Acergy Shipping v Société Bretonne de Réparation Navale
Acergy Shipping Ltd v. Société Bretonne De Réparation Navale SAS
Queen’s Bench Division (Commercial Court): David Steel J:  EWHC 2490 (Comm): 5 October 2011
Mr Dominic Kendrick QC and Mr Jawdat Khurshid, instructed by Clyde & Co for the Claimant, Acergy Shipping Ltd
Mr Thomas Raphael, instructed by Clausen Miller LLP for the Defendant, Société Bretonne De Réparation Navale SAS
CONTRACT FOR PROVISION OF REPAIR SERVICES TO VESSEL: FIRE CAUSING DAMAGE BEYOND REPAIR WORK UNDERTAKEN: INTERPRETATION OF CONTRACT: SCOPE OF INDEMNITY CONTAINED THEREIN
Acergy entered into a contract with Société Bretonne De Réparation Navale (Sobrena) whereby the latter agreed to provide repair services to a vessel owned by the former. While Sobrena was carrying out hot work on the main deck of the vessel, a fire started. It spread to other parts of the vessel, causing damage to areas where no repair work was being undertaken by Sobrena. The Court held that the indemnity provision in the contract provided for a “knock for knock” arrangement whereby each party would bear the loss for damage to its property. The only exception to this arrangement under Article 10.3 would enable Acergy to seek indemnity from Sobrena for damage caused to the repair work undertaken by Sobrena and no more.
This note has been contributed by Ken To-ching Lee, LLB(Hons), PCLL (University of Hong Kong), BCL(Oxon) and barrister-at-law in Hong Kong.
The Claimant, Acergy Shipping Ltd (“Acergy”), was part of a multi-national offshore engineering group. The Defendant, Société Bretonne De Réparation Navale SAS (“Sobrena”), ran a ship repair yard in France.
Acergy needed to perform maintenance works on a valuable pipe laying vessel (“the vessel”) which it used for offshore oil and gas exploration. Hold no.3 aft of the vessel carried a carousel, a large hollow drum around a hub from around which pipes are unwound (“the carousel hold”).
On 22 December 2009, Acergy entered into a contract based on its standard form with Sobrena, whereby Sobrena would provide dry-docking services. Sobrena also undertook work on various parts of the vessel, including deck plating work on limited parts of the deck above the carousel hold. The contract consisted of a number of attachments. The primary terms were set out in Attachment 2.
Article 1 provided that “Works” meant all work performed by Sobrena pursuant to the contract, and “Worksite” any place where the Works were to be executed.
Article 10 contained the following indemnity provisions:
“10.1 [Sobrena]… shall indemnify and hold harmless [Acergy’s] Group… from and against all… losses… howsoever arising related to:
- Disease of or injury to or death of any person employed or provided by [Sobrena’s] Group;
- Damage to or loss of [Sobrena’s] Group’s property
And which arises out of or is in connection with the performance of the Contract.
“10.2 Except as provided in Article 10.3, [Acergy]… shall indemnify and hold harmless [Sobrena’s] Group from and against all… losses… howsoever arising related to:
- Disease or injury to or death of any person employed or provided by [Acergy’s] Group...
- Damage to or loss of [Acergy’s] Group[’s]… property.
and which arises out of or is in connection with the performance of the Contract…
“10.3 From start of the Works and until issue of the Delivery Certificate…, [Sobrena] 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 [Sobrena] and [Sobrena] shall indemnify and hold [Acergy’s] Group… harmless from and against all… losses… howsoever arising of [Acergy’s] Group… in relation to the loss and damage to the Works. The same applies to loss or damage, while in [Sobrena’s] custody and care, to any Free Issue items, to other Materials or items which are part of Buyers deliverables under the Main Contract or to any property on which Supplier performs work…
“10.4 The indemnities contained in this Article 10 shall 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...”
Article 13.2 further provided that, “Notwithstanding transfer of title, the risk of loss or damage of the Works shall remain with [Sobrena] as set out in Article 10.3.”
A liability cap of Euros 30m in favour of Sobrena was added by the Special Terms and Conditions at Attachment 1 as a “new” Article 10.3. Parties agreed that this new Article 10.3 was additional to and not a substitution for the old Article 10.3 above.
Under Article 23.1, Sobrena agreed to comply with Health, Safety and Environmental rules and regulations, and assume full responsibility for the proper and safe conduct of its employees should they need to go on Acergy’s premises.
The vessel arrived at Sobrena’s yard on 5 January 2010 and was dry-docked the next day. On the eve of the vessel’s arrival, the parties met to discuss safety matters. Attachment 7 required the preparation of a bridging agreement between Sobrena’s Health & Safety Executive system and the requirements of the project.
In the early morning of 13 January 2010, Sobrena was engaged on Job 300 which involved cutting out and replacing part of the main deck above the carousel hold. A Hot Work Permit had been issued with respect to the work. However, 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.
The fire caused damage to the carousel hold and to some of the surrounding spaces, e.g. the Remote-Operated Vehicle control room and the Hydraulic Power Unit room. The only part of the vessel on which Sobrena were working at the time of the fire and which was damaged was the deck plating above the carousel hold. Some pipe work which Sobrena had already installed in the carousel hold was also damaged. Sobrena was not working in the spaces adjoining the carousel hold which suffered damage.
The fire damage was repaired in part by Sobrena under a separate “Repaircon”.
The works under the original contract were completed on 15 March 2010, and the repair works were not completed until 8 July 2010.
Acergy claimed indemnity from Sobrena in respect of all damage suffered by the vessel as a result of the fire.
The Court ordered trial on a list of preliminary issues concerning the scope of indemnity under Article 10.
David Steel J rejected Acergy’s primary argument that, as the fire occurred during Job 300 at the place where the work was carried out, and spread to cause damage to adjacent areas, all damage caused constituted “losses… howsoever arising… in relation to loss and damage to the Works” in the second sentence of Article 10.3.
He first noted that construing a contract involved determining the meaning that the contract would convey to a reasonable person having the available background knowledge. Looking at Article 10 as a whole, Articles 10.1 and 10.2 provided for a “knock for knock” arrangement: regardless of cause, losses to Acergy’s property or personnel were to be borne by Acergy; losses to Sobrena’s property or personnel were to be borne by Sobrena. The only exception was Article 10.3 under which Sobrena would indemnify Acergy in relation to losses and damage to the Works. David Steel J was of the view that if Acergy’s argument succeeded, the second sentence of Article 10.3 would encompass all losses to the property arising during the performance of the contract and eliminate the “knock for knock” arrangement. Any causal inquiry into whether the damage was “in relation to the loss... to the Works” was also eliminated under Article 10.4, which provided that indemnities were to apply irrespective of cause.
David Steel J also rejected Acergy’s alternative argument that it was entitled to indemnity under the third sentence of Article 10.3. He was of the view that as the sub-clause focused on “free issue items” and deliverables, the perception of a reasonable man would be that “property” should be of a like kind, separate from the fabric of the vessel. The vessel could not be “property on which [Sobrena] performs work”. The wide interpretation advocated by Acergy would also have the effect of undermining the scheme of allocating responsibility under Article 10.2.
In any event, Sobrena did not have ‘custody’ of the vessel. There was no concluded contract on the terms of the bridging agreement, as it was simply a protocol produced by Sobrena to comply with its obligation to make provision for the concurrent application of two HSE systems. There was no contractual agreement that the vessel was a Sobrena worksite. The vessel remained fully crewed throughout and the master remained in control. Acergy’s crew continued to maintain firewatches on the vessel as a whole, even though Sobrena provided safety and fire patrols at places where it was working.
Sobrena also did not have custody of the carousel hold. Access to the hold was available to Acergy’s crew and Sobrena was only complying with its obligations to take responsibility for safety in relation to the works that it was conducting there.
Accordingly, Acergy’s indemnity claim was limited to the cost of repairing the deck area in way of the carousel hold, on which Sobrena was working when the fire broke out.