BHP Petroleum Ltd v British Steel Plc

JurisdictionEngland & Wales
CourtCourt of Appeal (Civil Division)
Judgment Date07 April 2000
Judgment citation (vLex)[2000] EWCA Civ J0407-1
Docket NumberQBCMF 1999/0867/A3
Date07 April 2000

[2000] EWCA Civ J0407-1





(Mr Justice Rix)



Lord Justice Evans

Lord Justice May

Lord Lloyd of Berwick

QBCMF 1999/0867/A3

(1) Bhp Petroleum Limited
(2) Bhp Petroleum Great Britain Plc
(3) Lasmo (Ulx) Limited
(4) Monument Resources Limited
(5) Monument Exploration and Production Limited
(6) Monument (Liverpool Bay) Petroleum Limited
(7) Centrica Resources Limited
(1) British Steel Plc
(2) Dalmine Spa

MR P DARLING QC and MR J SUMPTION QC (Instructed by Messrs Herbert Smith, London EC2A 2HS) appeared on behalf of the Appellants

MR M BARNES QC and MR M TEMPLEMAN (Instructed by Messrs DJ Freeman, London EC4A 1JU) appeared on behalf of the Respondents


The appellants are the developers and operators of the Liverpool Bay oil and gas production complex. It was built between 1993 and 1996. A plan is attached to the judgment of Rix J reported in [1999] 2 Lloyd's Rep 583 at page 605.


The development centres on the Douglas Field, where there is a manned production rig which also receives oil and gas from three unmanned satellite rigs at the Lennox Field (oil and gas) and the Hamilton North and the Hamilton Fields (gas only). From the Douglas Field Platform, oil is sent forward to an offshore tanker loading terminal and gas by an undersea pipeline to the Point of Ayr terminal in Flintshire. Also from the Douglas Field platform, gas is returned to the Lennox Field where it is re-injected into the natural reservoirs there. This serves a dual purpose. Injected under pressure into the oil reservoir, the gas takes the place of water which might otherwise be pumped in to drive the oil out. The process therefore assists extraction of the oil. It also means that the gas remains stored underground and is available for re-extraction at some future date. The gas it should be noted is produced in conjunction with oil as a natural by-product of the oil wells. If it cannot be disposed of or stored, then it has to be flared off; and there are legal restrictions for environmental and other reasons on the quantities which may be disposed of in this way.


British Steel, the respondents, were the suppliers of coated steel pipeline for the gas re-injection line to the Lennox Field and for much, if not all, of the undersea pipeline and risers for the whole project. An Italian company, Dalmine SPA, were their sub-contractors. They are the second defendants in the action, but agreements have been reached which made it unnecessary for them to be separately represented at the hearing of these preliminary issues.


Coated steel pipes for the gas re-injection pipeline were supplied over a period ending on 11th February 1994 under a contract which was made by acceptance of a Purchase Order dated 3rd September 1993, as amended by Revision 02, issued on 30th September 1993 and signed by British Steel on 15th November 1993. The contract documents incorporate a detailed specification for lengths of pipe which were to be delivered onshore. The delivery clause reads as follows:


3.1 The Supplier is to carry out and complete the work and supply to the satisfaction of the Purchaser in accordance with the delivery date(s) and shipping instructions stated in the Purchaser Order."


The Purchase Order(s) read:

"Delivery Terms: F.C.A. Suppliers Premises Incoterms 1990."


The pipes were welded together and laid in the seabed by other contractors, not British Steel, between 30th April and 27th June 1994. The pipeline was filled with seawater treated with a corrosion inhibitor to await its entry into service. This did not occur until April 1996 which was already more than two years after the pipes were supplied by British Steel.


In June 1996 defects appeared when gas bubbles were observed on the surface of the sea. Investigations were made, and the claimants allege that the cause of the defects was cracking caused by corrosion-related stress, which they attribute to defects in the steel pipes themselves. They allege breaches of specification, failures in the operation of quality control procedures and the negligent submission of certificates and inspection reports as required by the supply contract.


These allegations are denied by British Steel and for present purposes it is immaterial whether the alleged breaches of contract and negligence were their responsibility or that of their sub-contractors, Dalmine.


The appeal is concerned with preliminary issues arising out of the appellants' Conditions of Supply which were incorporated with amendments in the Supply Contract. British Steel contends that the alleged liability is excluded altogether by a time limit contained in Clause 17.5, as amended, because the defects appeared more than two years after the pipes were delivered. This is Issue A. Alternatively, that liability is limited to a relatively small figure (15% of the contract price by Line Item) by the same clause (Issue B). Thirdly, that certain parts of the enormous sums claimed as damages for breach of contact and negligence are excluded by an exemptions clause, Clause 14.5. This is Issue C.


I then set out the relevant contract terms. Definition of "Work":

"'Work' means all or any plant machinery materials or equipment to be manufactured and supplied or serviced and/or personnel to be provided by the Supplier under the Contract."


Clause 14:


14.2 The Supplier shall defend indemnify and hold the Purchaser free and harmless from and against any loss, liability, damage or claim in respect of:-

(i)personal injury to or sickness or death of the Supplier's and/or its subcontractors' employees and servants, and

(ii)damage to or loss of the property of the Supplier, its subcontractors and/or its and their employees and servants including the Work arising during and/or as a result of the performance or non-performance of this Contract from any cause whatsoever including but not limited to negligence on the part of the Purchaser, the Companies, its or their contractors or its or their respective employees or servants.

14.5Neither the Supplier nor the Purchaser shall bear any liability to the other (and each party hereby agrees to indemnify the party relying on this provision) for loss of production, loss of profits, loss of business or any other indirect losses or consequential damages arising during and/or as a result of the performance or non-performance of this Contract regardless of the cause thereof including but not limited to the negligence of the party seeking to rely on this provision."


Clauses 17 and 18:


17.1The Supplier warrants and guarantees that the Work shall conform to and perform as set forth in and meet all requirements of the Contract, be fit and sufficient for the purposes for which it is intended, meet all performance guarantees set forth or implied in the Contract, be of high quality and be electrically, mechanically, structurally and functionally sound. The Supplier shall employ good sound technical and engineering procedures, skill, care and judgement.

17.5The Supplier shall immediately remedy, at the contracted point of delivery, at his expense any defect in the Work due to faulty design, materials or workmanship which shall appear within eighteen (18) months of the date stated in the Purchase Order or such longer period as may be provided in the Purchaser Order, but not later than twenty-four months, the delivery of the Work to the Purchaser (whichever shall first occur), at which time all liability of the Supplier relating to the Work shall terminate. If the date for the commencement of this Period is not stated in the Purchaser [sic] Order it shall commence from the date of the delivery. If the Supplier fails to take immediate steps to remedy any defects in the Work then the Purchaser shall be entitled after giving prior written notice to the Supplier to order the Work to be rectified by others or carry out such rectification itself at the Supplier's risk and all costs and expenses incurred therein shall be borne by the Supplier, Provided —The obligations of the Supplier, in addition to the remedying of the Purchaser of repair or replacement at the contracted point of delivery shall also extend to include payment to the Purchaser of cost and expense directly and necessarily incurred by the Purchaser in the location, uplifting and replacement, of any Work proved not to comply with the requirements of the Contract. The Suppliers [sic] liability hereunder shall not exceed 15% (fifteen percent) of the Contract Price by Line Item —the payment of which shall fully discharge all liabilities of the Supplier howsoever arising out of the supply of work that does not comply with the requirements of the Contract.

17.8The Warranties given by the Supplier hereunder shall be without prejudice to all other rights and remedies of the Purchaser in respect of any failure by the Supplier to comply with the obligations imposed by the Contract.


18.1With ten (10) days of the award of the Contract the Supplier shall present to the Purchaser a Performance Security in the form of an irrevocable unconditional, divisible Bank Bond in the amount indicated in the Purchase Order, issued by an approved bank and in a format acceptable to the Purchaser.

18.4The Bank Bond shall be valid and shall be retained until completion of the Warranty Period as described in Clause 17.0 and, except where claims are outstanding...

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