Caledonia North Sea Ltd v London Bridge Engineering Company Pickup No 7 Ltd Industrial & Marine Services Company Ltd British Telecommunications Plc Wood Group Engineering Contractors Ltd Norton (No 2) Ltd Kelvin International Services Ltd Coflexip Stena Offshor

An insurer who had indemnified the insured party by meeting claims for damages had two methods of recovering his expenditure from a contractor who had given the insured an indemnity for such claims.

The insurer could raise an action in his own name to enforce his right of relief for the whole sum. Alternatively, he could bring proceedings in the name of the assured against the indemnifier on the basis of the contract of indemnity.

The insurers of the owners of the Piper Alpha platform who had paid damages to the relatives of the men who were killed and to the men who were injured by the explosion and fire on the platform in 1988 had a relevant claim for a full indemnity from the contractors who had been engaged to work there.

The First Division of the Inner House of the Court of Session, so held, delivering opinions that seven test cases were relevant, and putting the causes out by order for hearing further submissions on the terms of the interlocutors to be pronounced by the court: see Elf Enterprise (Caledonia) Ltd v London Bridge Engineering Ltd and OthersTLR(The Times November 28, 1997).

The seven cases were drawn from 146 actions brought by Caledonia North Sea Ltd seeking approximately Pounds 130,000,000 from London Bridge Engineering Ltd, Pickup No 7 Ltd, British Telecommunications plc, Wood Group Engineering Contractors Ltd, Norton (No 2) Ltd, Kelvin International Services Ltd and Coflexip Stena Offshore Ltd, arising out of the explosion on the Piper Alpha platform on July 6, 1988.

Mr Colin MacAulay, QC, Mr Derek Batchelor, QC and Mr Leo Hofford for the pursuers and reclaimers; Mr Heriot Currie, QC, Mr Richard Keen, QC and Mr James Wolffe for the defenders and respondents.

THE LORD PRESIDENT said that the pursuers were the successors of the owners of the platform. The defenders were contractors, employees of whose had worked on the platform, and had been killed and injured in the disaster.

The pursuers' insurers had paid damages to the victims and their relatives. The contractors had been engaged under contracts containing clauses obliging them to indemnify the pursuers against claims arising out of the death of, or injury to the defenders' employees. The actions were brought on those clauses, seeking indemnity for the damages.

1 Subrogation to rights under an indemnity

The defenders' basic argument was simple. The pursuers had been indemnified by their insurers. The pursuers now sought to be further indemnified by the defenders under the various indemnity clauses in their service contracts.

But, having been fully indemnified by their insurers, the pursuers were not entitled to seek any further indemnity from the defenders, since that would mean that they were being more than fully indemnified, contrary to the basic principle of the law of indemnity as enunciated in the classic exposition in Castellain v PrestonELR((1883) 11 QBD 380).

The present actions would have been irrelevant if brought by the pursuers themselves, and were equally irrelevant when raised by the insurers. The insurers' remedy would have been actions of relief brought in their own name against the contractors.

The Lord Ordinary had given devastating effect to that argument by absolving the defenders in all of the actions, except for one in respect of damages paid out by the pursuers themselves, in which he granted decree for Pounds 12,685.57.

It was accepted that payments by an insurer were not generally regarded as having the effect of extinguishing a third party's liability to the assured.

A wrongdoer's liability to pay damages was not affected by the fact that the victim might have been indemnified for his loss under a contract of insurance: Bradburn v Great Western RailwayELR ((1874) LR 10 Ex 1).

The defenders argued, however, that a contract of indemnity was different: the person to be indemnified was entitled to be indemnified for his loss but nothing more. Where the person seeking to be indemnified had been indemnified by his insurers, he no longer had any loss for which he could be indemnified.

His Lordship did not find the supposed distinction compelling. The liability of a wrong-doer to an injured party arose only where there was loss. The injured party might be insured and so receive a full indemnity. He would no longer be suffering any actual loss. Nevertheless, he was regarded as still suffering a loss for the purpose of allowing proceedings to be brought in his name against the wrong-doer. Were he not so regarded, there would be no right which the insurers could enforce by proceedings in his name; subrogation could not then...