(back to preceding text)

    17. In agreement with my noble and learned friend Lord Mackay, and for reasons given by him, I would reject the contractor's argument on the third (consequential loss) issue. The claim against which the operator seeks indemnity against the contractor under clause 15(1)(c) arises from the death of the contractor's employee Mr Neil Pyman. The claim thus relates to the "death of persons employed by . . . the Contractor" and falls squarely within the express terms of the clause. Had the claim been presented against the operator in Texas, as it well might have been, and settled there, it could not have been argued that the loss fell outside the clause. In the event, the claim was made and settled in Scotland, although the settlement was agreed at a level higher than would have been awarded in a Scottish action. The settlement is accepted as reasonable. The fact that the level of damages agreed was higher than a Scottish court would have awarded cannot in my opinion alter the character of those damages: they were fatal injury damages, not relating to "indirect or consequential losses suffered, including but not limited to, loss of use, loss of profits, loss of production or business interruption" within the terms of clause 21, which Lord Mackay has cited.

    18. For these reasons, as well as those given by my noble and learned friends Lords Mackay and Lord Hoffmann, I would dismiss this appeal and make the order which Lord Mackay proposes.

LORD MACKAY OF CLASHFERN

My Lords,

    19. These seven conjoined appeals arise from an explosion which occurred in module C of the Piper Alpha oil platform in the North Sea on 6 July 1988. The initial explosion led to a series of explosions and fires. Of the 226 persons employed on the platform, 165 were killed and 61 were injured. Two rescuers were also killed.

    20. At the time of the disaster the operator operated the platform on behalf of a consortium of companies (including the operator) known as the participants. The operator had 37 of its own employees on the platform. The remaining 189 were employees of a number of contractors hired to carry out specific tasks on the platform.

    21. The operator acting on behalf of the participants entered into separate contracts with each contractor in relation to the particular services to be provided on the platform by that contractor. The operator on behalf of the participants raised 147 individual actions against 24 contractors, including the seven contractors who are the appellants in these appeals for indemnity under indemnity provisions in the contract. The operator and the other participants sought to be indemnified by the contractors for payments made in the settlement of death and personal injury claims in respect of these contractors' employees killed or injured in the disaster. These claims were made on the basis of provisions in the contracts entered into between the parties.

    22. Prior to the commencement of the proof it was agreed that seven test actions proceed to final judgment and the other actions be sisted. The seven test actions were selected as representative of all the actions so that the final decision on matters in dispute could be applied to the other actions. The value of all the actions dependent upon the outcome of the conjoined appeal in the seven test cases is £82,011,254.48 exclusive of interest and expenses. The accrued interest is now about equivalent to the principal sum.

    23. During the hearing of the appeal before your Lordships it was intimated that all the cases had been settled except the appeal involving Norton (No 2) Ltd (in liquidation). The principal sum in this action is £1,168,382.95.

    24. The parties agree that the contract requires to be considered against the background of the regulatory regime governing activities on offshore platforms in the North Sea. The regulatory regime imposed statutory liabilities on the operator and the other participants as well as on contractors and their employees. The contractor agrees that it was the practice in the oil industry for a contractor engaged on work on an oil platform to agree to give an indemnity to relieve the platform operator of liability in the case of the death or of injury to the contractor's employees, whether or not the contractor was responsible for the loss.

    25. The initial explosion which led to the disaster was caused by the emission of an escape of hydrocarbon. The source of ignition has never been ascertained. The hydrocarbon escaped through a gap or gaps between the blind flange and pipe work in module C. Had the blind flange been fitted securely, the hydrocarbon would not have escaped. The failure to fit the blind flange securely was the responsibility of an employee of Score (UK) Ltd who were employed by the operator as specialist valve contractors to carry out work on the valves in the pipe work. An employee of the operator was at fault in allowing hydrocarbon to enter the relevant pipe work in the then state of the pipe work.

    26. Because of the scale of the disaster there were hundreds of individual claimants whose interests required to be represented. Solicitors acting for claimants formed groups to represent them. By far the largest of these groups was the Piper Alpha Disaster Group (PADG). PADG made claims for compensation against the operator and the other participants on behalf of many claimants. The levels of compensation sought were in excess of normal Scottish levels of damages. PADG asserted that if the claims were not settled by payment of sums in excess of Scottish levels of damages then the claims would be pursued in the United States, and in Texas in particular, where the levels of damages awards were much higher.

    27. The operator and the other participants and their respective insurers settled the claims at levels greater than would have been awarded by a Scottish court but less than would have been awarded in Texas. Those involved in the negotiations on behalf of the participants and their insurers recognised that there was a risk the claims might be pursued successfully in Texas. If settlement terms ultimately offered had not been offered at least a substantial number of claimants would have pursued their claims in Texas.

    28. The majority of claims were settled fairly quickly after the disaster, although at that time the reasons for the disaster had not been clearly established. In the fatal accident cases the principles underlying the settlements were agreed by the end of 1988. After the settlement figures had been agreed with the claimants, the contractors were called upon to indemnify the operator and the other participants. They declined to do so. The operator and the other participants had in place multiple layers of insurance. The insurers of the operator and the other participants paid the whole of the settlement which had been agreed with the claimants, apart from a small uninsured element amounting to some £15,000 to which I will not again refer.

    29. The proof in the seven test actions commenced on 1 March 1993 before the Lord Ordinary, Lord Caplan, and was concluded on 31 October 1996. The Lord Ordinary issued his opinion on 2 September 1997. By an interlocutor of that date he refused the claims and reserved the question of expenses. By an interlocutor dated 10 December 1997 he found no expenses due to or by either party.

    30. The operator reclaimed and the contractor cross-appealed. The hearing before their Lordships of the First Division (Lord President, Lord Sutherland, Lord Cousland and Lord Gill) commenced on 13 October 1998 and was concluded on 28 April 1999. Their Lordships issued their opinions on 17 December 1999 and by an interlocutor dated 1 February 2000 allowed the reclaiming motion, refused the cross-appeal and made an order finding the operator entitled to payment of the sums that had been paid in settlement of the claims made in the seven test actions: [2000] SLT 1123

    31. Many of the issues canvassed before the Lord Ordinary and some of the issues canvassed before the Inner House are no longer in dispute between the parties. The remaining issues argued in this appeal were:

I turn now to the first of those questions:

    32. The term of the contract which is to be considered is clause 15 - the operator is referred to as "the company":

"Indemnities

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 or 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 occurrence.

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:

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

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

  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

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."

    33. Clause 15(2) contains indemnities in similar terms in favour of the contractor in respect of claims arising from injury to or death of persons employed by or damage to or loss of or destruction of property of the company against claims for pollution arising from the company's facilities and against claims in respect of the loss of or the damage to the well. Clause 15(3) contains a definition of wilful misconduct. Clause 16 deals with insurance and as some points were raised in respect of it I should set out part of it.

    34. "16. Insurance

16.1  Contractor shall, at its sole cost and expense, procure and maintain (and shall require its subcontractors 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 insureds.

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) Employer's 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 US$ 5 million 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 m per occurrence.

The remainder of clause 16 deals with certificates of insurance; and administration and communications.

    35. The contention of the contractor is that the principal provision in question, namely clause 15(1)(c), should have implied into it a provision that the indemnity is not to apply unless the contractor is liable at common law or for breach of statutory duty in respect of the death or the injury in question.

    36. In support of this contention the contractor submits that the clause was put forward by the operator and therefore should be construed where there is ambiguity against his interest. It is agreed that the clause was put forward by the operator with the consequence contended for.

    37. The contractor submits that the lengthy provision at the beginning of clause 15(1) and preceding the words "without prejudice to the foregoing generality" is in the nature of an umbrella of which the following clauses (a) - (e) are particular examples with the consequence that the requirement in that opening provision that the indemnity is to apply only when the subject matter is "in any manner directly or indirectly caused, occasioned or contributed to in whole or in part, by reason of omission or negligence" of the contractor or those for whom he is responsible, is carried into the clauses (a) - (e).

    38. In my opinion the phrase "without prejudice to the foregoing generality" means that nothing in the provisions of the clause following that phrase are to cut down or exclude any matter that would fall within the provision before that phrase but does not carry the implication, particularly in the circumstances of this clause, that what follows are but particular examples within the generality. It is hard to regard the subject matter of sub-clause (a) and sub-clause (b) as included in the opening general words of the clause.

    39. The contractor pointed out that it is not easy to identify particular examples that would fall within the opening words of the clause which are not specifically in the later provisions. The most convincing example put forward by the operator's counsel in argument was the possibility of shutdown orders made in respect of the platform by a government department, the relevant department at the time of the disaster, being the Department of Energy which, although not based on any actual or asserted failure of the contractor, turned out after investigation to have been occasioned by circumstances caused or materially contributed to by the fault of the contractor. However,even if no substantial content could be found for the opening words of clause 15 which were not already covered in the particular sub-clauses (a) to (e) this does not in my opinion assist the contractor in his contention that the opening provision must be carried forward by implication into clause 15(1)(c).

    40. It was contended further that the use in 15(1)(c) of the phrase "contributory negligence" signified negligence of the operator contributory to the cause of the death or injury with negligence or breach of statutory duty on the part of the contractor. While the phrase "contributory negligence" is frequently used in the context of negligence by a pursuer which has contributed with the negligence of the defender to the causation of an accident the subject of the pursuer's claim, in the context of the present clause I consider it perfectly natural to read the phrase "contributory negligence" as negligence contributing to the cause of the accident and to be contrasted with sole negligence which, under the clause, will be a good answer to a claim for indemnity.

    41. It was further submitted that the insurance provisions in clause 16(2) did not fit with the construction of clause 15(1)(c) contended for by the operator since the insurance provided under clause 16(2) would not cover the contractor in respect of the indemnity provided by clause 15(1)(c) on that construction. However, as counsel for the operator pointed out there is a statutory obligation on the operator to secure that employer's liability and public liability insurance are maintained by the contractor.

    42. It was also submitted on behalf of the contractor that the evidence of practice with regard to the allocation of risk in North Sea contracts was that the whole risk of death or injury to an employee was carried by the employer. This had the effect of eliminating litigation between the parties working on a North Sea platform about negligence in respect of such claims of death or injury. In contrast, in this case, there was an exclusion of indemnity in respect of sole negligence or wilful misconduct of the party claiming indemnity. Therefore, so it was submitted, this is not an example of the practice in the North Sea spoken to in evidence and accepted by the Lord Ordinary, since the whole responsibility for death or injury in respect of an employee is not here passed to the employer. In my view, although this is not an example of that practice fully carried out, it is not altogether surprising that there should be an exception in respect of sole negligence or wilful misconduct recognising this would be an extreme situation in which to pass liability to the contractor.

    43. In my view the words of clause 15(1)(c) are clear and unambiguous and none of the reasons put forward seem to me a sufficient basis on which to imply into the clause the condition contended for which would render the exception in respect of sole negligence unnecessary. I conclude therefore that this aspect of the appeal should be refused in accordance with the judgment of the Lord Ordinary and the four judges of the Inner House of the Court of Session.

    44. I turn now to the second question whether the operator is entitled now to indemnity under the contract between the parties in respect of the claims arising from the death or injury of the contractor's employees having regard to the payments made by the operator's insurers. The submission for the contractor is that an indemnity insurer who pays an indemnity in respect of the loss of an insured cannot then claim to be subrogated to a claim for indemnity in respect of the same loss which the insured had contracted for with another indemnifier.

    45. It is accepted that the payments which were the subject of this action in respect of the death of or injury to employees of the contractor were settled by insurers acting on behalf of the operator. This was done at a time before the issues with regard to causation of the disaster were settled and at a time when the contractor was not willing to admit liability to indemnify the operator against these claims.

    46. As is apparent from the dates I have already recited, it would have been utterly unreasonable to delay settlement of the claims in respect of death of or injury to the contractor's employees until these issues had been settled.

    47. This issue must be considered against the background of the highly complicated nature of North Sea development, involving as it does many parties as licence holders, operators, contractors, many different forms of equipment with many risks involved in the operation, and with a very detailed regulatory background. It would therefore be entirely natural that any party involved might seek to protect himself from loss in connection with these activities by arranging insurance indemnifying him against such loss. As I noted in the previous section there are provisions for insurance in the contract between the parties requiring the contractor to arrange such insurance in respect of employers' liability and workmen's compensation, general public liability and professional negligence. It is further provided that such insurances should be under forms and policies satisfactory to the company and except for workers' and employers' liability that these insurances must include the company and participants as additional insureds and shall provide that the policies will indemnify the additional insured against claims brought by any other of the insurers. It also provides that such policies other than the workers' compensation and employers' liability policies must provide that these shall be primary and not contributing with any other insurance available to the company or its participants. There is no provision in the contract requiring the operator to take out insurance covering his liabilities in respect of the claims covered by clause 15(1)(c) of the contract and therefore obviously no provision including the contractor as an insured or interested party in any such insurance.

    48. There is no objection taken to the title of the operator to sue this action. The objection is taken to the relevancy of the action on the basis that since the claims in issue were settled by the indemnity insurers of the operator, the operator cannot now make a relevant case for payment to him of the amounts covered by indemnity granted by the contractor under clause 15(1)(c) of the contract. It is not disputed on the basis on which this part of the case is argued that if the operator had paid these sums he would be entitled to repayment from the contractor. The sole reason that this claim is not a good claim in law it is asserted is that the sums were paid by an indemnity insurer of the operator and that this defeats the claim for repayment from the contractor. The submission is that here we have the operator entitled to the benefit of two indemnities in respect of the claims on which the action is founded, the indemnity from the contractor and the indemnity covering exactly the same claims from the operator's insurers. It is not permissible to be indemnified twice in respect of the same loss and therefore it is not permissible for the indemnity insurer, by suing in name of the operator, to pass his liability on to the contractor. It is said that if the operator's insurer is entitled to pass his claims on to the contractor, if the contractor paid the claims he would be equally entitled to pass his liability to the operator's insurer, thus producing a deadlock which would have to be resolved on other principles. The argument is further elaborated by saying that in truth the operator's insurance company as its indemnifier in respect of these claims is entitled only to an action of relief against the contractor. It was this aspect of the case that raised the question whether this action could be treated as an action of relief and whether an action of relief could be raised in name of the indemnified. If the claim of the operator in this action is well founded in law as an action for payment, this second question which was considered in detail particularly in the opinion of the Lord President in the Court of Session would not arise.

    49. From the argument it appears that this precise question has never been raised by the Bar or Bench in Scotland nor England for 200 years although the propriety of such a claim has been assumed by persons of the highest standing in the field of commercial law.

    50. The question however has now been raised and it is necessary for your Lordships to consider it.

    51. Since it seems to me to raise sharply an issue of principle I consider it useful to start consideration of it with the early leading case of Mason v Sainsbury (1782) 3 Dougl 61 in which Lord Mansfield laid down the relevant principles in a way which I believe has been accepted ever since both in the law of Scotland and the law of England.