Caledonia North Sea Ltd v London Bridge Engineering Ltd
| Jurisdiction | UK Non-devolved |
| Judge | LORD BINGHAM OF CORNHILL,LORD MACKAY OF CLASHFERN,LORD NICHOLLS OF BIRKENHEAD,LORD HOFFMANN,LORD SCOTT OF FOSCOTE |
| Judgment Date | 07 February 2002 |
| Neutral Citation | [2002] UKHL 4 |
| Court | House of Lords |
| Docket Number | No 4 |
| Date | 07 February 2002 |
[2002] UKHL 4
HOUSE OF LORDS
Lord Bingham of Cornhill
Lord Mackay of Clashfern
Lord Nicholls of Birkenhead
Lord Hoffmann
Lord Scott of Foscote
(Consolidated Appeals)
My Lords,
The explosive conflagration which destroyed the Piper Alpha oil platform on 6 July 1988 cost the lives of many men and injured many others. The claims made by and on behalf of the victims were fully settled years ago. These proceedings are the contractual aftermath of those settlements, brought to decide who, as between the operator of the platform and the contractor who employed each individual victim, must bear the financial cost of the settlements. As my noble and learned friend Lord Mackay of Clashfern has explained in his summary of the facts, history and issues relevant to these appeals, which I gratefully adopt and need not attempt to repeat or elaborate, only one of seven test cases originally selected for decision is now live before the House.
Operations to exploit the oil and natural gas resources of the North Sea have two prominent features relevant for present purposes. First, such operations are potentially hazardous. It is generally true, as the Lord Ordinary in his judgment said of Piper Alpha, that
"it is plain beyond doubt that an Oil Platform is a dangerous place unless careful and proper safety precautions are taken. The platform holds contained under pressure large quantities of gas and liquid hydrocarbon material which is explosive, very flammable and most dangerous if control of it is lost. [The president and managing director of the operator] described the operations as being 'potentially hazardous'. This was well recognised before the accident."
The second feature worthy of note is the involvement of many contractors and sub-contractors. This is exemplified by the present case. As Lord Mackay has noted, the Piper Alpha disaster led to claims against 24 different contractors. Of those on board the platform who were killed, 134 were employed by contractors and 31 by the operator. Of those who survived, 55 were employed by contractors and 6 by the operator.
These features are not unique to North Sea oil exploitation. They are also to be found, to a greater or lesser extent, in the nuclear power industry. But the regulatory regime governing the two industries has been very different.
The Nuclear Installations (Licensing and Insurance) Act 1959 made provision for the licensing of nuclear installations, required licensees (but not the Atomic Energy Authority or government departments) to provide cover to meet claims by insurance or otherwise (sections 5 and 9), imposed a strict liability on licensees to secure that no ionising radiations were emitted (section 4(1)) and stipulated that "no person other than the licensee shall be under any liability in respect of any hurt to any person or any damage to any property caused by any ionising radiations to which subsection (1) of this section applies" (section 4(2)). The purpose of this provision and of the governmental exception was explicitly stated by the minister when introducing the bill in the House of Lords (HL Deb, 13 November 1958, cols 504-505, 509):
"The object of these provisions is to facilitate the settlement of claims, first by ensuring that all claims are channelled to the licensee, thus avoiding a multiplicity of claims between, for example, injured persons and contractors or one contractor and another; and, secondly, by requiring the claimant to prove only that the cause of the injury or damage was radio-activity from the licensee's reactor. The claimant is thus spared the difficult, if not impossible, task of proving that the licensee was negligent in allowing the radio-activity to be given off … Unlike licensees, the Authority and Government Departments will be liable even where the injury or damage is attributable to enemy action. On the other hand, they will have a right to sue a contractor whose negligence has given rise to third-party claims against them. It has been necessary to extinguish this right in the case of a licensee in order to avoid litigation which would arise if insurers or other financial guarantors of a licensee tried to exercise any rights they might have against contractors or sub-contractors responsible for building reactors or supplying parts. But the Authority or a Government Department does not normally insure, and, seeing that the taxpayers' money is involved, it is considered proper that in their case the right to sue a negligent contractor should be preserved."
This broad approach was reflected in international conventions made in Paris (1960), Brussels (1963) and Vienna (1963). There followed the Nuclear Installations (Amendment) Act 1965 and the law was consolidated in the Nuclear Installations Act 1965. This revoked the distinction between governmental operators and other licensees (sections 7 to 9), but continued to lay a strict duty on the licensee (section 7) and continued to provide that no liability should fall on any party other than, in effect, the licensee (section 12(1)(b)). The licensee was still obliged to provide cover against claims by insurance or otherwise up to a specified limit (section 19), but there was still to be no right of subrogation. Thus standard forms of nuclear insurance contain a waiver of any subrogation rights by the insurers (Tromans and Fitzgerald, The Law of Nuclear Installations and Radioactive Substances, (1997), pp 146, 149, paras 3-56, 3-60).
Oil exploration in deep offshore waters developed in the early 1960s, at first in the Gulf of Mexico. Operations in the North Sea followed soon after. In December 1965 the offshore self-elevating barge SEA GEM collapsed, capsized and sank some 40 miles east of the mouth of the River Humber. An inquiry was held and in the report which followed (1967) (Cmnd 3409), it was recommended that there be a statutory code supported by credible sanctions to regulate the management of drilling rigs and similar structures offshore (p 24, para 10.2(i)). Effect was given to this recommendation in the Mineral Workings (Offshore Installations) Act 1971. This provided for the appointment of a manager of every offshore installation (section 4(1)), who was to have general responsibility for matters affecting safety, health and welfare (section 5(2)), and the secretary of state was empowered to make regulations for the safety, health and welfare of persons on offshore installations (section 6(1)). The breach of a statutory duty imposed by the Act, if causing death or personal injury, was to give rise to civil liability (section 11). In exercise of his power under section 6 and other provisions, the secretary of state made the Offshore Installations (Operational Safety, Health and Welfare) Regulations 1976 ( SI 1019/1976), which imposed duties on the operator of any installation and on the employer of any employee and on "every person while on or near an offshore installation" to comply or ensure compliance with the safety regulations.
When contrasted with the statutory regime applicable to nuclear installations, that applicable to offshore installations displays one important common feature: the operator is answerable for almost any safety failure causing death or personal injury, as the licensee is generally liable for death or personal injury caused by radioactivity. But there are two differences: the operator of an offshore installation is not, like the licensee of a nuclear installation, obliged (save in his capacity of employer) to provide cover against claims by insurance or otherwise; and there is no statutory inhibition of any right of indemnity or subrogation which might arise between the operator or the operator's insurer and any other party.
As would be expected, a market practice has developed to take account of the peculiar features of offshore operations. The standard practice during construction is thus described by Sharp, Offshore Oil and Gas Insurance (1994), p 108:
..."(iv)Injury or Death of Employees
The position in respect of employers' liability is invariably dealt with by the exchange of mutual indemnities in respect of injuries to or deaths of employees. There is perhaps a simple reason for this. If an individual is injured he will expect to have a right to sue any party who may have been guilty of negligence leading to the circumstances which caused the injury. This party may be another contractor, the Principal or his employer, or any combination of all three. The issue can become complicated by reason of contributory negligence. Determining liability and awarding costs can be a lengthy process in these circumstances, and this can only add to the anguish of the injured party, or the dependents of the deceased who may have been the sole breadwinner. The employer therefore accepts a responsibility to provide for his employees and will generally give the party with whom he is contracting a full indemnity in respect of any suit or action brought against that other party."
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