Construction - Exception clause
Acergy Shipping Ltd v Societe Bretonne de Reparation Navale SAS: Queen's Bench Division, Commercial Court (Mr Justice David Steel): 3 October 2011
The claimant company was part of a multi-national offshore engineering group. The defendant company ran a ship repair yard in Brest, France. The claimant owned a very valuable pipe laying vessel used for offshore oil and gas exploration (the vessel). The claimant needed to perform maintenance works on the vessel in dry-dock. To that end, on 22 December 2009, the claimant concluded a contract, based on a the claimant's standard form, for the provision of dry-docking services with the defendant.
The contract contained, in attachment 2, a set of reciprocal indemnity provisions in respect of damage to property or personal injury. There was however, an exception to that arrangement. Article 10.2, which set out the buyer's indemnity provisions was subject to article 10.3. However, article 10.3 only applied to the 'Works' and stated, inter alia, that: 'From start of the Works and until issue of the Delivery Certificate or, if later, the date when actual physical delivery of the Works to Buyer takes place, Supplier shall be responsible for loss or damage to the Works and shall carry out necessary measures to ensure that the Works are completed in accordance with the Contract.
'The cost of carrying out such measures shall be borne by Supplier and Supplier shall indemnify and hold Buyer’s Group and Client Group harmless from and against all claims, losses, damages, costs (including legal costs) expenses and liabilities howsoever arising of Buyer’s Group or Client Group in relation to the loss and damage to the Works ... '. Article 10.4 provided that the indemnities contained in article 10 should apply irrespective of cause and notwithstanding the negligence or breach of duty (whether statutory or otherwise) of the indemnified party or any other entity or party and should apply irrespective of any claim in tort, under contract or otherwise at law.
The vessel arrived at the claimant's yard in France, on 5 January 2010 and was dry-docked the next day. She had a 'carousel', a large hollow drum around a hub from around which pipes were unwound, in Hold No. 3 aft (the carousel hold). The work to be undertaken by the claimant included deck plating work on limited parts of the deck above the carousel hold.
In the early morning of 13 January 2009, a fire started when welding material residue or melted steel from the deck plating work dropped down to the bottom of the carousel and ignited combustible materials. Each party claimed that the fire damage was caused by the other’s breach of contract. Since article 10.4 precluded consideration of cause, fault or underlying legal claims, it was common ground that the application of the indemnities was decisive (subject to the effect of the insurance provisions). Accordingly the court ordered that certain preliminary issues should be tried.
The first preliminary issue for determination asked what loss or damage caused by the fire to the vessel was the defendant liable to indemnify the claimant under the first two sentences of 'old' article 10.3. The claimant's primary case came to rely on the second sentence of article 10.3. The claimant was entitled, it was submitted, to be indemnified by defendant for all the fire damage because it constituted 'losses … howsoever arising … in relation to loss and damage to the Works'.
The court ruled: There was no right of indemnity under the second sentence of article 10.3. Articles 10.1 and 10.2 allocated responsibility for damage to the contractual parties’ property to the relevant proprietor 'howsoever arising' in connection with the performance of the contract. The exception in article 10.3 only applied to the 'Works'. If the second sentence of article 10.3 encompassed all losses to the property arising during the performance of the contract and not just relating to the 'Works', the proviso effectively eliminated the scope of the governing clause.
Further, the contrary view was inconsistent with the elimination of considerations of cause pursuant to article 10.4. Indemnities were furnished in regard to property interests. Article 10.3 merely furnished an exception with regard to the 'Works'. It was not consistent with any reasonable interpretation of that article that where the claimant's property (other than the 'Works') was damaged, nonetheless the loss sustained fell within the article 10.3 proviso if it had been 'caused' by damage to the Works (see ,  of the judgment).
Dominic Kendrick QC and Jawdat Khurshid (instructed by Clyde & Co) for the claimant. Thomas Raphael (instructed by Clausen Miller LLP) for the defendant.