facts of the accident we are concerned with. If I were wrong in finding that the accident was caused in part by the fault of Mr Vernon then I agree with the defenders that the circumstances are such that there would be a finding of negligence against the pursuers based on res ipsa loquitur. The pursuers would then have the onus of proving that their negligence was only a contribution to the accident and not sole negligence. In the circumstances if they had not proved that the accident was also contributed to by the fault of Mr Sutton they would have been unable to show that their negligence was only contributory and the claims under the indemnities would have failed.
Looking to the complete indemnities it appears to me that the scheme is that parties will accept responsibility for the losses incurred by their own employees unless the indemnified party alone carries the fault and responsibility for the accident which is what would happen if there were sole negligence or wilful misconduct. This may well be broadly consistent with practice in the oil industry as Mr Crain suggests.
Although the matter is not free from difficulty I have concluded that when Mr Vernon re-pressurised the condensate injection pump he was not at that time aware that PSV 504 was missing from the condensate line. On the other hand had the position had been that Mr Vernon jagged the pump well aware that PSV 504 was not in position then I should have had no difficulty in holding that liability under the indemnities was excluded by the "wilful misconduct " provisions. In any event his conduct would have been deliberate and reckless.
I do not accept the defenders’ arguments that the risk of an accident was not reasonably foreseeable to Mr Sutton. Mr Sutton contributed to the accident by his own negligence in not fastening the blind flange securely, nor do I regard the conduct of Vernon as being a novus actus interveniens
I do not accept it as proved that Vernon’s failure to inform himself of the fact that the PSV 504 was not in situ should be classified as reckless. He may simply have forgotten which is culpable but I could not categorise such inadvertence as recklessness.
In any event in the light of Mr Rankin’s evidence it cannot even be held proved that the permit to work was ever brought to Mr Vernon’s attention and if it were in what circumstances. Just why Mr Vernon did not know the valve was missing is obscure and it cannot be assumed that any failure to acquaint himself with the position was due to conduct anywhere approaching recklessness. Nor can it even be held as proved that his situation was caused by a deliberate failure to follow through good and prudent practices In any event if the pursuers’ pleadings are contrary to my view to be taken as committing the pursuers to accepting that Vernon was aware of the permit to work then that would simply lead to the conclusion that the information about the PSV did not have much impact on Mr Vernon because the pump had been handed to maintenance and that in these circumstances it later slipped his mind. I can see why the situation might be frustrating for the defenders because there were in place a number of procedures that would normally have kept Mr Vernon informed but as it happens the exact explanation for his lack of knowledge is too uncertain to permit the conclusions wanted by the defenders. I cannot conclude that there was any deliberate decision on his part to ignore important safety measures. The critical circumstance is that at the time of the explosion he did not demonstrate the behaviour of a person who knew that the PSV was missing. His behaviour was at the time all along that of a man who thought that the only obstacle to the use of Pump A was the de-isolation of the electrical isolations which had been carried out for the planned maintenance work.
I also find myself unable to conclude that the accident was attributable to wilful misconduct on the part of the top management of the Company. I think it is only fair to say that whatever failings there were in the safety system the Company did devote a considerable amount of time and money to safety. Insofar as there were failings in the system then looking to the particular matters that were highlighted before me they tended to arise out of indifferent monitoring and auditing of the systems in place. Certainly it was shown that the permit to work system was not followed rigorously by the Lead Production Operators. I cannot conclude that the system did not generally fulfil its safety function but there clearly was slackness in filling- in the permits and their certificates as was stipulated in the Company’s own Rules particularly in the weeks immediately preceding the accident. This amounted to a departure from good and prudent procedure for such were the risks of danger on board the platform that the permit system should have been followed to the letter. I terms of safety policy these irregularities were inexcusable because it left personnel with the impression that they could modify the system as they wanted and this can eventually dilute the efficiency of the system. If the permit system was rather too cumbersome for the workers on shift then the system should have been modified by management in a safe and considered manner rather than that operatives should choose to adapt it. However I cannot say that any tolerated departures from the permit to work system had anything to do with the accident. Nor can I say that Mr Vernon deliberately failed to carry out the permit procedures. I cannot say that he failed to examine the permits to work since the situation is that the permit relating to the PSV may well just have slipped his mind even supposing that at some stage he saw the permit. The same applies to the handover system. The defenders did not specify exactly what steps could be taken to modify the system that were consistent with good and prudent practice normally enforced in the industry. It is not even proved on the evidence that the handover system failed in its function on the night of the accident through any departure from the system. For example if Mr Vernon merely forgot about the Pressure Safety Valve it is difficult to attribute such inadvertence to the Handover system - at least on the evidence. Nor if anything went wrong with the Handover system on the evening of the accident can I conclude what this was. The auditing of safety measures also seemed rather haphazard and unsatisfactory but to conclude that improved auditing and monitoring would have avoided this particular accident is conjectural to say the least. The defenders argued that the general attitude of OPCAL to safety procedures demonstrates an indifference or degree of slackness which suggests that if Mr Vernon decided to jag the pump on the night of the accident with the PSV missing this could be inferred to be a consequence of the lack of strict supervision of safety. The point is that to re-pressurise the pump when it had no safety pressure valve was a manifestly unsafe practice (particularly when the blind flange had not been pressure tested). The evidence shows that all the operatives regarded this as an unsafe practice and indeed it was always avoided. There was evidence about the inadequacies in the completion of permits but no-one suggested that it was common for Mr Vernon or anyone else to act deliberately in a way that created an obvious and immediate danger. What Mr Vernon did on the night of the accident was of a different quality to the sort of irregularities that the defenders sought to attribute to the OPCAL workforce. It was not slackness. It was obviously dangerous and Mr Vernon must have known this had he been fully aware of the facts at the important time.
It was proved that the negligence of Mr Vernon contributed to the cause of the accident along with the negligence of Mr Sutton. However it was not shown that his negligence could be what is described as "sole negligence" in the indemnities. Nor was it shown that what happened was an act of "wilful misconduct" on the part of Mr Vernon or of the Company.
The defenders would in my view be liable under the terms of the indemnities which the pursuers found on to compensate the pursuers for loss arising from the deaths or injuries resulting to Contractors’ employees through the accident. However that still leaves open the question as to whether and to what extent the pursuers have suffered loss. Moreover I have concluded that other than in the case of Stena Offshore in terms of the Contracts the pursuers would not have a right to recover Texan enhancement values paid under the settlement.
10 CHAPTER TEN - THE SETTLEMENTS
10.1 The Requirements of Settlement
10.1.1 The Pursuers’ General Contentions
OPCAL and the other members of their consortium settled the claims of the victims and the relatives of the victims concerned in each of the actions. It was not disputed by the defenders that the pursuers were liable to compensate those who suffered as a result of the accident but it was stoutly maintained that the settlements had been too generous and that the amounts paid out under the settlements were in excess of the pursuers’ legal liability. The pursuers are maintaining that the indemnities cover the full amounts paid under the settlements and the defenders in contrast deny that any obligation to indemnify under these indemnities extends to such amounts. The pursuers for their part contend that the decisive test is whether or not the settlement terms were reasonable at the time of the settlements. In this connection they ask that it should be noted that whereas the pursuers’ primary case under these actions is based on the view that the accident was caused by the negligent setting of the blind flange on PSV 504 the defenders themselves appeared to accept this suggestion as reasonable until a relatively late stage when just before the Proof they amended their pleadings to challenge the cause of the accident for the first time. The indemnity provisions are designed to protect the indemnified parties against "claims" as well as "liability" in respect of harm to the contractor’s employees. The proper question for the court is whether any settlement arrived at is reasonable in the context of the prospect of liability being established. I was referred by the pursuers to Comyn Ching & Co. v Oriental Tube Co. Ltd. 1978 Building Law Reports 47. This was a case before the Court of Appeal. The case concerned claims under indemnities which were expressed to cover all claims and liabilities. A question in the case was whether the indemnity only covered claims for which the plaintiffs were actually liable or, on the other hand, covered all claims having a reasonable prospect of success. The Court preferred the latter view. As Brandon L.J. observed at page 92 of the report "a loss will be sustained in consequence of a claim if it arises from a reasonable settlement of a claim which had some prospect or a significant chance of success". The pursuers relied upon Comyn Ching & Co and also on the cases Biggin & Co. Ltd. v Permanite 1951 2KB 314, and Fisher v Val De Travers Asphalte Co. 1876 LJ 45 (CP) 479. In Biggin & Co. Ltd. (a case in the Court of Appeal) Somervell L.J. observed at p.321 "The law, in my opinion encourages reasonable settlements, particularly where, as here, strict proof would be a very expensive matter". The same judge further observed "I think it is relevant to prove that the settlement was made under advice legally taken". However it was accepted that a pursuer must prove a prima facie case that the settlement was a reasonable one. It follows (so it was argued) that the advice of competent and experienced advisors, while not conclusive, is nevertheless an important consideration. The pursuers ‘senior counsel contended that the pursuers only required to establish the reality of risk and the reasonableness of the settlement in the light of that risk. If the settlement incorporated an element of compromise then the indemnities would cover that. Very shortly after the accident it became clear to the Operators and Participants that they would be liable to pay damages in respect of the victims even although the precise grounds of liability had not at that stage been determined. Both Operators and Participants were subject to strict statutory regulation and it seemed unlikely that liability could be avoided. Thus at best the Operators and Participants were facing liability for Scottish levels of damages. On the other hand if claims were pursued in the United States then it was anticipated that the levels of damages would be materially higher than Scottish levels. It was therefore recognised at an early stage after the accident that the practical question in relation to settlement was whether the claimants had a reasonable prospect of establishing jurisdiction to pursue their claims in the United States (and particularly in Texas) and if so what levels of damages were likely to be awarded in any successful American litigations .
10.1.2 The Defenders’ General Contentions
The defenders’ general approach was that the settlements were unreasonable and did not attain the requirements for full recovery. They referred to Biggin & Co. Ltd where it had been said by Lord Justice Somervell that it is not sufficient to show that a settlement had been made under competent advice. I have no difficulty in accepting this because the indemnifier has no control over the extent and quality of the advice the indemnifiee may have relied upon. However the fact that a party settled under legal advice is a relevant as an adminicle of evidence in respect of the reasonableness of the settlement.
The defenders referred to the case of Hammond and Co. v Bussey (1887) 20 QBD 79. This was a case where there had been a Sale of Goods contract and the argument advanced by sub-vendees of the purchasers was that the goods were defective. The sub-vendees brought an action against the plaintiffs and the finding of the Court was that the coal which was the subject of the contract was not conform thereto with the effect that the sub-vendees recovered damages against the plaintiff. The issue was whether the original purchasers were entitled to recover the costs of abortively defending the action of the sub-vendees which they claimed was a reasonable thing to do. The decision in the case resolved itself into an application of the rules of Hadley v Baxendale. The defenders sought to use this case to establish that the damages to be recovered in the settlement of a claim must be assessed in a breach of contract case in the same manner as damages would be evaluated under Hadley v Baxendale. That proposition looked at in relation to a breach of contract case of course makes sense. The defenders analysed the application of Hadley v Baxendale to the case previously referred to Biggin and Co v Permanite. Lord Justice Somervell on this occasion again opined that the result of the litigation involving the Dutch Government was irrelevant to the question of the assessment of damages recoverable by the original purchasers. The defenders submitted that what can be concluded from the case is that to test the reasonableness of a settlement it is necessary to test the rationale upon which the settlement proceeded. Thus one is not concerned whether the persons who negotiated the settlements which are the subject of these cases acted reasonably but rather whether or not the settlements themselves are reasonable. This has to be proved by an indemnified party who raises an action to claim against the indemnifier. The reasonableness of the settlements is an objective fact. I agree with this.
In Biggin and Co. Lord Justice Somervell observed that,
"I think that the effective question was: was the compensation reasonable?...... I think the judge here was wrong in regarding the settlement as wholly irrelevant. I think, though it is not conclusive, that the fact that it is admittedly an upper limit would lead to the conclusion that, if reasonable, it should be taken as the measure. The result of the judge’s conclusion (the judge of first instance) is that the plaintiffs must prove their damages strictly to an extent to show that they equal or exceed £43,000 ( the settlement figure)".
He continues by observing that the defendant may seek to show that the settlement was not reasonable. Mr Currie also contended that the case shows that the evidence of the people who advised the settlements is also irrelevant because the test is an objective one. That may generally be true in a breach of contract case but of course in the present case at least some of the witnesses were qualified to express views as to the likelihood of large sums of damages being awarded in Texas. Unlike Biggin and Co I do not simply have to assess damages according to Scots Law. Were I doing that the views of the pursuers’ advisors might simply be usurping my function. However I am concerned with the factual question of what would have happened if the litigations had gone to Texas. As I say some of the advisors concerned in the negotiations are qualified to give factual evidence about that. Moreover there were question relating to the claimants’ tactics which would have to be considered when deciding at what point of time and for what sums it was reasonable to settle. However the defenders did not claim that in these cases settlements could have been achieved for less money for they do not regard that to be an issue. It was accepted that the alternatives available to OPCAL and the Participants had to be considered but in an objective way. The critical question is not how clever the settlement was or what results different tactics might have achieved but rather what the outcome was likely to have been if the cases had gone to Texas. Thus according to the defenders much of the considerable time occupied in examining details of the negotiations was a waste of time. It was maintained that the authorities show that in assessing the settlements what counts is not what the parties knew about the surrounding circumstances at the time but what these circumstances actually were. What the defenders claim is that underpinning all the settlements was the question of Texas jurisdiction so that if the indemnifiees got that wrong then the settlements become unsustainable. Lord Justice Singleton in Biggin and Co. clearly accepts that although the settlement terms are not conclusive they are a factor to be considered. As his Lordship stated, " No one can think that a person or a company will agree to pay £ 43,000 damages lightly. It is a matter for consideration that the settlement was arrived at under advice, the more so as the party settling may not be quite certain as to whether he can recover anything against someone else". I respectfully agree with that. The judge according to Lord Justice Singleton only needs to be satisfied that the damages would be "somewhere around" the figure at which the plaintiffs had settled in order to award the settlement figures. That is a reflection of the obvious fact that even a reasonable settlement cannot be expected to have parties calculating the value of the claim too finely. If the loss has been established by a previous litigation then the prima facie case for accepting the figures arrived at will be stronger. "The judgment is not binding but the Court will not lightly disregard it." Strict proof of every item in the settlement is not required. Lord Justice Goff, as I have already noticed, in Comyn Ching & Company Ltd emphasised that to recover under an indemnity the fact that the settlement was reasonable must be proved. The core of the defenders’ submissions was that to recover the full loss that they claim the pursuers would have to satisfy the Court that there was a serious risk of large awards in Texas and if they do not do that their case would be in trouble. Of course the defenders do not claim that (assuming the applicability of the indemnities) no awards at all would be recoverable only that the amounts sought are too much because no allowance should have been made for Texas damages. In any event of course they claim as I have already considered that the enhancement factor in the settlement because of Texas damage levels is not recoverable because it is an indirect and consequential loss. However that is a separate question from the question as to the reasonableness of the settlements achieved by OPCAL and the Participants. The first matter to decide of course is whether the pursuers attained a reasonable settlement with the claimants. That of course leaves the question as to how much, of any reasonable settlement is recoverable from the defenders under the indemnities, if any is recoverable at all.
It may be noted that Lord Justice Goff also said in his judgment "Ching were advised to settle by competent and experienced legal advisors. This is not conclusive but clearly important". He also points out that "Ching were facing a long and complex litigation which was bound to be costly, and the outcome of which they could not foresee with any certainty". These last-mentioned observations are obviously very pertinent to the position of OPCAL in the negotiations in the present cases.
A further case cited by the defenders was Holland Hannen & Cubbit Northern v Welsh Health Technical Services Organisation (1985) 35 Building Law Reports 1 which was a judgment of the Court of Appeal against a decision of the Official Referee. The case was a Building Contract case in which a question of alleged negligent advice arose. It is perhaps worth noticing that the case before the Official Referee lasted 126 days which the Court of Appeal in 1985 apparently thought as phenomenal. However the point of the case is that a number of parties were brought into the case as defendants and this gave rise to certain claims for indemnity. The actions was compromised and the issue related to the proportion of the ultimate liability to be borne by the parties. Lord Justice Lawton repeated the approach in Biggin and Co. that I have referred to above that in adjudging the compromise the Court has to consider not the reasonableness of the conduct of the parties but the reasonableness of the compromise itself.
Another case brought to my attention by the defenders was George Stow & Co Ltd v Walter Lawrence Construction Ltd. (1992) 40 Construction Law Reports 57. The case was again decided by an Official Referee and is of limited interest apart from a finding that the arrangements for settlement "could be more aptly described as a capitulation than a compromise". That of course is the gravamen of the defenders’ complaint against the pursuers. Thereafter the rationale of the settlement was closely examined. They also sought to extract from the case a distinction between legal advisors and negotiators the latter being regarded as of secondary importance when a settlement is reviewed.
DSL Group Ltd v Unisys International Services Ltd and Unysis Ltd (1994) 67 Building Law Reports 117 again referred to a decision by an Official Referee. However the case fundamentally is an attempted analysis of Biggin and I did not find that it added much to the more authoritative opinions expressed in the latter.
On this aspect of the case the last British authority referred to by the defenders was The Society of Lloyds v Kitsons Environmental Services Ltd and Ors (1994) 67 Building Law Reports 102. This case too was decided by an Official Referee. If read carefully it merely repeats what I am prepared to regard as clearly established that advice given to a party in settlement negotiations is merely one factor in assessing whether a settlement is reasonable and is not conclusive.
The defenders used the above material as a basis for submitting that in order to recover the full amounts claimed under the indemnities the pursuers would first have to lead evidence to show that they had a liability to the claimants and also to establish the second critical element that OPCAL in respect of the claimants’ action, if raised, would have been subject to the jurisdiction of the Texas Court. That would have to be done on the basis of factual evidence about the law of Texas. I would only qualify what the defenders ask in one respect. Even if it could not be taken as certain that OPCAL would be subject to the jurisdiction of a Texas Court if there was a serious risk that they would be then I consider that it would be reasonable to compromise the claims taking account of that risk. Few compromises in the settlement of litigation take account of certainties (otherwise there would be no need to compromise) but rather of risks. Of course the pursuers have to show that the settlement figures were a reasonably true evaluation of the measure of the risk and I can accept that.
Immediately after the accident it was apparent that Texas lawyers were interested in raising claims on behalf of all the claimants in Texan courts. On 15 July 1988 Messrs Benton Musslewhite, Attorneys of Houston, Texas wrote an open letter to such solicitors in Scotland as they knew to be representing the victims of the disaster or their families. The leader of that firm Mr. Musslewhite is a well known plaintiffs’ lawyer in Texas and has the reputation of being a vigorous litigator. The said letter was aimed at persuading the recipients that it would be to their material advantage to pursue their claims in Texas. A Californian lawyer, Mr. Shawn Khastoo wrote on 26 July to Messrs Paul & Williamsons under the mistaken impression that they were acting for victims of the disaster (they were in fact acting for OPCAL) and again the letter was an offer to provide assistance with American litigation. On the day following upon the accident Mr. Silva, a partner in Vinson & Elkins, attorneys in Texas (who even at this early date had received instructions to act for the Occidental Companies) received a telephone call in Houston from a Mr Chaffin, again well known as an experienced plaintiffs’ attorney in Houston and the message was that Mr Chaffin was likely to be acting for claimants in respect of the disaster. In the week following the disaster Mr Musslewhite and an associate actually came from Texas to Aberdeen and made themselves available for consultation at a hotel there. Against that background OPCAL’s advisors considered that it was important to act quickly in approaching the Scottish representatives of claimants. Indeed there was unity of purpose between OPCAL and the Scottish solicitors on this matter since neither wanted claimants to rush into the American court under prompting by American lawyers. Indeed the Law Society of Scotland placed advertisements in local newspapers recommending claimants not to act without first seeking advice from Scottish solicitors. At a meeting on 21 July 1988 the legal representatives of a substantial number of claimants (represented by about 100 solicitors) combined together to form the Piper Alpha Disaster Group (the PADG) and a Steering Committee to represent this group was also formed. The objectives of the PADG were that their members would act together in the presentation of their clients’ claims. The great majority of the claimants joined the PADG. In fact the seven leading cases in the present actions all had their claims settled through the PADG. There were other smaller groupings of claimants. Some claimants based on Teesside formed a Group known as the Cleveland Group which represented the interests of the families of 6 deceased. A number of claimants joined a Trade Union Group and that group eventually were concerned with 17 deceased and 6 survivors. A further small number of claimants were represented by an organisation run by Mr. Lefevre, an Aberdeen solicitor. This group were concerned with 4 deceased and 3 survivors. The effect of these groupings was that the claims were largely kept together and the early intervention of American lawyers was prevented. In all about 800 individual claims had to be dealt with. It was considered by OPCAL ‘s underwriters that the disaster was likely to involve the marine insurance market in its most substantial loss ever.
10.3 The Negotiators
In the negotiations OPCAL’s principal legal advisor on the American dimension of the claims against them was Mr Eugene Silva. When he gave his evidence Mr Silva was 50 years old. He is a partner in Vinson & Elkins, Attorneys, who have their principal offices in Houston, Texas. They have about two hundred lawyers working there and claim that it is the largest concentration of lawyers in any one city in the world. They are certainly a large and reputable firm. Mr Silva qualified in law in 1972. Previously he had been in the Navy and he holds a BSc. in marine transportation. He joined Vinson & Elkins in 1977 and was made a partner in 1980. Mr Silva is qualified in Texas law and has considerable experience of the different levels of the Texas court system where he has acted mainly for defendants. He has specialised in Admiralty and special risk group work. He has practical experience of jurisdictional and related questions. As he himself declared apart from his own experience he has access to the large resources of his firm and the 100 years experience it enjoys. He has experience of mass tort litigation and trans-national cases. He has given evidence in related matters internationally and has also taught related subjects at a number of Texas Universities. Vinson & Elkins have represented the Occidental group of companies for a number of years as has Mr. Silva personally. In 1997 his firm were Occidental’s principal legal advisors in the negotiations that lead to the contracts for the construction of their North Sea platforms. He therefore has a wide knowledge of the Occidental group acquired over an extensive period. On the morning following the accident Mr Silva was contacted by Mr Charles Foster who was Occidental’s in-house legal attorney in California and he was asked to represent the Occidental Group in respect of the consequences of the accident. He was required to report to Mr. Foster and indeed shortly after the accident both Mr. Silva and Mr. Foster visited Britain. English and Scottish lawyers were also instructed. However eventually all the Occidental and OPCAL lawyers as well as those representing the other participants were taking advice from Mr Silva on matters of Texas law. Mr Silva was not the only American lawyer advising the OPCAL interest. OPCAL’s underwriters obtained independent advice from Mr Vickery, a Texan lawyer (described as a doyen of Maritime and Trial practice in Houston) and an experienced lawyer from Louisiana, Mr Don Abbaunza, was also involved in the negotiations .
On the day following the disaster OPCAL instructed Messrs Paull & Williamsons, solicitors, Aberdeen to act for them as their Scottish solicitors in connection with the accident. Mrs Lesley Gray, one of their litigation partners, was the person principally involved in the ensuing negotiations although Mr Michael Park also participated in them. Mrs Gray gave evidence although Mr Park who has now retired from his firm through ill health did not do so. Mrs Gray was aged 40 when she gave her evidence and became a partner of Paull & Williamsons in 1981. She is experienced in Reparation litigation. One of her principal functions in the progress of the negotiations was to prepare estimates of the Scottish levels of damages that the individual claimants might expect to be awarded if the claims were litigated in Scotland. In this function she was assisted by another experienced litigation partner of the firm Mr. J. Tierney. Mr Park who was in attendance at many of the relevant meetings and who is also a highly reputed litigation lawyer participated actively at many stages of the negotiations and advised his partners. Mr Park is a former President of the Law Society of Scotland. It was explained by Mrs Gray in her evidence that in advising on settlement figures she and her partners had concentrated on the global figures for each claimant rather than on the detail of each calculation and what they were concerned about was to see that the sums offered were materially below what each claimant was likely to recover if the claims were litigated in Texas. In the light of the advice they had received their conclusion was that, even with the enhanced figures in the settlement, awards in Texas were likely to be higher .
Union Texas Petroleum’s interest in the negotiations was looked after by their Assistant General Counsel and Assistant Secretary Mr Alan Crain of Houston, Texas. He was employed by Union Texas Petroleum Holding Inc. When he gave evidence at the Proof Mr. Crain was aged 41. He graduated in law in New York State in 1976. Thereafter he worked as a lawyer for a period with the El Paso Inc. Companies and then as Senior Legal Counsel for the Penzoil Company. In March 1988 he accepted his present position with the United Texas Petroleum Group, a Company which produces Oil and Gas. All the lawyers in the Group report to him. A great deal of his business concerns transactional work but he is also responsible for a material amount of litigation. Although he generally does not appear personally in court he has overseen a number of major law suits. He is well qualified in Texas State law and teaches courses in the extra-territorial application of the United States law at the University of Houston. He has also published some articles on the subject. He discussed the jurisdictional questions affecting the Piper Alpha case with other legal advisors in his Texas office including Mrs Abrahms the in-house Litigation Counsel. He is a former chairman of the International Law section of the Houston Bar . His Group had a management meeting in Houston on the morning following upon the disaster and the week after Mr Crain flew to London. Union Texas Petroleum’s in-house legal counsel in London was Mr Larry Cantu, recently arrived in London from Texas and qualified only in Texan Law. Mr Crain’s Texas employers and Union Texas Petroleum Ltd enjoyed some cross-directors. In accordance with normal Group practice it was arranged that Mr Crain’s office would provide the legal services required in respect of the disaster. In addition Union Texas Petroleum Ltd. retained the services of London solicitors, Messrs Clifford Chance & Co, to have the benefit of independent legal advisors. Later in July 1988 they agreed that Ince & Co. Solicitors, London (who had been retained by the Occidental Group) should be retained by all four Participants. Paull & Williamsons were also jointly retained by the Participants. The underwriters for Union Texas Petroleum were represented separately from the other Participants by an English solicitor, Mr Clive Brown of Messrs Cameron, Markby, Hewitt & Co. and he and Mr Crain liaised regularly in London .
The English solicitors acting for OPCAL and also the other Participants were Ince & Co, London. Their partners dealing with the disaster were mainly Mr. Patrick Griggs and Mr Christopher Sprague both of whom gave evidence. Mr. Griggs was aged 53 when he gave evidence and he is the senior partner of his firm. Ince & Co. are a specialist litigation firm with special interests in Maritime, Aviation, and Insurance work. Mr Griggs has been involved in a number of important litigations concerned with multiple claims including the Manchester Air disaster in 1985, the Chinook Helicopter disaster in 1986 and 1987 and the Herald of Free Enterprise disaster in 1986. Mr. Griggs was first instructed by Occidental on 7 July 1988 and his instructions came directly from Mr. Foster at Occidental’s headquarters in Los Angeles . Mr Sprague was aged 49 when he gave his evidence and he had been a partner in Ince & Co. since 1975. In his firm he deals with offshore disputes and he has considerable experience of litigating in America. He had been acting for Occidental since 1975 and much of his contact has been with OPCAL. He has been acting for American underwriters for many years. He expressed the view that American clients are very sensitive about being taken to American courts because such courts will often take an exorbitant jurisdiction and particularly in Texas make very high Jury awards. He had wide experience of OPCAL’s arrangements with its contractors. He too had been involved in multiple claims disasters. OPCAL were also advised by the solicitors for their underwriters, Messrs Clyde & Co.
Mr. Patrick O’Callaghan a partner in Davies Arnold & Cooper, London, was the solicitor acting for the underwriters of Thomson North Sea Ltd. Thomsons themselves had an in-house solicitor Bryan Wrathmell and they instructed Allen & Overy, London to act independently in their interest. However Mr. O’Callaghan is a fairly positive personality and he seems to have taken the chief part in advancing the Thomson interest during the negotiations. Mr. O’Callaghan was aged 52 when he gave his evidence and he became a partner of his firm in 1976. He is a specialist litigating solicitor acting exclusively for defendants’ insurers. In many occasions he has been involved in cases with an American dimension. He knew at the time of the negotiations that the PADG were getting advice from a Mr Speiser and a Mr Chaffin, highly successful American lawyers, and in his view this lent an air of urgency to the negotiations. From an early date he was anxious that the Participants should not propose values for hypothetical unnamed claimants but should insist upon being given details of actual claims. He knew Mr Silva and had in fact retained him on other occasions. Moreover he knew that Mr Silva had a considerable reputation .
The interests in the negotiations of Texaco were represented by Mr. Christopher Wilkes. Mr Wilkes, a solicitor, is a partner of Messrs Beechcroft Stanleys in London. He was aged 37 when he gave evidence and he became a partner in 1983. He specialises in insurance related litigation of which about 50% is international. He has had extensive experience of litigation in the United States. He was first instructed by Texaco’s underwriters on 20 July 1988. His experience has led him to have restricted confidence in American rules of private international law. He decided not to rely on the advice of Mr Silva alone and he therefore consulted extensively with senior in-house lawyers from Texaco namely Mr Heathcote and Mr. Jennings. Moreover Texaco were themselves represented by independent London solicitors Messrs Lovell White & Durant, of whom the partners acting in the negotiations were Mr. Trotter and Mr. Carter. His clients also instructed Messrs Phelp & Dunbar, Attorneys in Texas and Louisiana.
The underwriters who acted for OPCAL were represented in the negotiations by Messrs Clyde & Co. Solicitors London, and their partner who acted in the matter was Mr Michael Payton. Mr. Payton was 48 years of age when he gave evidence and he has been a partner in Clyde & Co. since 1972. He acts almost exclusively for insurers and underwriters and in particular he has had extensive experience of litigation in the United States. About 10 July 1988 he received instructions to act for various liability layers of OPCAL’s underwriters. Messrs Clyde & Co. originally also acted for the underwriters of all the Participants but then it was realised that this could lead to conflict of interest. Accordingly Clyde & Co. confined their representation to the OPCAL interest and the underwriters of the other participants arranged separate representation. Mr Payton took steps to obtain separate advice for his clients in respect of foreign jurisdictions. In particular he consulted Mr Vickery of Messrs Royston Rayzer, Attorneys, Houston, Texas, and Mr Warren Faris of Faris Cultrone, Attorneys, Louisiana. McCutcheon Doyle, Attorneys, California, and Mr Crawford of Cochrane Sayers & Cook, Solicitors, Glasgow, were also consulted. Mr Vickery had extensive experience of working for the London Market on insurance matters and was well known to Messrs Clyde & Co. Mr. Barrett of Messrs McCutcheon, in California was also well known to Mr Payton as a former partner of Clyde & Co. and had done a lot of insurance related work. Mr Payton also collaborated in the Piper Alpha case with other senior members of his firm. His clients themselves had a great deal of experience of being sued in America. He consulted with representatives of Jansen Green & Co., insurance agents and these included Mr. Bob Moore and Mr. Peter Murray who were both very experienced claims’ handlers. He also consulted with another representative of Jansen Green, Mr James Teff who is regarded as one of the most experienced claims’ handlers in relation to any United States, or potential United States, liability cases. Thus decisions taken by Mr Payton’s firm and clients represented the product of a considerable wealth of collective experience.
The negotiations on behalf of PADG were largely conducted by the members of their Steering Committee. This Committee included Mr David Burnside, solicitor, Aberdeen and Mr Pannone, solicitor, Manchester both of whom had a lot of experience in multiple claims disasters with trans-national implications. The Committee also had the benefit of the advice of well known American plaintiffs’ litigation lawyers including Mr. Bob Chaffin of Texas and Mr. Speiser of New York.
10.4 The Negotiations
Following upon the constitution of PADG and its Steering Committee the negotiating parties held a number of meetings over the next few months. The first of these meetings occurred on 22 July 1988 in Aberdeen. At that meeting representatives of the PADG met with representatives of the pursuers, other Participants and their insurers. The involvement of the pursuers’ insurers in these negotiations should be noted since the defenders’ knowledge of these interests may have a bearing on the development of certain procedural matters as will be seen later in the Chapter on Contribution. The pursuers sought information in relation to the individual claimants. It was made clear at the meeting that all parties were anxious to enter into negotiations. There was an initial focus on death cases because these were easier to evaluate. The Steering Committee made it clear that they would not be interested in Scottish levels of damages. The Committee also proposed that model cases should be devised but the Participants and insurers were not keen to be drawn into discussion of hypothetical cases. Mr Pannone (who was on the PADG Committee) was an experienced negotiator in disaster cases and it was thought that in the Manchester Air disaster case the discussion of hypothetical cases had been effectively used by him as a negotiating tactic. Nevertheless so as "not to rock the boat" the pursuers and Participants agreed to some provisional models being prepared. The next meeting of parties was at Aberdeen on 24 August 1988. At that meeting model cases, which by then had been prepared, were considered. Figures for damages had been prepared by each side and these were displayed in adjacent columns so that a ready comparison could be made. The models were based on hypothetical cases and estimated damages were based on supposed Texas values. The estimates were based on Texas heads of damages and brought out a huge gap between the figures of the two sides. The next meeting of the said parties took place at the Melville House Hotel, Aberdeen on 16 September 1988. After some apparent initial difficulty the parties brought the meeting to a successful conclusion when the PADG representatives agreed that they would provide actual details of about 30 claimants. Moreover the idea of applying variable multipliers to agreed Scottish values began to gain support. The objective was to use such multipliers to raise Scottish levels of damages to what were perceived to be higher Texas values and it was thought that by use of a multiplier there would be more flexibility in relation to individual claims. Of course the problem was to agree appropriate multipliers. In fact the negotiating parties had no difficulty in agreeing what would represent reasonable levels of Scottish damages for the model cases. A further meeting between the negotiating parties took place at Aberdeen on 27 September 1988. For the first time the members of the consortium proposed particular multipliers. They considered that it was necessary to do so at this stage to keep the negotiations moving and to head - off American litigation. In the death cases a multiplier of 1.5 was offered for loss of society and of times 8 for loss of earnings. The PADG representatives as counter proposals suggested multipliers of times 20 for loss of society and of times 4.5 for loss of earnings. The next meeting between the parties took place in London at the offices of Lawson Kidd on 14 October 1988. At this meeting the representatives of the consortium members handed over formal letters of offer to the three groups of claimants represented, namely those represented by the PADG Steering Committee, the Trade Union Group and the Cleveland Group. The handing over of offers was a tactic designed to take the claimants’ representatives by surprise. It was considered by the Participants and their underwriters that a move to initiate proceedings in Texas could be imminent. The American lawyers of the claimants were thought to be pressing for early action in the United States but the consortium were anxious that such proceedings should not be initiated. Under the Texan feeing system for lawyers once litigation commences contingency fees of 30% of damages or more are likely to become payable by claimants and it was thought that this situation would make negotiations for a settlement more difficult. It was thought that if actual hard offers were made to the negotiating representatives of the claimants they would be obliged to present these offers to their clients for instructions. The offers were of substantial sums of money and it was hoped that the clients would be tempted to accept the offers rather than incur the risks and delay of raising their proceedings in America. In fact the strategy adopted seemed to have worked for the Steering Committee were taken by surprise when they received concrete offers. The offer letters had a computer print-out annexed giving the figures that would be payable under the offers to the individual claimants. The multipliers to be applied to Scottish levels of damages which were in the offers were times 12 for loss of society and times 2.5 for patrimonial loss. Although these offers were made no other concessions were made to the claimants and it was made clear that jurisdiction would be contested should American litigation ensue The offers made at the meeting of 14 October were repeated in letters sent by Paull & Williamsons to the representatives of the individual claimants on 18 October 1988. The negotiating parties again met, this time at Aberdeen, on 8 November 1988. At that time there had been only one acceptance of the offer of 8 October but the attitude of the claimants’ representative was encouraging and they accepted that it was likely that all the offers would be accepted at least in general terms. The meeting which finalised the settlement terms for the death claims took place at Manchester, at the offices of Mr Pannone, on 22 November 1988. There were certain issues which remained for agreement at that meeting namely the amounts which were to be paid to the parents of the deceased victims and the levels of fees which were to be paid to the British solicitors. The solicitors were unhappy that it was being proposed that fees would be paid on the basis of Scottish levels of damages. The consortium agreed that certain adjustments would be made to the offers in respect of these matters. It was agreed that where there were parents of victims who also left widows or children they would be paid compensation at a flat rate of £50,000 whereas parents of victims where there were no surviving widows or children would receive £75,000. It was also agreed that solicitors’ fees would be calculated on the actual settlement amounts. This last concession was to cost £1,600,000 on the fatality claims but it was considered by the consortium that this amount was relatively modest if it meant the difference between success and failure in achieving a prompt settlement. Verification procedure for claims was agreed so that matters such as pre-accident earnings, family structure, the age of each deceased, etc. could be checked by the paying parties before damages were paid. By the end of 1988 the offer formulae had in general had been accepted by claimants. The completion of the verification procedure preceded each formal offer to claimants but once this procedure had been successfully applied to a claim Messrs Paull & Williamsons would send a formal final offer to the solicitor of each claimant and each solicitor then formally accepted. To simplify the position certain details of computation had been agreed. Thus it was agreed that claims for loss of services in the case of the widow or co-habitee of a deceased victim would be calculated on the basis that such loss be valued at the rate of £3,000 per annum and that this would be admitted in each case without verification of detail. This was thought to represent a fair general value for such loss and was to be subject to the general uplift of times 2.5. With regard to claims by survivors negotiations in detail only took place after the death claims had been agreed although certain interim payments were made. A meeting to negotiate survivors’ claims took place on 17 April 1989 and at a meeting on 11 May at Aberdeen the settlement terms for these claims were finally agreed. There was added pressure to negotiate the survivors’ claims because of the growing imminence of the expiry of the twelve months Louisiana limitation period. Those survivors who were suffering from Post Trauma Stress Disorder (PTSD) were to be paid solatium on the basis of a multiplier of times 12 applied to Scottish values. In the case of survivors who had suffered injuries from burns the multiplier was to be times 16. The difference in multipliers was due to the views of Mr Silva and Mr Abbaunza that in United States’ courts juries are inclined to award particularly high damages in burns cases. Loss of earnings was to be compensated on the basis of a multiplier of 2.5 over Scottish values. It was arranged that claimants should raise "friendly" actions in the Scottish courts which would not be defended permitting decree to pass. This was required by the American advisors to ensure that the discharges to be granted by claimants would be regarded as final and conclusive and I have already discussed the points made by the defenders in respect of the effect of such actions.
As preliminaries to the negotiation meetings with the representatives of the claimants the participants’ and underwriters’ representatives had themselves held certain meetings to discuss their policy. Thus a meeting was held at London on 6 September 1988 at which Mr Silva attended and the possibility of litigation by claimants in the United States (and in particular Texas) was discussed and considered. A further meeting took place in London at the Gresham Club on 12 October 1988 at which the consortium and also their underwriters were represented. It was at this meeting that the multipliers to be included in the pending offers were decided. A meeting had been held between the consortium and the contractors’ representatives at the Royal Westminster Hotel, London on 2 September 1988. All the contractors who are concerned in the 7 leading actions were represented at this meeting. The position regarding negotiations with claimants and the threat of actions being raised in Texas were explained to the contractors but their response to what they were told was non-committal. Thereafter certain correspondence took place and the contractors were informed after the Gresham Club meeting what it was proposed to offer the claimants .
The arrangement between the Participants for bearing a share of the sums offered to claimants was that each member of the consortium should bear a share proportionate to their proportionate interest in the ownership of the Piper Alpha platform and oil concession.
The pursuers contended that in the whole circumstances the settlements arrived at by OPCAL and their fellow participants were entirely reasonable and indeed favourable. There seems to be little dispute between the parties that the claimants would have been able to establish liability against both the operators, OPCAL, and the individual participants. As I have earlier indicated the strict and comprehensive regulations of the Offshore Installations (Operational Safety, Health and Welfare) 1976 impose absolute liabilities both on platform operators and owners. There is no doubt in my view that the fire which consumed the platform was preceded and caused by an explosion. Even if the explosion were unexplained as I have already discussed there would be a presumption that an explosion does not occur without some negligence on the part of managers or of parties for whom they were vicariously responsible either directly or under the Regulations. The management of oil platforms through which massive quantities of highly inflammable liquids and gases are circulating obviously in exercise of reasonable care requires very high standards of care and safety procedures. Given that standard of care then prima facie platforms should not explode and burst into flames. From an early date after the accident then even although the precise reasons for the accident to the platform and the consequent injuries and loss of life were not known it was considered by all those concerned with the interests of the platform owners and operators that it was unlikely that an obligation to compensate the victims could be avoided. Certainly the partners in Paull & Williamsons held the view that if proceedings had been begun by the claimants in Scotland then they would have succeeded in establishing a right to compensation. As Mrs Gray deponed, when she first met her clients and the consortium team the general attitude was that you do not blow up a platform in the North Sea "and walk away from it". No admission of liability was made by the negotiators during the negotiations but in the offers made it was decided not to claim any discount in respect of any prospect of avoiding liability. From the beginning Mr O’Callaghan, Mr Wilkes, Mr Griggs, and Mr Payton (who obtained advice from Scottish solicitors) all held the view that their respective clients were likely to be liable to make compensation to victims. With regard to the position if proceedings were raised in Texas Mr Silva and Mr Crain had no doubt that before a Texas Jury their clients would be found liable in damages. It was accepted that in Texas the choice of law would be Scots Law so that this would govern the liability question. The other Participants would be held vicariously liable for any fault of the Operators either under Agency or the Regulations. It was also generally accepted by the Participants that any liability would be joint and several and that it would be open to a claimant to pursue any of them. The approach taken by the Participants’ negotiators on the liability issue was not challenged by any of the experts on American law. Indeed Mr Greene the defenders’ expert said that if he had been defending actions raised by claimants in Texas he would have admitted liability with a view to avoiding the impact of details of the accident on the jury’s assessment of damages. Thus the position taken by OPCAL, the other Participants and the underwriters involved facing up to the situation that on any view they were going to have to face liability for at least Scottish levels of damages .
Evidence was given by a number of the Scottish solicitors acting for individual claimants indicating the instructions they had received as to the action to be taken failing a settlement. The general import of this evidence was that had offers materially less than those actually offered been made by the Participants and their insurers then certainly proceedings in the United States would have been instructed. Thus for example Mr Burnside deponed that he was certainly not bluffing when he had threatened proceedings in America. His clients had received advice from Mr Speiser, a highly renowned plaintiffs’ lawyer with an office in Texas, that jurisdiction could be established in that state. Mr Reginald Christie, another solicitor representing claimants, deponed that he too had also received independent advice from Texas solicitors recommending proceedings in that state and that his clients would certainly have gone there had figures above Scottish values not been offered. On the other hand there was no evidence at all in the case that any of the claimants would have accepted any offer materially less than what was in fact offered. I have no difficulty in concluding that if settlement terms approximating to those offered had not in fact been offered then at least a substantial number of claimants would have initiated proceedings in the United States and most probably that would have been in Texas. Proceedings might well also have been raised in Louisiana and then sisted to await the outcome of the Texas actions. Moreover such recourse to United States’ courts would have taken place within a relatively short time compass .
The practical questions for the negotiators were therefore whether or not the Texas courts would accept jurisdiction in actions by the claimants and the levels of damages that would be awarded in any such actions were they to go to a conclusion. The negotiators perceived that it was necessary and prudent to settle the claims at some point between the agreed Scottish levels and their perception of likely Texas levels (a so-called Mid-Atlantic settlement). The reasonableness of the settlements must hinge upon the correctness or otherwise of this view.
The defenders’ counsel suggested to certain of the pursuer’s witnesses that the President of the Occidental Group, Dr Armand Hammer, had come over to Scotland after the accident and had made certain public statements to the effect that he was anxious that the families of the victims should receive quick and generous compensation. The implication was that Dr Hammer was concerned about the bad public relations that would flow from the disaster and that therefore the negotiators were under pressure to arrive at settlements which met these criteria. If Dr Hammer held the sentiments attributed to him he can scarcely be criticised for his attitude and indeed it is to his credit that he made money available out of his own pocket for the Disaster Fund. There was certainly evidence that after the accident Occidental were under pressure to arrive at prompt settlements with the claimants and that this would have had public relations implications. However there was no evidence that Dr Hammer had in fact intervened directly or indirectly in the settlement process. All the witnesses who were asked about the matter denied that Dr. Hammer or Occidental public relations’ problem had affected their opinions in any way. These witnesses were all responsible professional persons and I had no reason to doubt their credibility on this matter. Moreover as Mr Griggs pointed out the main settlement monies were to be provided by underwriters and the other Participants and there was no possibility that these would have been influenced by the views of Dr Hammer or the public relations position of Occidental. As Mr O’Callaghan said he would not have allowed his clients to buy goodwill for Occidental. Mrs Gray also deponed that in their conduct of negotiations Paull and Williamsons had been quite unaffected by Press criticism. They knew that because of the dimension of the accident OPCAL would get bad Press irrespective of the settlement terms. Mr Crain said in evidence that in the general discussions between consortium members and their underwriters it had never been suggested that settlement offers should be other than on what was conceived to be a reasonable basis.
10.5 Advice available to the consortium and their underwriters
When the negotiations were being conducted the principal advice on Texas and American law relied upon by the consortium came from Mr Silva and to a material but lesser degree from Mr Abbaunza and Mr Vickery. However the lawyers acting for the various consortium members and their underwriters also applied their own considerable experience. Mr Silva was not only recognised by all with the consortium’s interest as their Lead Counsel but he also took an active part in the negotiations. From the very beginning Mr Silva advised that there was a considerable risk that the claims could be sued in Texas with success. He considered that Texas was "wide open" as a forum for loss of life and personal injury claims. Moreover once the judge of first instance allowed jurisdiction it was extremely difficult to appeal until after the jury had decided the case. At best for the defendants they would be faced with considerable uncertainty, irrecoverable expense and delay. His opinion was that any litigation would be raised in the State Court system where the doctrine of forum non conveniens did not at the time apply. His view was that experienced attorneys, such as this series of claims would attract, would contrive to choose as a venue for the litigation a county in Texas where judge and jury were known to incline towards plaintiffs. His advice was that with the value of claims involved major and experienced plaintiffs’ attorneys would be acting who would initiate and carry out exhaustive discovery proceedings to ensure that evidence was found of sufficient minimum contacts of OPCAL in Texas to justify acceptance of jurisdiction by the Texan Courts. His view was that because of the agency relationship between the members of the consortium once jurisdiction was established against one it would be established against all . The possibility of jurisdiction being established on the basis of OPCAL acting under a "corporate veil" was also considered but I accept Mr Silva that this consideration was not central to his advice. It is perhaps worth noting that the pursuers at the proof did not attempt to establish that alter ego jurisdiction in Texas could have been relied on by the claimants. Mr Silva during the pre-negotiation meetings with his clients had expressed the view that the chance of Texan jurisdiction being established against them was about 75%. Mr Silva’s general aim was all along to discourage litigation in Texas. He thought that such litigation was likely to be highly detrimental to his clients’ interests. He advised that the proper approach to negotiation was to use a combination of "the carrot and the stick" but that the worst tactic would have been to have delayed and to do nothing. All along his view was that the time available for preventing claims being pursued in the United States was very short and that this was a factor that had to be taken into account in the negotiations. Mr Silva considered that Texas levels of damages were substantially higher than Scottish levels and that on occasions they could be exorbitant. Mr Vickery and Mr Abbaunza had also endorsed Mr Silva’s general views on the levels of Texas damages. Levels of damages in Louisiana though much higher than Scottish levels were about 30% lower than in Texas. He did not consider that there was any practical possibility that a Texas jury would apply Scottish levels of damages. In advising on Texas awards of damages Mr Silva took some account of actual awards noted in a Texas compilation known as the Houston Blue Sheets but he considered that these awards had to be used with care since many Jury decisions are appealed and then settled. He was concerned about the fact that the family of one of the deceased victims, Mr Busse, had in fact raised proceedings in Texas and he advised that in respect of jurisdiction, damages levels and settlement terms, that case could provide a focal point for other victims. In the meetings held by the consortium and their underwriters to consider their position in relation to United States proceedings the main areas of particular interest were the questions of in personam jurisdiction, choice of law, and forum non conveniens. However none of those present raised the matter of reciprocal treaty rights. Mr Silva’s opinions were not allowed to pass untested and Mr O’Callaghan, himself experienced in American litigation, would challenge some of Mr Silva’s views. His initial view was that the offer of a multiplier of 2.5 in respect of patrimonial loss was pitched rather high. He would have preferred to try with an offer of a multiplier of times two but he eventually agreed to go along with the others on this matter. However his general view was that Mr. Silva’s advice was sound on all material points. Mr O’Callaghan’s view was that his clients, Thomsons, were at risk of being found liable to Texas jurisdiction particularly because of their dealings in propane gas. Thomsons sold propane gas to Union Texas Petroleum Company in Houston, Texas. He thought that the fact that in Texas juries were used to assessing patrimonial loss on the basis of gross rather than net earnings as in Scotland was in itself an important consideration. He also thought that his clients were at risk of becoming involved in protracted Texas litigation with consequent "horrendous" expense and also that there was at least some risk that they could be found liable in punitive damages. Mr Abbaunza had advised Mr O’Callaghan that awards of enormous punitive damages were a real risk for his clients. He knew that in Texas the spectrum of awards of damages can vary enormously at the upper level so that he was obliged to advise his clients that they were under a considerable risk . In the whole circumstances he had advised his clients that the settlement offered was well justified on the grounds of expediency. He explained that in arriving at the final settlement figures his only interest had been to determine how little it was necessary to offer to fight off the risk. Texaco were advised by Mr Wilkes. They sought independent advice from lawyers in Texas and New Orleans. Mr Wilkes agreed with Mr Silva on the basis of his own experience but he also checked this advice with lawyers on both sides of the Atlantic and with the considerable experience available from Texaco’s in-house lawyers. Texaco’s main business connection was with White Plains in the state of New York. However it was thought that Texaco would be found subject to Texas jurisdiction on the basis that they were joint tort-feasors with the other Participants and that there was some risk that a case based on alter ego would be advanced against them. Mr Wilkes had been advised by Mr Silva that in practice a Texas jury would only pay lip-service to any instruction that on Damages, Scots Law was the law to be applied and he accepted this advice. Texaco’s in-house lawyers and Mr. Wilkes considered that in all the circumstances there was a serious risk that Texaco would be exposed to Texan jurisdiction. Union Texas Petroleum were primarily advised by their in-house Counsel Mr Crain and his staff. Mr Crain was concerned that the participant company he represented would be susceptible to Texan jurisdiction. Many of its employees were recruited in Texas. Moreover it entered into many ventures and agreements with its Texas associates in the Group. They kept a bank account in Houston. Mr Silva had expressed the view that the risk of Union Texas Petroleum Ltd being found directly subject to the jurisdiction of the Texas courts was at least 50/50 but Mr Crain’s view was that the real risk was much higher than that. He considered that the various contracts which OPCAL had entered into in Texas on behalf of the consortium would also be regarded as minimum contacts of the participants with Texas. His own view was that the action raised in Texas on behalf of members of the Busse family would be "like a pot of honey that would attract bears". He thought that the advice which Mr Silva was tendering was good. He had discussed the proposed settlement figures with Mrs Abrahms an experienced litigating attorney in his office and she had advised that if a settlement could be achieved on these figures it would be wise to settle. He himself thought the settlement figures were very favourable . Mr Peyton issued advice to his clients OPCAL’s underwriters. He was in general agreement with the advice received from Mr Silva and Mr Vickery that jurisdiction in Texas against his clients would be established. He was apprehensive about the Busse case in Texas and feared that if this required to be settled for a large amount it would be regarded as a benchmark for the other claims. He knew that American lawyers considered that awards could be obtained in United States courts which were three time higher than English awards although the increase varied from category to category. He knew that Mr Silva regarded sales by OPCAL of crude oil in Texas as being fatal to their case against jurisdiction. Mr Silva had advised that forum non conveniens would not be applied in the state courts in Texas and Mr Vickery and the Californian lawyer Mr Peyton had instructed agreed with that advice. He had been advised by Mr Vickery that a proportion of cases in Texas result in "run away" verdicts. He also had been advised that the jury in the Busse case were likely to "send the other claimants a message". His impression was that the claimants would not settle unless they were offered a substantial increase on what had been previously offered. He had discussed the final offers with his underwriter clients who were all extremely experienced. They all considered that the proposed offers were reasonable. Mr Vickery had originally thought that the multipliers in the offers were slightly too high but he thought that it was important to his clients to avoid the risks inherent in American litigation. He was aware of the risk of punitive damages in America. Even if such damages were not allowable directly a jury might well build them into their compensatory award. He also knew that once the claims were in Texas settlement terms would require to be raised to account for the 30% or so which would be consumed by lawyers’ contingency fees. Insofar as they gave their clients advice Paull & Williamsons relied on Mr Silva regarding questions of Texas law. Mr Silva had advised them that it was likely that jurisdiction could be established in Texas and he was particularly concerned about OPCAL’s sales of crude oil there. He had also advised that the settlement figures were significantly less than what might be expected in Texas. It was obvious there was the prospect of a fiercely contested issue with the claimants as to whether Scots Law or Texas law should apply to the computation of damages but the consensus of all the advice they were privy to was that whatever the strict legal position a Texas jury would be inclined to make large awards in a case like this.
Mr Silva himself gave evidence about the basis of the advice he had tendered to his clients during the settlement negotiations. In formulating the advice he gave he had taken into account his own knowledge of the Occidental Group structure based on the years of experience he and his firm had of acting for the group. He was aware that OPCAL’s crude oil had been sold through Houston, Texas and he thought that this would prove to be an important minimum contact for the purpose of jurisdiction. His view was that the details of the crude oil sales and other transactions would be exposed in extensive pre- trial discovery proceedings. He also had some concern about the possibility of an alter ego case being established showing that OPCAL was in fact only the cover for a Texas company. He had regard to his own considerable experience as a defence litigator in Texas and in particular to his experience of how the Special Appearance procedure worked in practice. He was concerned that the claimants would be represented by top plaintiffs’ Counsel with the experience and resources to conduct a major litigation. He was aware from his personal experience of the judicial climate in Texas at the time at which he was advising and of the tendency of courts and juries to take a liberal view towards plaintiffs including the application of an expansive approach to jurisdiction questions. In his evidence Mr Silva gave an outline of the Texas judicial system and further explained how the advice he had given on jurisdiction had evolved. The basis of jurisdiction is presence within the forum. However in Texas this has been expanded by what is know as the Long-Arm Statute. This was enacted in 1985 and is set out in the Texas Civil Practices and Remedies Code, Chapter 17.041. This provides that for the purposes of the relevant sub-chapter "non-resident" includes (1) an individual who is not a resident of the state; and (2) a foreign corporation, joint-stock company, association or partnership. Chapter 17.042 sets out
"that in addition to other acts that may constitute doing business a non-resident does business in this state if the non-resident: (1) contracts by mail or otherwise with a Texas resident and either party is to perform the contract in whole or in part in this state; or (2) commits a tort in whole or part in this state; or (3) recruits Texas residents, directly or through an intermediary located in this state, for employment inside or outside this state".
Mr Silva explained that these three elements constitute the basic guidelines for Long-Arm jurisdiction and that they are consistent with Federal constitutional requirements. Mr Silva further explained that, with regard to the application of these guidelines to non-residents, two types of jurisdiction require to be differentiated namely specific jurisdiction and general jurisdiction .Where the requisite contacts with the state are related to the subject matter of the dispute the jurisdiction is specific. An example of specific jurisdiction would be when parties enter into a contract in Texas and the litigation arises out of the terms of this contract. On the other hand according to Mr Silva certain contacts with the state are considered to be so substantial and fundamental that they create jurisdiction even in relation to issues unrelated to the business contacts themselves. However overriding the state law is the requirement that any assumption of jurisdiction must be consonant with the Federal requirement of "due process". Thus in effect it must be consistent with "fair play and substantial justice".
The procedure for challenging a jurisdictional question before the state court was by way of a procedure known as Special Appearance. However it was not disputed by any of the experts in the case that the fact that a matter of due process was raised in a Special Appearance would not result in the case being transferred to the federal court system. Mr Silva sought to justify the advice he had given by reference to a number of American cases in jurisdiction. In particular he referred to International Shoe Co v Washington 326 U.S. 310, U-Anchor Advertising Inc. v Burt 533 S.W. 2nd 760, Helicopteros Nacionales de Columbia v Hall 466 U.S. 408, and Schlobohm v Schapiro 784 S.W. 2nd 355 all of which are regarded as leading cases in the field of jurisdiction. Mr Silva accepted that when he was advising he was fighting against time and had to form opinions under the pressure of impending Texas litigation. He specifically referred to the fact that in his experience he had known many more Special Appearances to be refused than to be granted and, on that point, it was contended that he had not been cross-examined. Mr Silva had also analysed Guardian Royal Exchange Assurance Ltd. v English China Clays Plc. 815 S.W. 2nd 223 and Product Promotions, Inc. v Cousteau 495 F. 2nd. 483. He had considered the implications of the Special Appearance procedure. After the initial motion is made it is common to have the matter continued for preliminary procedure including discovery and preparation of affidavits. Mr Silva said that in the Busse case 2 or 3 million pages of documents had been reviewed and he used this to illustrate the efforts that might be expected from able attorneys intent upon establishing jurisdiction. The onus of negating jurisdiction in a Special Appearance rests on the defendant and there is no direct right of appeal against the refusal of the motion. Mr Silva had considerable experience of the Occidental Group. At one time his firm had been responsible for 18 major contracts put together for the consortium. Occidental comprised over 700 companies and about 10% of them did business in Texas. In the Busse case averments of alter ego had been made and in 1988 Mr Silva had been concerned that OPCAL could be vulnerable in this respect. In Busse the pre-trial procedures were still going on in 1990. Mr Silva had experience of parties with different corporate identities having problems with alter ego in relation to Castanho v Jackson Marine Inc. 484 F. Supp. 201, Aff’d 650 F. 2nd. 546 a case in which he had acted. He also knew that because of its dominant connection with the oil industry Texas had a strong interest in regulating it. His view at the time of his advice was that the risk of being found subject to Texas jurisdiction was 75% in the case of OPCAL, 50 - 75% in the case of Texaco Britain Ltd., and 50% in the case of Union Texas Petroleum Ltd. He knew little about the affairs of Thomson North Sea Ltd. It must be noted however that he had limited information about the activities of any of the Participants other than his own clients OPCAL since the others were concerned in case any information released would be caught by the discovery process. He considered that the fact that the platform had been designed in Texas could be used as a minimum contact for the purposes of jurisdiction. He considered that the main significance of the Helicopteros case had been to accept that it was open to the Texas Courts to recognise that in appropriate cases general jurisdiction could flow from sufficiently substantial contacts with Texas. The Supreme Court had only been interested in the due process question. Otherwise he considered that Helicopteros could be distinguished from the Piper Alpha case on the facts. About 1985 a man called Cobb attempted to sue OPCAL in Texas in respect of an accident in the North Sea which had occurred about 1979 and the case had been dismissed because of lack of jurisdiction. Mr Silva claimed that he had not been aware of this case when he advised in Piper Alpha in 1988. However his evidence on that point is not entirely satisfactory for although his own firm had not acted for OPCAL in Cobb a letter was produced under his signature showing that he had had, at least at one time, knowledge of the existence of the case. Mr Silva claimed that he had not seen a copy the opinion in the case and indeed the opinion had not been published which itself is an indication that the case was not considered to be significant. In any event Mr Silva strongly contended that Cobb was an entirely different situation to the present case. Cobb was a case of relatively modest financial value and the attorney acting in the case had only taken limited steps to establish jurisdiction. The discovery process had been geared to special jurisdiction and not general jurisdiction. Whether or not Mr. Silva had forgotten about the Cobb case he claimed it would have had no material effect on his advice. In 1988 Mr Silva thought that there was little prospect that a Texas court would refuse to exercise jurisdiction on the basis of forum non conveniens. The law on that topic was more open in Texas in 1988 than it has become subsequently but the pursuers contended that these subsequent developments have shown Mr. Silva’s view to have been correct. With regard to the assessment of damages by a Texas jury Mr Silva had advised that the actual computation would have been regarded as a procedural rather than a substantive matter and that Scottish rules would not have applied. He accepted that the proper test for choice of law would be the "most significant relationship" test and that plainly on that basis Scottish law should apply to substantive issues. He also accepted that the heads of damages would be governed by Scots Law. The Scottish law on the matter of heads of damages would have been established perhaps by affidavit evidence and if the standards had been thus set out the Texas judge might have read these to the jury. However it should be noted that in Texas the judge charges the jury before the parties’ counsel make their final submissions to it. Mr Silva deponed that when he had discussed the question with Mr Chaffin, a highly experienced Plaintiffs’ lawyer Mr Chaffin had replied " I do not care which law applies. Just give me a Texas jury". Mr Silva considered this pragmatic view to be well justified by experience. Mr Silva had analysed the reported Texas cases on levels of awards and these had brought out much higher figures than Scottish levels. In arriving at values Mr Silva also consulted a research organisation called Jury Verdict Research and he spoke to a number of experienced trial lawyers in Texas. His own estimates won the approval of Mr Vickery and Mr Abbaunza. His opinion was that in most cases the multiplier factor in Texas levels of damages would be very much above the times 2.5 and times 12 the claimants in the death cases had been offered. The use of multipliers in making the offers had been dictated by the need to arrive at levels of compensation above Scottish levels and to treat everyone equally . One feature of Texas jury awards is that there can be vast discrepancies between them. Moreover Texas judges are all elected at four year intervals and therefore they can be very sensitive to local opinion. Action groups, including groupings of Plaintiffs’ attorneys will put up the considerable sum of money required to be elected as a judge. A good plaintiffs’ attorney will choose a venue likely to yield a judge more open to claims by plaintiffs. Parallel actions could be raised simultaneously in four or five different counties and the action which appeared to be proceeding more favourably would be the one pursued finally. A preliminary matter can be raised before a favoured judge and thereafter that judge retains the case. Mr Silva gave evidence that in the late 1980s the judicial climate was such that it was very difficult to have a Special Appearance granted and this evidence was not challenged in cross-examination. With regard to the Busse case the widow’s claim had been settled for $3,500,000 and the child’s claim for $1,500,000. $375,000 was given to each parent. Thus the total settlement arising out of Mr Busse’s death was $5,7000,000. The pursuers contended that weight ought to be given to Mr Silva’s opinions on the risk that Participants other than OPCAL might be found vulnerable to Texas jurisdiction, his views on how Special Appearances might be approached by Texas judges, the tactics which could be employed to select a favourable judge and venue, the general view that Texas levels of damages were higher than Scottish levels, and his analysis of the Busse case. Moreover the defenders had not specified in their pleadings why it was unreasonable to arrive at the agreed settlements.
10. 6 Mr Silva’ s Reliability
The defenders mounted various attacks on the validity of Mr Silva’s contribution to the settlement. In so doing they attacked his reliability as a witness. Mr Silva was in the witness box for 6 days so that the defenders’ criticisms of him require careful consideration.
He gave evidence about the settlement negotiations and that was his principal contribution to the case. However he also explained in outline the relevant features of the Texas system of law so that he has to be regarded not only as a witness to fact in the general sense but also as witness to the special facts regarding the Texas Law. One of the defenders’ criticisms was that Mr Silva did not really become involved in the negotiations as an expert in Texas law but rather as a principal negotiator. They submit that in his evidence he was anxious to justify his role in the negotiations. Mr Silva in his evidence agreed that the principal factor in regulating the amounts to be offered in the settlement was the assessment of the risk that a Texas Court would accept jurisdiction. He accepted that he did not consider that the prospect of the claimants securing jurisdiction in the Texas Courts was 100 % certain so that the settlements depended on evaluating the degree of risk. His view as I have stated was that the risk could have been said to be about a 75% chance that the Texas Courts would accept jurisdiction. Thus if the risk was that the claims could only have 30% chance of succeeding in Texas OPCAL would still have wanted to settle but at a materially lower figure than was actually offered. Anticipating the next chapter I would agree with Mr Silva that the prospect of a claimant persuading a Texas Court to accept jurisdiction could not be described as 100% certain. On any view the matter involved some difficult questions so that at best the claimants had a very good chance of being successful in Texas. Issues which have kept teams of able lawyers arguing before me in opposition for many months could not with conviction be described as totally risk free.
The defenders contended that Mr Silva’s assessment of the actual risk of Texas jurisdiction as being 75%, even within broad tolerances, was critical to the settlement offered. If the risk had been substantially overestimated then the settlement cannot be supported because the amounts offered depend on Mr Silva’s views and are based on a variety of factors such as the delay faced by the claimants and the likelihood that with the cases in Texas they would have required to pay large contingency fees. Mr Silva, it was said, was not asked what precise settlement sums would have been offered if the fact were that the risk of jurisdiction was substantially less than 75%.
The witness Mr Griggs agreed that the settlement offer had to be regulated by the certainty with which the claimants could get their cases before a Texas Court. In my view it is clear that the settling parties were ultimately influenced by Mr Silva’s views although many of them had substantial relevant experience and advice of their own and various steps were taken to test Mr Silva. Mr Griggs was ultimately convinced that the risk of being convened successfully to Texas was "almost a certainty". I accept that the situation of the Participants in relation to vulnerability to jurisdiction was only looked at generally and not in detail.
The witness Mr Crain clearly though that Mr Silva’s view was that the risk in respect of jurisdiction was very serious. He remembered Mr Silva telling him privately that "OPCAL was dead in the water on jurisdiction". But then Mr Crain attested that he thought his own side was at least as precariously based at the time so that in his case the position of OPCAL was not the only factor. He had not divulged his preoccupation to Mr Silva. It will be remembered that he represented United Texas Petroleum and was their in-house attorney. Although he did give details of his fears he was not cross-examined on what he had said. Of course if one Participant were found susceptible to Texas jurisdiction this would have implicated the others.
Mr Wilkes who represented Texaco’s underwriters had been informed that Mr Silva’s views were that the prospect of OPCAL avoiding jurisdiction were minimal if not non existent.
As I have indicated Mr Silva’s assessment of the risk faced by Texaco was 50 to 75%, with Union Texas Petroleum perhaps a 50-50 chance and he was unable to express a view about Thomson. However in private conversation Mr O’Callaghan had mentioned to Mr Silva that Thomsons ran some risk. Mr Silva’s views on the position of the Participants is not very significant since it is not clear how much accurate and comprehensive information he had. We already know from Mr Crain that he had not told Mr Silva about all the factors affecting his employers’ position and that he considered that the risk of UTP being exposed to the Texan Courts was much greater that Mr Silva imagined.
Mr Silva said that on the basis of such information as could be gathered test assessments were made of the values which those claims would have had in Texas. Mr Silva said that he personally had not taken any prospect of punitive damages into account. His own estimates of the valuation of the claims on the basis of Texas damages was supported by very experienced litigation lawyers in his own firm and by various other Texas attorneys he had consulted. I think that Mr Silva’s views on the level of Texas damages was well informed although it must be recognised that the levels of damages which would be awarded in Texas seem to be much less predictable than would be the case with a similar exercise in Scotland. When Mr Griggs consulted Mr Vickery, also experienced in Texas Law. his figures were higher than those of Mr Silva.
Mrs Gray in her evidence disputed the fact that OPCAL were prepared to make generous settlements. Her approach was that the settlement terms were fair. Moreover she though that the decision about what settlement terms to offer was essentially a team effort and I think she was clearly right about that. In a letter to solicitors to one of the claimants she had suggested that the settlement being offered was "generous" and the defenders sought to make something of this. However I think in the letter she was merely trying to persuade the claimants in question to accept the offer. She would hardly in such circumstances have suggested that the settlement terms were niggardly even if that had been the position. Mrs Gray said that the final settlement figures were hammered out after days of work and taking into account the views of a range of experts. Again I consider that this is not an unfair representation of what obviously happened.
There was a meeting in London which Mr O’Callaghan attended in order that the multipliers to be offered to the claimants could be jointly decided. He stated that it was not merely Mr Silva who was there to give advice but also Mr Vickery, Mr Abbaunza, Mr Foster (the Oxy Group’s Legal Counsellor in California) and various solicitors such as Ince & Co. At that meeting the representations made to Mr O’Callaghan had been that it would be necessary to go to the levels which were ultimately offered to achieve a settlement and avoid American litigation. It was also represented that these figures would represent a very good settlement from the point of view of those defending the claims. Mr O’Callaghan thought that perhaps a settlement could be achieved with an offer of a multiplier for Scottish values of only 2 rather than 2.5 but the views of the others at the meeting eventually persuaded him to go along with what became the settlement offer.
Mr Vickery apparently at one point had expressed the view that although the settlement terms were generous they would represent a reasonable settlement in all the circumstances. The implication which the defenders sought to draw for the evidence which I have been discussing was that the settlement was at the top end of the scale even if it was reasonable.
My view is that the considerable body of informed opinion that formulated the settlement proposals was based on a genuine belief that the proposals were reasonable taking account of all the circumstances and risks. It was also based on a wealth of ability and experience, perhaps as much as could possibly have been assembled in the available time. That of course is not conclusive but it might be surprising if all those concerned were all wrong. It is also fair to say that had the estimation of risk of jurisdiction been seen as anything other than high they would not have made the offer they did.
Mr Silva did say that in evaluating the settlements, one account had to be taken of the saving of the costs of litigating in Texas (where on any result the defendants would have to pay their own costs) and this could have involved about $50,000,000 but was nevertheless not an important factor.
The defenders sought to devalue Mr Silva’s evidence in three respects. They criticised certain evidence he had given on Texas procedural matters. They criticised certain evidence he had given about tactics said by him to be available in Texas. Finally they criticised certain evidence he gave about Texas substantive law.
In relation to procedural matters they claimed that Mr Silva had shown himself surprisingly uncertain about certain details. Either he was wrong or had not prepared himself adequately. Thus Mr Silva had indicated that if there was some evidence to support a high Jury award it was difficult to appeal. However he could not recall the judicial guidance to be obtained on the meaning of "some evidence" although he knew that very little evidence was needed. This gap in his recollection may show that Mr Silva’s preparation on the particular point he was making was not complete but he may not have anticipated being cross-examined in detail on the matter in question.
I think the points that the defenders were making have to be assessed against the background of Mr Silva’s position. He was a fairly senior partner in a law firm described as one of the largest in America. He obviously spent time looking after the interests of major clients such as the Occidental Group. Thus for example he accepted that since the Piper Alpha disaster he had spent much of his time on that matter and had not been much in Court. He was not in the words of Mr Currie recently working at the "coal face" of litigation. It seemed to me that his function was to manage litigation and to deal with tactical problems, negotiations and settlements. However it also was clear that at least at earlier stages of his career he had considerable active involvement in the direct conduct of cases.
Thus when Mr Silva was asked what guidelines would be given in relation to a direction about punitive or exemplary damages he was unable to remember what the precise guidelines were. This is not so surprising because his position was that he did not take such damages into account in the settlement negotiations. He was asked about the provision of Bonds to guarantee costs in an appeal. He could not give much help as to what was involved in applications for a Bond. He said the rules had been changed, as with everything else in the last five years. As he said, it is while since he had done one.
Mr Silva indicated that in some Counties (which is what the District Courts cover) judges are elected and thus may tend to be biased against defendants. Thus in some Counties the electorate may be largely persons with Trade Union connections. These judges have been elected by the support of such constituents and may well also have their campaign costs contributed by them. A judge who is hoping to be re-elected may not want to disturb those who vote for him. However he could not precisely remember just for what period District judges are elected although he thought it was four years. The defenders criticised him for this uncertainty. In Scotland we are not familiar with the concept of elected judges. However there seems nothing inherently improbable about the suggestion that a judge may not rush to upset those on whose support his election prospects depend.
In relation to the question of computing loss of earnings Mr Silva had a further slight memory lapse. He knew that either in the Federal system or the State system wage levels are looked at net whereas in the other system they are looked at gross. However he could not remember which way round. Another hiatus in his evidence is that in relation to motions to have a change of venue (the County where the case is tried) he could not recall whether the onus rested on the applicant or the party attempting to sustain the existing venue.
When asked a question about the application of the diversity rules Mr Silva said that this is an area on which he had not consulted for some time so that he would need to look at it before he could give an answer. Another matter he declared he would have to look up is whether an order for re-trial is appealable.
In trying to assess the effect of the said uncertainties that the defenders relied upon it is necessary to consider the context. Mr Silva was in the witness box for 6 days so that he spoke about many matters that were not challenged. The defenders have sought to pick out a few of the less happy areas of his evidence. It is also difficult to know what he anticipated when he came to Scotland. In Texas almost all cases are decided by a Jury (indeed surprisingly I was told that even the present cases would have gone to a jury). Thus one would expect that the jury procedure leads to a certain compression of procedures. It is difficult to know if a Texas witness coming to Scotland would expect to be examined as comprehensively as Mr Silva was. However whether the few lapses in his memory were due to removal from the day to day experience of leading in trials or some other cause it would be fair to say that on detailed matters of procedure the evidence of Mr Silva would have to be regarded with a measure of care. This is not to say that there are not many matters that he spoke to that I can accept with confidence. Certainly those passages of evidence which were not the subject of cross-examination (and these were numerous) would fall into this category. Also it was quite obvious that in forming his views Mr Silva was able to call upon the vast body of professional experience in Vinson & Elkins so that even if he could not always personally explain the basis of some of his views they may have been right although they cannot influence me if I do not know how they were arrived at.
Moving on to the criticism by the defenders of some of the evidence which Mr Silva gave about tactics he had explained the difficulty a defendant can experience in multi-party cases by lawyers manipulating the matter of venue. Mr Silva said that they can divide their cases into batches and raise the actions for each batch in a different venue. This according to Mr Silva could mean that the plaintiffs could wait and see how they got on with different judges and then try to switch venues to their advantage. Mr Silva said he had experienced this directly particularly in a case called Castanho. Evidence was given by the Texas Reparation Attorney, Mr Fisher which may have contradicted this. Perhaps I ought to say that Mr Fisher was an attorney of exceptional trial experience and a former chairman of the Texas State Bar and the Texas Trial Lawyers’ Association. I found him to be a very good witness. It may however be observed that I formed the impression that Mr Fisher was highly principled as an attorney and without being more familiar with the Texas scene I could not be confident that every plaintiffs’ trial attorney would have the same scruples. Mr Fisher observed that there is a provision in Texas for a judge taking a supervisory role in certain large litigations with many plaintiffs and directing that the cases be conjoined at the one venue. It is perhaps worth noting that even Mr Fisher can have memory lapses for in connection with this matter he could not remember the judge who has this authority. Moreover the cases in which he has had direct experience of this procedure were truly exceptional. In one there were 700 to 900 plaintiffs and in the other hundreds. I would not for a moment doubt that Mr Silva had had as he stated direct experiences of the tactic he referred to. However we neither know the date of Mr Silva’s experiences nor the date when the procedure spoken to by Mr Fisher was introduced. It will be recalled that Mr Silva spoke to the fact that all the procedures have been changed during the last five years. Moreover Mr Fisher conceded that it may be possible to have parallel litigations proceeding at the same time in three different Counties but he thought that the possibility was not practicable because of the expense and delay involved. I do not think that this matter raises much of a problem in relation to Mr Silva’s reliability. Nor do I think that the question of split venues is very central to the real issues in this case. In his evidence Mr Fisher indicated that he had taken about 150 jury trials to verdicts and had settled thousands of cases. He was therefore particularly experienced in trials work. It is worth noting that he claimed to have been twice involved in cases where jury verdicts involved awards in excess of $10 million dollars each and many verdicts in excess of $ 1 million. It is interesting that when asked if any of his experience had involved cases with an international dimension he had replied that he had been connected with many cases where the critical event happened abroad including on locations in the North Sea, South China Sea, Thailand, Saudi Arabia and Mexico. We did not explore the details of these cases but they show if nothing else that it is not uncommon for litigants to attempt to have such cases heard by a Texas Court.
In relation to his evidence as to jurisdiction the defenders contended that Mr Silva’s evidence was unsatisfactory. Certainly they had little difficulty in persuading me that in his review of the American and Texas law of jurisdiction he failed to cite certain important cases. Senior Counsel in this context referred me to certain fundamental American cases on ad personam jurisdiction which form the foundation of the law of on the matter. I shall be referring to these fully in the next chapter. Counsel then referred me to various features of Mr Silva’s analysis which he says are erroneous and do not consist with the views of Professor Weintraub which are to be preferred. I do not require to explore the differences. Professor Weintraub as we shall see is a highly specialist expert on jurisdictional matters and in any event I would regard his views for that reason to carry more weight than a general attorney like Mr Silva. Presumably that is why the pursuers led extensive evidence from Professor Weintraub and never attempted to rely on Mr Silva. It seemed to me that in the exercise Mr Silva’s function was to set the scene, so to speak, for the further evidence that was going to be led on jurisdiction. The matter is complicated as will be seen and required extensive elucidation. What is perhaps of more interest is Mr Silva’s perception of how Texas District Courts approach questions of jurisdiction which arise in the Courts. Of course the defenders claim that if Mr Silva is (as they say) confused about the law relevant to jurisdiction then his opinion upon which the settlement proceeded was unreliable and flawed. I doubt if any of the decisions taken at the time of the settlement were based on a comprehensive analysis of the relevant law. The settlement negotiations had to be concluded urgently and at the time none of the attorneys involved would have had the time for the detailed study that was carried out by the other experts who gave evidence in the case. The main significance of Mr Silva’s advice was probably taken by his associates to be his knowledge of Occidental and their affairs, his experience of the general considerations that lead to the determination of jurisdiction issues in Texas, and his experience of handling such matters. Some of his associates such as Mr Crain, Mr Vickery and Mr Abbaunza just to name some were also trained lawyers and in matters of pure knowledge of the law of jurisdiction may not have necessarily deferred to Mr Silva’s opinion. They were well placed to form their own independent opinions and I would be surprised if they did not do so. Nevertheless as Occidental’s long-standing representative and as an attorney experienced in the management of litigations in Texas his views obviously carried weight. In any event as the defenders were at pains to point out the test for the settlement terms is the objective one if in fact the settlement is reasonable. Thus even supposing that OPCAL and its Participants arrived at the settlement terms by a route that was somewhat uncertain provided that they arrived at their correct destination that would suffice. On the other hand the pursuers asked me to use Mr Silva as supporting Professor Weintraub and clearly in many respects he does not do so but I find nothing difficult about that since the Professor is clearly a more specialist expert in his own field and would have to be preferred when views were in conflict.
At an early stage of the negotiation process Mr Silva’s main concern was that the ramifications of the Oxy Group structure would expose OPCAL to a case based on alter ego. However this view apparently changed for that approach was not developed in the present cases. However I am not in any position to say whether or not at the relevant time Mr Silva’s fears about alter ego were justified. Indeed he did not detail quite how he expected alter ego to apply to OPCAL. Moreover when the pursuers attempted to develop certain aspects of alter ego in detail the defenders objected on the ground of lack of averment and the pursuers did not persist. Mr Silva’s experience of large multi-company oil organisations with connections in Texas (where Houston is probably the oil capital of the world) is that if you pry about enough you are likely to find something uncomfortable to any plan to defeat jurisdiction. Moreover a valuable series of actions such as the claimants could raise in Texas would open the way to massive discovery processes which according to Mr Silva’s experience and familiarity with Oxy would be very apt to throw up something dangerous. At the end of the day the question is by whatever route he evolved his views that jurisdiction against OPCAL was very likely to be established was his conclusion in this regard correct. Professor Weintraub indicated in his evidence that although alter ego did not arise as in issue in these cases Mr Silva was justified in being concerned about it. He explained that the standard at the heart of the doctrine is that if the Corporation is merely a tool or conduit of another then the corporate wall will be ignored. Alter ego can arise in relation to liability as well as to jurisdiction. All this has to be viewed against the background observed by Mr Silva when he said that when he visited Occidental premises in London a number of the group corporations enjoyed offices adjacent to one another and that when the same personnel moved from one room to another they changed their representative character. However it is fair to say that the authorities which were examined before me show that alter ego most naturally arises when there has been an attempt to abuse the corporate veil. It may be that by the time of these actions minimal contacts were regarded as a more direct route to an exploration of the jurisdiction question. It has to be noted that when the witnesses speaking to the position of the PADG were asked they accepted that they were 100% certain that they would obtain jurisdiction in Texas and that this would be on the basis of alter ego. Thus Mr Silva’s opinion that OPCAL were exposed to alter ego jurisdiction may possibly have been wrong but it certainly was not eccentric.
The defenders relied heavily on the evidence of their witness Mr Kilgarlin to counter the evidence of Mr Silva that in 1988 the Texas Courts had an expansive policy in relation to jurisdiction. Mr Kilgarlin had been a judge of the Texas Supreme Court from 1983 until 1988 so that he was well placed to know about the policy of that Court over that period. His views are likely to be confined to judges in the Supreme Court. What he did confirm is that the Supreme Court would not interfere with Jury awards unless there was no evidence in law to support it. In relation to the policy of the Court in 1988 he admitted that the court had adopted an expansive policy but only in relation to certain matters. The Texas Courts had lagged behind other American states in the availability of remedies and the Texas Supreme Court became more expansive in this direction. They also in the same period adopted broader attitudes in relation to the effect of the Constitution on decisions. However he stated that in general the Supreme Court had not followed more expansive policies in relation to ad personam jurisdiction although there had been some aberrations. Certainly in the case of Hall v Helicopteros which will be discussed in detail in the next chapter the Texas Supreme Court had adopted a more generous view of jurisdiction than the US Supreme Court.
There was some discussion about the claims made by the Busse family to which I have to an extent already referred. Mr Busse was a Texas resident who was killed in the Piper Alpha disaster. Mr Fisher represented the child and parents of the deceased in their claim against OPCAL. Mr Busse also had a wife who was represented by an attorney called Nichols. In fact OPCAL (through Mr Silva) settled Mr Fisher’s claim so that he did not have to raise his action. When asked if he was confident he could have established jurisdiction in Texas Mr Fisher said that he had made an assumption that he could establish such jurisdiction because of the Occidental presence there. As he put it when he stood on the steps of his Houston office he could see Occidental’s building. He said that at the time when he settled Mr Silva had not even raised the question of jurisdiction. If nothing else this may show that Mr Silva’ s concern that OPCAL had little serious answer to the jurisdiction question was genuine. Mr Silva had suggested that if the Busse case had been allowed to proceed then other Scottish claimants could have attempted as he put it to ride on the Busse bandwagon. Mr Crain supported him on this. Neither was cross-examined on these assertions. The defenders contended that Mr Fisher had not been asked if the tactic described by Mr Silva was feasible. However in the light of the fact that the evidence on the matter had not been challenged this is understandable. Mr Nichol‘s client did raise an action. After some years as I have said the attack on jurisdiction raised by Special Appearance had still not been settled. This illustrates that the defence of no jurisdiction is not a simple one to sustain. The case was also settled eventually.
The defenders argued that not too much could be taken from the failure of Mr O’ Callaghan and Mr Griggs to challenge Mr Silva’s view because it was said Mr Silva had misled them. He had told them that OPCAL were susceptible to Texas jurisdiction because they sold oil in Texas. Of course this begs the question as to whether this information in fact gave the gentlemen a false picture. I shall consider that in the next chapter.
Mr Wilkes in his evidence said that he formed the view that Mr Silva was as much concerned with minimum contacts as with alter ego. In fact in relation to the position of Texaco Mr Wilkes was more concerned with alter ego. The witness Mr Payton was also of the opinion that the negotiators were as much concerned about minimum contacts as alter ego.
At the time of the accident Mr Silva did not know of OPCAL’s oil brokerage arrangements. However he knew that OPCAL had entered into many contracts with Texas companies and this I think formed his main grounds for thinking that OPCAL had substantial trading contracts with Texas. When he heard about the details of the oil brokerage arrangements he considered that this seriously increased the possibility of jurisdiction against OPCAL being established in Texas. He was right in thinking that this was an important factor. The defenders repeatedly criticised Mr Silva for not having arrived at a closely analysed view of the jurisdiction question at the time he rendered advice to his fellow negotiators. However this problem took months of court time to explore and it has to be constantly remembered that the negotiators were flying here and there trying to bring the settlement negations to a conclusion. A full investigation of the jurisdiction issue was going to be complicated and protracted. Massive discovery processes were being contemplated. Thus it was not surprising that the negotiators had to proceed on the basis of a broad oversight of the position enhanced by their experience. As Mr Silva himself declared when he arrived in London for the first time after the accident he had "a sense" of what was likely to happen on the jurisdiction issue " but the opinion was based on not much factual background". His information was to a degree at least later supplemented by the researches of research assistants in his office.
The defenders attacked Mr Silva’s evidence on the basis that many of the opinions he expressed which he claimed were based on his own considerable experience in Court were merely anecdotal. That is so but busy practitioners do tend to build up their experience on the basis of what might not satisfy an academic statistical analysis. This is the best they can do and it is often very useful.
One criticism that the defenders made about Mr Silva’s approach to jurisdiction is that under the relevant law (which I shall later develop) it is always necessary to carry out a fairness analysis to see if the assumption of jurisdiction would meet the federal requirement of due process. It was said to be surprising that he had not specifically applied a fairness analysis to the position of OPCAL. Well even if Mr Silva did not appreciate the fairness test in strict conformity with the analyses to be found in the authorities, Professor Weintraub certainly did and was satisfied that it did not give rise to a problem
Mr Silva gave evidence that it was very difficult for defendants to attain acceptable results before District Courts in Texas and even to a degree Appeal Courts. He said that it was an uphill battle for defendants. His view was that in the late 1970s and 1980s it was fruitless to raise the question of jurisdiction by the procedure known as Special Appearance which is designed to give a defendant an opportunity to contest preliminary matters such a jurisdiction. He thought that all levels of State Courts in Texas were at the time taking an unusually aggressive view of the Court’s right to accept jurisdiction. Mr Fisher for his part thought that there had been some very harsh rules against defendants although he thought that there had been a drastic change in attitudes about the mid-1980s. He indicated that the plaintiff’s bar had actively campaigned to get what he describes as " liberal or moderate" judges elected. Mr Fisher agreed that judges ask people for support and solicit money for their campaigns. He thought that the change he had described had had more impact on remedies than on matters of jurisdiction. Mr Fisher accepted that in 1988 the Bench was plaintiff orientated. There was a clear division between Mr Silva and Mr Fisher as to the degree of prejudice but such a question is bound to depend to an extent on perspective. Parties who habitually act for pursuers or defenders may have different views on the validity of general approach of Courts. Certainly all the witnesses, even those led by the defenders, speak to some change in the attitudes of judges about the late 1980s but one view expressed was that these changes were simply to bring Texas law more into line with mainstream American Law. I do not doubt that in the Courts of first instance particularly judges would be encountered whose standards of objectivity fell below what would have been desirable. Mr O’Callaghan in his evidence refers to a case about alter ego where apparently after a week of discussion the judge said "No one is going to leave this Court until someone pays money". Mr Silva also got some support from an important witness. The pursuers led evidence from a retired judge, Mrs Sondock who had experience not only (for a short time) as an Appeal judge but for many years as a State District Court Judge. She had been involved in many personal accident cases. She confirmed that at the time spoken to by Mr Silva there had been some bias in favour of plaintiffs.
Mr Silva had had from time to time bad experiences which gave him the impression that, as he might put it, the dice were loaded against the defendants even on jurisdiction questions. His view does not stand unsupported because others with some relevant experience thought that it was difficult for defendants to resist jurisdiction in the Texas Courts. I am sure these views are genuinely held but it is difficult to estimate the degree of subjectivity involved. On the other hand it has to be said that I was referred to a fair number of appeal decisions coming from the various levels of the Texas State Appeals system. For the most part in these Reports I did not get the impression that the Court was seeking to decide the questions before them other than fairly. That is not to say that I always felt it easy to reconcile what they had decided with other authorities I had been referred to.
The defenders criticised the general evidence of Mr Silva that a defendant might have difficulty in getting the question of jurisdiction to an appeal. They pointed to the fact that Professor Baade who gave evidence about Equal Treaty Rights had assumed that the questions this raised would get to appeal. Mr Silva may well be right that often in Texas it is difficult to have questions relating to jurisdiction taken to appeal. However he was thinking of a direct appeal after a Special Appearance had been refused. There is no doubt in my view that such special and important cases could be taken to eventual appeal although that of course may involve a slow, uncertain and expensive procedure.
10.6 The Role of the Contractors
The pursuers maintained that the Consortium had taken reasonable steps to keep the contractors and their underwriters informed of their proposals to settle the claims. They further claimed that prior to the settlements the defenders did not take any steps to challenge the proposals of the consortium for settlement. However that generality requires to be qualified in respect of the defenders British Telecom since they do not appear to have been parties to the correspondence which took place between the parties. Despite that it was central to the consortium’s settlement proposals that they be accepted by all the claimants threatening to go to Texas since any claim left unsettled may have represented a focus for other claimants. The question of settlement first was discussed with Contractors at a meeting in London on 2 September 1988 and all the present Contractors including British Telecom were represented at that meeting. The Notes taken at that meeting make it quite clear that at the meeting it was explained to the Contractors that the consortium considered that they would have to offer multiplied Scottish values to secure a settlement. At the conclusion of the meeting the Contractors reserved their position. Following upon that meeting letters dated 8 September were sent on behalf of the consortium to the Contractors in an effort to obtain their support for a settlement (number 12/303A of process item 11). Solicitors representing the defenders (other than British Telecom) wrote to the pursuers’ solicitors by letters dated 10 October 1988 and the clear implication of these letters (all in the same terms) is that it would be reasonable to settle with the claimants at levels of damages above the levels which could be expected in Scotland. However perhaps not surprisingly the precise degree of enhancement which was thought to be reasonable was not specified. Nevertheless it was not suggested that any settlement should be at Scottish levels nor that no settlement negotiations should take place. The Contractors did reserve their right to contest any claim that might thereafter be made against them "in contract or otherwise". These letters purported to be on behalf of the contractors and their Employers’ Liability insurers (their being no mention of Public Liability insurers). The defenders in the test cases (other than British Telecom) became parties to a committee called the "Piper Alpha Insurers Committee". About 13 October 1988 (after the consortium had agreed the outline terms of their proposals at the meeting they held in the Gresham Club on 12 October) representatives of the consortium met with representatives of the Insurers Committee with a view to explaining their detailed proposals. In fact spreadsheets setting out the detailed settlement proposals were produced. At the meeting the Contractors’ representatives after considering the details said that they had little quarrel with the Scottish base levels. It was known that the Insurers Committee were expected to meet later that day and it was hoped that the Contractors would thereafter be able to support the settlement initiative. Following this meeting the Contractors sent a letter through their solicitors to the pursuers’ solicitors dated 13 October 1988 and the letter certainly took no issue with the proposals to settle although the said Committee later declined to take part in the negotiations. What was said was that after considering the relevant factors the settlement proposals were reasonable for Occidental but that since the same exposure, risks and pressures do not apply to the Contractors they can give no assurance that quantum will not be the subject of further dispute. When the letter of 13 October arrived at the offices of Ince & Co. a conversation took place between Mr Sprague and Mr Russell which was described as a "heated exchange". Certainly the Insurers Committee were not given much time to consider their position but I accept that this was due to the pressure the consortium felt to forestall Texas proceedings by advancing the settlement. On 14 October 1988 there was a telephone conversation between Mr Russell and Mr Griggs and the former explained that his committee would think that it was not unreasonable for the consortium to settle in their interests but that the Contractors considered that the multipliers were a bit high on average. Thus the Contractors’ representative did not suggest that it was unreasonable to settle on the basis of a premium over Scottish values although there was a reservation about the appropriate multiplier to offer. Subsequently there was some correspondence between the solicitors for the consortium and Simpson & Marwick on the question of granting the claimants world-wide releases a matter about which Simpson & Marwick expressed concern .
After the agreement of general settlement terms, whenever individual claims were vouched the details of the final settlement with the claimant concerned were sent to Simpson & Marwick in advance of implementation of the settlement. The indemnifiers were at that stage invited to provide the funds required for settlement and in discussions with Mr Russell, Mrs Gray made it quite clear that her approach had been made in respect of the indemnities. The letter she sent was in the form of number 12/301 of process. In the case of British Telecom an equivalent letter was sent to their solicitors. However no replies were received to these letters sent on behalf of the consortium.
Many of the contracts originally entered into with individual Contractors had provided that the Contractor would take out insurance in respect of themselves and OPCAL. During the defenders’ cross-examination of Mr Sprague it was suggested to him that the said contacts with the Contractors during the settlement negotiations were really concerned with the question of joint insurance but Mr Sprague was quite clear that the communications with the Contractors’ representatives had been in relation to the indemnity provisions and aimed at securing financial support for the proposed settlement from the Contractors . Of course it has to be noticed that had the consortium chosen to rely on the Joint Insurance provisions the persons liable would have been the insuring underwriters and these may well not have been the persons ultimately liable under the indemnities. It is perhaps supportive of the pursuers’ view of this question that it was the Contractors whom the pursuers sued in the present action. On the other hand in the Notes of the meeting on 2 September 1988 it is beyond dispute that there was some reference to the possibility of the consortium claiming under the Joint Insurance provisions but equally it was made clear that they were wanting the Contractors and their insurers to support the settlement. Claims under Joint Insurance provisions if made would not have involved the Contractors since they would have been against the underwriters concerned. Indeed in his evidence Mr Sprague said that it was made clear to the Contractors at the meeting that the consortium were hoping that the Contractors would fund the settlement on the basis that they would eventually be found liable to do so. Mr Griggs was also at the meeting and in his evidence said that the consortium’s primary concern was to get financial support under the indemnities. The letter sent to the Contractors’ representatives after the meeting was also sent to those Contractors whose contracts did not contain a Joint Insurance provision. The letters sent to Contractors who had a Joint Insurance provision made reference to that provision and asked to see the policies. There was also a request in the letter for confirmation that employers’ liability and general liability insurers had been placed on notice and this seems to refer to policies different to any that might have been taken out in favour of OPCAL and Contractors. The only difference between the letters sent to Contractors who had no Joint Insurance provision in their contract, and those who had, was that in the latter case the sentence requesting a sight of the joint policy was omitted. Certainly a Mr McMillan who was an underwriter (in respect of three of the Contractors’ employers’ liability policies) was interested in the indemnities and on 5 October 1988 asked to have copies of them. Mr McMillan had earlier been anxious for the formation of a Contractors’ Insurers’ Committee so that they could have a co-ordinated approach. He discussed this with Mr Sprague and this was in the context of claims under the indemnities. He was one of the promoters of the Insurers’ Committee which represented many of the contractors. It was also made clear by him that the contractors had taken legal advice about the claims being contested in America.
The provisions for Joint Insurance in the Contracts were essentially in the following terms: "The contractor shall, at its own cost and expense, procure and maintain (and shall require its contractors to maintain in effect), during the contract period insurance coverage with insurers under forms and policies satisfactory to the company as specified in article 18.2 below. All such policies may be suitably endorsed as to territorial and/or navigational limitations to include the entire scope of operations contemplated by this contract. Further, such policies other than Workers Compensation and Employers’ Liability must include the Company and the Participants as additional insured against claims brought by any other of the insured."
Incidentally in connection with the construction of the indemnity provisions the reference to "the entire scope of operations contemplated by this contract" should be noticed. Article 18.2 of the contract provides that insurance cover is to be maintained by the Contractor. Sub-paragraph i, deals with Employer’s Liability and ii deals with General Public Liability and covers persons and property of third parties to the extent of at least £500,000 for each incident arising out of the performance of the work. The Joint Insurance provisions appear to provide OPCAL with cover against a situation where a third party such as an employee of another contractor suffers injury in consequence of the operations of the Contractor under the Contract being considered and OPCAL also incurs liability as a result. However if the person claiming were an employee of the contracting party then it is difficult to see how such claimant would fall under third party insurance but rather would be regarded as coming under the category of employers’ liability insurance if at all. Thus it is not at all clear that in these cases OPCAL and the other Participants would have any claim under any joint insurance. Indeed it was not even established that Contractors had actually taken out such insurance or that OPCAL would have been aware of the precise terms of any policies. Moreover the Joint Insurance policies were subject to a financial limit likely to be exceeded by claims made on American terms. No doubt OPCAL were anxious to preserve any rights that they may have had under joint insurance but I consider it unlikely that their representations to Contractors during the negotiations would have been primarily concerned with joint insurance or indeed that the Contractors would have been entitled to look at them as doing so.
I have already referred to the case of Comyn Ching & Company v Oriental Tube Company Ltd. where the point I was discussing concerned the effect of certain indemnities (or guarantee letters) but the case also covered a situation where the plaintiffs had settled with those claiming from them in circumstances where the indemnifiers had not approved the settlement terms. Indeed when the indemnifiers were first informed of the detailed settlement proposals it was by that time too late for them have taken any action opposing the settlement. Lord Goff in his judgement made it clear that in the said circumstances the plaintiffs were entitled to recover under the indemnities provided that the settlement was reasonable. He finds support for his opinion in Fisher v Val de Travers Asphalte Company and Biggin & Co. Ltd. v Permanite (both referred to above). He observes that it might not be reasonable to settle if the points in dispute could be determined "speedily and cheaply". He further observes that when the claimants under the indemnifiers are advised to settle by competent and experienced legal advisers this circumstance although not conclusive is important. Moreover the effect of having received advice applies not only to the advisability of settling but to the terms of the settlement. His Lordship also advances as a factor favouring settlement by the plaintiffs the fact that they were facing " long and complex litigation which was bound to be costly, and the outcome of which they could not foresee with any degree of certainty".
When Mr Greene, a Texas attorney and witness for the defenders, gave his evidence he stated that had he been acting for the defendants in proceedings raised by the claimants he would have accepted liability with a view to depriving the jury of too many details of the catastrophe such being likely to encourage the jury to make a high award. If this would have been the appropriate tactical stance then in deciding settlement figures the consortium acted reasonably in not allowing any discount for disputed liability. Even if there had been any realistic prospect of disputing liability a serious question arises as to whether it would have been tactically sound to do so if the case had been before a Texas jury. However the defenders accepted that in the present case they are not contending that the pursuers could have successfully contested liability in any actions brought against them by the claimants.
10.7 Conclusions about the settlement
Mr Silva, as OPCAL’s chief negotiator and an experienced Texas lawyer played an important part in the negotiation of the settlement. Clearly his views enjoyed some respect from the others concerned in the negotiations. However as Mrs Gray said the negotiation was a team effort and the result was not a decision taken by Mr Silva alone. Many of the others involved on the same side of the negotiations were well equipped to form their own independent view. Mr Silva was a shrewd negotiator and I have no doubt that the views he expressed were genuinely held and at least worth consideration. Indeed for what it is worth I am left in no doubt that, in arriving at the settlement they arrived at, OPCAL and the Participants acted reasonably. The team of negotiators they assembled had as much experience and skill as in the circumstances was likely to be available. All who had had experience of American litigation considered rightly or wrongly that Courts there in the case of defendants being part of multi -national corporations with Texas roots were likely to accept jurisdiction. Given the complexities of the problems involved and the number of persons who had to be diverted from litigating in America the prevention of a spate of actions in Texas was a sensitive and urgent task. Thus negotiations had to be carried out without much time for investigations and protracted deliberation. It is obvious even from the conflicts in the evidence that the calculation of prospective jury awards in Texas is a delicate business and also that enormous awards were a possibility. To those concerned in the negotiations and on the basis of the information available to them it seemed most likely that the Texas Court would accept jurisdiction. This opinion was not only that of Mr Silva but that of a number of American lawyers including Mr Vickery, Mr Abbaunza, Mr Foster and Mr Crain. The amounts that were offered in settlement seemed to the united judgment of those concerned to be materially less than the risk that would have ensued if Texas actions had been raised. Moreover the negotiators believed, soundly I think, that if materially lower settlement sums had been offered the claimants would have gone to Texas. If the claimants had gone to Texas then it was of course possible that the defendants’ defence would have caused problems for the claimants but it would have been dangerous to rely on that for once Texas proceedings began it may have been much more difficult to achieve a settlement. Apart from other factors the settlement perceptions of the claimants may have changed adversely because any sums achieved in settlement would have been exposed to contingency fees. The negotiators were faced with a difficult situation where there were many risks and consequently the need for sound judgment. I have therefore concluded that as far as OPCAL and their associates were concerned they acted reasonably in offering and entering into the settlement which they did. Of course as I have said it is a matter of dispute just how far that takes them if the settlement was not in fact reasonable. Moreover the application of the indemnities to the settlement achieved raises different questions