Contents

1. Summary and background.

2. (a) Issues arising under the contracts.

(b) The terms of the contracts.

(c) Summary of contract variations.

3. Construction of the indemnity clauses

(a) Summary of arguments as to the extent of the indemnities.

(b) Conclusions.

4. Contribution.

(a) Summary of arguments in relation to contribution.

(b) Conclusion.

5. Consequential loss.

6. Scottish levels of damages.

(a) Effect of a Scottish decree in the settlement process.

(b) Construction of the indemnities in relation to levels of damages.

7. Tax and Interest.

8. General introduction to the factual issues.

(a) Summary of platform lay-out and production process.

(b) Safety procedure.

(c) Reclaimers’ theory of the accident.

(d) Respondents’ objections to the reclaimers’ theory.

9. Novus actus interveniens.

10. The available direct evidence.

11. Vernon’s knowledge.

12. Two particular issues.

(a) Jagging.

(b) The evidence of Grieve.

13. Gas dispersion.

14. Conclusions.

(a) Approach to the factual issues.

(b) Balancing factors.

At about 10.00 p.m. on 6 July 1988, a disastrous explosion and fire occurred on the Piper Alpha Oil Platform located in the North Sea about 110 miles north-east of Aberdeen. There were 226 persons on board the platform, of whom 165 were killed while others were injured. Other persons lost their lives or were injured in the course of rescue operations. At the time of the accident, the platform was under the control of Occidental Petroleum Caledonia Limited (OPCAL) as the operating company on behalf of a consortium concerned in the exploitation of the Piper oil field under the relevant licence. Thirty one of those who were killed on the platform were employees of the operating company; the remainder were employees of one or other of a number of contractors who were engaged, under contracts with the operating company, in the provision of services on board the platform. At the time, OPCAL was one of the Occidental group of companies. Since that time, it has ceased to be part of the Occidental group and become attached to the Elf group of companies and has changed its name to that under which it appears in the present actions.

Following the disaster, a large number of claims were made against OPCAL and were eventually settled by them, the costs being met by the insurers of OPCAL. Many of these claims arose from the deaths of or injuries to employees of contractors. Subsequently, actions were raised by the pursuers and reclaimers against the contractors with the object of recovering from them the sums paid out in settlement of the claims relating to contractors’ employees. There are a large number of such actions. The seven actions with which this reclaiming motion is concerned have been selected as representative, it being understood that the decision of the issues in these actions should govern the remaining cases. The actions were sent to proof, which occupied 391 days before the Lord Ordinary. On 2 September 1997, the Lord Ordinary issued his decision, the effect of which was that the pursuers failed in respect of all their claims, except for one relatively minor claim in respect of an injury to a contractors’ employee which did not fall under OPCAL’s insurance arrangements. In the course of his decision, the Lord Ordinary considered and made findings upon a large number of factual issues, many of a complex and technical nature. The pursuers have reclaimed against the Lord Ordinary’s decision against them, which was based on issues of law. The defenders have marked a cross reclaiming motion in which they challenge the Lord Ordinary’s decision on questions of fact, as well as on some issues of law.

The details of the membership of the consortium, or joint venture, and of the relationship between the consortium and the operating company are set out in the Lord Ordinary’s opinion and, like a great many matters of detail which will be referred to in the course of this opinion, do not need to be repeated. It is a requirement of the legislation applicable in the North Sea that each platform should be under the control and direction of a single operator, who bears responsibility for everything that happens on the platform. It was apparent to everyone concerned, from the moment that the disaster occurred, that OPCAL would have to carry responsibility towards the families of those who had been killed and to those who had suffered injury as a result of the disaster. Almost immediately after the disaster, OPCAL instructed Scottish solicitors to act on their behalf in respect of the claims which would obviously follow. Very shortly after the disaster, it appeared that lawyers from the United States were interested in undertaking the pursuit of claims and were looking to encourage the families of the persons who had been killed to instruct them to make their claims there, in particular in Texas. OPCAL’s advisers took the view that they should encourage claimants to make their claims in Scotland and in that approach they were supported by Scottish solicitors and by the Law Society of Scotland. As a result, before the end of July 1988, a group of claimants and their solicitors had been organised, under the name of the Piper Alpha Disaster Group (PADG), which eventually represented the great majority of the claimants. There were three other small groupings of claimants, all represented by solicitors in the United Kingdom. Only one claimant, a person who had suffered injury in the disaster, actually made a claim in Texas. However, the legal representatives of the claimants in the United Kingdom were well aware of the possibility that claims might be pursued in Texas and that such claims might, if successful, lead to awards of damages considerably higher than those available in the United Kingdom. That possibility figured very largely in negotiations carried out between a steering group on behalf of the PADG and representatives of OPCAL and the other members of the consortium and their insurers. From an early stage, the steering group made it clear that they would not be interested in offers in settlement of their claims based only on Scottish levels of damages. In the process of negotiation, the parties selected a number of sample cases and began by agreeing what would be the Scottish levels of damages appropriate to those claims. They then proceeded to negotiate factors which should be applied to increase the Scottish levels of damages to a level which might be acceptable to the claimants, always bearing in mind the possibility that claims might have been made in the United States. By the end of 1988, it had been agreed in broad terms that a multiplier of 12 should be applied to the Scottish levels of damages for loss of society and a multiplier of 2.5 to the Scottish levels of patrimonial loss. There were a number of other matters, such as the amounts payable to the parents of deceased victims, which also required to be settled. Multipliers were also agreed to be applied to the levels of solatium payable to survivors who had suffered injuries. An elaborate procedure was set up for the verification of claims, for the settlement of disputed issues and for the form in which settlements were to be given effect. These arrangements included provision for arbitration in disputed cases. It was also part of the arrangements that actions should be raised in the Scottish courts and that decrees should be obtained for the sums agreed or settled by the arbitration process, that payment should be made on such decrees and that full discharges should be granted by the claimants. The purpose of these arrangements was to endeavour to ensure that the settlements should be final and should be not capable of being re-opened in any jurisdiction. In view of the importance of the threat of proceedings in the United States, and in particular in Texas, in the negotiations, it is relevant to mention here that one of the issues discussed at length in the proof and the submissions before the Lord Ordinary was whether the claimants could have succeeded in obtaining jurisdiction in Texas. The Lord Ordinary held that they could have succeeded, and that decision was not challenged in the reclaiming motion; a question does, however, remain as to whether, in view of the reasons which the Lord Ordinary had for finding that jurisdiction could have been established in Texas, enhanced levels of compensation are recoverable in these proceedings.

Steps were taken to keep the contractors and their insurers informed as to the progress of the negotiations and the proposals to settle the claims. In particular, it was explained at a meeting on 2 September 1988, at which all the contractors involved in these actions were represented, that the representatives of OPCAL and the consortium considered that they would have to offer sums substantially above Scottish values to obtain a settlement. The contractors reserved their position. Correspondence followed in which attempts were made by OPCAL to obtain the support of the contractors to a settlement. The details of the correspondence and certain meetings in that connection are set out by the Lord Ordinary. The discussions were conducted under some pressure, because of the anxiety of OPCAL and the consortium to forestall proceedings in the United States, and, at one stage at least, there was what was described as a heated exchange. I think that what took place can fairly be summarised by saying that the contractors did not seriously or positively suggest that it would be unreasonable for OPCAL and the consortium to settle at levels above those of Scottish damages, but that they did not commit themselves to accepting the settlement proposals and reserved all their rights to contest any claims made against them. As the settlement process proceeded, details of the settlements made were sent to the legal representatives of the contractors who were invited to contribute to the settlements but declined to do so.

In the actions, the pursuers and reclaimers maintained that the initial explosion which caused the disaster occurred as result of a release of hydrocarbons from the site of a pressure safety valve in a section of the platform known as module C. The process on the platform, which all parties agreed was extremely hazardous, involved, firstly, the separation of hydrocarbons coming onto the platform from undersea wells into oil and gas fractions. The oil was dispatched through a main oil line towards the Flotta Terminal. The gas underwent further treatment, the purpose of which was to recover further hydrocarbons from it in liquid form: the liquid so recovered was referred to as condensate. The condensate eventually went to two condensate injection pumps, situated on the deck known as the 68-foot level, under module C. These pumps raised the pressure to a level at which the condensate could be injected into the main oil line. Each of the two condensate injection pumps was equipped with a pressure safety valve. On the day preceding the disaster, one of the condensate injection pumps, known as pump A, was not in operation. Employees of one of the firms of contractors, Score (U.K.) Ltd., who were engaged to recalibrate valves, had taken advantage of the opportunity to remove the pressure safety valve for recalibration. The gap left by the removal of the pressure safety valve had been closed by fixing blind flanges to the pipework. That work was done by one of the Score employees named Terence Sutton. The valve could not be refitted on that day. At about 9.30 p.m., the condensate injection pump which had been in operation up to that point, pump B, tripped and could not be restarted. The reclaimers’ case was that the lead production operator, Robert Vernon, decided to restart the condensate injection pump which had been out of service, in ignorance of the fact that the pressure safety valve had been removed and not replaced. In order to do so, the reclaimers allege, he introduced hydrocarbon under pressure into the pump. There was then an escape of hydrocarbon from a blind flange, because Sutton had not fitted the flange properly. It was not disputed by the reclaimers that that narrative involved negligence on the part of Vernon in failing to keep himself informed as to the work which had been done and perhaps in other respects, but they maintained that the accident was also caused by negligence on the part of Sutton in failing to fit the blind flange properly. Both Sutton and Vernon were killed in the disaster.

The reclaimers’ theory of how the accident happened was in substance accepted by the Lord Ordinary. In the cross reclaiming motion, the respondents maintain that the Lord Ordinary erred in finding the reclaimers’ theory of the accident established, on three main grounds and a number of subsidiary ones. The first of the three main grounds is that Vernon must have known that the PSV had been removed and not replaced and that, with that knowledge, he would not have repressurised condensate injection pump A: the respondents maintain, as an alternative, that if Vernon did repressurise the pump with that knowledge, the accident was due to wilful misconduct on this part. The second main ground is that there was no basis for holding that Sutton had acted negligently. The third is that the evidence available about the behaviour of condensate released from pressure, in the manner that the reclaimers’ theory requires, did not fit with the evidence about what happened on the platform at the time of the disaster. The respondents also criticise the Lord Ordinary’s approach to the evidence and maintain that the evidence available was circumstantial and fragmentary and could not justify drawing the conclusions which the reclaimers sought and which the Lord Ordinary accepted; and there are a number of other grounds on which they maintain that the reclaimers’ case must fail, which can only be explained after some more detailed consideration of the evidence.

The reclaimers’ claims against the respondents are founded on indemnities granted in the various contracts. One of the provisions common to the contracts is that a party is not entitled to be indemnified if the event giving rise to the claim was caused by the sole negligence or wilful misconduct of that party (or an employee of that party). It is for that reason that the issue whether Vernon was guilty of wilful misconduct. The respondents maintained that the indemnities granted by the contractors only came into operation in the event of the contractors themselves being negligent, it being well established and agreed that none of the contractors (leaving aside Score) was negligent. On that issue, the Lord Ordinary held in favour of the reclaimers. The respondents further maintained that the reclaimers had been reimbursed by their insurers for the claims made against them and that the indemnity contracts were contracts of indemnity and indemnity only; as a result, they fell to be approached in the same way as insurance contracts. From this, the respondents drew the conclusion that the contractors were not liable to reimburse the reclaimers but were liable, if at all, only in a claim for contribution by the insurers who had paid out to the reclaimers. On that issue, the Lord Ordinary held in favour of the respondents. Further issues which were raised under the contracts were whether in terms of the indemnities anything more than the Scottish level of damages was recoverable and whether the claim for recovery was excluded by certain provisions related to consequential loss. On these issues also the Lord Ordinary decided in favour of the respondents. The terms of the contracts and the issues arising under them are set out in more detail in the next section of this opinion. The result of the Lord Ordinary’s conclusions was that, although the reclaimers had established their case as to how the disaster occurred, the respondents were successful in all the actions except one, and decrees of absolvitor were pronounced. The one exception was a case in which the claim, which was at the instance of an employee injured in the disaster, was, through an oversight, not covered by the reclaimers’ insurance arrangements, a situation referred to as the "Oxy gap". In that case, the Lord Ordinary granted decree for a modest sum.

In each of the seven test cases, the contract between the reclaimers and the contractor included indemnities given by each party to the other and provisions limiting liability for what may briefly be described as consequential loss. There are four major issues and a number of subsidiary issues in relation to each of these contracts. The first major issue is whether the indemnities granted by the contractors in favour of the reclaimers come into operation only in the event that the contractor has been guilty of some fault, negligence or breach of statutory or other duty: this issue is critical because it is common ground that none of the contractors (apart from Score) was guilty of any such fault or breach of duty. This issue can be referred to as the issue of construction of the indemnities. The second issue is whether the indemnities granted by the contractors are to be considered as "contracts of indemnity and indemnity only" with the consequence that they fall to be treated as being on an equal footing with the insurance contracts entered into by the reclaimers: since the reclaimers have been reimbursed by their insurers for the claims made against them, apart from the limited class falling into the Oxy gap, it is contended that the contractors are not liable to reimburse anything to the reclaimers but that, if they are liable at all, they are only liable to a claim for a contribution by the insurers who have paid out the claims made against the reclaimers. This issue is conveniently referred to as the contribution question. For reasons which will be developed later, the first and second issues seem to me to be closely related. The third issue is whether, on the assumption that the reclaimers can recover something under the indemnity provisions, the amount actually paid out by the reclaimers’ insurers cannot be recovered, at least in whole, because such recovery is excluded by certain contract provisions excluding liability for consequential loss. This issue is referred to, therefore as the consequential loss question. The fourth major issue is whether, in any event, the indemnities were framed with reference to Scottish levels of damages and therefore anything beyond Scottish levels of damages cannot be recovered. Again, the third and fourth issues are to some extent related. In order to consider all these issues, and the further subsidiary issues, it is necessary to have in mind the whole relevant provisions of the various contracts. In many respects, the provisions of the contracts are identical or very similar but there are differences between some of the contractual provisions and these differences are at least capable of affecting the result. Cumbersome as it may be, therefore, it seems to me necessary to set out in detail the nature of the contracts in the seven test cases and the provisions relevant to the contribution question. The terms relevant to the consequential loss issue and their variations are set out in section 5 of this opinion. In setting out the contracts, it is convenient to begin with those which raise the first major issue in its starkest and, in a sense, simplest form.

The London Bridge contract was a contract by which the contractor agreed to supply a safety operator to work on the Piper Alpha platform during the whole of 1988. The scope of the work included in the contract is defined as the carrying out of the work of a safety officer under the direction of the reclaimers. It appears that in order to perform the contract the contractors had three employees of whom only one would normally be on the platform at any given time. The contract value was in the region of £150,000.

The relevant provisions are found in clauses 17, 18 and 20. Clause 17 is headed "Indemnities" and is divided into three sub-clauses. Clause 17.1 is headed "Contractor’s Indemnities" and provides:

Paragraph 17.2 is headed "Company’s Indemnities" and provides:

Clause 17.3 provides:

Clause 18 is headed "Insurance" and clause 18.1 requires the contractor to maintain suitable insurances in force covering the risk defined in clause 18.2. Clause 18.2 provides:

Clause 18.3 deals with the obtaining and exhibiting of certificates of insurance.

Consequential loss is regulated by clause 20 which provides:

The period of the contract in this case was something in excess of one month and the scope of the work was the provision of certain plant and an operator of that plant to assist, under the directions of the reclaimers, in installing a particular riser on the platform. Only one employee was involved and the contract sum was £35,000. In this contract the indemnity provisions were found in clause 13 and were identical with the provisions in the London Bridge contract with only two differences. The first, which is of less significance, is that in clause 13.1.d (the contractor’s indemnity for third party injury and property damage) the limit of liability is stated to be £500,000 per occurrence. The second difference is that clause 13.3.2 contains a definition of sole negligence in the following terms:

The consequential loss provision is found in clause 16 and is identical to the provision in the London Bridge contract.

This contract covered the period from January 1988 until October 1989 and the scope of the work was the provision of diving services at the platform and elsewhere, including the Flotta Terminal and work from service vessels. The estimated value of the contract was £3,000,000. In this case, the indemnities are found in clause 17 and are identical with those in the London Bridge case except that the limit of liability for third party injury and property damage is stated to be £2,000,000 per occurrence. In addition, there is a definition of sole negligence which is in clause 17.3.c and is identical to that in the Pickup No. 7 contract.

By clause 14.2, the contractor in this case is required to maintain employer’s liability and workers’ compensation insurance to comply with statutory requirements; and general public liability insurance in respect of the 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. Clause 14.1 provides that insurance policies to be maintained by the contractor other than workers’ compensation and employer’s liability policies must include company and participants as additional insureds. It also provides that the policy will indemnify the additional insured against any claims brought by any other of the insureds; and that these insurances should be primary and not contributing with any other insurance available to the company or participants. There is a consequential loss provision, as in the other cases.

Reference was also made to clause 16.03 which is headed "Administration & Communication" and provides inter alia that each party shall give prompt notice to the other of claims relating to the contract and shall not settle any claim for which it holds another party harmless without giving notice to and receiving the consent of the other.

The contract between the company and Eastman Christensen covered the period from January 1987 until December 1988 and the estimated value of the contract was £3,300,000. The scope of the work was the provision of personnel and equipment for directional drilling, a specialist and expert service. The indemnities in this contract are contained in clause 15. Clause 15.1 is headed "Contractor’s Indemnities" and provides:

In argument, the foregoing provision was often referred to as a preamble and this, and the other contracts containing an identical provision were referred to as "long preamble contracts". The description of the provision as a preamble, however, might be taken to imply some view of the relationship between this provision and other provisions in the contract. It is useful to have a way of referring to this type of provision, but it seems to me better to call this a general indemnity.

After the general indemnity, clause 15 sets out the same five heads of indemnity, under headings (a) to (e), as are found in the London Bridge and the preceding contracts. The company’s indemnities are found in clause 15.2 and the general provision and heads (a) and (b) are identical to the terms of the previously considered contracts. Clause 15.2.c provides:

Under clause 16, the contractor is required to maintain insurance, in terms substantially the same as those in the previous contracts except that the amount specified for general public liability insurance is $5,000,000 and there is a requirement that there should be professional negligence cover for at least £1,000,000 per occurrence. Once again there is a consequential loss provision, in the terms previously set out.

The contract in this case covered the period of three years from November 1987 and the estimated value was £7,000,000. The scope of the work was the provision of personnel for platform support duties in accordance with exhibit C to the contract from which it appears, without going into detail, that personnel would be required for the performance of a number of duties of varying sorts including, for example, electrical and engineering and plumbing services.

The indemnities in this contract are found in clause 15. Clause 15.1 sets out the contractor’s indemnities and is substantially in the same terms as the contract in the Eastman Christensen case except that the words which introduce the second paragraph of the indemnity, which contains the five specific sub-heads, after the general indemnity in the first paragraph are:-

The company’s indemnities in the Wood Group case are identical with those in the Eastman Christensen case. The sum required to be insured under the general public liability heading is £5,000,000 for each incident arising out of the performance of the work. The consequential loss provision is again identical with previous contracts.

The contract in this case covered the period from 1988 until 1991 and the estimated value was £5,000,000. The scope of the work was the provision of labour and services for catering, housekeeping and laundry work. The indemnities are found in clause 15 and clause 15.1, the contractor’s indemnities, is substantially identical to the clause in the Eastman Christensen case except that under head 15.1.d there is a limit of £2,000,000 imposed on the indemnity in respect of third party injury and property damage. The sum for which general public liability insurance is required to be maintained by the contractor is also £2,000,000. The company’s indemnities are identical with those in the Eastman Christensen and Wood Group cases. The consequential loss provision is again identical.

The contract sum in this case was £40,000. There was no specified period for the work but since the scope of the work was the supplying, installation and commissioning of replacement telecommunications antennae the period would clearly be limited and was probably in the region of six to eight weeks. The terms of the contract in this case appear to have been based on standard terms of B.T. and are quite different from those in the other cases above set out. The first relevant provision is clause 8 which is headed "Limitation of Liability" and provides, inter alia:

Clause 8.7 provides that each provision of paragraph 8 is to be construed as a separate limitation. Paragraph 7, to which reference is made in paragraph 8.1, is concerned only with responsibility for faults in equipment provided by B.T.

Clause 10 is headed "Indemnity for Off-Shore Work". Clause 10.1 provides that notwithstanding clause 8.1 but subject to the remaining limitations of clause 8 and certain conditions of sale attached, the contents of which are not material, clause 10 is to apply to the work on Piper Alpha. Clause 10.2 is in the following terms:

Clause 10.3 which is headed "Customer’s Indemnities" provides for indemnities substantially the same as those included under "Contractor’s Indemnities" in the other contracts and clause 10.4 defines wilful misconduct, again in substantially the same terms as those in the other contracts.

The variations in these contractual provisions can be set out, in summary form, as follows:-

1. London Bridge Engineering Ltd.

2. Northern Industrial & Marine Services Co. Ltd.

a. limit of indemnity in subparagraph (d): £500,000 per occurrence.

3. Stena Off-Shore Ltd.

a. limit of indemnity in subparagraph (d): £2 million per occurrence.

b. public liability insurance obligation: a minimum of £2 million in

4. Eastman Christensen Ltd.

a. "Without prejudice to the foregoing generality...".

5. Wood Group Engineering Contractors Ltd.

6. Kelvin Catering Ltd.

7. British Telecommunications plc

The terms of the contracts in six of the test cases are to a large extent identical or very similar but there are differences between them which may be important. The British Telecom contract contains rather more differences from the other contracts but there are similarities between some of its provisions and those of the other contracts. The remaining six similar contracts all contain provision for indemnities given by the respondents to the reclaimers and by the reclaimers to the respondents and all of them contain provisions excluding liability for consequential loss in identical, or virtually identical, terms. The indemnities given by the reclaimers are also identical except that in two of the cases (the Wood Group and Eastman Christensen contracts) there is an indemnity against damage to the well which is not present in the other contracts. This difference may, perhaps, be explained on the ground that the work comprised in the two contracts which contained that indemnity involved a particular risk of damage to the well through the work of the contractor.

The indemnities granted by the contractors all contain the five individual indemnities, or heads of indemnity, sometimes referred to as the "core" indemnities. These are the indemnities in respect of non-compliance with laws; patents or similar items of intellectual property; injury to or death of employees of the contractor or damage to the contractor’s property; damage to third parties; and pollution. In five of the cases there is a limit on the amount of the contractor’s liability in respect of the indemnity against damage to third parties, varying from £500,000 in the case of the Northern Industrial contract and, in some circumstances, the London Bridge contract, up to £5,000,000 in the case of the Wood Group contract; in the Eastman Christensen case there is no limit on liability. Three of the contracts contain the general indemnity provision preceding the five core indemnities. These are the Wood Group, the Eastman Christensen and the Kelvin Catering contracts. In the case of the Wood Group and Eastman Christensen contracts, there is a limit of £1,000,000 placed on the general indemnity; in the Kelvin Catering case there is no such limit. In the Eastman Christensen contract and the Kelvin Catering contract, the indemnities set out under the five specific heads follow the general indemnity and are introduced by the words "Without prejudice to the foregoing generality"; in the Wood Group case, the words are "In addition but without prejudice to the foregoing generality".

All of the contracts contain a definition of wilful misconduct in identical or virtually identical terms. Only two of the contracts contain a definition of sole negligence, namely the Coflexip Stena and Northern Industrial contracts.

Parties were agreed that, despite the fact that many of the relevant provisions of the contracts are identical, the differences between them were such that it was necessary to look at each contract individually, and that the proper construction would not necessarily be the same in each case, notwithstanding the fact that it is reasonably obvious that most of the provisions must have been used by the reclaimers as standard contract terms. Parties were also agreed that it was not possible to see any development in the pattern of the contracts over time nor any other helpful pattern in the way that the contracts had come to be made. Further, parties did not suggest that the amounts of, for example, the required insurance or the limits of liability imposed in certain provisions of the various contracts were of assistance in their construction, although reference was made, in general terms, to the role of the provisions in regard to insurance as relevant to construction.

Parties also agreed that the question of the proper construction of the contracts must be considered against the background of the environment in which the contractors were expected to operate and, in particular, the regulatory regime under which North Sea operations were carried out. As regards the environment in general, all work carried out on the platform was under the control of the reclaimers as the operators of the platform. The reclaimers did have employees of their own on the platform (at the time of the disaster 37 out of the total of 226) but a great many, possibly the majority, of operations on the platform were carried out by employees of contractors working under the direction of the reclaimers’ supervisory staff. Each of the contractors would therefore know that the work required to be carried out in an environment in which not only employees of the reclaimers but also employees and property of other contractors were liable to be affected. Activities in the North Sea oil industry are closely controlled by regulations made under section 6 of the Mineral Workings (Off-Shore Installations) Act 1971 and these regulations may give rise both to criminal and, in terms of Regulation 11(1), civil liability. Apart from any more detailed provisions, Regulation 32(1) of the Off-Shore Installations (Safety, Health and Welfare) Regulations 1976 provides that it is 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 in respect of any off-shore installation; and Regulation 32(2) provides that it is the duty of the employer of an employee employed for work on or near an off-shore installation to ensure that the employee complies with any provision of the regulations imposing a duty or a prohibition on him. Further, under Regulation 32(3) it is the duty of every person while on or near an off-shore installation not to do anything likely to endanger the safety or health of himself or other persons on or near the installation or render unsafe any equipment used on or near it; and also to co-operate with his employer in securing compliance with the regulations and to report any defect likely to endanger safety. Consequently, a scheme of strict liability is imposed on operators and employers and also on employees. The extent of that liability is illustrated by the decision in MacMillan v. Wimpey Off-Shore Engineers and Contractors Limited 1991 S.L.T. 515 in which it was held that the responsibility placed on an employer under Regulation 32(2) was an absolute one, imposing not only vicarious liability for the default of an employee but also a direct duty to guarantee compliance with the regulations by employees. It was further held that the duty extended to the protection of workmen at all times while they were on or near the installation, not only while they were actually working, so that the employer might be liable for an assault committed by an employee during a time when he was not at work.

In presenting their argument on this topic, the respondents began with the Eastman Christensen contract, one of those which contains the general indemnity provision. The reclaimers, on the other hand, began from the London Bridge contract, which lacks the general indemnity provision. On both sides, the argument naturally tended to emphasise those words and phrases in the contracts which were most favourable to the broad position of the party advancing them. In addition, in the course of argument, a considerable amount of ingenuity was expended in examining examples of situations which might, with greater or less probability, have been supposed to be in the contemplation of parties and which might illustrate the effects of particular constructions of the contract terms. It would be burdensome to attempt to follow all the twists and turns of the arguments presented and it is doubtful whether to attempt to do so would be of any particular help in resolving the problems which arise. It is sufficient, in my view, to set out in broad terms the general position of the parties on the major issues which separated them.

Generally, the respondents submitted that the indemnities should be construed contra proferentem and therefore against the interests of the reclaimers who were both the persons who stipulated the relevant terms and those who relied upon them. Reference was made to Youell v. Bland Welsh [1992] 2 Lloyds L.R. 127 and to Canada Steamship Lines Limited v. The King [1952] A.C. 192. The principles of the latter decision had been accepted in Scotland in North of Scotland Hydro Electric Board v. D. & R. Taylor 1956 S.C. 1 and Smith v. U.M.B. Chrysler (Scotland) Limited 1978 S.C. (H.L.) 1. The latter case decided that the principles which applied in the construction of a clause excluding liability also applied in the case of an indemnity. In both cases it might be said that the original basis of the reasoning which led to the restrictive approach to such clauses was the inherent improbability of a party accepting liability for someone else’s negligence, but the principle of strict construction had been established by a tract of authority and it was not necessary to consider the question of improbability. The same approach could be seen to have been applied in Ailsa Craig Fishing Company Limited v. Malvern Fishing Company Ltd. 1982 S.C. (H.L.) 14, in which Lord Fraser had referred to specially exacting standards, and Bovis Construction (Scotland) Limited v. Whatlings Construction Limited 1995 S.C. (H.L.) 19. The result was that there were rules of construction which must be applied; these rules derived from the Canada Steamship case and, in particular, the third rule mentioned by Lord Morton in that case, the result of which was that negligence could not be covered by an exemption or indemnity clause unless specially mentioned. Even after construing the contract, and deciding that it was intended to deal with the question of negligence, for example where there was specific reference to negligence, it was still necessary to apply a strict construction, so that, if there were any doubt about the construction which the court was inclined to favour that doubt should be resolved against the party relying on the indemnity. Reference was made in this connection to Murray v. Caledonian Crane & Plant Hire Ltd. 1983 S.L.T. 306. In practice, the result was that it was enough for the respondents to be able to point to a sensible construction which the provision in question might be capable of bearing and which was contrary to the submission put forward by the party founding on the clause. If such a construction led to redundancy, that was not an argument against adopting it: see Beaufort Developments (N.I.) Limited v. Gilbert Ash (N.I.) Limited [1998] 2 W.L.R. 860.

In response to these general propositions, the reclaimers submitted that the role of the court was to ascertain the intention of the contracting parties from the language which they had used in the light of the surrounding circumstances taken to be in their knowledge at the time of contracting, taking account also of the fact that the indemnities relied on were part of a set of contractual provisions which included indemnities given by each party to the other in respect of the death of or injury to their respective employees. The propositions advanced by the defenders went far beyond the normal rules of contra proferentem and strict construction as they had been discussed in Smith v. U.M.B. Chrysler supra and Ailsa Fishing Company v. Malvern Fishing Company supra. Reference was also made to the The Raphael [1982] 2 Lloyds L.R. 42.

The respondents further submitted that it could not be suggested that the approach to construction should be any different because there were reciprocal indemnities between the reclaimers and the contractors. The indemnities were not, in any case or on any view, properly reciprocal. In Nelson v. Atlantic Power & Gas Limited 1995 S.L.T. 102 the view had been taken that contractual provisions under which each party was responsible for injuries to its own employees were reciprocal and should receive effect, but in that case the indemnities had truly been exact counterparts of one another as was clear from the opinion of the Lord Ordinary where the indemnities were set out in full. Similarly, in E.E. Caledonia Ltd. v. Orbit Valve Co. Europe [1994] 1 W.L.R. 1515 there was a bilateral provision which was in terms reciprocal; and in any event the decision had been partly affected by a concession noted at page 1522H. In the present case it could not be said that each party was simply accepting liability for its own employees, come what might. The indemnities were inherently qualified by reference to sole negligence and wilful misconduct and the company’s indemnities were qualified by the expression "in relation to this contract" for which there was no equivalent in the contractor’s indemnity. In regard to third party injuries, the contractor granted an indemnity irrespective of any negligence by the operator and the operator granted no such indemnity. There were cases in which the words "in relation to this contract" could make a difference, for example where a contractor’s employee injured an operator’s employee while off duty. In any event, the existence of reciprocal indemnities was not a reason for a different approach to construction. Lord Morton’s tests applied not merely in determining whether negligence was covered by the terms of an indemnity but also in determining the extent to which it was covered.

In reply to this argument, the reclaimers submitted that it was established by the authorities referred to in the respondents’ argument that the fact that there were reciprocal indemnities was a relevant consideration and went to eliminate or reduce the effect of the argument that it was unlikely that any person would accept liability for injuries caused by the negligence of another. The indemnities which were important for the present purposes, those relating to death or injury of employees and injury to property of the contractor and the operator, were reciprocal and this could therefore be a relevant factor in their construction.

As I have mentioned, in dealing with the central issue of the proper approach to the words of the indemnities, the parties approached the question from different ends. The respondents began by concentrating on the cases containing the general indemnity, and, having made submissions in favour of the construction which they put forward in those cases, went on to submit that notwithstanding the absence of the general indemnity, and notwithstanding the presence in certain of the cases of a definition of sole negligence, the same construction fell to be applied in all the contracts. On the other hand, the reclaimers presented their argument first by reference to the contracts without a general indemnity and went on to submit that the same construction should be applied in the cases in which there was a general indemnity. Parties did not approach the matter in these different ways without reason because the argument for the respondents is undoubtedly easier to present in relation to the contracts which contain the general indemnity while that for the reclaimers is easier to present in the contracts which do not. Since, however, each contract is a separate contract it is necessary to keep in mind that each requires to be considered separately and that the order in which the matters are approached should not influence the outcome. It should therefore be a matter of indifference which contract is looked at first and, with that caution in mind, I propose to follow the same order as did the respondents in presenting the cross-appeal.

The main argument was submitted in relation to the Eastman Christensen contract. It was pointed out that the contract envisaged that the contractor would bring his employees onto the operator’s platform to do work in an environment to which the off-shore regulatory regime applied. It was therefore contemplated that any act by an employee which endangered the safety of himself or others could render both the contractor and the operator in breach of duty. The general indemnity covered all claims due to omission or negligence on the part of the contractor or of anyone acting on his behalf and therefore covered all claims in which the operator was made liable by something that was done by the contractor. If the provision stopped there, there would be nothing to apply to any case in which the loss was contributed to by negligence on the part of the operator. The word "omission" in the phrase "omission or negligence" in the general indemnity meant a breach of duty and it must be possible to tie that breach back to something which the contractor had done or failed to do. Further, liability under the general indemnity was limited to the sum of £1,000,000 in that case. The specific heads of indemnity were introduced by the words "without prejudice to the foregoing generality" and therefore subhead (c), like the other subheads, was subject to the general indemnity, so that there was no liability unless the loss was caused by the contractor. In the present case there was no suggestion that any responsibility could attach to any of the contractors. The reclaimers’ construction was that there were two free-standing indemnities, the general indemnity and the specific subhead, while the Lord Ordinary had taken the view that the indemnities were alternative. Neither suggestion was convincing and the best commercial sense was achieved by the respondents’ construction. That would achieve a sensible result and sufficiently account for the indemnities in that it would deal with the case in which both contractor and operator were liable unless there was sole negligence or wilful misconduct. The clause would therefore eliminate any disputes as to apportionment of liability in a case of joint fault. The clause should be taken as a whole and regarded as a single composite indemnity; the specific subheads brought in matters which might have been thought to be at risk of being left out if the general provision stood alone. It was difficult to say what might fall under the general provision but not under one or other of the subheads but it was not necessary for the purposes of the argument to be able to point to any situation which might so fall. The reference to contributory negligence in subhead (c) supported that interpretation. In using that phrase, the draftsman clearly had in mind the rule that there had to be a specific reference to negligence, if negligence was to be covered. The drafting recognised that there was an inherent limitation on the general indemnity in that there was no reference in it to negligence and therefore negligence was not covered, whereas the reference to contributory negligence was introduced specifically in order to show that in the case where there was joint fault the indemnity did extend to cover it. The insurance provisions were consistent with that view. At least three of the subheads, namely heads (a), (b) and (e), supported the view that what was in issue was something due to the action of the contractor. The indemnity in subhead (c) extended not only to cases of death of or injury to employees but also to damage to property and since there was no statutory responsibility for such damage parties must have had negligence claims primarily in view. The reclaimers’ construction would have the effect that the operator could choose whether to go under the general provision, subject to a limitation of liability, or under one of the specific heads and that was not a sensible construction. It was also unreasonable, because the result might be that a contractor who properly should bear only a small share of blame for an accident might end up with the whole liability for its effects; and because a contractor might be minded into thinking that his liability overall was limited to the sum stated in the general indemnity.

The reclaimers submitted that the general indemnity was simply an additional free-standing indemnity and did not control the following paragraphs. It dealt with a liability which would fall on the contractor in any event, being one brought about by his omission or negligence, but imposed a limit in respect of it of £1,000,000. The clause, in each contract, was headed "Indemnities", whereas the general indemnity began with a reference to "This Indemnity" and the opening phrase was later repeated, all of which suggested that there were separate and independent indemnities. The general indemnity was wider than the later indemnities in that it included reference to administrative proceedings. The phrase "without prejudice to the foregoing generality" did not restrict the use of language later in the clause, although the use of the word "generality" was perhaps unfortunate. The respondents’ construction, according to which all the subheads were subheads of, and must fall within, the general indemnity involved construing the word "omission" as covering a breach of statutory duty. On their reading also, the wording of the general indemnity sat unhappily with the other individual heads, apart from head (c), since the word "omission" had to be read as covering breach of law or breach of copyright. On the respondents’ construction, there was a tautology because the expression "contributory negligence" in head (c) was redundant since negligence was already implied as a result of the general indemnity. In the last resort, the reclaimers would argue that the scheme of the clause as a whole made it necessary to read into the general indemnity a limitation to the effect that it applied only where the individual heads later set out did not or, in any event, that, looking at the clause as a whole, there was no limitation on the scope of the particular subheads. Even if the result was that in certain circumstances the operator had an option whether to proceed under the general indemnity or a particular heading, that simply must be accepted. There was no substance in the contention that the effect of the reclaimers’ construction was that a contractor might be misled into thinking that the limitation in liability extended to the individual subheads. Equally, there was no substance in the contention that the reclaimers’ construction was unreasonable in that it had the effect that a contractor might be liable for the whole of a loss in a question with the operator even though that loss had been caused very largely by negligence on the part of the operator and merely contributed to by negligence by a third party.

In relation to the contracts without a general indemnity, the respondents’ argument accepted that, ex facie, the liabilities set out in heads (a) to (e) appeared to be independent and unlimited. However, head (c) in all the contracts included a reference to contributory negligence and it was necessary to ask the question, contributory to what? The only possible significance of those words was that what was intended was negligence by the operator contributory to negligence or fault on the part of the contractor. All the other arguments advanced in relation to the nature of the bargain and the reasonable or unreasonable effects of the different constructions put forward were equally applicable to the case of the contracts without a general indemnity and the construction should therefore be the same.

In reply to that submission, the reclaimers submitted that there was no warrant for reading the plain words of the indemnity set out in head (c) in any restricted sense. The reference to contributory negligence was clearly a reference to negligence on the part of the party to be indemnified but did not carry the implication that negligence on the part of the indemnifier was a precondition of the application of the indemnity. The words were used in a causative sense rather than in a sense implying fault or responsibility. The respondents’ construction involved using the expression "negligence" in different senses within the same clause. It also involved tautology.

The remaining arguments advanced on each side were special to the particular terms of particular contracts. In those cases in which there was a definition of sole negligence, it was submitted by the reclaimers that the definition clearly pointed to the intention that the indemnity should operate where there was negligence on the part of the operator as well as of a third party and that the exclusion of the operation of the indemnity should only apply where there was sole negligence on the part of the operator. It was further submitted on behalf of the reclaimers that in the case in which the connecting phrase between the general and the specific indemnities was "in addition and without prejudice", it was clear that the respondents’ construction could not apply. The respondents submitted that notwithstanding these specialties, the general construction which they put forward had to be accepted, in line with the general rule of construction contra proferentem.

Finally, in this connection, it was submitted on behalf of the reclaimers that there was material to indicate that the construction which they proposed was in accordance with a general or common practice in the North Sea oil industry whereby each party undertook the responsibility for insuring against the death of or injury to their own employees and reference was made to textbook discussions of that practice.

The Lord Ordinary dealt with this issue in volume 5 of his Opinion, particularly at pp. 927H, 939H and at pp. 1102-1116. He concluded that the five core indemnities should be considered as separate and independent indemnities and were not confined in meaning by the general indemnity or "long preamble". On that basis, he held that there were no implications that the contractor was only liable under the indemnities where he had been guilty of fault in some respect.

The reclaimers’ claim, in each of the cases other than the B.T. contract, is founded upon head (c) of the clause of indemnity, that is, the clause by which the contractor undertakes to indemnify the company against injury to or death of persons employed, or damage to or loss or destruction of property of, the contractor. In all the six cases other than the B.T. case, that paragraph, and indeed all the individual heads of indemnity, are identical and it is clear that these were standard terms put forward by the reclaimers for inclusion in the contract. It is also the reclaimers who found upon the clauses and therefore the conditions for the application of the principle of construction contra proferentem are present. In the course of the argument, a number of authorities bearing on the proper application of that principle were canvassed in detail. In my view, however, it would not be useful to attempt to analyse all those authorities in the way attempted in argument. As I understand the position, the principle is one which dictates an approach to the reading of words in a contract and, just as there are no absolute rules for the construction of an English sentence which can be laid down as applicable in all possible circumstances, so, it seems to me, the precise formulation of the contra proferentem principle is liable to vary with the subject matter. It might, indeed, be questioned why the principle is applied at all in the case of commercial contracts entered into between parties dealing on a business, and for all that is known, on an equal footing but the authorities that the principle does apply are clear and binding. In the circumstances, it seems to me sufficient to bear in mind the enunciations of the principle by Lord Morton in Canada Steamship Lines Limited v. The King [1952] A.C. 192, because of the particular bearing of that decision on the question of liability for negligence, and by Lord Keith in Smith v. U.M.B. Chrysler (Scotland) Limited 1978 S.C. (H.L.) 1. Lord Morton said, at page 208,

The Canada Steamship Lines case was a case which dealt with an exemption clause but it was made clear by the decision in Smith v. U.M.B. Chrysler that the same principles apply to an indemnity clause. In that case, Lord Keith of Kinkel said (at pp. 16-17):

There was some discussion as to whether Lord Keith’s use of the expression a fortiori implied that the approach to construction must be even more strict in a case of an indemnity than in other cases falling under the rule or whether Lord Keith simply meant that it was more clear in such a case that the rule applied. I am inclined to prefer the latter reading, since I think it would be difficult to formulate different degrees of strictness in the application of such a rule of construction, but I do not think that, for the present purpose, it is necessary to resolve that difference. I am prepared to accept that the indemnity clauses in the present case should be examined very strictly.

With regard to the general argument on matters of law, it is only necessary to add that the reclaimers submitted that the fact that there were reciprocal indemnities between the company and the contractors was relevant to the construction and referred to Nelson v. Atlantic Power & Gas Limited 1995 S.L.T. 102 while the respondents submitted that that fact made no difference to the proper approach to construction, founding on what was said by Steyn L.J. in E.E. Caledonia Limited v. Orbit Valve Co. Europe [1994] 1 W.L.R. 1515. Again, I do not think it necessary for the present purpose to go into the details of these cases and I am content to proceed on the basis that the fact that there are cross indemnities is irrelevant for the purpose of construction of the indemnity on which the reclaimers found.

In this case it is necessary to consider a number of contracts, the provisions of which vary to a considerable degree, although all except the B.T. contract contain the same five "core" indemnities. As a result, it is not easy to know what is the best way to approach the problems. It is obvious that the variations in the terms of the contracts might lead to different results in the different cases, even though, as I have mentioned, it is fairly obvious that the core indemnities must have been standard indemnities put forward by the reclaimers. As has been mentioned, the parties started from different points in their arguments and did so for obvious reasons. There is, therefore, a danger that the choice of the contract with which to start may influence the result at which one arrives. However, it is necessary to start somewhere and the same risk arises, one way or another, whatever starting point is chosen. I would say, in passing, that both parties accepted that it was necessary to consider each contract individually and that there was at least a possibility that different conclusions might be arrived at with regard to different contracts. That might seem paradoxical in the circumstances, but there is no alternative to attempting to consider each contract individually.

I propose to start with the London Bridge contract because it is the simplest and has the fewest provisions to be considered: it also presents sharply the question of the construction of head (c) of the core indemnities. The London Bridge contract contains a straightforward clause setting out the five indemnities with no general indemnity clause and no definitions. As has been remarked earlier, the argument followed a course full of twists and turns as attempts were made to give a particular slant or a particular weight to different phrasing in different parts of the contract or in different contracts. Having attempted to consider and keep in mind all these arguments, it nevertheless seems to me that in the London Bridge case it is possible to stand back from the detailed arguments and look at what head (c), taken by itself, says. So considered, it appears to me that head (c) says, in straightforward terms, that the contractor will indemnify the company against any claim, demand, cause of action, loss, expense or liability arising by reason of injury to or death of persons employed by the contractor irrespective of any contributory negligence of the company, unless the injury was caused by the sole negligence or wilful misconduct of the company. So looked at, it seems to me that the paragraph says, simply and directly, that if the contractor’s employees are injured or killed, the contractor will indemnify the company for any liability in that respect unless the exception for sole negligence or wilful default applies. I find it difficult to see that it can really be suggested that there is any other meaning for the words or that there is any form of responsibility or liability that could be imagined to exist which would give room for the application of Lord Morton’s third principle of construction. This may, as Steyn L.J. said in E.E. Caledonia supra, be a matter of impression not open to lengthy argument. There are, however, a number of considerations which seem to me to support that reading of the clause and there is one particular argument put forward by the respondents which does require to be dealt with.

The first point is that it is plain that the paragraph was designed to deal with liability for negligence. It expressly does so in two ways, by reference to contributory negligence and by reference to sole negligence. The second point is that it is equally clear that there are five core indemnities all of which are separate and all of which deal, differently, with different matters. The third point is that it is clear that the intention of parties was that the company should only lose the benefit of the indemnity if there was sole negligence or wilful misconduct on its part. That being so, the only issue which has to be further dealt with, in my view, is the argument for the respondents, to which I earlier referred. That argument comes to be whether the use of the word "contributory" in the phrase "irrespective of any contributory negligence on the part of the party to be indemnified" carries the implication that the negligence referred to must be contributory to negligence on the part of the contractor; or, in other words, that the clause can only apply where the contractor has been shown to have been negligent. It is true that the expression "contributory negligence" is commonly used in a legal context to refer to negligence on the part of a claimant which is contributory to negligence on the part of the person against whom the claim is made. It is, therefore, possible to argue that there is an implication that the person indemnifying under paragraph (c) may have been assumed to have been negligent. In my view, however, the context in which the phrase is found displaces any such inference. Looking to the whole of the paragraph, it seems to me that "contributory" is used in contradistinction to "sole" and that what the drafter of the contract had in mind was to make it clear that only sole negligence on the part of the party to be indemnified would defeat the indemnity, not negligence which was only a partial cause of the loss or damage.

I propose to consider next the Eastman Christensen contract. That is the contract in which there is a general indemnity, containing a limitation of liability to £1m per occurrence, and in which the general indemnity is connected to the five core indemnities by the words "without prejudice to the foregoing generality". If in this case also one attempts to consider the meaning of the clause as a whole, the first point which comes to mind is that the words "without prejudice to the foregoing generality" are used in an unusual sense, or at least an unusual context. Normally, the point of including such words between a general provision and a series of detailed provisions is to try to ensure that the construction of the general provision is not limited by reference to the details which follow. In the present case, however, the general indemnity is limited in two respects, by reference to omission or negligence and by reference to the limit of liability, while the heads which follow are not, at least on their own terms, subject to limitation in the same way. What the respondents’ argument seeks to do is to import the limitations which were contained in the general indemnity into the indemnities which succeed the words and, in my view, that is not consistent with what the words on their face normally mean. Looking at the words themselves, therefore, without regard to the substance of the contract or its possible effects, I would be very much inclined to say that the expression "without prejudice to the foregoing generality" was nothing but a connecting link and gave rise to no inference or restriction of meaning.

There is, however, another important factor to be taken into account and that is the effect of the clause as a whole, if the reclaimers’ construction of it is adopted. If the reclaimers are correct, then if the respondents are negligent and thereby cause loss they are liable to indemnify the company but subject to a limitation of £1m. If, on the other hand, the reclaimers come under a liability to employees of the contractors, the contractors must indemnify the reclaimers without any limit, even if they have not been negligent. In this context, it is relevant to add that while the contractors are required to insure to cover liability towards third parties, in terms of head (d) of the indemnities, there is no requirement for insurance to cover the obligation to indemnify in respect of injuries to the contractor’s own employees or property. There is, of course, an obligation to maintain employer’s liability insurance but that would not cover the risk of having to indemnify the company. There is, therefore, it seems to me, quite a powerful argument that the contract as construed by the reclaimers does not make business or commercial sense.

There are, however, also difficulties in the respondents’ proposed construction of the contract. What the respondents suggest is that the word "negligence" as it occurs in head (c) of the core indemnities means something like common law negligence. In a situation in which there may be statutory liability on one or both of the parties, irrespective of any fault, arising from injury to or death of an employee, it might make quite good commercial sense to agree that, as between the parties, ultimate liability would depend on the presence or absence of common law negligence. However, the respondents were constrained to accept that if, as they contend, the individual indemnities are subordinate to the general preamble, then the arrangement could only work if the general indemnity were construed as covering not only common law negligence but also statutory liability. It follows, therefore, that the phrase "omission or negligence" in the general indemnity must cover statutory liability. If so, the word "negligence" is used in different senses in the general indemnity and in head (c) of the particular indemnities.

I have not found this an easy question. I have been attracted to the argument that the wording of the contract, considered by itself, does not clearly favour either the reclaimers’ or the respondents’ position, and therefore that the strict application of the contra proferentem principle would require that the respondents’ construction should be preferred. In the end, however, I have come to the conclusion that the words of head (c) in themselves are clear, that head (c) is the central and predominant and that the linking phrase is not apt to subordinate them to the general indemnity. Further, in my opinion, the respondents’ argument as to commercial sense does not carry sufficient weight, even coupled with the contra proferentem principle, to require a different result.

Having reached these conclusions about the Eastman Christensen and London Bridge Contracts, it seems to me that the remaining contracts fall into place quite simply. The Kelvin Catering contract contains the words "without prejudice to the foregoing generality" but has no financial limit stated in the preamble. The result is the same as in the Eastman Christensen case. The Wood Group Engineering contract does contain a financial limit in the general indemnity but the words connecting it to the particular indemnities are "in addition but without prejudice to the foregoing generality". Those words are, in my view, favourable to the reclaimers, and suggest that the particular indemnities are to be looked at without any reference to the general indemnity. Even if the respondents were to succeed in the Eastman Christensen and Kelvin Catering cases, the reclaimers would, in my view, prevail in the Wood Group case. The Northern Industrial Marine contract has no general indemnity and also contains a definition of "sole negligence" which makes it clear that what is in contemplation is the negligence of any party not just negligence on the part of the respondents. The Coflexip Stena contract is similar. In both these cases, the result should, in my view, be the same as it is in the London Bridge contract. The relevant clause in the British Telecom contract is in different terms, but the differences are not, in my opinion, sufficient to lead to a different construction, and the clause has, in my opinion the same effect on the clauses in the other contracts. In my opinion, therefore, the reclaimers’ arguments prevail in all the cases.

At a very late stage in the hearing before the Lord Ordinary, the respondents put forward an argument to the effect that since the reclaimers’ liabilities towards the injured persons or the families of the deceased had been met by their insurers, the reclaimers themselves no longer had any title or interest to sue for recovery of the sums which had been paid and that if there was any claim against the respondents under the indemnities it should be a claim for contribution at the instance of the insurers. The Lord Ordinary upheld that submission. The Lord Ordinary said, firstly, at p. 1434 of his opinion:

The Lord Ordinary went on to say that in a case of this kind where no provision had been made for double recovery a creditor should not be able to recover twice and that while the insurers who had paid in the first instance should be able to recover either the whole, through subrogation, or a proportionate part, through contribution, they obviously could not have both. He went on to distinguish cases where subrogation could operate from those in which contribution was appropriate and expressed his conclusion, at p. 1437 as follows:

The Lord Ordinary expressed concern that the matter had been raised so late but held that, while that consideration might have consequences in expenses, it did not afford a reason for not sustaining the defenders’ argument.

The argument in the appeal ranged very widely and every relevant, or possibly relevant, authority was exhaustively discussed. As with other chapters of the argument, it would not, in my view, be profitable to attempt to follow all the details of the argument. It is sufficient to indicate the main lines of the submissions and the principal authorities on which these submissions were rested. The reclaimers advanced their principal argument under five main propositions. The first three of these were as follows: firstly, they submitted that under the remedy of subrogation in indemnity insurance an insurer, on payment, was placed in the position of the insured and entitled to all rights and remedies of the insured which might go to reduce the loss. Secondly, where there was subrogation, the rights and liabilities of third parties not connected with the contract of insurance were not affected, obligations owed by third parties to the insured were not discharged and the insurance contract was disregarded. Thirdly, an indemnity insurer was entitled to be subrogated to the rights and remedies of the insured against another party who was primarily liable for the loss and that entitlement extended to the insured’s rights and remedies against persons who were not wrongdoers or authors of the loss. These propositions were supported by reference to a number of authorities, particularly Mason v. Sainsbury (1782) 3 Doug. K.B. 61, Dickinson v. Jardine (1868) L.C.C.P. 639, Simpson & Co. v. Thomson (1877) 5 R. (H.L.) 40, North British Insurance v. London, Liverpool and Globe Insurance (1877) 5 Ch.D. 569, Darrell v. Tibbit (1880) 5 Q.B.D. 560 and Castellain v. Preston (1883) 11 Q.B.D. 380. It was further submitted that there was nothing in the decision of the House of Lords in Esso Petroleum v. Hall Russell & Company 1988 S.L.T. 874 which rendered the reclaimers’ submission unacceptable. The result of these authorities was that when the insurance contract was entered into the insurer acquired a contingent right of subrogation to all rights of the insured which might go to diminish the loss and on payment that entitlement vested in the insurer as from the time of the occurrence of the casualty causing the loss. From the point at which he made payment, the insurer was entitled to every advantage of the insured which might go to diminish the loss and that payment did not affect the rights and liabilities of third parties. The payment by the insurer did not discharge any obligation owed to the insured except in the case of double insurance. The legal right to enforce rights and remedies however remained with the insured and must be exercised in the insured’s name. The right of subrogation extended to all rights and remedies whether arising under contract, delict or other ground and was not limited to rights against wrongdoers or authors of the loss. In respect of third parties, the insured and the insurer were treated as one. Consequently, the correct approach was not to ask whether a payment made by an insurer had discharged the loss but whether, in all the circumstances, the law permitted subrogation.

The last two of the reclaimers’ main propositions related to contribution. Their fourth proposition was that a right of pro rata relief between two or more obligants by way of contribution could only arise where the obligations were on an equal footing. There was no equality in law between a general liability insurance contract and a claim for indemnity in a commercial contract. Fifthly, and in any event, the indemnity obligation which the respondents had undertaken, properly construed in its context, meant that the respondents had undertaken to bear the primary responsibility for any loss arising from the death of or injury to their employees. In this part of the argument, reference was made to Gloag on Contract supra and to a variety of authorities including Stair Institutions I.8.9 and Erskine Institutes III.3.74. Reference was also made to Deering v. Earl of Winchelsea (1787) 1 Cox 319, Craigthorne v. Swinburn (1807) 14 Ves. Jun. 160, Stirling v. Forrester (1821) 3 Blyth 575, Caledonian Railway Company v. Colt (1863) McQueen 833, B.P. Petroleum v. Esso Petroleum 1987 S.L.T. 345, Sickness & Accident Assurance v. General Accident (1892) 19 R. 977 and Albion Insurance Company Limited v. Government Insurance Office of New South Wales 1969 121 L.C.R. 342. On this basis it was submitted that there were a number of reasons why there was no equality in law between an indemnity contract and one of insurance. Insurance was normally taken out for the insured’s benefit as a secondary protection regardless of duties owed by other persons. Parties to commercial contracts expected the obligations of the other party to be met in full and there was no reason to treat indemnities differently. The rules as to double insurance were well-known in the insurance industry, having been established for over 200 years, and there were tested methods of dealing with questions of contribution among insurers which was not a matter necessarily of a simple pro rata division. There was no similar background of usage or precedent in dealing with co-ordinate liabilities between an insurer and an indemnifier. The contractors in the present case were not regarded as insurers and the nature and object of the services contracts were different from those of contracts of insurance. Insurance, for example, was a contract of uberrima fides, the insurer relying on information derived from the insured as to the risk. The obligation of an insurer was general, arising from payment of the premium, whereas the service contracts contained multiple reciprocal obligations. Insurance contracts were regulated by legislation particular to them. As regards the final point, it was common in the business world for parties to allocate risks and responsibilities between themselves and there were indications in textbooks that there was a practice of doing so in the offshore oil industry. The Lord Ordinary’s conclusion would create an inextricable tangle because of the necessity for different insurers bearing different shares of loss all to pursue their own actions for contribution. In any event, looking at the contracts themselves, the respondents had undertaken the primary liability. There was no provision designed to give the respondents the benefit of the reclaimers’ insurance, expressly or impliedly. The contractors were required to take out certain insurances and the indemnities required them to hold harmless and defend the reclaimers against claims. The indemnities were part of contracts in which each party gave indemnity to the other, in particular in regard to injury to employees and damage to property. The reclaimers also referred to a number of American cases, which are dealt with later in this opinion. Lastly, the reclaimers submitted that in the absence of some notice or plea on record it was not open to the respondents to take this point at the stage in the case at which it had been raised.

The respondents submitted that it was clear from the terms of the contracts that the obligation which the reclaimers sought to found upon was one of indemnity and indemnity only. A contractual indemnity, such as those in the present case, was an obligation to pay money and the amount payable was equal to the amount of the loss which the person entitled to the indemnity suffered as a consequence of the risk against which the indemnity was given. On the facts of the present case, the reclaimers had come under a liability and had called on both the respondents and their insurers to meet it. The insurers had responded and had discharged the liability. If the respondents were under an obligation towards the reclaimers, that was a separate obligation from that of the insurers and hence it did not necessarily follow from the fact that each was due to meet the loss that there were no contribution rights between them. In any event, the effect of the contractual indemnity was that the person entitled to it could only recover the amount of his loss and if anything happened to reduce the amount of the loss sustained by the person entitled to the indemnity, then that reduced to the same extent the amount which the indemnifier had to pay. In the present case, the insurers of the reclaimers had paid the liability and obtained discharges from the claimants and so had prevented the reclaimers from sustaining any loss. Once an indemnifier had paid the person entitled to the indemnity, he would have a right to insist that the person indemnified should pursue any rights which, if enforced, would go to diminish the loss. The rights so pursued were pursued by way of subrogation, that is, the rights remained rights of the person indemnified which must be pursued in the name of the person indemnified. The difference between that situation and the situation of a double indemnity in which contribution was appropriate depended on whether the payment discharged the liability: particular reference was made to Simpson & Co. v. Thomson supra and to the speech of Lord Jauncey in the Esso Bernicia case. The authorities showed that an indemnifier, whether or not an insurer, was subrogated to rights which went to reduce the loss but none of the authorities supported subrogation to other indemnities. In that connection, particular reference was made to the North British case and to Mason v. Sainsbury in which Lord Mansfield had approached the issue by considering the true nature of the claims, namely a claim based on liability for a wrong, on the one hand, and an indemnity on the other. The fact that a claim was pursued wholly or partly in the interests of an indemnifier could not enlarge the rights of the person indemnified against the third party on whom the claim was made. The contrast between an obligation to indemnify and other kinds of obligation such as an obligation to make reparation for a wrong was critical. Subrogation and contribution were mutually exclusive remedies appropriate in relation to different kinds of obligation. It would be an error to regard the rules as special to the case of insurance contracts: properly they were the application of more general principles of indemnity and in the case of contribution what was applicable was an equitable principle parallel to that applied between co-obligants under one contractual obligation. The critical issue was that where each of the obligations under consideration was one of indemnity the person indemnified could not recover more than one reparation. Payment by one indemnifier was a defence to a claim against a second and it was not possible to draw a distinction between two obligations of indemnity because they occurred in contracts which were different and had different purposes and different terms. The only question was whether each contract was one of indemnity covering an identical loss. The reclaimers sought to draw a contrast between insurance obligations and other contracts of indemnity but insurance was itself a commercial contract and it had been made clear in the authorities, particularly Castellain v. Preston, that the relevant law applied to insurance contracts only because they were contracts of indemnity. That was borne out by the fact that there was no room for subrogation in insurance contracts which were not indemnity contracts, as was indicated in McGillivray on Insurance. It was not possible to make a distinction based only on the fact that one of the indemnities appeared in a contract which included other types of obligation because some insurance contracts did provide for other obligations such as an obligation to provide services. Equally it was no ground for a distinction that one of the indemnities was given by an insurer whose business was the assessment of risk and another by a company engaged in a different business. Again insurers might be said to be obliged to meet claims but the same applied to anyone who granted an indemnity. As the authorities connected with questions of contribution or relief between co-debtors demonstrated, where two debtors did come under an obligation to a common creditor and one discharged his own obligation, and thereby discharged the creditor’s claims against the other, then various possibilities could follow, depending upon whether the debtor who did not pay was to be regarded as the primary or ultimate debtor, in which case the one who paid might be entitled to relief of the full amount; otherwise if the one who paid was primarily liable he would have no right of relief or contribution; and if both were equally liable, contribution would apply. The cases illustrated that there could be relief up to the full amount of the obligation. The authorities demonstrated that the proper application of the principles of relief or contribution depended on the whole circumstances of both contracts and the questions which arose between persons who were possibly liable in contribution or relief could only be worked out in an action properly brought by the debtors who had paid to recover a proper contribution. Thus, although the reclaimers argued that the respondents’ obligation was primary or ultimate, the answer was that even if that was correct the issue could only be worked out in an action of contribution at the instance of the proper pursuer. The obligations in each of two contracts to indemnify could contain terms to make it clear which obligation was primary in relation to any other but the contracts in the present case did not support the reclaimers’ position in regard to the primacy of the respondents’ obligation to indemnify. Parties might make what contracts they pleased and it was possible to make up a contract which would have the result that one indemnifier was obliged not only to indemnify the creditor but any other indemnifier. Such a result might have been achieved in some of the contracts in relation to different indemnities from those under consideration in the present action. So far as the present actions were concerned, however, there was nothing in the indemnities founded upon to take them outside the normal rule of contribution. It might be argued, as the reclaimers had sought to do, that insurance was always treated differently and that the insurer and the insured were regarded as one: but these were only metaphors and did not affect the proper rule. As regards the argument that the point in issue had been raised late, a pursuer seeking to enforce an indemnity had to address the question of what loss had been sustained as well as the question what peril had occurred and in the present case the pursuers’ averments went on the footing that they, and the other participants, had paid the claims. It was not till evidence had been led that the actual position, that the payments had been made by insurers, had been disclosed. The defenders had had previously a general awareness that insurers were involved but the extent of their involvement had not been known. The point was, therefore, properly open to the respondents on the pleadings in the case.

There is it seems to me, a substantial amount of common ground between the parties which can be expressed in the following eight propositions.

1. A contract of insurance is a contract to indemnify against loss. An insurer is not entitled to refuse to meet a loss which falls within the policy (in the absence of some particular defence such as non-disclosure) and an insurer who pays in accordance with the policy is entitled to be subrogated to any rights of the insured which go to reduce the loss.

2. A party is not entitled to receive more than one indemnity in respect of one loss. It follows that if the whole loss is paid by one insurer, the insured cannot claim any part of the loss from another insurer. For the same reason, any recovery made by the insured from any other person goes to the benefit of the insurer.

3. The rules which apply in the situation which is described as "double insurance", set out in the previous proposition, apply equally in any other case in which there is more than one contract of indemnity provided, that those contracts are contracts equivalent to and on the same footing as contracts of insurance, or in other words, as it has been put, are contracts of "indemnity and indemnity only".

4. When an indemnifier (whether an insurer or any other indemnifier) pays a loss he is entitled to a contribution from any other person who undertook to indemnify in respect of the same risk.

5. An indemnifier who has paid a loss is entitled to be subrogated to any rights which the person indemnified has against any other person responsible for the loss, whether as a wrongdoer or under a contractual liability (other than a bare liability to indemnify). There are many examples of cases in which the indemnifier is entitled to pursue claims in this way; the cases include Darrell v. Tibbitts (1880) 5 Q.B. 560 and North British & Mercantile Insurance Co. v. London Liverpool & Globe Insurance Co. (1877) 5 Ch.D. 569.

6. Subrogation is a remedy to be pursued in the name of the person insured or indemnified because it is a means of exercising a right or rights of the insured or indemnified person. Subrogation, however, is not to be regarded as an assignation of any right by the insured to the insurer.

7. Contribution is a right of the indemnifier which is based on equitable principles and is to be pursued in the name of the indemnifier who pays the loss, at least in the ordinary case.

8. In a question of contribution between insurers or indemnifiers, it is relevant to take into account what the contracts provided so that, for example, any limits on the cover or indemnity will be given effect.

By way of commentary on these propositions, it may be observed in the first place, that it is not entirely clear, at least from the authorities canvassed before us, what the origin of subrogation is, either as a right or as a term. However, the historical origin of subrogation may not be of any real significance since, in substance, it is clear that what is meant by the term is that the insurer who has paid the loss is entitled to pursue in the insured’s name rights which could have been pursued by the insured, without having had those rights assigned to him.

Secondly, with regard to the fifth proposition, the central issue in this part of the argument concerns the extent of subrogation. It is clear that the indemnifier is entitled to be subrogated to rights against a wrongdoer. What has to be decided is how far the indemnifier is subrogated to contractual rights against a third party and how a distinction is to be drawn between rights to which the indemnifier is subrogated and those which are to be the subject of contribution.

A third comment is that it is clear from the authorities which were canvassed that a case of double insurance is treated as being in some respects parallel to cases of double surety or joint and several liability under a bond, even though there is no common agreement between the parties. Again, it is not quite clear what the historical origin of that rule is, but the rationale is reasonably clear and is found in a combination of two factors or considerations. These are, firstly, that it is necessary, as a matter of public policy and to prevent fraud, to restrict the right of any person to recover more under a contract of insurance or indemnity than he has lost; and , secondly that equitable principles should be applied to decide, in a situation in which there is more than one indemnity, how the loss should be distributed.

A fourth comment is that if it is true, as set out in proposition 8 above, that it is relevant to take into account the terms of the various contracts, it is difficult to see how the ultimate test in considering the effect of any arrangements can be other than the true intention of the parties as disclosed by the agreements which they have made, subject to the "grand principle" which applies to contracts which are contracts of indemnity and indemnity only.

If that is correct, there would seem to be three questions to be answered.

1. Is there any objection in principle or authority to an arrangement whereby one of two indemnifiers agrees to bear the ultimate responsibility for a loss; or, to put the question another way, by which a party agrees to bear the "insurance risk"?

2. If there is such an arrangement and one insurer pays the loss, is there any reason why the claim against the other indemnifier should not be pursued in the name of the insured - that is, why this should not be treated as an instance of subrogation rather than contribution?

3. Is the contract in the present case such an arrangement?

There is perhaps a sub-question in relation to question 2 above, namely, whether, even if such a claim should normally be pursued as a claim for contribution, that rule should be enforced if the issue of contribution as against subrogation has not been raised by the defender on record.

In my view, there is not really much room for doubt about the answer to the first question. I can see no reason why a person who has agreed, as part of a commercial contract freely entered into, to bear the ultimate responsibility for a loss should have an equity, or an equitable claim, against any other indemnifier; nor can I see any reason why it might be said that any other indemnifier would be unjustly enriched if the indemnifier who had undertaken the ultimate responsibility were required to bear the ultimate loss. The principle of contribution is not based on contract but on equity, as is made clear in Mason v. Sainsbury and a number of other cases (see also Brodies’ Supplement to Stairs’ Institution p. 942, in regard to contribution between sureties). Nevertheless, it appears to me that it is necessary to establish what it was that the indemnifier undertook to do, before applying the equitable principle. A contract by which a person agrees to bear the ultimate responsibility for defined risks does not seem to me to be objectionable and could, indeed, be regarded as positively beneficial from a public point of view. The authorities cited do not, in my opinion, disclose any ground for regarding such a contract as objectionable: indeed they display parallel arrangements in the case of sureties in which, for example, a surety may be regarded as undertaking a surety for the others or for another, rather than for the principal debt. (see Gloag Contract 2nd ed. 208-9, Bell Principles 267 Chalmers & Ross v. MacCuloch 1757 M. 11746). The respondents, as I understood the argument, really conceded that, if appropriate language were used, such an agreement could be validly made.

The second question is, it seems to me, the crux of the case so far as the general law is concerned. It is clear that subrogation extends to every right of the insured to pursue a claim for damages, whether that right arises from delict or from breach of contract. Subrogation also extends to certain rights under contract, for example, the right to have property repaired under a lease and the right to payment of the price of real property: or, at least, the authorities indicate that any such rights are held by the insured for the benefit of the insurer after payment under the indemnity, which would appear to come to much the same things as subrogation. (North British & Mercantile Insurance Co. v. Liverpool London & Globe Insurance Co. (1877) 5 Ch.D. 569, Darrell v. Tibbitts (1880) 5 Q.B. 560). Why, therefore, should subrogation not extend to a right to have payment enforced against the party who has accepted the ultimate responsibility?

Looking at the matter first of all from the point of view of principle it seems to me that there are two main reasons which might be suggested as operating against the extension of subrogation to the case figured, along with a possible supplementary reason. The first reason is that both the indemnifier who seeks to enforce payment from the ultimate indemnifier and that ultimate indemnifier are, by definition, indemnifiers and fall to be treated on the same footing. The second reason is that one payment of the loss extinguishes the claim of the insured or indemnified person, leaving nothing to which the indemnifier can be subrogated. The supplementary reason is that there is a lack of authority to support a claim by one indemnifier against what I have called the ultimate indemnifier.

Repeated reference was made in the course of the argument to the opinion of Lord Low as Lord Ordinary in Sickness & Accident Assurance Association Limited v. General Accident Assurance Corporation Limited (1892) 19 R. 977 at 980. Lord Low said:

Later Lord Low referred to Simpson & Co. v. Thomson (1877) 5 R. (H.L.) 40 and observed:

Lord Low’s opinion certainly makes clear that there is a distinction between cases in which contribution is appropriate and cases in which subrogation can operate and what the consequences of the distinction are, once it has been applied, although it may be observed, in passing, that Lord Low appears to have regarded subrogation as a form of, or equivalent to, assignation, a view which is not wholly in accordance with later authority and in particular with the views of Lord President Emslie in the Esso Bernicia case. Lord Low also makes it clear that for an insurer to proceed by subrogation, he must be in a position to say that there is a primary right of the insured which the insurer is in a position to enforce. What the opinion does not, however, in my view, deal with at all is the question whether and in what circumstances a right of the insured under a contract with another person may be regarded as a primary right and how the distinction between primary and other rights can be drawn.

A second source which was repeatedly referred to as indicating the principle to was the speech of Lord Jauncey in Esso Petroleum Company Limited v. Hall Russell & Company Limited (the Esso Bernicia case) 1988 S.L.T. 874. In that speech Lord Jauncey reviewed a series of authorities from Castellain v. Preston (1883) 11 Q.B.D. 380 onwards. These authorities were themselves closely reviewed in the course of the debate but for the present purpose it is sufficient to refer to Lord Jauncey’s treatment of them. At 882, Lord Jauncey cited the opinion of Brett L.J. in Castellain v. Preston in which Brett L.J. said, inter alia:

Lord Jauncey then referred to the speech of Lord Cairns in Simpson & Company v. Thomson supra in which the Lord Chancellor referred to the well-known principle that the indemnifier

Having reviewed a series of later authorities, Lord Jauncey went on to state his conclusion (at p. 883). That conclusion was that the authorities left no doubt of the existence of a general rule that an indemnifier subrogated to the rights of someone whom he has indemnified could only pursue those rights in the name of that person. The principle which was drawn from these authorities was that subrogation was available as a remedy for an indemnifier who had paid under the indemnity in regard to any right which would go to reduce the loss suffered by the person indemnified but was not available in the case of another indemnity. That formulation of the principle, however, seems to me to leave open the same question as did the previous one, expressed by Lord Low, in that it does not provide either a reason for saying that there cannot be a contract under which one indemnity takes priority over another or a means of distinguishing cases in which the right of the insured does fall to be treated as going to reduce the loss on the one hand or as being a co-ordinate indemnity on the other.

A further source which was referred to as indicating a principle which would tend to defeat the claim of the reclaimers in the present case was the Australian High Court decision in Albion Insurance Company Limited v. Government Insurance Office of New South Wales (1969) 121 C.L.R. 342. I would cite, in the first place, the opinion of Barwick C.J., with McTiernan and Menzies J.J., at p. 345. The opinion states: