Colour Quest Ltd v Total Downstream UK Plc (also Shell U.K. Ltd & others v Total UK Ltd and Another)

JurisdictionEngland & Wales
CourtCourt of Appeal (Civil Division)
JudgeLongmore,Waller,Richards L JJ.
Judgment Date30 March 2010
Neutral Citation[2010] EWCA Civ 180
Date30 March 2010
Docket NumberCase No: A3/2009/1072, 1073 and 1079

[2010] EWCA Civ 180

IN THE HIGH COURT OF JUSTICE

COURT OF APPEAL (CIVIL DIVISION)

ON APPEAL FROM THE QUEEN'S BENCH DIVISION

COMMERCIAL COURT

Mr Justice David Steel

Before: Lord Justice Waller

Vice-president of the Court of Appeal, Civil Division

Lord Justice Longmore

and

Lord Justice Richards

Case No: A3/2009/1072, 1073 and 1079

[2009] EWHC 540 (Comm)

Between
(1) Shell U.k. Limited & Ors
Appellants
and
Total Uk Limited & Anr
Respondents
and
(2) Total Uk Limited
Appellant
and
Chevron Limited
Respondent

(1) Laurence Rabinowitz QC, Edwin Johnson QC and Richard Handyside QC (instructed by Simmons and Simmons) for the Appellant, Shell U.K. Limited

Lord Grabiner QC, Christopher Butcher QC, Alan Maclean QC, and Alexander Antelme (instructed by Davies Arnold Cooper LLP) for the First Respondent, Total UK Limited

Justin Fenwick QC and Paul Sutherland (instructed by Pinsent Masons LLP) for the Second and Third Respondents

(2) Lord Grabiner QC, Christopher Butcher QC, Alan Maclean QC, Alexander Antelme and Colin West (instructed by Ashurst LLP) for the Appellants

Jonathan Sumption QC and Michael Bools (instructed by Herbert Smith LLP) for the Respondents

Hearing dates: 13 th– 22 nd January 2010

This is a judgment of the court, to which all members of the constitution have contributed.

Background Facts

1

On 11 th December 2005, a number of very large explosions and fires occurred at the Buncefield Oil Storage Terminal in Hertfordshire. The incident was caused by the negligent overfilling of a fuel storage tank located on one of the three main sites that comprise the Terminal. This led to the creation of a large hydrocarbon rich vapour cloud which then ignited. The incident caused widespread damage to land in and around the Terminal. Fuel storage tanks, pipelines and associated equipment at the Terminal were destroyed or seriously damaged. There was also considerable damage to houses and other property outside the site's perimeter fence. Fortunately no one was killed. Substantial claims for compensation were brought by a large number of claimants against Total Downstream UK PLC and Total UK Ltd (“Total”) and Hertfordshire Oil Storage Limited (“HOSL”), the vehicle company owned 60% by Total and 40% by Chevron Ltd (“Chevron”). Total brought part 20 proceedings against Chevron.

2

Directions were given in the Commercial court for the trial of certain preliminary issues. Those came on for hearing before David Steel J in October 2008. Oral evidence was completed over 20 days; final speeches were completed in December 2008 and a judgment of 523 paragraphs was completed and handed down on 20 th March 2009. It is right to pay tribute right at the outset to the way in which this litigation has been conducted by all sides and to pay tribute to the judge for a judgment whose length is not due to any wasted words but to the complexity of the many issues he had to resolve.

3

The main focus of the hearing before him was on the dispute between Total and Chevron firstly as to the identity of the relevant defendant liable for the negligence and secondly on the consequential distribution between the two companies under the Part 20 proceedings. Total were asserting that the relevant defendant was HOSL and if they had succeeded that would have led to a distribution in accordance with the shareholding of Chevron and Total, i.e. 60% Total and 40% Chevron. Chevron were asserting Total were vicariously liable but Total were asserting that if that was so, they were entitled to be indemnified under one or other provision of the relevant contracts the effect of which would have been to produce the same result i.e. a sharing 60/40.

4

The judge held that Total and not HOSL were vicariously liable and there is no appeal from that finding. By their appeal Total seek to reverse the judge as to the applicability of one or other of the indemnity provisions. There is also a cross-appeal by Chevron relating to Total's role. At one time the parties to the joint venture at Buncefield were Chevron, Elf and Fina. Total bought the businesses of Elf and Fina in 2000 and were treated as joint venturers in their place from that time on. Total also took the place of Fina as managers of the operation and it was in that role the judge found them vicariously liable. Chevron before the judge contended that the formalities required to make Total a participant in place of Elf and Fina had not been completed at the time of the explosion and thus that Total, although Manager, was not a participant within the meaning of the relevant agreements. If right that would have excluded Total from any right to rely on any indemnity as between participants. The judge was in Total's favour on this point and Chevron appeal against that decision.

5

Only one other aspect of the judge's judgment has been appealed, which relates to a claim being made by Shell as claimant. The explosion caused damage to property in which and through which Shell stored or distributed its oil. Legal title to the tanks and pipelines were in a vehicle company which held the same on trust for Shell and others. Total has accepted liability for the destruction of anything which was the property of Shell, but disputed liability for the loss of profits that Shell claims flowed from the destruction of or damage to the tanks or pipelines. Total relies on what it asserts is “the rule recognised by many authorities” to the effect that only a legal owner or someone with an immediate right to possession has the right to claim damages for economic loss the consequence of damage to property.

6

Although the Shell appeal was argued first before us we will deal with it second in this judgment.

Does Total have a right to an indemnity?

Introduction to indemnity aspect

7

In the agreements to which we shall have to turn in detail the nomenclature is not always consistent; sometimes “manager” means “operator”, and sometimes “manager” could be said to be more limited in its scope and refer to the entity running what became known in argument as the “back office”. In this introduction we shall use the term “manager” to mean the entity that ran the back office and “operator” the entity that was responsible for the operation of the terminal without prejudging any of the issues that may arise.

8

There are three possible candidates on which Total would seek to rely in the various contracts in place as at the date of the explosion. Issues arise as to which is the appropriate candidate, whether the appropriate clause indemnifies Total against its own negligence, whether the appropriate clause indemnifies Total when acting as operator rather than participant, and whether in the case of one clause it was varied so as to include an indemnity in respect of the indemnified's own negligence. In order to clarify the matter in argument before us each of the candidates was taken in turn and individual issues argued by reference to each candidate. But it was recognised that it was important to keep in mind an overview of how the contracts interlocked one with the other.

9

Total were party to a Management Agreement the counter party of which was HOSL. Total argued this agreement was confined to the supply of the “back office” facilities supplied by them. Total were also the operator of the terminal and responsible for the operational activities. Chevron argued this aspect was also supplied under the Management Agreement or as the judge concluded tacitly added to the Management Agreement. Total's primary argument was that the operational activities were carried out under the terms of Operating Regulations annexed to an agreement to which the parties were the participants to the Joint Venture. If Chevron were right the only candidate for an indemnity was clause 7.1.2 of the Management Agreement, and Chevron say that that clause by its terms excluded an entitlement to an indemnity where the manager was negligent. If Total's primary case were right the candidate is 1.2 of section III of the Operating Regulations which Total argue gives them a right to an indemnity against HOSL including a right (they allege) to an indemnity where Total have been negligent. Total in making this primary case rely as an aid to construction on agreements under which they say Chevron expressly agreed, in certain eventualities which as it turned out never occurred, that they would indemnify the operator and the manager against its own negligence. Furthermore Total have a secondary case which is that if clause 7.1.2 applies the clause was in fact varied to remove the exclusion in respect of negligence leaving only wilful default to be excluded.

10

Total's final alternative is to assert a right to an indemnity as between participants to the Joint Venture under clause 9.2 of the original Joint Venture Agreement (“JVA”). Chevron assert that that clause was no longer applicable as at the time of the explosion in the light of other contracts made since the original JVA or that it did not entitle Total to an indemnity for its own negligence and/or when acting as operator or manager as opposed to participant.

11

It is an important aspect of Total's argument on the construction of 1.2 of the Operating Regulations that at the time of the explosion there were in existence contracts which, although ineffective through the absence of the contingency on which effectiveness depended, included an indemnity for the operator's negligence. It is their case also that the Management Agreement had been varied to include an indemnity in respect of the manager's negligence. Chevron's argument accepts that there was...

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    • Queen's Bench Division
    • 16 January 2019
    ...cases, such as Leigh & Sillavan Ltd v Aliakmon Shipping Co, The Aliakmon [1986] AC 785, HL, and Shell UK Ltd v Total UK Ltd [2010] EWCA Civ 180, [2011] QB 86, were relevant. As I understood it, his submission was that just as those cases recognised that concepts of ownership needed to......
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    ...also awarded as a "foreseeable consequence of physical loss" in Shell U.K. Limited & Ors v Total UK Limited & Anr [2010] EWCA Civ 180 where the issue was whether such a claim could be made by a beneficial owner. 55 The loss of future custom was acknowledged as a proper hea......
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    • United Kingdom
    • Queen's Bench Division (Commercial Court)
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    ...approach to the interpretation of both indemnity clauses and exemption clauses is the same was provided in Shell UK Ltd v Total UK Ltd [2010] EWCA Civ 180. More recently, however, it has been said that the approach is now more relevant to indemnity clauses than to exemption clauses ( Persi......
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    • Queen's Bench Division (Technology and Construction Court)
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    ...31–2). 51 In principle, this type of consequential loss can include a loss of use or loss of profit. In Shell UK Ltd v Total UK Ltd [2010] EWCA Civ 180, the Court was concerned with explosion and fires caused at the Buncefield Oil Storage depot caused by negligence. The appeal related in on......
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1 firm's commentaries
  • Case Law Update Issue 5 (2010)
    • United Kingdom
    • Mondaq United Kingdom
    • 23 September 2010
    ...tort for pure economic loss by David Pliener, Hardwicke Chambers. Economic Loss in Buncefield Explosions Shell UK Ltd v Total UK Ltd [2010] 129 Con LR 104 CA The CA overturned the judge on the issue of whether beneficial/equitable ownership of property could give rise to a special relations......
1 books & journal articles
  • Scottish Trusts in the Common Law
    • United Kingdom
    • Edinburgh Law Review Nbr. , September 2013
    • 1 September 2013
    ...rights; this is shown by the requirement that the beneficiary must name the trustee as a co-defendant: Shell UK Ltd v Total UK Ltd [2010] EWCA Civ 180 at paras 111–144; Roberts v Gill & Co [2010] UKSC 22 esp at para 62, where Lord Collins mixes together trusts and estates, which however are......

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