BHP Billiton Petroleum Ltd and Others v Dalmine SpA
| Jurisdiction | England & Wales |
| Judge | Mr Justice Cresswell |
| Judgment Date | 16 May 2002 |
| Neutral Citation | [2002] EWHC 970 (Comm) |
| Date | 16 May 2002 |
| Court | Queen's Bench Division (Commercial Court) |
| Docket Number | Case No: 1998 Folio No. 492 |
[2002] EWHC 970 (Comm)
IN THE HIGH COURT OF JUSTICE
QUEENS BENCH DIVISION
COMMERCIAL COURT
The Honourable Mr Justice Cresswell
Case No: 1998 Folio No. 492
Mr. Mark Howard Q.C. and Mr. Alec Haydon (instructed by Herbert Smith) for the Claimants
Mr. Christopher Hancock Q.C. and Mr. Philip Edey (instructed by Linklaters) for the Defendant
Mr. Justice Cresswell
JUDGMENT: APPROVED BY THE COURT FOR HANDING DOWN (SUBJECT TO EDITORIAL CORRECTIONS)
I direct that pursuant to CPR 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
Mr Justice Cresswell
INTRODUCTION
The first claimant ("the Operator") is and was at all material times the Operator of the Liverpool Bay Development.
Each of the second to seventh claimants was at some point in time between the date of the first Joint Operating Agreement ("JOA") and the Joint Development Agreement ("JDA") a Co-Venturer in the Liverpool Bay Development.
The Development comprises facilities built to exploit four oil and/or gas fields in the Liverpool Bay area of the Irish Sea.
The fields are known as the Hamilton, Hamilton North, Douglas and Lennox fields. They are situated about 15–20 miles off the coast of North Wales, in relatively shallow tidal waters (about 25–28 metres in depth), to the west of the main shipping channel into Liverpool docks.
The Hamilton, Hamilton North and Lennox fields are served by unmanned satellite production facilities which are connected by sub-sea pipelines to a (manned) central production facility at Douglas.
Sales gas is transported by sub-sea pipeline from Douglas to an on-shore terminal sited at Point of Ayr, Clwyd, North Wales.
Produced oil is transported by sub-sea pipeline from Douglas to an oil storage installation located on block 110/8a of the Irish Sea.
Gas produced from the Lennox field (together with some Douglas off-gas) is injected back into the Lennox field's gas cap via pipeline. This is to maintain/maximise the reservoir pressure to produce the Lennox oil, and also to provide a means of postponing the extraction of such gas.
The Development is mainly comprised within blocks 110/13 and 110/15 of the Irish Sea but also covers other offshore blocks and on-shore acreage.
The Development was built between 1993 and 1996. Gas was produced from the Development in January 1996, and oil was produced from April 1996.
The defendant ("Dalmine") is an Italian steel-making company which produced 12" diameter steel pipes used for the construction of a sub-marine gas reinjection pipeline ("the pipeline") laid between the Douglas and Lennox platforms.
These proceedings arise out of the failure of this pipeline.
British Steel plc supplied the Operator with the pipes incorporated in the pipeline, but the pipes had been manufactured by Dalmine pursuant to a sub-contract between British Steel and Dalmine.
The pipes should have been manufactured so as to comply with a Data Sheet and Specification which constituted the contractual specification for the pipes, both in the contract between the Operator and British Steel and in the sub-contract between British Steel and Dalmine.
Dalmine manufactured the pipes between October and December 1993.
Each batch of steel from which pipes were made is referred to as a "heat". Dalmine tested each heat of steel for compliance with the Data Sheet and the Specification before producing pipes from that heat.
Dalmine also carried out product analyses on 2 pipes manufactured from each heat.
Dalmine produced
a) Inspection Reports for each heat which included statements of the result of analysis both of the heat prior to the production of pipes and of two pipes manufactured from that heat; and
b) A Certificate of Compliance signed by Mr Antonini (a senior member of Dalmine's Quality Control Department) which certified that the pipes had been manufactured and tested in accordance with the Data Sheet and Specification.
The pipeline was laid between 30 April and 27 June 1994 but did not enter service until April 1996. The first discovery of a leak occurred in June 1996 when bubbles were observed on the surface of the Irish Sea.
When the whole of the pipeline had been checked, leaks were discovered at six failure sites (referred to as Leak Sites A—F).
When pipes at the Leak Sites were tested the claimants discovered that some of them failed to meet the requirements of the Data Sheet and Specification in that, in particular, the carbon equivalent value ("the CEV") of the steel from which the pipes had been made was in excess of the contractual maximum.
One or more of the pipes at each of Leak Sites A—F failed to comply with the Data Sheet and Specification contrary to the relevant Inspection Reports and Certificate of Compliance.
The Proceedings
Proceedings were issued on 16 April 1998 in which claims were made against British Steel in contract for failing to produce pipes which complied with the Data Sheet and Specification and in tort for negligence. In the same proceedings, claims were made against Dalmine in tort, the claimants relying on allegations of negligence in the production and/or certification of the pipes.
The claims against British Steel were abandoned following the decision of the Court of Appeal on the construction of limitation and exclusion clauses in the contract between the Operator and British Steel: see BHP Petroleum Ltd. v British Steel PLC and Dalmine SpA (CA), [2000] 2 Lloyd's Rep 277.
Internal records first produced by Dalmine in the course of discovery on 24 May 1999 revealed discrepancies between the results of the testing they recorded, and the results which had been inserted in Dalmine's Inspection Reports. The claimants amended their claim against Dalmine so as to introduce a claim in deceit alleging that Dalmine had fraudulently misrepresented (by the production of false Inspection Reports and a false Certificate of Compliance) that some of the pipes produced by Dalmine complied with the specified maximum for CEV and the requirements relating to elemental chemical composition, when in fact they did not.
According to the statements of case, two causes of action are pursued by the claimants: a claim in negligence and a claim in deceit.
This hearing is concerned with issues as to causation in relation to the case in deceit.
The defendant has admitted that it fraudulently misrepresented the CEV of some of the heats produced by it (see further below).
Issues of reliance and causation of alleged losses were to be tried as preliminary issues in February 2002. However, on 5 February 2002, the defendant admitted the claimants' plea (as it stood prior to the last round of amendments) of reliance on the defendant's fraudulent misrepresentations.
On 17 January 2002 the parties entered into a Memorandum of Agreement by which they each agreed to forgo certain arguments that might otherwise have been available to them. The existing statements of case have not been further amended to reflect that Memorandum of Agreement and they therefore need to be read together with that agreement.
On 17 January 2002 there was to be a PTR in this action. In the event, all matters which were to be addressed at the PTR were agreed prior thereto. In the circumstances Langley J did not require the attendance of the parties, and made an Order by consent.
It is, by the Memorandum of Agreement, agreed that if the remaining issue of causation is determined in the claimants' favour, the claimants will be entitled to judgment on liability with damages to be assessed and they will not need to pursue their action in negligence.
The issue to be tried in this hearing is as follows. Did the incorporation of non-compliant pipe cause the pipeline to fail (as the claimants say) or would it have failed anyway (as the defendant says)?
Testing of the Pipes
Various tests were carried out on sample pipes prior to the construction of the pipeline and numerous tests have been carried out on samples of unused pipe and pipe recovered from the pipeline post-failure.
The experts instructed by the parties have agreed a detailed "Memorandum of Technical Facts" which is intended to record, among other things, summaries of various technical documents and reports. It does not, however, reflect any agreement between the parties as to the underlying technical assumptions, results and/or conclusions drawn in those technical documents and reports.
The Cracks
At each of Leak Sites A to F at least one of the pipes was manufactured from heats 935517, 935333, 935567 or 935571 and was found in post-failure testing to have a CEV which exceeded the maximum of 0.40% permitted by the Data Sheet and the Specification.
Dalmine's Fraudulent Misrepresentations
Dalmine has admitted that
(1) by the Inspection Reports and the Certificate of Compliance, it represented that the pipes had, to the best of their knowledge, the chemical composition and CEVs therein set out and accordingly that the pipes' chemical composition and CEVs complied with the Specification and Data Sheet; and
(2) that those representations were false in that some of the pipes were not within specification for individual chemical elements...
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