FIRST DIVISION, INNER HOUSE, COURT OF SESSION
OPINION OF LORD SUTHERLAND
in the causes
CALEDONIA NORTH SEA LIMITED
Pursuers and Reclaimers;
LONDON BRIDGE ENGINEERING LIMITED;
PICKUP NO. 7 LIMITED (formerly NORTHERN INDUSTRIAL & MARINE SERVICES COMPANY LIMITED);
BRITISH TELECOMMUNICATIONS plc;
WOOD GROUP ENGINEERING CONTRACTORS LIMITED;
NORTON (NO. 2) LIMITED (In liquidation)(formerly EASTMAN CHRISTENSEN LIMITED) and DAVID JOHN PALLEN, Chartered Accountant, the Liquidator thereof;
KELVIN INTERNATIONAL SERVICES LIMITED (formerly KELVIN CATERING LIMITED); and
COFLEXIP STENA OFFSHORE LIMITED (formerly STENA OFFSHORE LIMITED)
Defenders and Respondents:
Act: MacAulay, Q.C., Batchelor, Q.C., Hofford; Paull & Williamson
Alt: Currie, Q.C., Keen, Q.C., Wolffe; Simpson & Marwick, W.S.
17 December 1999
These actions arise as claims by the reclaimers for indemnity against various contractors who were employers of persons killed or injured as the result of the destruction of the Piper Alpha platform by explosion and fire. The indemnity sought is based on contractual provisions. Because of the terms of these provisions, to which I shall turn in detail in due course, in order for the reclaimers to succeed it would have to be established that the disaster arose through some fault or breach of statutory duty on the part of the reclaimers which made them liable to make reparation to the victims. On any view of the relevant indemnities they do not take effect if there was sole fault or wilful misconduct on the part of the reclaimers, and accordingly the reclaimers sought to establish a cause of the disaster which involved both negligence for which they are responsible and also negligence on the part of a third party. The reclaimers’ case on the facts was that the initiating cause was the explosion in module C of a cloud of flammable material which had leaked from the site of a pressure safety value PSV 504, which had been removed for recalibration. The pipe leading to that site should not have contained any condensate or gas and the end of the pipe at the site should have been sealed with a blind flange, which should have prevented any leak. The reason why the pipe contained the condensate was said to be that the lead production operator, Robert Vernon, an employee of the reclaimers, repressurised the condensate injection pump from which the pipe led to the site at a time when he should not have done so because of the absence of the PSV. The reason why there was a leak was said to be that the blind flange had not been properly fitted when the PSV had been removed and that this was the fault of the fitter, Terence Sutton, who was an employee of Score (U.K.) Limited ("Score"). Accordingly, there was fault on the part of Vernon who should have been aware of the absence of the PSV, and also fault on the part of Sutton who should have fitted the blind flange properly. The respondents’ case on the facts, which was maintained before the Lord Ordinary, was that the initial explosion occurred in module B for unknown reasons. They now accept that the initial explosion occurred in module C, but say that the reclaimers’ hypothesis that the source of the leak was the site of the PSV is so bedevilled by improbabilities that it cannot be said to have been proved. It should perhaps at this stage be noted that the respondents’ contention at the Cullen Inquiry was that the most probable source of the leak was indeed the site of PSV 504, but of course they are entitled to change their position on that.
The Lord Ordinary has set out in his Opinion the general background and a detailed description of the machinery and the processes involved in the operation of the platform, and I gratefully adopt that part of his Opinion as set out in the agreed Appendix. I shall deal first with the factual issues relating to the cause of the disaster and then deal with the major legal issues arising therefrom.
LEGAL APPROACH TO FACTUAL ISSUES
The respondents advanced certain legal propositions which they said should be taken into account in evaluating the facts in this case. In the first place reference was made to Benmax v. Austin Motor Company  A.C. 370 for the proposition that once the primary facts have been established, an appellate court is in as good a position as the trial judge to draw inferences from those facts. Accordingly, while due regard should be had to the Lord Ordinary’s conclusions, this court should draw its own inferences from the evidence rather than look to see if the Lord Ordinary’s inferences are such that, on the evidence, no reasonable Lord Ordinary could have come to such a conclusion. I entirely accept that where the primary facts are not in dispute an appellate court may well be in as good a position to draw inferences as the trial judge, but this does not appear to me to be such a clear case. The advantage which a Lord Ordinary has in seeing and hearing the witnesses is not confined to issues of credibility. He also has to consider reliability and a view on reliability can often be formed by an overall impression of the manner in which a witness gives evidence. Further, in the present case I am very conscious of the fact that we have not been referred to very substantial tracts of evidence which the Lord Ordinary would be entitled to take into account in his overall assessment of reliability. This does not of course mean that the Lord Ordinary’s inferences must all be accepted uncritically, but one of the difficulties in this case is that it is only in rare instances that primary facts can be said to be established unequivocally. There is therefore more scope than usual for drawing inferences from the body of evidence as a whole and the Lord Ordinary has the advantage over us that he heard all of the evidence and was able to deal with individual chapters of evidence within the broader context. Accordingly, I consider that we are not entitled to put aside inferences drawn by the Lord Ordinary just because we might have felt able, on the limited information before us, to come to a different conclusion, but can only do so if we are satisfied that the criticisms of the Lord Ordinary’s conclusions are justified and thus the matter becomes open for us to draw our own inferences. On this matter I would only add that I do not derive much assistance from the observations in Mackinnon v. Millar 1909 S.C. 273, which was founded on by the reclaimers. That was an appeal from the decision of an arbiter under the Workmen’s Compensation Act 1906 where an appeal could only be on a matter of law and the arbiter’s decision on the facts was equiparated to the verdict of a jury. Accordingly, the court in that case would have to accept the inferences drawn by the arbiter unless it could be shown that these were wholly untenable.
The next point taken is that the court should not blame the dead without strong evidence, and this is relevant to the cases made against both Vernon and Sutton. This proposition is based on what was said by Viscount Simonds in M’Williams v. Sir William Arroll and Company 1962 S.C. (H.L.) 70:
"I would agree that, just as a claim against a dead man’s estate must always be jealously scrutinised, so also an inference unfavourable to him should not be drawn except upon a strong balance of probability".
It is clear, however, from the Lord Ordinary’s Opinion (pages 214 and 855) that he had this very much in mind, and where the evidence clearly satisfies the court that such an inference should be drawn the court cannot shirk its responsibility, however distasteful that may be.
The next proposition is that where material evidence is missing, the court should not simply decide the issue on the basis of which of two or more hypotheses advanced in the proof is the most probable, but must have in mind the possibility that had all the evidence been available a further hypothesis might have proved to be the correct one. Even after a very long and exhaustive proof the court might still find itself in the position of not being able to say that any hypothesis has been proved on a balance of probabilities, in which case, of course, the pursuer must fail. This proposition is based on Rhesa Shipping v. Edmunds  1 W.L.R. 948. In that case the trial judge considered that he had to make a choice between an extreme improbability and a virtual impossibility and selected the less improbable. It is easy to see how it can be held that a pursuer cannot prove his case on a balance of probabilities by relying solely and exclusively on an extreme improbability. I can also well understand that where a pursuer seeks to prove a particular hypothesis for which there is no direct evidence on the basis of exclusion of all other possibilities, this will be difficult, if not impossible, where many vital witnesses are dead and the real evidence lies at the bottom of the sea, as had the evidence from these sources been available it might have disclosed that one of the alternative possibilities, or even an unanticipated possibility, was the correct one. The Lord Ordinary in the present case, however, has held that despite undoubted difficulties attending certain aspects of the evidence, nevertheless reviewing the whole evidence, he was satisfied that the reclaimers’ hypothesis was the probable explanation. Accordingly, he has not based his conclusion on a balance of improbabilities as was done in Rhesa Shipping. He had clearly had in mind the strictures of the respondents as he makes clear at pages 214-5.
The respondents then founded on what was said in Dickson on Evidence where, in paragraph 108, certain general rules are set out in relation to circumstantial evidence. In particular it is said that
"The existence of a single probative fact absolutely incompatible with a hypothesis deducible from all the other probative facts necessarily excludes that hypothesis, for, as the whole of the actual facts must have been consistent, some other hypothesis must exist, with which all the probative facts will coincide. When the inconsistency between any of the probative facts and the hypothesis deducible from the rest of these facts is not absolute but probable, the conclusiveness of that hypothesis is diminished in proportion to the strength of the contrary probability".
The respondents maintained that on a number of crucial issues the Lord Ordinary had failed to appreciate that the evidence not merely failed to support the reclaimers’ hypothesis but positively destroyed it. In any event the number of inconsistencies even if not individually fatal diminished the proof of the reclaimers’ hypothesis well below the balance of probabilities. I accept, of course, as did the Lord Ordinary, the principles set out in Dickson. The effect of the application of these principles will depend on the precise evaluation of the evidence. I would also accept that there is no direct evidence that Vernon jagged the pump or that Sutton fitted the flange improperly and therefore in respect of these crucial matters this is truly a case of circumstantial evidence.
Finally, the respondents contended that in relation to a number of important issues the witnesses who did give evidence were not asked by the reclaimers questions which would have elicited direct evidence and which would have obviated the necessity to draw inferences. As an example Grieve was not asked if, during the critical time when he was present at the 68 foot level Vernon would have had the opportunity to jag the pump without him noticing. The respondents maintained that by reason of their failure to ask the critical question the reclaimers are not entitled to ask the court to infer that Vernon did have the opportunity when Grieve was in a position positively to confirm or deny the proposition. Reference was made again to Dickson paragraph 108 where it is said:
"The conclusiveness of a circumstantial proof is not a sufficient reason for non-production of attainable direct evidence and as a party is not likely to trust the decision of his case to an inference, when he could prove it directly, the withholding of the testimony of eye witnesses impairs the probative value of a merely circumstantial proof adduced by him".
Again I would accept what is said there but it is to be noted that the context is the failure to call a witness who could give crucial evidence. Where the witness does give evidence it is of course open to both parties to question him. It was not suggested by the respondents that there were any witnesses who could have given crucial evidence who were not called by the reclaimers. Where a witness does give evidence, but is not asked a particular question which at the end of the day turns out to be an important omission, that may be a matter of comment but only in the most extreme case would it be fatal.
In considering the cause of the disaster certain matters were clearly established on the evidence and certain matters have been found as a fact by the Lord Ordinary and are not now challenged by the respondents. It is not now disputed that the initial explosion occurred in the eastern half of module C. Earlier in the day PSV 504 had been removed by Score employees Rankin and Sutton, and the relief line from condensate injection pump A had been fitted by Sutton with a blind flange at the site. The flange fitted by Sutton would have prevented any leak of gas or condensate from the pipe even under full system pressure if it had been properly tightened with the use of combination spanners. Scaffolding had been erected to enable the valve to be removed and this was in position at all material times. Because of intended planned maintenance, pump A had been depressurised and electrically isolated and pump B was running. During the course of the evening pump B tripped. This would not immediately affect oil production from the platform but after about 15 minutes, because of the loss of lift gas, those wells which relied on lift gas would reduce their flow causing an overall loss of oil production of about 20%, and after about an hour, because of the build up of condensate, the whole production process would have to be shut down. Such a trip was not uncommon but usually a pump which tripped could be restarted immediately. On this occasion initial attempts to restart the pump were unsuccessful. Vernon expressed the intention of bringing pump A back into operation and checked with Alexander Clark, the nightshift lead maintenance hand, that no work had yet been done on the pump by way of maintenance. He also arranged with Clark that the pump would be electrically deisolated. The appropriate "red tags" were signed by Vernon and Clark in order that the electrical deisolation could proceed. Vernon was at the site of the condensate injection pumps on the 68 foot level in the minutes before the explosion. If the pump was going to be brought back into operation it would first be necessary to repressurise it and this would be done by a procedure known as jagging. Jagging would produce a flow of condensate under pressure into the pump and thence into the relief line up to the blind flange. The flammable mass necessary to cause the explosion must have resulted from a leak of condensate rather than gas. The pattern of gas alarms spoken to by Bollands, the control room operator, was that there was a low level alarm at zone C3, followed about two minutes later by a flurry of alarms being low level alarms from C2, C3, C4 and C5 and a high level alarm from the area of one of the centrifugal compressors. This is at least consistent with a two-stage release. Because of the direction of wind flow it is also consistent with a leak from the general area of PSV 504. A fireball was seen immediately after the explosion by Grieve in the ceiling of the 68 foot level of a nature and in a position which would be consistent with a leak of condensate from the site of PSV 504.
The combination of the evidence indicating that repressurising pump A could produce condensate at the site of the blind flange in sufficient quantity to produce a flammable mass in the south east quadrant of module C and the evidence indicating that Vernon’s intention was to restart the pump which would initially involve repressurising it would, if it stood alone, give formidable justification for the inference drawn by the Lord Ordinary that the reclaimers’ hypothesis was proved, particularly as there was no evidence to suggest that any other work had been done that day which would affect the integrity of the machinery or pipework in module C. The respondents, however, maintain that when the individual ingredients of this evidence are looked at critically they contain so many improbabilities that the reclaimers’ hypothesis cannot properly be held to be proved.
Certain crucial issues are still very much in dispute. These are: (1) What was Vernon’s state of knowledge as to the absence of the PSV? In terms of the indemnities they will be elided if there has been "wilful misconduct" which is defined as being "intentional and conscious disregard for good and prudent practice". Accordingly, if Vernon knew that the PSV was missing and in that knowledge deliberately repressurised the pump, it is accepted by the reclaimers that this was contrary to prudent and proper practice and would constitute wilful misconduct thus eliding the indemnities. (2) Did Vernon in fact repressurise the pump? (3) Was a leak from the site of PSV 504 consistent with the pattern of gas alarms spoken to by Bollands the control room operator? (4) Did Sutton fail to tighten the flange properly?
The respondents criticised the Lord Ordinary’s approach to this issue, as indeed to other issues, on the basis that he had failed to make findings in fact on crucial matters, and they invited this court to make innumerable findings. The difficulty with this approach, however, is that the Lord Ordinary was faced with a situation where many of the crucial witnesses had not survived the disaster and accordingly there were substantial gaps in the evidence. He was therefore fully entitled to refrain from making positive findings where he was not satisfied on the limited evidence available to him that he would be justified in doing so.
The Lord Ordinary’s approach to Vernon’s state of knowledge was that he was entirely satisfied on the evidence that deliberately to restart pump A, knowing that the PSV was missing, would be something which no lead operator would ever consider doing and therefore such knowledge cannot have been in Vernon’s mind when he repressurised the pump. (It should be said that before the Lord Ordinary one of the respondents’ primary contentions on the matter of causation was that because no experienced lead production operator, which Vernon was, would ever consider doing such a thing it followed that he could not have jagged the pump and therefore the reclaimers’ contention as to the cause of the explosion could not be correct). As this was a factor which the Lord Ordinary considered to be of major importance it is necessary to look at the evidence about it. The evidence on this matter came from four experienced operators, Grieve, Bolland, Murray and Henderson and from the maintenance superintendent, Todd, and the lead maintenance hand, Clark. Grieve (page 9354) was asked:
"Are you able to say anything about the practice of running a condensate injection pump without its relief valve being in position?
A. I can’t say I have ever seen it done and I don’t believe it would have been operating practice to do so".
Bollands (9480) was asked:
"In your view had he [Vernon] known that PSV 504 was missing would he have mentioned it?
A. Yes, I would have thought so. It would have been quite a drastic step, a decision on his part to have started that pump knowing the valve was missing. I don’t think he would have done it".
At 9564 he was asked:
"What would your opinion be of the use of a condensate injection pump without a PSV?
A. Knowing we didn’t have a PSV on the condensate pump and using it I don’t think that is a decision that Mr. Vernon would have made himself to use that pump and I wouldn’t have used the pump. But if somebody had said we could get away with using this pump in an emergency without a PSV the first thing they would have wanted to have done was check on the pressure on the pump and that the flanges and things like that were going to be pressure tested as of course the flanges when you remove the PSV are sat in an atmospheric state and we were running that pump with about 600 psi on it as I remember.
Q. If, let’s assume Mr. Vernon had decided for whatever reason that the pump would be run without the PSV he wouldn’t would he necessarily tell you that it was to be run without a PSV?
A. He wouldn’t have to tell me but I think he would have mentioned it to me because I think…
Q. You think he might have mentioned it to you if he was going to do that?
A. Yes I think he would have valued my opinion on it.
Q. And do I understand that he was at or about the time of the incident with which we are concerned in control of and responsible for the production areas of the platform?
A. Yes but he could have…If he wanted to run that pump he wouldn’t have stuck his neck out and made the decision himself when there was senior production personnel and OIMs on the platform he could just have passed the buck to".
Murray (15143) was asked:
"Now would you as an operator consider running a condensate injection pump without its PSV and with a blind flange on the pipework?
A. No at no time.
Q. Are you able to express a view as to whether that would be something that Mr. Vernon would consider doing?
A. I couldn’t express a view on Mr. Vernon’s part but I would assume that a pump to be run without a PSV would be in some dire circumstances and if it was going to be run at all it would be run under approval of the OIM".
Henderson (11817) was asked:
"What would you say about the practice of seeking to run a condensate injection pump without its PSV being in place?
A. It just would not be done.
Q. In so far as you were concerned would Mr. Vernon do it?
Q. Let’s just assume a situation where he may have been encountering substantial problems with the plant. Even in that situation can you conceive that he would do it?
Q. What would he do if he was faced with a position where he was having problems with the running of the plant?
A. He would shut the plant down, shut the gas plant down.
Q. Were there any problems in doing that?
A. None at all.
Q. Had you done that in the past?
A. Yes I’ve had to do that and basically at that time the outcome would be he would have lost gas lift. You lost some production but no real implications, no".
In cross-examination (11880) he was asked:
"During the course of your evidence yesterday Mr. Henderson you were asked about the operation of equipment with a pressure safety valve isolated or removed?
A. That’s correct yes.
Q. In your opinion would equipment ever be run with a pressure safety valve isolated or removed?
Q. Quite sure about that?
A. I am positive about that.
Q. Can you conceive of any circumstance in which such an operation would be carried on?
A. None whatsoever.
Q. Do you consider that such an operation would have been contemplated by those who were in charge of the platform?
A. No I do not. No".
He was then referred by the cross-examiner to the General Safety Procedures manual, section 16, part 3, paragraph 4 which reads:
"On occasions where relief valves were isolated for maintenance, while the system is under pressure, system pressure must be continuously monitored and an alternative means of rapid pressure relief made available".
It was suggested to him that this paragraph contemplated the operation of the system under pressure when a PSV was removed and he was asked if he could explain what is meant by this paragraph. His reply was:
"I don’t know. The honest answer is that no system would ever be run without a pressure safety valve".
His final position on the interpretation of paragraph 4 was:
"I honestly don’t know and I can only tell you under oath that no one on that platform that I knew would run the system without a pressure safety valve".
I note at this stage that most pipes on the platform which required pressure safety valves were fitted with two such valves, and it may be that the procedure referred to related to the situation when one of two valves had been isolated. Todd, the maintenance superintendent, said that he would not have allowed a condensate injection pump to be run when the PSV had been removed (11145). Clark’s evidence (10016) was that as a maintenance hand if he knew that the valve had been removed he would never have started the pump, although it should be said that the reason he gives is because the pump would have been out of commission plus the fact that there would have been an electrical isolation from another source which he did not have the authority to sign off. While the cause of the tripping of pump B was never ascertained, the evidence in general was to the effect that although these pumps tripped on a fairly regular basis they could usually be restarted without much delay. There was no reason therefore to suppose that pump B could not have been restarted within the hour or so which was available before all production would have to be suspended. Accordingly the situation was not so dire that an operator would even contemplate bringing pump A into operation knowing that its PSV was missing. Further, as Bollands pointed out, it is highly unlikely that Vernon would contemplate repressurising knowing that the PSV had been removed without even checking that a blind flange had been fitted and without pressure testing the pipework to ensure that there would be no leaks. It appears also from Henderson’s evidence that if a pump was being brought back into operation after maintenance involving breaching the integrity of the pipework the practice was to station an operator at flanges to check that there were no leaks when jagging commenced (11771). This would tend to confirm that Vernon did not jag knowing that the PSV was missing as he appears to have made no check at all of the site of the PSV even to be satisfied that a blind flange had been duly fitted let alone pressure testing or stationing an operator to check for leaks. In my opinion the evidence relating to this matter was of sufficient cogency as to justify the Lord Ordinary in concluding at the very least that it was a factor of very great importance in his exercise of weighing the various factors pointing to Vernon’s state of knowledge at the time he repressurised the pump. The question therefore becomes whether the Lord Ordinary was justified in holding that that factor, virtually alone, was sufficient to outweigh all the other factors which the respondents maintained would point to Vernon knowing that the valve was missing when he repressurised the pump.
The respondents advanced several factors which they maintained indicate knowledge. (1) ‘One of the primary functions of a lead production operator is to know the status of all plant as one item out of action could affect decisions on applications for permits to work during his shift.’ Vernon was however aware that pump A was handed over to maintenance and not available for production and accordingly he might not, initially at least, be likely to concern himself with that pump or its associated valves.
(2) ‘At handover Flook, the day shift lead production operator, knew that the PSV had been removed as he had issued the permit and would be expected to record the fact in his notes and mention it to Vernon when he handed over.’ Flook did not survive the disaster and accordingly there was no evidence from him. Again, it may not have been recorded or referred to by Flook at handover because the pump was not available for production.
(3) ‘The control room copies of the permit relating to the PSV if suspended would be on the lead production operator’s desk and Vernon would be expected to look through suspended permits to ascertain the state of the plant.’ However, the evidence was that permits which had been suspended, as opposed to live permits, might only be referred to at a handover if they were relevant or significant (Henderson 11625, Lynch 11182).
(4) ‘If the permit was suspended during or after the handover it would be Vernon himself who dealt with the suspension. If Rankin’s timings are correct the person he would be likely to have seen in the control room would almost certainly have been Vernon, in which case, of course, Vernon would have had direct knowledge of the absence of the PSV.’ The Lord Ordinary’s approach to this aspect of Vernon’s knowledge is not always entirely consistent. At page 424 of his opinion he says
"There can be little doubt that the permit for valve maintenance overnight would have been with suspended permits".
At page 748 he says
"Accordingly although the evidence is not entirely convincing I think there is at least a fair possibility that Mr. Rankin did return a permit to work to the control room and there saw Mr. Vernon or Mr. Flook, depending on the time of his visit…whichever of the two lead production operators Mr. Rankin saw would have put a suspended permit among the pile of such permits rather than retaining it as a live permit".
In the concluding paragraph of this section of his Opinion the Lord Ordinary says (752):
"Given the procedure that had been laid down for Mr. Rankin and with which he was at least to some degree experienced it remains eminently possible that Mr. Rankin returned the permit to work to the control room for suspension. However, doubts about the matter remain. Just what happened to the suspended permit, if it was returned to the control room, is difficult to discover. Unfortunately Mr. Rankin (no doubt because of the shock of the accident) was unable to give any convincing account of what he had done with the permit at the end of his shift. If the permit had been left in the control room then Mr. Vernon must I think be the person who at that stage dealt with it. However, some hours later he was not aware of the existence of the permit and although there could be a number of reasons for this, one might be that he had never seen the permit".
In the section of his opinion dealing with his conclusions on Vernon’s knowledge he says (774):
"There was considerable evidence about the timing of his [Rankin’s] progress but on balance, as I have said, I prefer the view that he did not finish all he was able to do on the day of the accident until about 6 p.m. and then he took his permit to the control room at least for some purpose. If, as the defenders contend, the pursuers are bound to a position that the permit was properly suspended Mr. Vernon was in all probability the person who suspended the permit and this is what the pursuers aver".
The respondents maintain that having regard to these observations there should have been a clear finding by the Lord Ordinary that the permit was in fact suspended and that it was Vernon who suspended it. Accordingly, it could not be said that at all times Vernon was ignorant of the fact that the PSV had been removed. The respondents maintain that instead of making such a finding the Lord Ordinary goes on to contradict what he has previously said. At page 775 he says:
"As I have said in reality there appears to be a doubt as to whether in the early evening of the accident Mr. Vernon had the opportunity to discover from a permit to work that the valve was out of position".
At page 778 he says:
"The situation on the platform could admit of many circumstances which might explain how Mr. Vernon came to forget about the PSV or not to know that it was not in position. The problem for the defenders is that there is, in my view, fairly clear eye witness evidence from which it can be inferred that in the final period before the accident Mr. Vernon was not aware that the PSV was absent. On the other hand the evidence of what might have taken place to produce that situation is vague and leads to no convincing conclusion. Many of the possibilities remain totally speculative and we shall never know what happened at and following on the handover. Among the various possibilities the likeliest is that at some stage in the evening Mr. Vernon had suspended or at least seen the PSV permit but that either in the whole circumstances surrounding the planned work on the pump it had failed to register in his mind that the state of the valve had any significance, or if it did so register it had slipped his mind later. In arriving at a view of Mr. Vernon’s behaviour I am in no way suggesting that he was not seriously negligent in allowing the PSV permit to escape his mind or in any event, as the lead production operator on duty, not having discovered that it was absent".
In his final conclusions at 1122 he says:
"In any event in the light of Mr. Rankin’s evidence it cannot even be held proved that the permit to work was ever brought to Mr. Vernon’s attention and if it were in what circumstances. Just why Mr. Vernon did not know the valve was missing is obscure and it cannot be assumed that any failure to acquaint himself with the position was due to conduct anywhere approaching recklessness. Nor can it even be held as proved that his situation was caused by a deliberate failure to follow through good and prudent practices. In any event if the pursuers’ pleadings are contrary to my view to be taken as committing the pursuers to accepting that Vernon was aware of the permit to work then that would simply lead to the conclusion that the information about the PSV did not have much impact on Mr. Vernon because the pump had been handed to maintenance and that in these circumstances it later slipped his mind. I can see why the situation might be frustrating for the defenders because there were in place a number of procedures that would normally have kept Mr. Vernon informed but as it happens the exact explanation for his lack of knowledge is too uncertain to permit the conclusions wanted by the defenders. I cannot conclude that there was any deliberate decision on his part to ignore important safety measures. The critical circumstance is that at the time of the explosion he did not demonstrate the behaviour of a person who knew that the PSV was missing. His behaviour was at the time all along that of a man who thought that the only obstacle to the use of pump A was the deisolation of the electrical isolations which had been carried out for the planned maintenance work".
The position therefore is that it is not clear whether the Lord Ordinary concluded that Vernon was at all times ignorant of the absence of the PSV or that he had been made aware at the beginning of his shift that it had been removed but had forgotten by the time he came to repressurise the pump. His final observation on the matter at page 1448 is:
"However, for the reasons that I have earlier explained at length I consider that at the time he repressurised the pump either Mr. Vernon had never known the situation in relation to the PSV or, if he had at one time known it, this had slipped his mind".
The Lord Ordinary’s final position therefore seems to be that he is unable to come any definite conclusion one way or the other. The respondents maintained that on the evidence the Lord Ordinary should have made a positive finding that the permit was suspended, that this happened at about 6 p.m., that the person who suspended it was Vernon, and that accordingly Vernon was in fact aware of the absence of the PSV. The reclaimers point out, however, that the time at which the permit was suspended, if it was suspended, depends on Rankin’s evidence and the Lord Ordinary did not find Rankin’s evidence on this matter acceptable. In answer to this the respondents say that the Lord Ordinary’s non-acceptance of Rankin was based on the content of his evidence and not on any criticism of his credibility or reliability based on seeing and hearing the witness. Accordingly, this court is able to consider the content of Rankin’s evidence and come to its own conclusion about its reliability. It appears to me clear, however, that because of the appalling experiences suffered by the survivors of this disaster the Lord Ordinary was understandably reluctant to make any adverse comments about surviving witnesses unless he was absolutely compelled to do so and I am not prepared to assume that the manner in which Rankin gave his evidence was something which had no bearing on the Lord Ordinary’s consideration of it just because the Lord Ordinary does not specifically say that he was founding on the benefit which he had in seeing and hearing the witness. In any event a reading of Rankin’s evidence does show some curious features, in particular the fact that he has no recollection of being in the control room in the morning when he must have obtained a lead production operator’s approval of his permit, and his equivocal reply on the critical issue that "My understanding is that jointly we suspended the permit", although he appears to have no recollection of precisely what was done (page 11485). In the circumstances I do not find it difficult to agree with the Lord Ordinary that no firm conclusion can be reached on the basis of Rankin’s evidence. I shall have to return to this matter later for reasons that will become apparent.
(5) ‘In accordance with normal practice Vernon would walk round the platform either immediately before or shortly after the handover in order to check on what was happening. In the course of that inspection he would see scaffolding which would draw his attention to the missing PSV.’ Clark’s evidence, however, was that there was always a lot of scaffolding, so much so that he eventually took no notice of it. While it is true that a lead production operator would be expected to be more interested in the purpose of any scaffolding than would be a lead maintenance hand, the evidence does not, in my opinion, go so far as to indicate that Vernon would inevitably have had his attention drawn to the absence of the PSV by the presence of scaffolding if he had not been informed of its removal, although I would accept that if he had been so informed the presence of the scaffolding would have acted as a reminder.
(6) ‘When pump B tripped Vernon should have applied his mind to any factors which would affect the restarting of pump A.’ This argument may be valid if Vernon was originally aware of the absence of the valve but had forgotten about it. But if he was never made aware that the PSV was missing there was no reason for him to think that it might be.
(7) ‘Richard, the phase 1 operator (who did not survive the disaster), should have known that the PSV was missing as he would have learned of this at handover and, in any event, as his place of work was module C he would have had ample opportunity to find out. Richard was with Vernon at the condensate injection pumps at the material time immediately before the explosion and could be expected to tell him about the absence of the PSV when Vernon indicated his intention to bring pump A back into operation.’ As neither Richard nor Grant, who handed over to him, survived, again this can only be surmised. There is no doubt that Grant was aware that the valve had been removed as he was present at its removal, but again there is the possibility that because pump A had been handed over to maintenance Grant would not regard the removal of the PSV as a relevant or significant feature worth mentioning at handover. As there is no indication in evidence that Richard did draw the absence of the PSV to Vernon’s attention, this may be a pointer to Richard not being aware himself. It is also of significance that while he was with Vernon, Richard received a message from Bollands that a detector in zone C3 had indicated a gas leak and Richard went off to investigate. Richard would be well aware that zone C3 was downwind of the site of PSV 504 in module C. If condensate was being introduced into pump A and if Richard was aware that the PSV was missing it is unlikely that he would not have associated these two facts. While there is no direct evidence that Richard told Vernon where he was going and why, it is again improbable that he would not have told him. Vernon was, after all, the lead production operator and responsible for safety on the platform and it is unlikely that Richard would keep to himself the not unimportant information from a safety point of view that a gas alarm had annunciated. If Vernon had earlier been made aware that the PSV had been removed, but had forgotten, any information about a gas alarm would have forcibly reminded him and it is inconceivable that he would have continued to repressurise the pump in that situation. This, accordingly, in my view is, if anything, another factor militating against Vernon’s knowledge of the absence of the PSV.
(8) ‘Whoever unloaded and recycled the reciprocating compressors would have been in the immediate vicinity of and would have seen the scaffolding at the site of the missing PSV.’ However, as it is not known who unloaded the compressors this cannot be a pointer to knowledge on the part of Vernon. In any event the control panels from which the compressors would be unloaded and recycled were situated at the north side of the module and separated from the site of the scaffolding on the south side by the substantial bulk of the compressors.
(9) ‘Before restarting the pump the manual isolation valve which was situated within inches of the missing PSV should have been opened.’ The respondents rely on the evidence of Henderson who gives a sequence for restarting a pump, but his sequence is on the assumption that there are two operators available as well as the lead production operator. It was accepted by others that there was nothing unsafe in leaving the opening of the manual isolation valve until after jagging, so long as it was opened before the pump was actually restarted. It is to be borne in mind that until the pump is started the system pressure in the relief line after repressurisation would not exceed 670 psi. When running the pressure in the relief line would normally be 1100 psi. At 1700 psi the pump was designed to trip and it would only be if the pump failed to trip and the pressure reached 1750 psi that the PSV would open and the manual isolation valve would require to be opened for that purpose. Accordingly, the opening of the manual isolation valve would clearly not be a priority at the stage of jagging. The respondents further contend that even if it was not opened at the stage of jagging, the fact that it would have to be opened before the pump was restarted would be in the mind of Vernon and that would have reminded him if he had forgotten that the PSV was missing. I shall deal with this argument later.
(10) ‘As Clark’s evidence was that the maintenance permit for pump A had never been issued, the red tags signed by him and Vernon must have come from the PSV permit (a blue permit). That being so, Vernon must have been aware of the PSV permit.’ This contention however does not square with the evidence of Bollands, who says that Vernon took a pink permit out of the box and that permit had red tags attached (9470/7). Where the evidence of Clarke and Bollands is in conflict, the Lord Ordinary has preferred the evidence of Bollands. Further, Bollands was not cross-examined on this issue.
In this state of the evidence the Lord Ordinary in my opinion was entitled to take the view that while a number of matters could be described as possibilities, the state of the evidence was such that he did not feel able to make positive findings and having regard to the evidence I consider that he cannot be criticised for taking that approach. One firm and clear fact accepted by the Lord Ordinary was that no responsible lead production operator would knowingly start the pump in the absence of the PSV.
There is, however, one aspect of the case on which I find it difficult to support the Lord Ordinary’s reasoning. While he accepts that there is insufficient evidence to warrant a conclusion that Vernon was ever made aware that the PSV was missing, he also appears to have considered that even if Vernon was made aware at about 6 p.m. nevertheless the matter had somehow slipped his mind by the time he came to repressurise the pump. The presence of the scaffolding immediately below the PSV site may not have had much significance to him if he knew nothing of the absence of the PSV but if he did know of its absence he would be unlikely to have missed the significance of the scaffolding. The fact that the manual isolation valve would eventually have to be opened would inevitably have been in his mind at the time of repressurising which again would have reminded him of the absence of the PSV. When Richard was called away for a gas alarm it is likely that he would have told Vernon why he was being called away. The fact that a gas alarm had annunciated in module C would serve to remind Vernon that the PSV had been removed. Apart from anything else the mere fact of asking Clark if he could have the pump back from maintenance would tend to remind him that he could not use it anyway because the PSV was missing. If, therefore, Vernon was made aware of the absence of the PSV at about 6 p.m. I am forced to the conclusion that he could not have been in a state of total ignorance at 9.45 p.m.
The crucial question therefore becomes whether or not it is established that he was made aware at 6 p.m. This in turn depends on what happened to the PSV permit and brings us back to Rankin’s evidence and the Lord Ordinary’s treatment of it. It has to be said that at different parts of his Opinion the Lord Ordinary appears to take differing views of the reliability of Rankin. He deals specifically with Rankin’s evidence at pages 741 to 752.
What then happened to the PSV permit? There can be no doubt that there was such a permit issued in respect of the removal of the PSV. In accordance with normal procedure if the work had not been concluded by 6 p.m. the permit would require to be suspended or renewed. There is no question of the permit being renewed, therefore either the permit was suspended in accordance with the normal practice or it was not. If the permit had not been returned by Rankin to the control room for suspension, the live permit would eventually be alone on the lead production operator’s desk as the sole surviving live permit not extended, cancelled or suspended and, as it was put, it would stick out like a sore thumb. The overwhelming probability therefore is that it must have been suspended. I discount the suggestion that Rankin might have taken all of the copies of the permit away with him. This was not suggested in evidence to Rankin who said he left his copy on the desk. If the permit was suspended, when was it suspended? This depends again on Rankin’s evidence. Although the Lord Ordinary, at page 748, mentions the possibility that the permit was suspended with Flook, he never considers this possibility further. If the permit was suspended with Flook I accept that this would involve Rankin finishing work and going to the control room before about 5.15 p.m. which is when Vernon would come to the control room for the handover. This, however, is not impossible. Even if Rankin did not start work on removing the PSV until 1 p.m. there would have been time for him to finish before 5.15 p.m. This would be consistent with the evidence of McDonald who said that Score employees appeared to know that there was no crane available for the return of the PSV at about 5.30 p.m. It is also more consistent with Rankin saying that there was only one person in the control room when he went there, as it is clear that between 5.25 p.m. and about 5.45 p.m. both lead production operators would be there doing their handover and after 5.45 p.m. is a busy time in the control room with people coming in to suspend or renew permits. I accept that if the permit was suspended with Flook this would be inconsistent with Rankin saying that he did not know the person that he saw in the control room at that time because it must have been Flook who issued the permit to Rankin in the morning. That, however, may be one of Rankin’s lapses of memory. The evidence is certainly not clear enough to make any positive finding to the effect that the permit was suspended with Flook, but at the very least it is one of the possibilities. Accordingly, while I accept that the evidence indicates that Rankin did have a permit and did at some stage have that permit suspended, I would not be prepared on the evidence available to hold that it was positively established that Rankin suspended his permit with Vernon, nor do I consider that the Lord Ordinary can be criticised for not making such a finding. While, therefore, I would not go as far as the Lord Ordinary as to suggest that Vernon may have known of the absence of the PSV but have forgotten about it, I do not consider that this suggestion by the Lord Ordinary vitiates his conclusion that at the time when Vernon started to repressurise the pump, if in fact he did so, he was ignorant of the absence of the PSV.
REPRESSURISATION OF THE PUMP
A major part of the respondents’ case before the Lord Ordinary was that there was no evidence to prove an essential part of the reclaimers’ case, namely, that Vernon repressurised the pump. Indeed such evidence as there was indicated that he would have had insufficient time to do so and in addition would have required to do so in an unusual manner in order to produce a leak of a size which would produce a flammable mass. This involves consideration of the nature of the process. Before a pump is handed over to maintenance it requires to be depressurised by shutting off the inlet gas operated valve (GOV) and thereafter venting the contents of the pump and associated pipework. Before starting the pump again it is necessary to repressurise it. At this stage electrical supply to the pump is not necessary. The first step is to reconnect the 100 psi airline to the GOV. This air supply is used to operate the valve by means of a push/pull button. The valve itself is a ball valve which rotates through 90 degrees. The air pressure operates on a spring loaded piston attached to a Scotch yoke which in turn rotates the valve. When the button is pulled air is introduced and the valve begins to open. It takes about 8 to 10 seconds for the valve to move from fully closed to the fully opened position. When the button is released the air pressure is cut off and a spring closes the valve. (In normal operation when the electrical supply is connected a separate 50 psi airline operates to keep the button in the open position thus keeping the valve open, but as the pump was electrically isolated this function is not material for present purposes). If the pump chamber is at atmospheric pressure there is a possibility of damage to the mechanism if the GOV is fully opened in one movement because of the sudden surge of pressurised condensate. Accordingly, the practice is to jag the pump. This means pulling the button and holding it open until the valve has partially opened and then releasing the button. This has the effect of introducing a small quantity of condensate at a time thus avoiding a pressure surge. There is a dead time of about 2 seconds before the valve begins to open and the button is released very shortly after the valve starts opening. Accordingly, each jag only takes a few seconds. Normally about three or four jags are used to bring the pump up to full pressure. The evidence disclosed a considerable variation in the length of time taken to perform the whole jagging operation, varying from 30 seconds (Murray) to 5 minutes (Henderson). The time mentioned by Murray is however not a reliable guide as he was talking about a situation where the discharge side of the pump was repressurised by use of an equalisation line from the neighbouring pump which was still running. Probably the most reliable guide is the evidence of Grieve, whose estimate was 1 minute to 3 minutes. What is perhaps more important than the exact length of time the operation would take, however, is that it was never suggested to any of the witnesses that the operation would be anything other than continuous. The significance of this is that it is necessary for the reclaimers’ hypothesis as to how the explosion occurred for there to have been two separate injections of condensate into the pump with an interval between them of about 2 minutes. Furthermore for there to have been a sufficiently large leak to provide the necessary flammable mass the button would need to have been held out on the last jag for about 15 to 20 seconds after the pump had been fully pressurised, which would not appear to be part of the normal procedure and would not appear to have any immediately discernible purpose. The respondents therefore say that quite apart from Grieve’s evidence that he did not see Vernon at the GOV button, the whole scenario is highly improbable. The respondents point out that during the evidence of the material witnesses it was never suggested to any of them by the reclaimers’ counsel that the jagging operation would ever be performed in such a way, and in the absence of any evidence to that effect the court should be very slow to draw such an inference.
The reclaimers maintain that the Lord Ordinary was entitled to hold that there was time for Vernon to repressurise the pump and entitled to hold that he did so. They approach the matter, so to speak, from the other end. The Lord Ordinary held that the explosion occurred because of a leak of condensate in module C and although this was hotly contested during the proof, the respondents now accept this finding. Because of the direction of the wind flow and the pattern of gas alarms the leak would be in the south east quadrant which is where PSV 504 is situated. There were a limited number of other condensate lines in the area and there is no indication in the evidence of any reason to suppose that there might have been any leak from any of them. Important evidence, however, comes from Grieve who was at the condensate injection pumps on the 68 foot level at the time of the explosion. He described a fireball in the roof space immediately under the point where the relief line leading from the pump to the PSV went through the roof into module C and this would be entirely consistent with a leak from the flange. Standing this evidence indicating the possible source of the leak and in the absence of any credible competing source the Lord Ordinary was entitled to hold that the source was indeed the flange. The only way in which condensate could have reached that flange would be through repressurisation of the pump. Vernon had undoubtedly expressed an intention to bring pump A back into operation. Accordingly, the only sensible inference is that in pursuance of that intention he had repressurised it. Although there was no direct evidence that he did so, Grieve’s evidence cannot exclude the possibility. While the timing of the jagging operation is unusual there is no requirement that it should be a continuous operation. There is also the possibility that the initial jagging which caused the first leak which initiated the C3 gas alarm was carried out by Richard and that it was only after he was called away that Vernon proceeded with the second stage. The reclaimers accepted that these hypotheses had not been put to the witnesses who might have been able to comment, but maintained that approaching the matter in the way they did all they had to prove was that the leak came from the flange, and if that was established it was inevitable that the pump must have been repressurised whatever the problems of timing may have been. If the respondents wish to show that it was impossible for Vernon to have jagged the pump, it was open to them to suggest to the witnesses that he could not have done so for the reasons which they now advance.
While there are undoubtedly a number of problems involved in the timing, I have come to the conclusion, as did the Lord Ordinary, that the reclaimers’ approach is a legitimate one. Accordingly, the vital question becomes not whether it is clear on the evidence that Vernon did in fact repressurise the pump but whether there was a leak from the flange at the site of PSV 504. If that is established on the evidence it inevitably follows that the pump must have been repressurised and that it would be Vernon who performed that operation.
The respondents maintained that the evidence of Grieve, combined with evidence which he was not asked to give, was fatal to the reclaimers’ contention. Grieve was the phase 2 operator who was working in the gas conservation module which was out of commission while undergoing substantial maintenance. He heard on his radio that there was a problem with a condensate injection pump and as he had no particular work to do at the time, he decided to go to the 68 foot level to see if he could assist. When he arrived there he passed the control panel JCP57 and observed that neither condensate injection pump was running. He then saw Vernon and Richard at the south west corner of pump B. He assumed that they were trying to start that pump. Because of the noise level in the area he could not have any real conversation with them, but he formed the impression that pump B was ready for a restart. He therefore made his way to the local control panel and pressed the start button. The motor turned but when he released the button the motor stopped. He then decided to go round the pump to check that the manual speed control was set to zero. Before he had the opportunity to check that, the explosion occurred. His estimate was that he was only in the area of the pumps for 2 to 3 minutes before the explosion. During that time he was aware that there was a message over the radio for Richard but he was not aware of the content of the message. However, he observed Richard leaving by the stairs to the north west of the pumps. He was asked about Vernon’s position and said that the last recollection he had was of seeing Vernon with Richard between the GOVs . He was not asked if he had seen Vernon jagging pump A nor was he asked if it was possible that Vernon could have been jagging pump A without him noticing. The respondents maintained that the reclaimers could not succeed in proving that Vernon jagged the pump, an essential part of their case, on a purely circumstantial basis when there was an eye witness present at the time when the pump must have been jagged who was not asked if he had seen that happening and more importantly was not asked if it could have happened without him noticing. The failure to ask if it could have happened raises the inference that it did not.
I accept that with the benefit of hindsight it could be said that it would undoubtedly have been preferable for Grieve to have been specifically asked if Vernon could have been jagging the pump without him noticing. However, as the Lord Ordinary points out, Grieve only appears to have noticed Vernon at two stages, namely when he first arrived at the vicinity and saw Vernon at the south west corner of pump B and then his last recollection was of seeing him between the GOVs and he had no idea what he was actually doing. There is nothing in Grieve’s evidence which gives any indication that he kept Vernon in view throughout the whole time he was at the 68 foot level. If such evidence had been given it may be that the failure to ask if Vernon could have jagged would have been fatal, but where there is no such indication I am unable to regard Grieve’s evidence as preventing the inference being drawn if appropriate from other evidence that Vernon did in fact jag the pump.
Important evidence in the case was given by Dr. Davies who carried out tests simulating leaks from various locations in order to try to establish what sort of leak and from where would be capable of producing the pattern of gas alarms spoken to by Bollands. Bollands’ evidence, which was not challenged by either party and was generally accepted by the Lord Ordinary, was that the first alarm to annunciate was a low gas alarm in zone C3. That was the alarm which Bollands intimated to Richard and was the cause of Richard leaving the 68 foot level to investigate. About 2 minutes later there was a flurry of alarms followed immediately by the explosion. Although not absolutely clear, his evidence indicates that in the final flurry the sequence was low gas alarms from C4 and C5, virtually together, followed by C2, followed by a high gas alarm from one of the C detectors all within a few seconds (9493 to 9510). When carrying out his tests in 1989 Davies was obviously concerned to be as accurate as possible about the sequence and timing and he obtained information at the time by way of Bollands’ precognition which is recorded in Davies’ working papers. Davies originally gave evidence as an expert at the Cullen Inquiry. He was thereafter engaged by the reclaimers. He prepared an initial report for the reclaimers in 1989 and a subsequent report some years later, both reports being productions in this case. It is clear, as stated in the first of these reports, that he proceeded on certain assumptions which are set out in section 2. It is also made clear that his brief was to ascertain if a leak from the blind flange could be a cause of the pattern of gas alarms. No mention is made in these assumptions of any scaffolding in the area of PSV 504. 34 simulations were carried out using different flow rates, different ways in which the condensate could escape, e.g. a complete circumferential leak, a partly circumferential leak or a jet, and different locations of a leak within module C, although most were carried out from the location of the PSV. One of these simulations (series 27) was of a downward jet at a leak rate of 37 kg./min. onto a plate situated 1 metre below the source. The conclusion reached in the report was that on the basis of the assumptions in section 2 a small leak of vapour from the condensate stream followed by a much larger release of condensate must have occurred in the vicinity of PSV 504. His evidence in chief was along the same lines. In cross-examination, however, it transpired that one of the assumptions given to him by the reclaimers was that there was a scaffolding platform beneath the site of the PSV. He had been previously aware of that anyway hence the simulation in series 27. He accepted that the result of series 27 was that there was dispersion of the gas escape which led to all C2 alarms annunciating before any alarm from C3. In other words a simulation of a downward leak at the rate of 37 kg./min. onto a scaffolding platform was inconsistent with the observed pattern of gas alarms. Prior to Davies giving evidence a number of witnesses had mentioned the existence of the scaffolding at the site of the PSV. None of them had been asked in any detail about the dimensions of the scaffolding platform. The respondents maintained that such evidence as there was indicated that the platform would have been in such a position that the downward leak would inevitably have struck it and dispersed. The limited evidence bearing on this point can be found in the evidence of Rankin (11457), McDonald (11312), Bagnall (10522 and 10529), McGregor (8967) and Standon (9645). The respondents criticised the Lord Ordinary’s approach to this issue. He dealt with it at three passages in his Opinion. At pages 507 to 509 he says that the exact position and height of the scaffolding is not known but that it was said that it was about 1 metre below the PSV, which is what one would expect. Whether directly below the flange or to one side is not known, but it must have been close enough to allow access.
"One of the tests carried out by Dr. Davies (series 27) included a scaffolding but the results of this test did not seem to me to have been conclusive".
At pages 559 to 561 the Lord Ordinary deals again with the defenders’ submission that the presence of scaffolding rendered Dr. Davies’ tests valueless. At the end of that passage he says:
"The defenders had suggested that the evidence of the pursuers’ experts showed that it was not possible for a leak from the blind flange to have caused the alarm pattern and explosion and I do not accept this contention".
The respondents criticised that approach on the basis that it was simply a bald assertion that he did not accept the defenders’ contention. However, the Lord Ordinary at pages 873/ 4 gives more detailed reasons. What he says there is:
"The defenders make another important point since they claim that Dr. Davies accepted that his modelling results would be affected if there was a scaffolding below the site of the blind flange. This is not quite an accurate representation of Dr. Davies’ position. What he was saying in effect was that he could not accurately model the situation taking account of the scaffolding. He did attempt to model the scaffolding by placing a block beneath the presumed leak site, but this he accepts was not very satisfactory. In effect he found himself unable to model the scaffolding without details of its structure, its location in relation to the blind flange, the equipment surrounding the scaffold, and the size and direction of the leak. It became too difficult to perform precise modelling taking into account the conjectural factors introduced by the scaffolding. However, Dr. Davies did not say that the presence of scaffolding made it unlikely that the alarms were triggered by an escape from PSV 504. In fact even in the knowledge that the material which had been introduced to the pump was said to be condensate and with the additional knowledge about the scaffolding he appeared to accept that leaks from the PSV could account for the alarm sequence. The scaffolding of course admittedly could have affected the accuracy of his modelling. There was however room for a combination of events that could have caused the alarms to go off and that was consistent with a phased attempt to repressurise the pump. Thus the main lesson that can be taken from the evidence of Dr. Davies is that the pursuers’ hypothesis, if supported by other evidence which fits well together, is eminently possible".
Having regard to this passage in the Lord Ordinary’s Opinion it does not appear to me to be a proper criticism of the Lord Ordinary that he simply dismissed the respondents’ contention with the simple assertion that he did not accept it.
The reclaimers’ position was that, assuming a two-stage release, as far as the second stage was concerned, because of the rapid spread of a large gas cloud and the flurry of alarms all within a few seconds the precise pattern of alarms is immaterial, and as far as the first stage is concerned, despite the finding in series 27, the pattern is compatible with a small continuous leak at a rate of about 12 kg./min. The reclaimers referred to series 34 which simulated a fully circumferential leak at the rate of 12 kg./min. That produced a pattern of C3 being the first alarm to annunciate. Davies considered that a downward jet or partially circumferential leak which impinged on a platform could be regarded as being in the same class as a fully circumferential leak in that it would produce a dispersed source. Accordingly, although Davies did not try it, a downward leak onto a platform but at a rate of 12 kg./min. might be expected to produce a result similar to series 34. In that situation the presence of the platform would not result in the triggering of a C2 detector before a C3 detector. A partial repressurisation of the pump to 20 bar would produce a leak at the rate of 15 kg./min. Even if this impinged onto the platform it could still be expected to perform in the same way as a series 34 test and cause a C3 alarm to be triggered first.
The respondents further maintain that Davies’ whole evidence is fatally flawed in that it proceeds on an assumption that the leak was substantially heavier than air, an assumption that not only was not proved but was in fact disproved. His modelling was done with an inert gas which had a molecular weight of 44. The molecular weight of air is 29. The reason he used gas with the molecular weight of 44 was that the molecular weight of the condensate was 42 and the closest hydrocarbon to that is propane with a molecular weight of 44. What the respondents maintained however is that Davies failed to appreciate that not all of the condensate would turn into gas when it was released at the leak source. Because of the process known as differential flashing, when a condensate mixture under pressure is suddenly released into air at atmospheric pressure the lighter ends of the condensate will, within milliseconds, flash into gas but the heavier ends will remain in the liquid phase. All of the methane, nearly all of the ethane, and 50% of the propane will so flash but the remainder will remain liquid. The molecular weight of methane is 16.04, of ethane 30.07, and of propane 44.09. The proportion in the condensate stream of methane is 18%, of ethane is 19% and of propane is 30%. It follows that only about 50% of the condensate stream would flash and because the three hydrocarbons concerned all have relatively low molecular weights the gas cloud so formed would also have a low molecular weight approximating to that of air. The gas cloud would therefore be neutrally buoyant. Davies’ evidence was that if the leak was of neutrally buoyant gas it would rapidly disperse in all directions and if the source was from the PSV site the C2 detectors, particularly G101/1, which was close to the PSV site, would inevitably detect it before it reached any of the C3 detectors. Accordingly, had Davies appreciated the phenomenon of differential flashing he could not have used gas with a molecular weight of 44 for his tests. His tests are therefore of no value. His evidence, however, shows that if he had used a neutrally buoyant gas the inevitable result would have been that the C2 detectors would have picked up the gas cloud first if the leak had in fact come from the site of the PSV.
The reclaimers contended that this argument was not presented to the Lord Ordinary and should not be considered by this court. Before the Lord Ordinary the matter of flashing was argued in relation specifically to the reclaimers’ hypothesis that the first stage leak was a gas leak, and what was argued was that when the pump was repressurised there would initially be flashing of the lighter ends of the condensate inside the pump chamber and that that would be the gas which would rise to the end of the relief line. Accordingly, when gas leaked under pressure from the relief line it would consist of the lighter ends which would have a molecular weight about the same as that of air and would be neutrally buoyant. As Davies’ evidence was that a neutrally buoyant cloud would rapidly disperse such a cloud would first impinge on the G101/1, which was one of the C2 detectors. The submissions made to the Lord Ordinary by the respondents, however, appeared to accept that different considerations would apply at the second stage which, under the reclaimers’ hypothesis, would have to be a leak of liquid condensate.
One thing that is clear is that this is a highly specialised area. Unfortunately the ingenious interpretation of the evidence in relation to the second stage condensate release was not put to Davies for his comments, and I for one would not be prepared to substitute my own views in such a complex matter for that of the many experts who gave evidence in this proof. What is the effect of evaporation, which might not take place in milliseconds but, at least in the case of the balance of the propane and possibly butane, would take place in a second or two? That is a matter which was considered almost in passing with Richardson and unfortunately his evidence on the matter is not entirely clear. At one point he appears to be including evaporation within flashing, while at another point he treats them separately (see pages 16542 and 16639). What may be a significant passage in his evidence is at page 16542 where he is dealing with the behaviour of condensate when it passes through an opening GOV into the pump chamber. He said
"It approaches the narrow gap which has been formed by rotating the ball just beyond the dead space so we have just the first glimmerings of a hole appearing and in the narrow gap itself, or very shortly down stream, very very shortly, like within millimetres of that position, virtually all of that liquid, if not all of it, will flash and form gas. Typically it might be 50% to 60%, of that order, quite a lot of the liquid will flash to form gas. Not all of it will, because while it is flashing to form gas it is getting cold. So although at room temperature and one bar which is atmospheric pressure very nearly, so at room temperature and atmospheric pressure all this condensate may flash to form gas because it has got cold, very cold, it will drop in temperature by tens of degrees, 50 perhaps, I don’t know, it depends on the system".
It appears from that passage that the reason that more than 50% to 60% of the condensate does not flash into gas when entering the pump chamber is because of the severe temperature drop, together with the fact that inside the pump chamber the pressure is building up. As he points out, however, at atmospheric pressure and room temperature all the condensate may flash. It would appear to follow from this that condensate released from a leaking flange into module C would immediately be at atmospheric pressure and if in the form of aerosol or droplets would rapidly approach room temperature. If this is correct the gas cloud, a short distance from the orifice, would contain far more than just methane, ethane and half the propane.
I agree with the Lord Ordinary that Davies’ evidence cannot in itself prove that the leak came from the site of PSV 504. As the Lord Ordinary recognised, the high water mark of Davies’ evidence was that the reclaimer’s hypothesis is "eminently possible". However, I am equally clear that his evidence cannot, as the respondents maintain, exclude that site as the leak source. However elaborate his modelling techniques were they could not replicate exactly the conditions on the platform on the night of the disaster. Substantial quantities of piping and other equipment between the PSV site and the various detectors, which might have affected the gas flow, were missing from his model which was a substantial simplification of the actual layout. The existence of the scaffolding platform under the site did not form part of his experiments except in the one instance. The molecular weight of the gas he used may not have been precisely the same as that of the leak and if the actual leak contained entrained liquid it may not have behaved in the same way as the gas used by Davies. The position of the vital detector G101/1 was modelled as being at a height of 12 feet, whereas the Lord Ordinary (page 236) has accepted the evidence that it was in fact at a height of 20 feet, a discrepancy which would have some bearing on its ability to detect a neutrally buoyant gas from the site of PSV 504 which was at a height of about 15 feet (Lord Ordinary page 477). I am accordingly satisfied that it cannot be said that on Davies’ evidence the only reasonable hypothesis was that a leak from the PSV site of either gas or condensate would inevitably have triggered a C2 detector before a C3 detector, which would be in direct contradiction of the evidence of Bollands which the Lord Ordinary has accepted as being correct, and thus destructive of the reclaimers’ hypothesis.
The Lord Ordinary accepts that the case against Sutton depends entirely on inference. There was no evidence that he was a careless worker or ignorant of what was required of him. He was alone when fitting the flange and there was no evidence one way or the other as to whether he used combination spanners to tighten the bolts. If the bolts had been properly tightened with the use of combination spanners there could have been no leak. The Lord Ordinary concludes from the other evidence in the case that there was a leak from that site and therefore "I must conclude that Mr. Sutton did not fit the blind flange properly" (page 882). This conclusion was attacked by the respondents on two grounds. In the first place they contended that it was inherently improbable that Sutton would tighten the bolts only finger tight. He had plenty of time to do the job properly and he had nothing else to do during the time that Rankin was carrying out the calibration of the valve. In view of the fact that the flange is now under the sea, as is all the other pipework in module C, the improbability of Sutton having been in wilful dereliction of duty cannot be elevated into a probability on the principle enunciated in Rhesa Shipping. In the second place the respondents argued that the Lord Ordinary’s approach to Sutton’s alleged negligence was flawed. The proper approach was to consider the likelihood, or otherwise, of Sutton having failed to fit the flange properly and then take that into account as one of the factors in a consideration of whether the reclaimers had proved that there was a leak from the PSV site. It was a wrong approach to ignore the improbability of Sutton’s negligence, to decide without taking that factor into account that the rest of the evidence made it probable that a loose flange was the source of the leak, and then conclude that Sutton must have been negligent. In my view these criticisms do not properly reflect the Lord Ordinary’s approach. At pages 779 to 786 the Lord Ordinary considers all the evidence relating to Sutton’s fitting of the flange, including various possible reasons why he may not have fitted it properly on this occasion. He would have expected that the valve would have been refitted during the course of his shift and would be aware that pump A had been taken out of service for planned maintenance. He might, therefore, not have regarded the properly secure fitting of the flange as being of importance. In this context it is perhaps of interest to note that his supervisor, Rankin, appears at least in one point in his evidence (11414/5) to have differentiated between fitting flanges to valves for testing purposes when liquid or gas would be introduced under pressure and fitting flanges to open ended pipework. In relation to the latter he thought that the principal purpose in fitting a blind flange was "to protect the faces of the flange to stop any accidental spillage from the system or to prevent any dirt entering from outside". If this was the supervisor’s view it may be that Sutton was under the same misapprehension. There was also evidence, for what it was worth, from Bagnall to the effect that the constricted space around the PSV would make it difficult to use combination spanners and that the fitting and proper tightening of the two flanges would take a considerable time which would not be far short of the time it would take Rankin to do the necessary work on the valve and be ready to return it to position. In this passage of his Opinion the Lord Ordinary does not come to any specific conclusion. This is just one of the many passages in the Opinion where the Lord Ordinary discusses the different aspects of the evidence which have a bearing on the crucial question of whether or not it has been proved that this was the source of the leak. His conclusion on the cause of the accident is set out at pages 854 to 883 and in considering that there is no reason to suppose that the Lord Ordinary did not have in mind what he had already discussed in relation to Sutton’s actings. The answer to the argument relating to Rhesa Shipping is the same as already discussed, namely that the Lord Ordinary, on a consideration of the whole evidence, concluded that the reclaimers’ hypothesis was probable.
CONCLUSION ON FACTS
In considering whether the reclaimers have proved their hypothesis as to the cause of the initial explosion a number of factors have to be balanced. The balancing exercise has to be carried out bearing in mind at all times two important considerations. In the first place it has to be remembered that many vital potential witnesses did not survive the disaster and the real evidence is at the bottom of the sea. Accordingly, for the reclaimers to succeed, a balancing exercise must produce a result which is probable and not merely the least unattractive possibility. Secondly, it has to be remembered that as the number and weight of improbabilities increase so the value of the probabilities will diminish.
The factors in favour of the reclaimers’ hypothesis may be summarised as follows. The explosion occurred in the south east quadrant of module C down wind of the site of PSV 504. The necessary flammable mass could only come from a leak of condensate. The only part of the plant in module C where the integrity of the line had been breached was the site of PSV 504. A fireball was seen immediately after the explosion in the roof space at the 68 foot level below the site which could have been fuelled from a condensate leak from the site. The pattern of gas alarms pointed to a two stage leak about 2 minutes apart. This would be consistent with a two stage jagging operation and wholly inconsistent with a leak from some other source which would be likely to be a continuous leak which could not give rise to the pattern of alarms. A few minutes before the explosion Vernon had expressed the intention of bringing pump A back into operation and had taken steps to have the electrical supply deisolated. Before the pump could be started it would have to be repressurised by jagging. Vernon was present at the site of pump A and in the vicinity of the push/pull button which actuated the GOV.
The factors to be weighed against the hypothesis are that there are many ways in which Vernon could have become aware that the PSV was missing and if he was so aware it is highly unlikely that he would have contemplated starting pump A. The only surviving eye witness at the 68 foot level, Grieve, did not see Vernon jagging although he must have been present while it was being done. The timing of a jagging operation necessary to produce a two-stage leak was wholly abnormal. The only type of leak from the site would have to be a downward pointing one in order to avoid setting off G101/1 as the first gas alarm and because of the presence of the scaffolding platform under the site any downward pointing leak would strike the platform and be dispersed, thus setting off that alarm. There was no evidence that Sutton was idle or incompetent or short of time or was unaware that the proper method of fitting a flange was to flog it up with combination spanners.
There appears to me to be one marked difference between these two sets of factors. Those favouring the reclaimers’ hypothesis are to a substantial extent based on facts which are either admitted or have been found by the Lord Ordinary and are now unchallenged. Those which challenge the hypothesis are largely based, not on uncontroverted facts, but on inferences, mainly inferences which the Lord Ordinary was not prepared to draw from the acceptable evidence before him. In that situation it is not surprising that the Lord Ordinary chose to put much greater weight on the factors favouring the hypothesis and in my opinion he was fully justified in doing so. I reject the criticism by the respondents that the Lord Ordinary started with the proposition that Vernon intended to restart pump A and then juggled the remaining facts to suit that proposition. I am satisfied that in coming to his eventual conclusion on the cause of the disaster the Lord Ordinary in his exhaustive Opinion properly weighed all the various factors, and the fact that he chose to put most weight on the factor relating to Vernon’s intention was something which he was entitled to do. In the whole circumstances I am not satisfied that the Lord Ordinary erred in the conclusion to which he came, namely that the initiating cause of the disaster was brought about by negligence on the part of both Vernon and Sutton.
NOVUS ACTUS INTERVENIENS
This argument proceeds on the basis that Sutton was negligent in failing to fit the blind flange properly and that thereafter condensate was introduced into the relief line by Vernon. The respondents maintain that Vernon’s actings constituted a novus actus interveniens and as a result Sutton’s negligence ceased to have a causative effect. If this is so the sole negligence would be that of Vernon in which case the indemnities would not apply.
The argument is that a human intervention breaks the chain of causation because on the evidence it would not be reasonably foreseeable that condensate could enter the line by being deliberately introduced. It was accepted that it was reasonably foreseeable that there might be a seepage of condensate through a defective GOV and if that had been the cause of the leak Sutton would be held negligent if he had not fitted the flange properly. What would not, however, be foreseeable would be that an operator would deliberately pressure up the line and such an act would be a novus actus. The only suggestion in the evidence about how condensate could enter the line was that there might be seepage through a valve. Counsel referred to various cases which were said to establish that if the supervening human intervention could be categorised as any one of unlikely, not reasonably to be anticipated, extraneous, extrinsic, a new and unexpected factor, a chapter of accidents and mistakes or not in the ordinary course of things then that intervention is a novus actus. In this case Vernon’s action in repressurising when a PSV was missing could be described by any one of these epithets and accordingly constituted a novus actus interveniens.
The cases referred to could be said to fall into two classes. In the first class were rescue cases such as Haynes v. Harwood  1 K.B. 146, The Oropesa  P. 32 and Knightley v. Johns  1 W.L.R. 349. In rescue type cases a wrongdoer who creates a situation where life or limb is at danger is deemed to have foreseen that some public spirited person will attempt to effect a rescue and he will be liable for injuries sustained in the course of that rescue. He will not, however, be liable if the rescuer acts in such a way as to be characterised by one of the epithets used by counsel, because such an act will be a novus actus. In the second class are cases where the true question was how far a duty of care extends. Are post office workers, leaving a manhole open in the road and a lit lamp beside it who admittedly would be liable to a child allured by the prospect who sustained burning injuries, also liable to the same child who is in fact injured by an explosion? Hughes v. Lord Advocate 1963 S.C. (H.L.) 31. Are employers who are admittedly liable to their employee for a leg injury sustained at work liable in respect of a further injury when the employee acted in an unreasonable manner three weeks later, allegedly because of weakness in his injured leg? McKew v. Holland & Hannen & Cubitts 1970 S.C. (H.L.) 20. Are borstal officers liable to persons in the vicinity of a camp through failing to supervise inmates who absconded and caused damage to their property? Dorset Yacht Company v. Home Office  A.C. 1004. Are owners of derelict property liable to neighbours when trespassers set fire to the property causing damage to the neighbour’s property? Maloco v. Littlewoods 1987 S.C. (H.L.) 37. Is a council which should have removed a derelict boat, and which would admittedly be liable if a child playing on the boat fell through rotten planking, also liable to a teenager who attempted to repair the boat by jacking up the bows and was injured when it collapsed on top of him? Jolley v. Sutton LBC  1 W.L.R. 1546. Again, in such cases, the original wrongdoer will not be held liable for what is done independently by another party unless it is foreseeable that such an independent act will occur. It appears to me, however, that the issue in none of these cases has any material similarity to the issue in the present case. Sutton owed a duty of care to others on the platform. He knew that the purpose of fitting a blind flange to an open pipe was to ensure that there could be no escape of condensate which could, as it did, produce catastrophic results. That he must have been aware that this was the purpose is perfectly clear from the fact that a range of flanges was available to him and he required to fit a flange designed to cope with the particular pressure in the pipe to which it was to be fitted. He also knew that the bolts had to be flogged tight to ensure no leakage. It was not for him to decide that because he could not think of any way in which condensate could enter the pipe he would not flog the bolts tight. This operation was designed, as were many operations on the platform, to be part of a belt and braces system whereby each safety device was, if possible, backed up by another so that even the most highly improbable potential for disaster which managed to circumvent one safety precaution would be faced with another. For some reason he failed in his duty. Had he performed his duty the disaster would not have occurred as a properly fitted flange would have contained the condensate, even under full system pressure. His failure in duty was accordingly a direct cause of the leakage which occurred. It is of course true that Vernon should have acquainted himself with the state of the PSV and should not have repressurised the pump. That, however, is a separate act which would not have caused the disaster had it not been for Sutton’s negligence. The failures in duty of Sutton and Vernon were accordingly concurrent causes jointly contributing to the disaster. This is an entirely different scenario from cases where an original wrongdoer is in effect being held responsible for what someone else subsequently chooses to do. Sutton is not being held responsible for the actings of Vernon. He is being held responsible for what he himself failed to do, his failure being a direct concurrent cause of the disaster. I am accordingly of opinion that this is a straightforward case of two failures in duty combining to cause the disastrous result where neither failure by itself would have caused any problem in the absence of the other. It follows that the concept of novus actus interveniens has no application and is of no assistance to the respondents.
INDEMNITY CLAUSE CONSTRUCTION
These actions are all based on claims under indemnity clauses in the contracts. The first question that arises is whether the indemnity clauses are operative on the assumption that the injury or death was caused by joint negligence of an employee of the reclaimers and an employee of Score, but with no negligence or breach of statutory duty on the part of the respondents or their employees.
The respondents’ submission was that on a proper construction of the indemnity clauses they were not operative unless there was some negligence or breach of statutory duty on the part of the contractor concerned.
The regulatory regime was such that it was the duty of every person on the rig not to do anything likely to endanger safety. It was the duty of every employer to ensure that his employees complied with the regulations and it was the duty of the operator to ensure that the regulations were complied with. Certain defences are provided in the case of any criminal proceedings but it is specifically provided that these defences are not available in the case of any civil claim. This means in effect that if anything is done to endanger safety, the operator is in breach of an absolute duty. It is to be assumed that the draftsman of the indemnities was aware of this statutory regime.
As far as indemnity clauses are concerned these will always be strictly construed contra proferentem. It will be presumed that such clauses do not cover cases where there has been negligence on the part of the party to be indemnified. The reason for that presumption is the inherent or fundamental improbability of one party being prepared to indemnify against the negligence of the other party. The presumption can be overcome if the clause expressly covers that situation or if the clause is capable of covering that situation and there is no other sensible construction that can be given to the indemnity. The classic test is that set out by Lord Morton of Henryton in Canada Steamship Lines v. The King  A.C. 192. The test applied by the Lord Ordinary was that the strict approach means that it is sufficient for the respondents to provide a sensible contrary construction which the provision was capable of bearing. The respondents accept that the Lord Ordinary correctly identified the test to be applied but contend that he misapplied it.
The contracts in the seven test cases all had different wording to a greater or lesser extent, and it is therefore necessary to consider each clause separately. The indemnity clauses in the seven contracts can be broadly divided into two groups, one group having a long opening paragraph and the other group omitting this paragraph. The respondents in argument concentrated on the first group of which the Eastman Christensen contract was taken as an example. The relevant provisions are in the following terms:
15.1 Contractor’s indemnities. Contractor shall indemnify, hold harmless and
defend the Company and its parent, subsidiary and affiliate corporations and Participants, and their respective officers, employees, agents and representatives from and against any and all suits, actions, legal or administrative proceedings, claims, demands, damages, liabilities, interest, costs (including but not limited to the cost of litigation) and expenses of whatsoever kind or nature whether arising before or after completion of the Work hereunder and in any manner directly or indirectly caused, occasioned or contributed to in whole or in part, by reason of omission of (sic) negligence whether active or passive of Contractor, or of anyone acting under Contractor’s direction, control or on Contractor’s behalf in connection with or incidental to the work. Provided always that
the Contractor’s total liability arising pursuant to this indemnity
shall not exceed One Million Pounds Sterling (£1,000,000) per
Without prejudice to the foregoing generality, the Contractor shall indemnify, hold harmless and defend the Company and its parent, subsidiary and affiliate corporations and Participants, and their respective officers, employees, agents and representatives from and against any claim, demand, cause of action, loss, expense or liability (including but not limited to the costs of litigation) arising (whether before or after completion of the Work hereunder) by reason of:-
a. Non compliance with Laws
Claims by governmental authorities or others of any actual or asserted failure of the Contractor to comply with any law, ordinance, regulation, rule or order of any governmental or judicial body; and
b. Intellectual Property Infringement
(Including Patents and Copyrights)
Actual or asserted infringement or improper appropriation or use by the Company, Participants or Contractor of trade secrets, proprietary information, know-how, copyright rights (both statutory and non-statutory), or patented or unpatent inventions or for actual or alleged unauthorised imitation of the work of others, arising out of the use of methods, processes, designs, information or other things originating with the Contractor, its employees, agents, vendors or sub-contractors, and furnished or communicated to the Company by the Contractor or used by the Contractor in connection with performance of the Work and which have not been specified by the Company; and
c. Injury to Employees and Damage to Property of Contractor
Injury to or death of persons employed by or damage to or loss or destruction of property of the Contractor or its parent, subsidiary or affiliate corporations, or the Contractor’s agents, sub-contractors or suppliers, irrespective of any contributory negligence, whether active or passive, of the party to be indemnified, unless such injury, death, damage, loss or destruction was caused by the sole negligence or wilful misconduct of the party which would otherwise be indemnified; and
d. Third Party Injury and Property Damage
Injury, death, or property damage, loss or destruction other than such as is described in sub-articles 15.1(c) and 15.2(a) and (b), and arising directly or indirectly out of the acts or omissions of the Contractor or its sub-contractors, suppliers or their respective employees or agents, irrespective of any contributory negligence, whether active or passive, of the party to be indemnified, unless such injury, death, damage, loss or destruction was caused by the sole negligence or wilful misconduct of the party which would otherwise be indemnified; and
Waste, debris, rubbish, liquid or non-liquid discharge or pollution of whatever nature which is dropped, seeped, discharged, spilled, blown out or leaked from equipment, apparatus, machinery, facilities or other property of the Contractor or its sub-contractors, suppliers, employees or agents, irrespective of any contributory negligence, whether active or passive, of the party to be indemnified except to the extent that the foregoing was caused by the sole negligence or wilful misconduct of the party which would otherwise be indemnified.
15.2 Company’s indemnities
Company shall indemnify, hold harmless and defend the Contractor and its parent, subsidiary and affiliate corporations, and their respective officers, employees, agents and representatives from and against any claim, demand, cause of action, loss, expense or liability (including but not limited to the cost of litigation) arising (whether before or after completion of the Work hereunder) in relation to this Contract by reason of:-
a. Injury to Employees and Damage to Property of Company
Injury to or death of persons employed by or damage to or loss or destruction of property of Company, Participants or their respective parent, subsidiary or affiliate corporations, irrespective of any contributory negligence, whether active or passive, of the party to be indemnified, unless caused by the sole negligence or wilful misconduct (in case of injury or death), or wilful misconduct (in the case of property damage, loss, or destruction) of the party which would otherwise be indemnified.
Waste, debris, rubbish, liquid or non-liquid discharge or pollution of whatever nature which is seeped, discharged, spilled, blown out or leaked from any underground reservoir or underwater pipeline or from any Cargo Barge, vessel or other equipment or facility of Company, including fuel, lubricant or the like, irrespective of any contributory negligence, whether active or passive, of the party to be indemnified, except to the extent that the foregoing was caused by the wilful misconduct of the party which would otherwise be indemnified.
c. Loss of or Damage to the Well
The loss of or damage to the well, including subsurface damage or injury to the well in connection where appropriate with the services provided by Contractor under this Contract, except where such loss or damage is due directly or indirectly to the negligence or wilful misconduct of Contractor or its servants, agents or sub-contractors.
16.1 Contractor shall, at its sole cost and expense, procure and maintain (and
shall require its sub-contractors to maintain in effect) during the Contract Period, insurance coverage with insurers under forms and policies satisfactory to Company as specified in sub-Article 16.2 hereof. All such policies may be suitably endorsed as to territorial and/or navigational limitations to include the entire scope of operations contemplated by this Contract. Further, such policies other than Workers’ Compensation and Employers’ Liability must include Company and the Participants as additional insureds and shall provide that the policies will indemnify
the additional insureds against claims brought by any other of the
Such policies other than Workers’ Compensation and Employers’ Liability must also provide that these insurances shall be primary and not contributing with any other insurance available to Company or its Participants.
16.2 The following insurance coverage is to be maintained by Contractor:-
i. Employers’ Liability and Workers’ Compensation Insurance to
comply with the statutory requirements.
ii. General Public Liability Insurance in respect of the persons and
property of third parties to the extent of at least Five Million US Dollars ($5,000,000) for each incident arising out of the performance of the Work. In addition, if applicable, Contractor shall provide automobile insurance to not less than the statutory requirements.
iii. Professional Negligence cover to the extent of at least £1,000,000
16.3 Certificates of Insurance
Contractor shall furnish to Company, prior to commencing work, Certificates of Insurance as evidence that policies providing the required insurance coverage are in full force and effect. Such certificates shall also provide that not less than thirty (30) days advance notice will be given in writing to Company prior to cancellation, termination or material alteration of the said policies of insurance, and shall also contain a waiver of subrogation in favour of Company, each of the Participants, and their respective officers, agents and employees".
The respondents’ contention was that what is contained in Article 15.1 is a single composite indemnity. There is no doubt that the opening paragraph is concerned only with events occasioned by omission or negligence on the part of the contractor. The respondents say that because what follows is prefixed by "without prejudice to the foregoing generality" sub-articles (a) to (e) are subject to what is said in what the respondents call the preamble and are encompassed within the generality of that preamble. If there was any doubt about that it is resolved by the fact that the preamble concludes with the limitation of £1,000,000 per occurrence. If the reclaimers’ argument is correct that (a) to (e) are separable from the preamble it would follow that there is no limitation in respect of those indemnities except where specifically provided within them. In a case where a contractor’s employee is injured through negligence of the contractor but chooses to sue the reclaimers this would fall under both the preamble and (c) and if it falls under (c) there is no limitation. It would be odd for the indemnity to be limited in a case where the accident was brought about by the contractor’s negligence but unlimited where it was brought about by the joint fault of the operators and some other party with no fault on the contractor’s part.
The respondents argue that other adminicles show that their construction is correct. Article 16 requires employers’ liability, workman’s compensation and general public liability insurance. There is no requirement for insurance to cover a situation where the contractor is not at fault. If the respondents are right there would be insurance cover for an indemnified event whereas, if the reclaimers are right, there may not be. If one contractor’s employee is injured by the negligence of another contractor’s employee he could sue the second contractor and the operator. If the reclaimers are right the operator would get indemnity from the first contractor. So both contractors would have to insure against this risk. If the respondents are right the operator would not get indemnity against the first contractor who would not need to insure but could get indemnity against the second contractor under the third party indemnity. As far as the operator’s indemnities are concerned there is no preamble. This means that there is no precondition of negligence on the part of the operator but it is their condition and if they have not created that precondition that is up to them. The draftsman may have had in mind that whenever there is an injury to one of their employees the operator will inevitably be liable under the statutory regime so there is no need for that specific precondition.
The use of "contributory negligence" poses the question contributory to what? Reading the indemnity as composite there is no problem, contributory means negligence by both contractor and company. Sole negligence does not exclude the possibility of breach of regulations by the contractor, e.g. if the company negligently grants a permit to work in circumstances where the work in fact endangers safety, and the contractor carries out the work causing injury, the contractor would be in breach of regulations but the sole common law negligence would be that of the company.
The cross indemnities cannot properly be described as mutual. It cannot be said that each employer is taking responsibility for his own employees because of the provisions about sole negligence and wilful misconduct. If the preamble is supposed to be free-standing that differs from the company’s indemnities. Even if they were mutual that is no reason for taking a different approach to construction. The observations of Steyn L.J. in E.E. Caledonia Limited v. Orbit Valve Company  1 W.L.R. 1515 at 1523 show that Lord Morton’s third test in Canada Steamship is applicable to the question of the extent to which negligence is covered. Accordingly, even if negligence was covered in some circumstances the test should still be applied to limit those circumstances. This would apply to the respondents’ contention that it would be limited to cases where they were contributorily negligent and not extended to cases where a third party was contributorily negligent.
Two other contracts in the test cases include similar indemnity provisions. In relation to the Kelvin Catering contract the only difference from the Eastman Christensen contract is that there is no financial limit in the long opening paragraph. There is a £2,000,000 limit of indemnity in sub-article 15.1(d) relating to third party liability and the public liability insurance obligation is for £2,000,000 rather than $5,000,000. In relation to the Wood Group Engineering Off-shore contract again there is a limit of indemnity in Article 15.1(d) of £5,000,000 and a public liability insurance obligation of £5,000,000 rather than $5,000,000. There is, however, one material alteration from the Eastman Christensen contract in so far as the second paragraph starts with the words "In addition but without prejudice to the foregoing generality…". The respondents maintained that this makes no material difference to their argument because the sub-articles do contain an addition, namely that the indemnity in the preamble will still apply even if there is contributory negligence on the part of the operator and that constitutes an extension of the general indemnity.
The contracts in the remaining test cases do not contain the long opening paragraph, nor of course do they contain the words "without prejudice to the foregoing generality". The respondents contend that this makes no difference to the proper construction of Article 15.1(c). While the absence of specific reference in a preamble to act or omission on the part of the contractor leaves the matter more open they maintain that the same problem arises with the use of contributory negligence and sole negligence. They say that contributory negligence means contributory negligence as between the contractor and the company. On any view this is a possible construction which the words are capable of bearing in their context and which is commercially sensible. If the reclaimers wanted a wider indemnity to bring the negligence of a third party into the equation they should have expressed that intention clearly and unambiguously.
The contracts in relation to Northern Industrial Marine Services Company and Northern Coasters Limited (Stena) also have a definition of "sole negligence". That is defined as meaning "the exclusive negligence of the party to be indemnified and shall not apply where any other party bears a proportion of the negligence". The respondents contend that the reference to "any other party" refers to the party to be indemnified which includes not only the operator but a long list of other persons, including participants, suppliers and others. Accordingly, this should not be construed as meaning that sole negligence is excluded where any third party is in some way to blame.
It appears to me that the principal submission by the respondents which requires to be considered is that the words contributory negligence relate only to negligence on the part of the contractor contributing to the loss, injury or damage and that negligence by any third party is irrelevant. The respondents say that even if this cannot be regarded as the obvious construction it is nevertheless a possible and commercially sensible construction which cannot be regarded as fanciful or speculative and therefore applying the contra proferentem rule it is the construction which should be preferred.
The reclaimers’ submission in reply was firstly that the role of the court is essentially one of ascertaining the intention of the parties from the language used, in the light of surrounding circumstances, taken to be within their knowledge (Lord Keith in Smith v. U.M.B. Chrysler 1978 S.C. (H.L.) 1 at page 16). If parties make their intention apparent by "adequate and clear words" the court will give effect to this intention. If there are two plausible constructions of the words the court does not simply adopt that which is less burdensome but still has to decide in the light of all the circumstances which construction is the better one (Steyn L.J. in E.E. Caledonia). When there is a clear reference to negligence this satisfies Lord Morton’s first test and there is no need for further consideration of improbability. Certainly consideration still has to be given to the extent of that negligence but that is done under the ordinary rules relating to contra proferentem. The approach to construction should be from a factual standpoint without being unduly legalistic (Lamport and Holt Lines v. Coubro and Scrutton (The Raphael)  2 Lloyd’s L.R. 42 per Donaldson and May L.J.J.). In the present case all contractors would know that employees of many other contractors would be working in close proximity and they would be aware of the statutory regime. Regulation 32 of the Off-shore Installations (Safety, Health and Welfare) Regulations 1976 has a much wider impact on the operator than on the contractor as the operator has liability for any act by any employee of any contractor which endangers safety even if acting outwith the scope of his employment and not in relation to work (MacMillan v. Wimpey Offshore Engineers 1991 S.L.T. 515). It is not unreasonable for parties to reach agreement as to how disputes in that environment should be handled. The American case of Fontenot v. Mesa Petroleum 1986 791 F. 2d 1207 which the court described as "a multiparty donnybrook" shows the advantage of trying to avoid such multi-party disputes. That case also described the purpose of the indemnity "as in so many oil field service contracts" as being to divide liability in terms of employment rather than fault.
In the present cases the terms of the cross indemnities in relation to injury to employees are the same. The clear implication is that each employer will meet any claim from one of their employees unless the party who would otherwise be indemnified is guilty of sole negligence or wilful misconduct. The absence of any reference to the acts or omissions of the contractor in the contractors’ indemnity is significant. All the other indemnities refer to acts of or failures on the part of the contractor. This one does not and there is no reason to imply that it should have done. The general practice in the industry of each party bearing responsibility for injuries to their own employees is of significance, - see Daintith and Willoughby U.K. Oil and Gas Law paras. 1-845/6; Sharp Off-shore Oil and Gas Insurance page 104-8; evidence in this case from Mr. Crain (volume 10 1732/3); Nelson v. Atlantic Power and Gas Limited 1995 S.L.T. 102. While the exception here of sole negligence on the part of the indemnitee reduces to some extent the value of this argument, the principle of mutuality would still be of value in a large number of cases.
Contributory negligence is not used as some term of art. Claims arise by reason of injury or death and contributory negligence is negligence contributing to that injury. The indemnity bites whoever contributes to the injury. Reading it in that way it is consistent with the reference to sole negligence. If the respondents’ theory is correct and the use of the words "contributory negligence" carries the implication that the contractor was negligent, there would be no need for any reference to sole negligence. In contracts where there is no opening paragraph there is no conceivable justification for reading into the indemnity relating to employee’s injury a requirement that the contractor should be negligent before the indemnity bites. Where there is an opening paragraph that is a free-standing indemnity which carries a financial limit. It is to be noted that the article is headed "Contractor’s indemnities" (in the plural) whereas the opening paragraph refers to "This indemnity". In the next part of the article most of the opening paragraph is repeated which indicates that the opening paragraph is separate from the other indemnities rather than the ruling indemnity of which the rest are merely examples. "Without prejudice to the foregoing generality" means that nothing that follows will cut down the indemnity given by the contractor in the preceding part. It does not mean that nothing that follows can increase the level of indemnity and this is obvious from the fact that by itself the indemnity in the opening paragraph would not bite if there was any negligence on the part of the reclaimers, in accordance with the Canada Steamship rules, whereas 15.1(c) makes it clear that it does bite in such a situation. In any event if the effect of the opening paragraph was to incorporate automatically into all that follows the concept that there is no indemnity if there is no negligence on the part of the contractor, why the reference to "acts and omissions" of the contractor in 15.1(d)? In the contracts where "without prejudice to the foregoing generality" is preceded by "in addition but…" it is abundantly clear that what follows constitutes an addition rather than merely examples of a general indemnity.
I accept that indemnity clauses fall to be construed contra proferentem. I accept, also, that in general indemnity clauses will not be given effect to in respect of negligence on the part of the indemnitee unless there is specific reference to such negligence or at least there is no other sensible construction. This is because the law regards it as being inherently improbable that any party to a contract would be willing to indemnify against the other party’s negligence; Ailsa Craig Fishing Company v. Malvern Fishing Company 1982 S.C. (H.L.) 14 per Lord Fraser at page 61. If, however, there is a known practice in the industry to apportion liability by reference to employment rather than fault, I see no logical reason for not taking that factor into account in considering the strength of the applicability of the general rule of construction. In the present case there is specific reference to the indemnitee’s negligence. Accordingly, it cannot be argued that some negligence, short of sole negligence, bars the right to indemnity. Because of the contra proferentem rule I accept that that does not necessarily preclude any further consideration of the construction of the clause. In particular I would accept that if a sensible construction of the wording of the clause would permit of the indemnity only being applicable in the event of some breach of duty or negligence on the part of the contractor, that construction would have to be given effect to on the view that it was a sensible limitation of the indemnity. What I am not prepared to do, however, is to read words into the contracts which are not there in order to create an ambiguity. In the articles without the opening paragraph it is in my view significant that sub-articles (a), (b), (d) and (e) all refer to some act or omission on the part of the contractor giving rise to the indemnity whereas (c) has no such mention. If the intention had been to make (c) only effective if there was an act or omission on the part of the contractor it would have been perfectly simple so to provide as has in fact been done in relation to the third party indemnity in (d). I consider that it would be straining the words "contributory negligence" in the context of (c) to imply that a reasonable construction would be that the only form of such negligence would be that it had to be joint negligence with that of the contractor. This is particularly so when on the respondents’ argument negligence in that phrase must mean only common law negligence on the part of the operator, whereas the same word must be taken as meaning either common law negligence or breach of statutory duty on the part of the contractor. Furthermore I regard it as a strained construction to say that the function of the reference to sole negligence is to cover the case where there is a breach of statutory duty on the part of the contractor but some degree of negligence on the part of the operator. This would be particularly so in the two contracts in which sole negligence is defined. It appears to me, in the absence of any reference at all in (c) to either negligence or breach of statutory duty by the contractor, unlike every other indemnity, that the obvious and clear meaning of contributory negligence is some degree of negligence which contributes to the causation of the injury or death of an employee or damage to property and it is used in contrast to sole negligence which means precisely what it says. As far as the contracts with the long opening paragraph are concerned it appears to me that that paragraph stands as a general indemnity to cover cases where the contractor has been in breach of statutory duty or negligent. The words "without prejudice to the foregoing generality" cannot mean, as the respondents contended, that what follows is encompassed within the generality, as it is clear that the reference to negligence on the part of the indemnitee in subsequent sub-articles extends the scope of the indemnity. In my view all that these words mean is that nothing that follows will detract from the indemnity granted in the opening paragraph. This is certainly clear in the Wood Group contract where "in addition" is added. It is also, in my view, significant that the words after "without prejudice to the foregoing generality" are largely repetitive of the opening part of the opening paragraph and it is difficult to see what meaning could be given to these words if in fact (a) to (e) are intended simply to be examples of a single general and comprehensive indemnity granted in the opening paragraph. Further, the reference in (d) to acts or omissions of the contractor would be unnecessary if these words were deemed to be imported into (d) in any event by reason of the opening paragraph. The respondents’ construction also involves contributory negligence in (c) as meaning common law negligence in the case of the operator, but either common law negligence or breach of statutory duty in the case of the contractor. While I can see how a particular word could have different meanings in different contexts, I find it difficult to see how a word used once can have a different meaning depending upon to which party it relates. For these reasons I am satisfied that the existence of the opening paragraph, while it appears to add little to the other indemnities and certainly cannot be classified as an example of lucid draughtsmanship, does not imply on any reasonable construction that (c) is to be regarded as operative only in the event of negligence or breach of statutory duty by the contractor. I therefore consider that the indemnity clauses in all the contracts are apt to cover the situation where the operator has been negligent, provided that there has been negligence by some other party, whether the contractor or otherwise, so that the operator is not solely negligent.
The reclaimers settled the claims of those injured and the relatives of those killed in the disaster. The reclaimers were well aware that there was a serious risk that actions would be raised against them in America and in particular Texas. Jury awards in Texas could be eight to ten times comparable awards in Scotland before even considering the possibility of "runaway" awards. Having taken detailed advice on such matters as jurisdiction and the probable level of awards in Texas, the reclaimers made offers to claimants based on a substantial uplift of what were calculated to be the appropriate Scottish levels. The Lord Ordinary found that the settlements were reasonable in all the circumstances. He also found that if the reclaimers are entitled to be indemnified by the respondents there is nothing in the terms of the basic indemnity clauses to prevent the enhanced awards being recoverable. However, five of the contracts in the seven test cases contained a clause in the following terms ("Article 20"):
"Notwithstanding any provision herein to the contrary, in no event shall either the contractor or the company be liable to the other for any indirect or consequential losses suffered, including but not limited to, loss of use, loss of profits, loss or production or business interruption".
The Lord Ordinary held that while this clause would not affect recovery of awards at the Scottish level, the enhancements constituted consequential loss and accordingly could not be recovered. The reclaimers argue that the Lord Ordinary was wrong so to do.
The reclaimers’ argument was that on a proper construction of the contracts as a whole Article 20 does not apply to the indemnities on which the actions are based because it has no relevance to an indemnity granted in respect of loss arising from the reclaimers’ liability in delict to claimants where the extent of that liability is properly measured by the law relating to assessment of damages in delict. Article 20, it is said, is dealing with causation of particular specified losses and not with remoteness of loss. The opening words of the basic indemnity clause are extremely wide. Any claim is covered and this does not have to apply, as the Lord Ordinary thought, only where there is a loss but requires the indemnifiers to "hold harmless and defend". As Lord Goff said in Firma C-Trade S.A. v. Newcastle P. & I. Association  2 A.C. 1 this type of indemnity means that the party indemnified should never be called upon to pay. Nothing in Article 20 relates to claims against the reclaimers based on delict. The Lord Ordinary took the view that specification of protection must be clear and unambiguous and construed Article 20 against the reclaimers. However, he was wrong to do so as, even assuming that in a commercial contract of this kind there is any room for the contra preferentem rule, a proferens is a person who is relying on a term for his benefit and here it is the respondents who are relying on Article 20. What is however clear is that the parties are considering in this article consequential loss as between themselves and not in relation to third party claims. The words "liable to the other" must be given meaning. On a proper construction all forms of indirect or consequential loss as between employer and contractor are excluded. Thus, if an employee of the contractor negligently damaged a vital piece of equipment which resulted in production being halted, the employer could not claim for loss of production because that would be deemed to be consequential, even though in delict or even under Hadley v. Baxendale (1854) 9 Ex. 341 it would be a direct loss. This shows that contrary to what the Lord Ordinary thought the rules in Hadley have nothing to do with the proper construction of Article 20. Where, however, the employer has a claim against him by a third party which is covered by the basic indemnity clause, provided that the claim is validly made under the law relating to damages in cases of delict, it is immaterial that part of that claim is of a nature which was not within the contemplation of the indemnifier. Damages which the employer has to pay or even a claim made for such damages constitutes a direct loss as between employer and contractor, and the rules in Hadley which relate to damages for breach of contract have no application. The Lord Ordinary has found that claims for Texas levels of damages were made and were to be expected, that such claims had a prospect of success, that the settlements were reasonable, taking account of liability, jurisdiction and quantum, that such claims would be covered by the indemnities but for Article 20, and that the respondents accepted in correspondence that it was reasonable to settle at a premium to Scottish levels. These findings can only amount to a finding that the loss to the reclaimers was a direct loss. As between the reclaimers and the respondents questions of remoteness of loss cannot arise. The only relevant question is whether the loss is indirect or consequential. It is certainly not indirect, nor is it consequential within the meaning of Article 20 because that article is dealing with causation of loss and not remoteness of loss.
In any event, the reclaimers argued, even if the exclusion of indirect and consequential loss applies to claims under the basic indemnity clause and that the proper interpretation of these words is to apply what has been called the second limb of Hadley, the loss here sustained does not fall within that definition. The crucial question posed in Hadley as glossed by Lord Reid in Koufos v. Czarnikow  1 A.C. 350 is
"Whether, on the information available to the defendant when the contract was made, he should, or the reasonable man in his position would, have realised that such loss was sufficiently likely to result from the breach of contract to make it proper to hold that the loss flowed naturally from the breach or that loss of that kind should have been within his contemplation".
As the heads of damage in Texas are the same as those in Scotland it cannot be argued that those kinds of damage could have been outwith the contemplation of the contractor. The fact that the assessment of those damages in Texas would result in higher figures than those which would have been awarded in Scotland does not alter the position. If cases had been taken in States in America where punitive damages could be awarded, there might be an argument that as that head of damages would not be within the contemplation of the contracting parties any such damages would have to be excluded. But as punitive damages cannot be awarded in Texas, and in any event form no part in the assessment of damages in these cases, that problem does not arise.
The respondents maintained that the words "in no event" in Article 20 show that it is intended to limit recovery under inter alia the basic indemnity clause. It is intended to exclude liability for losses which do not arise in the ordinary course of things and in particular losses attributable to unusual or special circumstances. In the ordinary course of things claims for damages for injury or death in the North Sea are not pursued in Texas. In any event the loss here claimed arose out of special and unusual circumstances, namely the reclaimers’ special liability to Texas jurisdiction because of their arrangements for selling oil, and the unique scale of this disaster. Accordingly, any loss falling within the indemnity clauses must be limited to Scottish levels of damages. The words "indirect and consequential" have acquired a special meaning which a draftsman would understand. In Gloag on Contract 696/7 consequential is linked with special and collateral indicating a limitation of its meaning even though in that context it is treated as a direct loss. In Keating on Building Contracts it is said that while the construction depends on the context, in general consequential is likely to approximate to loss within the second limb of Hadley. In Millar’s Machinery Company v. David Way & Son (1934) 40 C.C. 204 it is said that consequential has come to mean not direct. In Saint Line v. Richardsons Westgarth & Company  2 K.B. 99 it was held that loss of profits could be a direct and natural result, but the use of indirect and consequential excludes claims for special damages which would be recoverable only on proof of special circumstances. In British Sugar plc v. N.E.I. Power Project Limited (1997) 87 BLR 42 consequential was said to mean loss not directly and naturally resulting. Counsel’s submission was that from these authorities the proposition can be established that indirect and consequential losses are those which do not flow directly, naturally and in the ordinary course of things from the event and which would not be in the contemplation of parties when the contract was entered into. Hadley and Koufos establish that to fall within the first limb of Hadley there must be a substantial degree of probability, but if there is only a substantial possibility which would only happen in a small minority of cases, then the second limb applies. In the present case the essential issue is whether or not in the ordinary course injury or death claims from North Sea accidents would be pursued in Texas. If not, settlements based on Texas levels of damages would be indirect or consequential. The Lord Ordinary’s conclusion in his Opinion at page 1070 was that "it was perfectly foreseeable and a natural consequence of the indemnities that a pursuer might claim damages on the Texas scale", but the foundation for this conclusion at page 1022 that there was "some risk" that claims could arise abroad is fatal because this falls far short of the Koufos test. The special circumstances which were said to arise in this case were that the reclaimers were particularly vulnerable to Texas jurisdiction and the scale of the disaster. The Lord Ordinary has decided that the factor of critical importance to jurisdiction was the relationship with OCSI which was unknown to the respondents, and that in itself was an unusual circumstance. Accordingly, the particular vulnerability to Texas jurisdiction was unknown to the respondents. While in the ordinary case of a single injury or death a Texas attorney would be unable or unwilling to devote the necessary resources to establishing jurisdiction, because of the number of fatalities and injuries Texas attorneys of the highest calibre would be only too willing to take on the task because of the contingency fee system. This factor also took these cases out of the ordinary course of things.
From the cases referred to, most of which are concerned with what might be regarded as the special rules relating to damages for breach of contract, the only firm conclusions that can be drawn are that whatever consequential means it does not simply mean what it would normally be understood to mean, namely in consequence of, and direct does not mean indirect, although that is not of the slightest help in trying to understand what either of these words does mean. Depending on the context, consequential loss may be direct or indirect. Therefore to construe "indirect and consequential" as implying falling within the second limb of Hadley cannot be an automatically sound proposition. This is particularly clear in the context of Article 20 in view of what is contained after "including" being items which might well be direct losses depending on the circumstances. Further, in my view, while I do not suggest that the eiusdem generis rule applies, it is legitimate in construing indirect and consequential in its context to look at the specific examples provided in Article 20. If that is done it is apparent that indirect does not exclude direct, and if the examples given are examples of consequential loss it would appear that in the context consequential refers to economic losses arising from events causing interruption or cessation of production.
It is not disputed that without Article 20 the settlements would (subject to other arguments) fall within the indemnities. Article 20 must therefore be construed to see what restriction it places on the indemnities. Both parties accepted that their respective constructions created some difficulties. The reclaimers appreciated that their construction would not be apt to deal with the situation where matters such as loss of profits constituted a primary, rather than a secondary, loss. The respondents accepted that their construction was somewhat convoluted where items such as loss of profits, which could be a direct loss, were "included" in indirect and consequential losses, which by their definition must exclude direct losses. I do not consider that much assistance can be gained from breach of contract cases. The damages sought in such cases arise from the loss occasioned by the commission of the breach and what therefore has to be considered is what the parties contemplated as being the likely loss which would be sustained in such a circumstance. Under an indemnity clause what is sought is indemnity for the loss sustained by the party indemnified. If the loss was of a different type to that which parties might be thought to have had in contemplation, it may be arguable that such a loss could be said to be indirect or consequential. But where it is of a type which the parties would have had in contemplation such as a loss occasioned by injury to or death of an employee then, provided that loss is properly assessed under the rules, including the rules relating to remoteness of loss, relating to damages for personal injury, there is no room for argument that in some other way that loss is too remote or indirect or consequential. It appears to me that the fallacy in the respondents’ argument lies in the attempt to apply a particular construction of indirect and consequential which, over the years, has been applied in cases relating to breach of contract to the very different situation of an indemnity clause. In the case of breach of contract the parties are deemed to have had in contemplation that the contract might be breached, although the circumstances in which the breach occurs may not have been contemplated. Only then does the question arise as to what the parties should have had in contemplation as the not unlikely loss arising from the breach. It is only the matter of loss which requires the application of the Hadley principles. In the case of an indemnity the parties are deemed to have had in contemplation that a claim might arise, and it is immaterial how improbable it is that a claim would arise or that the circumstances in which the claim arises might be of an unusual nature, so long as the claim is of a type which prima facie falls within the indemnity. When a claim is made and the indemnity thus triggered, consideration may have to be given to whether the loss falls within the exception of indirect and consequential. That does not appear to me to be a matter of considering what the parties may have contemplated, but a matter of considering whether the claim is for a loss which is too remote. The test to be applied to that is the test applicable to the nature of the claim, in this case a claim in delict. In this connection it may be useful to refer to Comyn Ching v. Oriental Tube Co. (1981) 17 BLR 47 where nominated suppliers of piping had given guarantees to a sub-contractor installing the piping which were held to be equivalent to an indemnity. An action involving the employers, the contractors and the sub-contractors was settled, the sub-contractors paying one third. The sub-contractors then claimed their losses from the suppliers under the guarantees. In considering the test to be applied in relation to the claim which was settled, Lord Justice Goff said that the guarantees covered at least all reasonable claims or all claims having a reasonable prospect of success. With reference to a submission by counsel that the guarantees would cover all claims even frivolous and vexatious ones he said "In that I think he is probably right". In my view this is the appropriate test to apply in indemnity cases, and the alleged test in Koufos that there should be a substantial degree of probability to comply with the first limb of Hadley has no bearing on the issue. If the claim is valid according to the rules applicable in delict and is paid, it is difficult to see in what circumstances the loss to the party indemnified can be said to be indirect and consequential. It cannot be said in this case that it was not within the contemplation of parties that a claim might be made against the reclaimers in Texas. If a claim is made, that in itself triggers the indemnity clause, and the respondents would require to indemnify the reclaimers at least against the cost of defending the claim win or lose. It appears to me illogical to suggest that if the claimant won in Texas the respondents could refuse to indemnify against the award of damages on the ground that the facts on which the claimant succeeded on jurisdiction were outwith the contemplation of the respondents when the contract was entered into.
This does not mean that Article 20 is devoid of all meaning even in the case of indemnities, as indemnities also apply, for example, to property damage where there is a high potential for loss of use, loss of production, loss of profit and business interruption.
On this aspect of the case I am satisfied that the enhancement of the awards, because of the risk of Texan litigation, cannot be regarded as indirect and consequential within the meaning of Article 20 and that the Lord Ordinary was wrong in holding that for this reason only Scottish levels of damages would be appropriate.
A further point relating to the level of damages was based on the proposition that the sums sought under the indemnities are based on decrees, and where a decree is pronounced in an action to which the indemnifier is not a party he is entitled to challenge quantum. The respondents do not suggest that the sums paid to the claimants were excessive in the circumstances. They accept that if the reclaimers had settled the claims without any decree passing against them or if they had had to pay under a Texas decree, they would be entitled to claim under the indemnity the full amount paid (subject in the latter case to the later argument on the governing law clause). The respondents’ argument is based solely on the existence of a decree. The argument is that decree having passed, any claim is extinguished so that the indemnity cannot be based on a claim; Comex Houlder Diving v. Colne Fishing Company 1987 S.C. (H.L.) 85. Nor can it be based on "cause of action" as that also is extinguished by a decree; Lockyer v. Ferryman (1877) 4 R. (H.L.) 32. The effect of the decree is to convert an unliquidated claim into a liquid liability. The claim under the indemnity can therefore only be based on liability under the decree. That being so, it is open to the Scottish courts to decide whether the sums claimed are reasonable estimates of the loss, injury and damage sustained by the claimants based on Scottish levels of damages thus excluding the Texas enhancement. The decree cannot be regarded as merely part of the mechanics of the settlement and its legal consequences ignored.
This argument, however, in my opinion ignores the fact that the indemnity bears to cover not only a claim, demand or cause of action, but also a loss or a liability. The liability, whether or not liquidated under a decree, nevertheless arises out of injury to or death of an employee of the contractor. In any event the payment constitutes a loss. Whatever the legal effect of the decree may be, therefore, the fact remains that the loss or liability falls squarely within the terms of the indemnity.
GOVERNING LAW CLAUSE
In each contract there is a governing law clause in the following terms:
"This contract shall be governed by, construed and interpreted exclusively according to Scots law. The parties agree to a submission to the jurisdiction of the courts of Scotland to the exclusion of the laws and courts of any other country".
The respondents argued that this went beyond choice of law and exclusive forum jurisdiction. They maintained that quantification of the obligation to indemnify is a matter for the Scottish courts and only the lex fori applies to quantification of damages. This excludes an indemnitee coming to this court to argue reasonableness of settlement on the basis of foreign law. The reclaimers invited the Lord Ordinary to decide what the claimants would have been awarded in Texas in order to show that the sums paid in settlement were reasonable. This invitation, which the Lord Ordinary accepted by quantifying claims on the basis of law and procedural rules of Texas, contravened the governing law clause.
The reclaimers argued that the obligation to indemnify had to be equiparated to the loss sustained by settling the obligation to the injured parties. If the settlement was unreasonable the Scottish courts could intervene. The reasonableness of the settlements depended on the degree of risk to which the reclaimers were exposed. In order to decide that question it was necessary to consider matters of jurisdiction and levels of damages in Texas. In so far as this involved considering the law and procedural rules in Texas, these being matters of foreign law had to be dealt with as questions of fact. What the Lord Ordinary did was to make findings in fact as to these matters and then apply the law of Scotland in order to decide the question of reasonableness of the settlements.
In my opinion the Lord Ordinary’s use of the evidence relating to the law and procedural rules of Texas was correct. As he pointed out (page 1022) he was endeavouring to evaluate the degree of risk rather than calculate precisely what Texas courts would award. That was a matter which he had to decide in order to answer the submission by the respondents that the amounts paid were not reasonable. Under the indemnity clause what he had to decide was not what the claimants would have been awarded by way of damages in Scotland but what was the extent of the loss suffered by the reclaimers. If the settlements giving rise to the loss could be categorised as unreasonable they could be cut down but if, as he held, they were reasonable in all the circumstances then they constitute the loss. This exercise does not involve quantifying the liability under the indemnity other than by the principles of the law of Scotland and accordingly, in my opinion, does not contravene the governing law clause.
TAX AND INTEREST
Two subsidiary points arise on quantification of loss. The first issue arises only in relation to the action against Coflexip Stena where payments were made by the reclaimers out of their own resources owing to the gap in their insurance cover. In this action the Lord Ordinary found the reclaimers entitled to an award based on Scottish levels of damages of £15,330, but made a reduction of £2,644 in respect of tax relief. The position was that the payments made to the claimant were deductible for tax purposes and the reclaimers received tax relief accordingly. In the event of recovery from the respondents the reclaimers would have to account for this to the Inland Revenue and the Lord Ordinary has found, and this is not disputed, that the payments received will be treated as income for the year in which received and will be taxable as such. In the tax year for which relief was given the rate of petroleum revenue tax was 75% and the rate of corporation tax was 35%. At the date of the proof the rate of petroleum revenue tax had reduced to 50% and corporation tax to 33%. If recoveries are taxable at these latter rates the reclaimers will effectively receive a windfall of the difference between the two rates. It is not disputed that the respondents are entitled to have this reduction in the reclaimers’ loss taken into account. The reclaimers’ argument, however, is that the Lord Ordinary should not have made the reduction which he did because it proceeds on an assumption that the tax rates will remain the same until the date on which payment is made by the respondents, an assumption that is already unfounded as there has been a further reduction in corporation tax rates since the Lord Ordinary’s interlocutor. If the rates fall the result will be that the reclaimers will receive an additional windfall which, it is accepted, would have to be paid to the respondents, even though final decree has been granted. What concerns the reclaimers, however, is that if the rates rise the reclaimers will suffer a loss which will not be recoverable from the respondents because in that situation the decree is final. It was submitted accordingly that the Lord Ordinary should not have made any deduction in respect of the prospective tax windfall. If the decree is for the full amount the respondents can suffer no prejudice as they will be entitled to the benefit when the tax situation is resolved. When they make payment under the decree the tax rates for the appropriate period will be known and an accurate calculation can be made of the amount of the windfall rather than the speculative calculation presently made. The Lord Ordinary took the tax rates at the date of the proof on the basis that that was appropriate under the principles of cases such as British Transport Commission v. Gourley  A.C. 185. The position, however, in such cases is different as it is necessary to come to a final conclusion at the end of a proof after which there is no scope for alteration. As was said in Gourley a rough and ready calculation is sufficient. That may be so when a final figure has to be arrived at, but there is no justification for doing so when an accurate assessment can be made and where there is no need for the matter to be dealt with at the time of final decree because even thereafter an indemnifier can recover any sum going to reduce the loss. Accordingly, in my opinion, as the matter can more appropriately be dealt with if and when payment is about to be made and there can be no question of the respondents suffering any prejudice the award should have been calculated without a specific deduction of notional tax.
The Lord Ordinary also held that under the rules for tax assessment and payment any tax which is due to be repaid carries the benefit of interest, but that interest is to compensate the taxpayer for loss of income on the amount of tax unnecessarily paid. Accordingly, this cannot be regarded as a pure windfall and the benefit of it cannot be offset against the sums payable under the indemnities. I see no flaw in the Lord Ordinary’s reasoning on this aspect of the case and no reason to disturb his conclusion.
The final, fundamental, point taken by the respondents, and which found favour with the Lord Ordinary, is that even if the indemnity clauses apply in the events which happened the actions are irrelevant because the claims by injured parties and the dependants of those who died were settled not by the reclaimers out of their own funds but were settled by their insurers (apart from the Coflexip Stena case where the reclaimers did settle out of their own funds because of a gap in the layers of insurance known as "the Oxy gap"). Accordingly, it is said that the reclaimers have suffered no loss to which the insurers can become subrogated, and if any claim is appropriate it would have to be a claim by the insurers in their own name for relief by way of contribution. The Lord Ordinary accepted this argument and for that reason the reclaimers failed, except in the Coflexip Stena case.
The reclaimers argued initially that the Lord Ordinary should not have considered this issue at all as there was no mention of it in the pleadings. They maintain that the respondents were well aware at an early stage of the proof (if not aware all along, which seems highly probable) that the reclaimers’ insurers had settled the claims on the reclaimers’ behalf. If the respondents’ contention was going to be (as it was) that the reclaimers had suffered no loss for that reason and therefore could not sue on an indemnity contract, that would be a substantive defence which should have been pled as a matter of fact. Further, if they were going to contend that the nature of the contractual clause was such that the contractors’ obligation was joint and several with that of the reclaimers’ insurers and therefore payment by the insurers discharged the debt, that also would be a substantive defence which should have been pled. If the first of these cases had been pled it would have been backed by a plea of no interest, if the second, by a plea of no title. These are dilatory pleas which should properly be dealt with as a preliminary matter. In the absence of any whisper of any such defence until the end of the respondents’ submissions on the 381st day of the proof the inevitable inference should be that the point, if it had any substance, was waived, as was the result in Lade v. Largs Baking Company (1862) 2 M. 17.
In reply the respondents’ argument was that the reclaimers’ action was based purely on the contractual indemnity clause, with averments that the reclaimers had paid out all the claims. If in fact the reclaimers had paid the claims out of their own resources they would have suffered a loss and this form of action would have been valid. It would have been no answer to say that the reclaimers were insured and could have obtained indemnity from another source. To succeed in this action, therefore, the reclaimers had to prove that they had suffered loss. There was no doubt that they had a title to sue standing the existence of the contract and if they had paid the claims themselves, as they averred, they would obviously have an interest. On the basis of the reclaimers’ pleadings, therefore, there was no room for any preliminary plea. If the reclaimers had led no evidence at all about the nature and extent of their loss they inevitably would have failed in their action. In the absence of any pleadings on their part the respondents accepted that they could not have led any evidence in an attempt to prove that the reclaimers had in fact sustained no loss, but that did not affect what the reclaimers had to prove in order to establish their case. In fact the reclaimers themselves led evidence which so far from proving that they had sustained a loss actually proved that they had been fully indemnified (apart from the Oxy gap) and thus had suffered no loss. On that basis alone the reclaimers must fail. Further, it having been made clear in the reclaimers’ evidence (contrary to their pleadings) that their insurers had paid, this raised the question of the possibility of relief and the respondents were perfectly entitled to point out that on the basis of what had been established in the proof if there was any remedy that would be by way of contribution, rather than subrogation.
In my opinion the respondents are, regrettably, entitled to succeed on this technical pleading point. There were clear and specific averments by the reclaimers that they had paid the claims, and if this was proved there could be no quibble with their title to sue. On the pleadings as they stood there was no ground for the respondents to state a plea of no title. This clearly differentiates the present case from Lade where, if the defenders’ contention was correct, the absence of title was apparent from the instance of the summons. After the proof in this case (which was before answer) it was apparent that the claims had been paid not by the reclaimers but by their insurers, and that the reclaimers themselves were not out of pocket (apart from the Oxy gap). On that state of the facts the respondents were, in my view, entitled to advance the proposition that the reclaimers had failed to prove an essential part of the claim based on indemnity. The proposition that the proper claim would have been one by the reclaimers’ insurers for contribution was not an essential part of the respondents’ case, but was merely stating the corollary of the proposition that the claim by way of subrogation was not appropriate where the reclaimers had suffered no loss to which their insurers could be subrogated. The respondents therefore were not advancing a substantive defence for which they had no record, but were simply arguing that the reclaimers had failed to prove the case that they had advanced on record. I see no ground for saying that technically they were not entitled to take that approach. There is no doubt that it would have been open to the respondents to aver at the very least on a "believed and averred" basis that the reclaimers had suffered no loss because their insurers had already indemnified them. If the reclaimers had admitted being indemnified by the insurers the parties could then have gone to debate on the argument which was eventually advanced and, if the respondents’ contention was upheld, 381 days of proof might have been rendered unnecessary. A cynic might well come to the view that the reason why the respondents did not take such a course was that it would have enabled the reclaimers’ insurers timeously to raise an appropriate protective action in their own name, something which they could not do at the time the point was first raised because of prescription. However, as was said by
Lord Jauncey in Esso Petroleum v. Hall Russell 1988 S.L.T. 874 the pursuers in that case might have brought the action in the name of the crofters but not having done so could not complain if the case was decided on the basis of what was done rather than of what might have been done. The respondents’ tactics in the present case may well have a bearing on expenses but in my view cannot affect their right, however technical, to insist that if the reclaimers are going to succeed they must do so on the basis of the averments on which they elected to go to proof and if they failed to prove these averments must take the consequences. I therefore turn to consider the issue of whether the fact of payment by the reclaimers’ insurers bars the reclaimers’ claim against the respondents under the indemnity clauses in the contracts.
Certain basic principles are clear. (1) As a general rule whatever arrangements a party may choose to make to cover his own position by insurance are res inter alios acta as far as any third party is concerned. (2) Where there is double insurance by one insured it is treated as being one insurance; Sickness and Accident Insurance Company v. General Accident Insurance Company (1892) 19 R. 977. Accordingly, each insurer is liable to contribute. An insurer who pays in full may sue other insurers in his own name for contribution. The basis for this rule is expressed by Lord Mansfield in Godin v. London Assurance Company (1758) 1 Burr. 490 and Mason v. Sainsbury (1782) 3 Doug. K.B. 61 and is that it would be unfair to one insurer to be saddled with the whole loss just because it is that insurer from whom the insured has elected to claim. Similar principles have been evolved in relation to co-cautioners. A cautioner who pays the whole debt is entitled to relief in full against the debtor, failing which relief pro rata from co-cautioners. (3) Where a party who has double insurance sustains a loss which has been paid in full by one insurer, he cannot claim against the other insurer for the same loss. Similarly if he is paid by a third party he cannot claim against his insurers because he has no outstanding loss. In a question with a third party the insured and the insurer are treated as one; Simpson & Company v. Thomson (1877) 5 R. (H.L.) 40. (4) Where there is a primary obligation owed by a third party to an insured in respect of the loss and the insurer pays the loss the insurer may be subrogated to the rights of the insured and sue the third party in the name of the insured; North British and Mercantile Insurance Company v. London, Liverpool and Globe Insurance Company (1877) 5 Ch. Div. 569. This is because the primary obligation remains in place, despite the insurers’ payment, unlike the position in double insurance where, as both insurances are treated as one, payment by one insurer is payment of the whole and the remedy of that insurer is to claim relief in his own name against his co-insurer. (5) If, after the insured has been paid by his insurer, he chooses to proceed against the third party on the still subsisting obligation and receives payment from the third party he is bound to reimburse his insurers thus avoiding being recouped for more than his actual loss; Castellain v. Preston (1883) 11 Q.B.D. 380, Morley v. Moore  2 K.B. 359.
The question that arises for decision in this case is whether, where the obligation of a third party is of the nature of an indemnity, that can ever be a primary obligation which is not discharged by payment by an insurer and which can thus give rise to subrogation, or whether it is to be equiparated to insurance and thus discharged when the insurer makes payment to the insured which can only give rise at best to a right of relief at the instance of the insurer. I did not understand it to be disputed by the respondents that it would be possible and legitimate to frame an indemnity clause in such a way as to make it a primary obligation, their contention being that the wording of the indemnity clauses in these contracts gave no indication that such a construction would be proper.
The respondents’ argument which was accepted by the Lord Ordinary has the merit of simplicity. The relevant part of the contract was one of pure indemnity and indemnity only. It is one of the basic principles of the law relating to indemnities that the indemnifier is only liable to indemnify for actual loss sustained and the person who sustains the loss cannot receive more than the value of the loss. Any sums received in respect of the indemnified event, from whatever source, fall to be offset against the loss and it is only if there is a remaining balance of loss that the indemnifier is obliged to pay. In fact in this case the reclaimers were indemnified in full by their insurers and their own resources were in no way reduced (apart from the Oxy gap). Accordingly, they had no loss and therefore they had no basis for any claim. If the reclaimers have no basis for any claim against the respondents it follows that their insurers have no claim on the basis of subrogation as an insurer is only subrogated to a claim which can validly be made by the insured. The fact that it is the insured’s claim which is of importance is demonstrated by the fact that the claim has to be made in the name of the insured and not in the name of the insurer. At best, therefore, the insurers would have a right of contribution from the respondents, but such a claim is of a different type to that which is made in this action and requires to be made in the name of the insurer.
The reclaimers’ argument is that the indemnity clause in the contract with the respondents is merely one term in what was a contract for services. It cannot be isolated from the rest of the contract and treated as if it was a free-standing insurance contract. Furthermore it was paralleled by a comparable indemnity in favour of the respondents. While the events which occurred happened to constitute a risk covered both by the contractual indemnity and the reclaimers’ own insurance, this does not mean that the indemnity clause and the insurance policy are to be treated as being on the same footing. The respondents are not an insurance company and are not subject to any of the constraints the law places on insurance companies and policies issued by them or subject to or benefiting from the rules which have evolved and constitute the general law of insurance. As a general rule insurance policies are taken out by a party for his own protection and they are res inter alios acta as far as a third party is concerned. When considering the rights and liabilities of parties to a commercial contract, whatever insurance may have been taken out by either party for whatever purpose falls to be ignored. If the reclaimers have a right of indemnity as part of their contract with the respondents, that is a primary contractual right which remains vested in them whatever arrangements may have been made between the reclaimers and their own insurers. There are many examples of contracts which are regarded as primary and which remain vested in insured persons giving right to subrogation on payment by insurers. A right of subrogation rather than contribution has been upheld where a civil body had a statutory duty (Mason), where there is a covenant in a lease (Darrell v. Tibbitts (1880) 5 Q.B.D. 560), where there is absolute liability of a bailee (North British and Mercantile), where a seller has rights under a contract of sale (Castellain), and where there is a right of contribution under general average (Dickenson v. Jardine (1868) L.R.C.P. 639). In Larrinaga Steamship Company v. The King  A.C. 246 Lords Wright and Porter, albeit obiter, pointed out that if the owners’ contention was correct, the underwriters would be entitled to subrogation, even although the charter party contained an indemnity. This principle is followed in Hazelwood P. & I. Clubs Law and Practice, page 269. In America subrogation has been upheld where insurers had paid but the insured had a contract of indemnity with a third party (Consolidated Freightways v. Moore 38 Wash. 2d. 427), a decision of the Supreme Court of Washington. With one exception in the California Supreme Court, which appears to be based on a doctrine of superior equity, other American decisions appear to support this view (see Hart v. Western Railroad Corporation (1847) H.F. & H. 99, Hall and Long v. Railroad Companies 80 U.S. 367 (1871), Chicago v. Pulman 139 U.S. 79 (1891), Vahlsing v. Hartford 108 S.W. 2d. 947 (1937)). In all of these examples the rights of the insured are rights of indemnity but this has not prevented the insurer’s right to be subrogated. The use of the word indemnity does not convert what is an ordinary contractual provision into an insurance policy or place the contractual provision on the same footing as an insurance policy.
In deciding this point in favour of the respondents the Lord Ordinary did not have the benefit of the copious citation of authority with which we were favoured. The cases to which the Lord Ordinary was referred were Sickness and Accident Insurance Company and Albion Insurance Company Limited v. Government Insurance Office  121 C.L.R. 342 and he founded on certain dicta in these cases. However, they are not in point because they are cases of double insurance which do not consider the issue raised in the present case.
Where a third party can be categorised as a wrongdoer giving rise to the loss there is no doubt that his obligation to the injured party is a primary obligation. This is so even if the wrongdoing only arises out of an absolute obligation without fault, e.g. North British and Mercantile where wharfingers were liable on custom of trade. The same would apply to a breach of contract giving rise to the loss (Darrell). There is no material difference between a covenant in a lease and an indemnity. What, however, is the position of an entirely innocent third party who is not in breach of any duty either absolute or in delict or under contract but who has granted an indemnity to cover the loss sustained? Can that contractual indemnity ever be a primary obligation or must it be treated as being on an equal footing with a contract of insurance? In North British and Mercantile at page 584 it was said that the contract whereby a bailee was made absolutely liable in case of loss by fire is not a contract of insurance so as to make the bailee himself an insurer but is merely part of the terms of a contract of bailment. It is difficult to see any distinction here where there is an equivalent absolute obligation (in the events which happened) which even although it is called an indemnity is part of a contract of services.
If the contractors had accepted liability under the indemnity clause in respect of claims by their employees against the reclaimers and had paid the claimants, the reclaimers obviously would not have had any claim against their own insurers having suffered no loss, but could the contractors claim contribution from the reclaimers’ insurers on the basis that they were joint indemnifiers of the reclaimers? In my view not, because the reclaimers’ insurance arrangements are res inter alios as far as the contractors are concerned. Contribution, however, is a two-way exercise. You can’t have contribution from one without contribution from the other. Accordingly, in the events which happened and had the contractors fulfilled their contractual obligations when called upon to do so, contribution would be out of the picture. It follows, in my view, that in the reverse situation the reclaimers’ insurers could not claim contribution from the respondents. While it does not necessarily follow that because there is no room for contribution there must be a right of subrogation, it does at least show that the position of the indemnifier and the position of the insurers are not the same, and once that is accepted, a major part of the respondents’ argument disappears.
The basic rule that an indemnitee cannot claim if already paid may seem to be a problem. However, in all cases of subrogation the insured has, by definition, been paid but that does not bar a claim in his name under a primary obligation. The rule against claiming when already paid is to prevent an indemnitee making a profit. Where, however, the claim is made under subrogation any benefit goes to the insurers and there is no profit to the indemnitee. This is so even when the insurers have asked the insured not to make any claim but the insured nevertheless successfully does so (Morley). The insured’s proceeds from that claim belong to the insurers.
Let us suppose that an employee of a contractor is injured. He claims against the reclaimers, perhaps on some absolute statutory obligation. On that basis the reclaimers are liable. Under the contract the arrangement is that because he is a contractor’s employee the contractor prima facie has to accept liability to indemnify in respect of the claim. Whether or not the reclaimers happen to be insured is quite irrelevant at that stage. It is to be noted that where parties enter into a contract incorporating mutual indemnities there is no reason to suppose they have in contemplation that a party liable may be entitled to receive contribution from the insurers of the other. To conceive of such a possibility is to destroy, at least in part, the whole purpose of the mutual indemnities (see Scholefield v. Zyngier  1 A.C. 562 at 574/5). A contractual scheme of indemnities is in my view intended to allocate primary responsibility. This appears to accord with general practice within the industry and makes perfectly good commercial sense. The fact that a party chooses to insure against the possibility of non-recovery under the indemnity clause, either because the indemnifier cannot pay or because he can escape liability under some limitation of the indemnity clause (which is what the respondents argue for in another part of this appeal) or even simply because they prefer to have a straightforward way to be indemnified immediately without having to have recourse to litigation to resolve complications arising out of the terms of what is on any view a limited indemnity clause cannot affect the contractual obligations which are primary. The reclaimers’ liability having shifted under the contract to the contractor, if the contractor fails to meet its contractual obligation the reclaimers and thus their insurers may have to pay. That, however, is contingent upon the contractors’ failure to meet their contractual obligation. The position of the reclaimers’ insurers is thus secondary to the contractors’ obligation and the fact that the reclaimers may have backup insurance is res inter alios. The fact that the reclaimers are anxious to settle the claims against them as quickly as possible may result in a payment being made by their insurers, but that does not discharge the pre-existing liability of the contractor. The liabilities of the contractor and reclaimers’ insurers are not in my opinion coexistent and on the same footing so as to give rise to the inference that they constitute a joint and several obligation under which payment by the reclaimers’ insurers automatically extinguishes the obligation owed by the respondents. As it was put in Albion Insurance, the reason behind the rule relating to double insurance is that payment by one insurer is made for the benefit of both and thus contribution is equity. This is because the two insurances are treated as one and payment by one insurer discharges the whole obligation. In the present case the payment by the insurers on a claim under the policy, which could not be resisted, was made for the benefit of the reclaimers. There is no reason to suppose that when that payment was made it was intended to be partly, at least, for the benefit of the employers of a claimant who in terms of their contract with the reclaimers had accepted liability for injuries to their employees. (In this context, it may be noted that there appears to have been no evidence about the details of the reclaimers’ insurances, nor about the basis on which premiums were calculated. If the issue of subrogation had been properly focussed in the pleadings, evidence might have been led on these matters which would have assisted in identifying the differences between the insurance policies and the contractual indemnities). Having paid under the policy the insurers became entitled to all rights available to the insured as at the time of the peril insured against and one such right was a claim against the contractors under the terms of the contract between them.
There is no authority in England or Scotland for the view that a contractual indemnity is to be regarded as being on the same footing as an insurance policy and the American cases indicate the contrary. In various cases noted above a right of subrogation, rather than contribution, has been upheld where a third party owes a duty in delict or under statute or in contract in circumstances which are indistinguishable from an obligation of indemnity.
The argument in favour of implicitly making a contractual indemnity primary as against insurance is that on the respondents’ argument they are effectively saying that despite their acceptance in the contract of full liability for injury to their own employees in certain circumstances, if the reclaimers happened to be insured for the same risk they will really only be liable for half and that defeats the objective of the contract, despite the fact that they have received the reclaimers’ indemnity in return. I accept that the terms of the indemnity and cross-indemnity are not absolutely identical but they are the same in principle in that the reclaimers’ indemnity indemnifies the contractor against claims in respect of injury to or death of the reclaimers’ employees. It is, in my opinion, no answer to say that in the case of double insurance each insurer has agreed to accept liability for the whole in return for the premium, but if it transpires that there is another insurer on risk each is entitled to contribution. That is a specialty of insurance law where the principle is that both policies are to be treated equitably as one. It is, however, equally a principle that a parties’ own insurance arrangements are in a question with a third party to be treated as res inter alios. An indemnity hedged around with conditions which is found in a contract for services as part of a mutual arrangement that each party will, in certain circumstances, accept liability for its own employees does not appear to me to be on an equal footing with an insurance policy. The respondents’ argument that a contract of insurance is merely a contract of indemnity and therefore any indemnity in a contract is on the same footing involves an elementary logical fallacy. Because insurance is always an indemnity it does not mean that an indemnity is always an insurance.
A further argument for the respondents was that it would have been possible to avoid contribution by inclusion of an appropriate clause in the contract. Such a clause is included in relation to insurances which relate to other risks. Article 18.1 provides for the contractor procuring insurance cover for inter alia general public liability insurance and it is further provided that "such policies…must also provide that these insurances shall be primary and not contributing with any other insurance available to company or its participants". However, that article also provides that such policies must include the company and its participants as additional insureds and accordingly, in the event of a claim, there could be a true case of double insurance which could lead to contribution unless that was specifically excluded. In my view, therefore, the absence of such a provision in the indemnity clause cannot imply that contribution is available to the indemnifier as against the reclaimers’ insurers. Indeed, the true implication may well be that the parties recognised that an indemnifier would have no right of contribution against the other parties’ insurers and therefore no such provision was necessary.
On the whole matter, therefore, I am satisfied that the contractual indemnity does not stand on the same footing as the insurance taken out by the reclaimers, that the reclaimers’ insurance cannot be used to benefit the respondents, that the contractual indemnity is to be regarded as a primary obligation and that it is therefore appropriate that the insurers, having paid the claims, are entitled to be subrogated to the rights of the reclaimers to indemnity under the contract.
For the reasons I have given, I would allow the reclaiming motion and refuse the respondents’ cross-appeal. As counsel indicated that they would wish to be heard on the matter of the precise disposal of each case, I would concur with the proposal that the cases should be put out By Order.