Enterprise Oil Ltd v Strand Insurance Company Ltd

JurisdictionEngland & Wales
CourtQueen's Bench Division (Commercial Court)
JudgeMr Justice Aikens,MR JUSTICE AIKENS
Judgment Date26 January 2006
Neutral Citation[2006] EWHC 58 (Comm)
Date26 January 2006
Docket NumberCase No: 2003/868

[2006] EWHC 58 (Comm)

IN THE HIGH COURT OF JUSTICE

QUEEN'S BENCH DIVISION

COMMERCIAL COURT

Royal Courts of Justice

Strand, London, WC2A 2LL

Before:

Mr Justice Aikens

Case No: 2003/868

Between
Enterprise Oil Limited
Claimant
and
Strand Insurance Company Limited
Defendant

Mr T Beazley QC and Mr Andrew Hunter (instructed by , Clyde & Co Solicitors, London) for the Claimant

Mr Alistair Schaff QC and Mr Simon Kerr (instructed by Barlow Lyde & Gilbert, Solicitors, London) for the Defendant

Hearing dates: 4 th, 5 th, 6 th, 10 th, 11 th and 19 th October 2005

Further Written Submissions – 26 th October, 4 th November and 16 th December 2005

Approved Judgment

I direct that pursuant to CPR PD 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 AIKENS Mr Justice Aikens

I. The Parties and the background to the claim

1

This action is a claim for an indemnity under a liability policy placed by the Claimant with its captive insurance company, the Defendant. The right to indemnity is said to arise from the Claimant's liability to pay its proportion of a Settlement Agreement with certain plaintiffs in proceedings brought in Texas, USA. The Settlement Agreement was concluded on 14 March 2002.

2

Enterprise and the Operating Agreement with Enterprise and others: The Claimant in these proceedings, ("Enterprise"), is an oil company. It is now part of the Shell/Royal Dutch Group of companies. Under an Operating Agreement dated 10 January 1990, between AMOCO (UK) Exploration Company ("Amoco"), Enterprise and Amerada Hess Limited ("Amerada Hess"), those three oil companies agreed to explore and develop certain North Sea oil fields, including the Arbroath field. Enterprise had the largest share in the field (41.03%). The shares in the field of Amoco and Amerada Hess were, respectively, 30.77% and 28.2%. Amoco was the Operator of the field under the Operating Agreement.

3

The RGV drilling contract between Amoco and BAO: By a Contract dated 26 September 1997, ("the RGV Contract"), Amoco agreed with an English company, British American Offshore Limited, ("BAO"), to hire a Jack-up Drilling Unit known as "Rowan Gorilla V" ("RGV"). Under the RGV Contract the rig was to "drill, test (as required) complete, suspend and/or abandon" one or more wells in the North Sea. The RGV Contract was to continue for a term of at least one year. The Operating Hire Rate for RGV was US$ 175,000 per day. Amoco intended to use the RGV initially for drilling in the Arbroath field, although that field was not particularly stipulated in the RGV Contract.

4

At the time that the RGV Contract was concluded between Amoco and BAO, BAO was a wholly owned subsidiary of Rowan Companies Inc ("Rowan"), which is a well – known drilling company based in the USA. In September 1997, the RGV was being constructed by a company called Le Tourneau Inc. which is also a subsidiary of Rowan. When completed, RGV ire Rate was US was owned by Rowan.

5

The Relationship between Rowan and BAO; the Service Agreement: Under a Contract dated 1 January 1991, between Rowan and BAO ("the Service Agreement"), Rowan had agreed with BAO that the latter would enter into contracts (to be obtained by Rowan) for the performance of Marine Oil and Gas Drilling Services to be conducted in the UK Sector of the North Sea. BAO and Rowan further agreed in this Service Agreement that once BAO had entered into the drilling contracts, it would then sub-contract the performance of the drilling services to Rowan. Clause 1(a) of the Service Agreement stipulates that Rowan will perform all of the duties and obligations assumed by BAO under drilling contracts it has concluded, including all services, equipment and personnel that BAO had contracted to provide. Clause 2(b) of the Service Agreement provided that, in consideration of Rowan performing the drilling and related services on behalf of BAO, BAO would pay to Rowan "a sum equal to 100% of all day rate billings collected by BAO pursuant to ……" the drilling contracts that BAO had entered into with others.

6

Delivery of RGV and the disputes that arose between Amoco and BAO: Under the RGV Contract, the RGV was delivered by BAO to Amoco in Rotterdam on 15 December 1998. On 19 January 1999, Amoco purported to terminate the RGV Contract. Amoco claimed that it was entitled to do this because the delivery of the RGV was delayed and the RGV was defective. Amoco asserted that the RGV was unsafe and not fit for the purpose for which it had been contracted. Enterprise, as one of co-venturers in the Arbroath field, agreed to and supported the termination of the RGV Contract by Amoco.

7

Legal proceedings: These events led to two sets of legal proceedings, one in the Commercial Court in England and the other in Texas, USA. Both proceedings were started on 19 January 1999, the day that Amoco purported to terminate the RGV Contract.

8

Proceedings in England: The Commercial Court proceedings were between Amoco and BAO and were started by Amoco. Amoco claimed a Declaration that its termination of the RGV Contract was valid. Amoco also claimed damages for wasted costs. BAO counterclaimed for Declarations that the termination by Amoco was invalid. BAO also counterclaimed for payment of the Daily Hire Rate under the RGV Contract for the period from 25 December 1999 to 22 October 1999. That was the date when BAO accepted what it regarded as Amoco's wrongful repudiation of the RGV Contract on 19 January 1999. BAO counterclaimed also for damages at the Daily Hire Rate for the period from 22 October 1999 until 25 th December 1999, i.e. for the period from BAO's acceptance of Amoco's repudiatory breach of contract until the expiry of the one year term of the RGV Contract. The principal sum counterclaimed by BAO was therefore some US$ 65million. Other sums were also counterclaimed by BAO.

9

The Commercial Court trial took place before Langley J between January 2001 and October 2001 and lasted 85 days in Court. Langley J handed down his judgment on 16 November 2001. He concluded that Amoco had no right to terminate the RGV Contract, either under its terms or at common law. He awarded hire, damages, and interest against Amoco totalling US$73,367,570.13 and £873,065.84. 1 After a further hearing on costs, Langley J awarded BAO costs on an indemnity basis. These costs totalled £9.7 million.

10

Enterprise was not a party to this English litigation. However, it was obliged to contribute to the sums awarded against Amoco under the terms of the Operating Agreement with Amoco. Enterprise contributed US$ 17,945,768.16 as to the hire and damages sum and £2,579,439.46 in respect of the costs awarded against Amoco.

11

The Texas Proceedings: The second set of proceedings following the termination of the RGV Contract took place in Texas ("the Texas Proceedings"). The Claimants in those proceedings were Rowan and various US associated companies. The Defendants in the Texas proceedings were Enterprise, BP Amoco Corporation, BP Amoco Plc and other BP or Amoco companies, together with Amerada Hess. In those proceedings, Rowan alleged against Enterprise that it had committed a variety of torts under Texas law. The pleadings went through various amendments. The final form,

the 8 th Amended Petition 2 asserted five causes of action against various defendants, including Enterprise. The most important allegation, for the present, was that Enterprise had tortiously interfered with the Rowan/BAO Service Agreement and had tortiously interfered with prospective contractual and business relationships. 3 Under each cause of action Rowan claimed recovery of monies which it would have received "but for" the particular tort alleged, such as the tortious interference. Rowan also claimed consequential losses arising out of the termination of the RGV contract and for a loss of cash – flow. Rowan also claimed punitive damages.
12

The most important of these consequential loss claims feature heavily in the present action. First, Rowan claimed that "but for" the tortious interference, it would have engaged in a programme to buy – back Rowan stock during January – February 1999 and then resold that stock in February 2000, at a profit of some US$52 million. 4 Secondly, Rowan claimed the cost of relocating RGV and five other rigs from the North Sea to the Gulf of Mexico. Thirdly, it claimed loss of profits on the employment of the other rigs which were moved from the North Sea to the Gulf of Mexico.

13

The judge in the Texas proceedings ordered that there be a mock jury trial before the real trial was due to begin. The mock jury trial took place on 3 December 2001. Each side made presentations for 2 hours and then the judge gave a written direction to the jury. The mock jury found for Rowan on the claim for tortious interference. It also found for Rowan on the claim for "fraud in the performance" of the RGV Contract. The mock jury awarded US$85 million damages. These damages comprised loss of the rig contracts, mobilisation costs and loss of "company value". But the mock jury awarded nothing for losses relating to the stock buy – back claim. This last head of claim is now said by Enterprise to have formed the main element in the Texas settlement deal between the Enterprise defendants and the Rowan plaintiffs.

14

Settlement of the Texas proceedings: Discussions to settle the Texas Proceedings were begun shortly after the mock jury trial in December 2001. A Settlement Agreement was signed on 14 March 2002 ("The Settlement Agreement"). The Settlement Agreement was concluded after Langley J's judgments on liability and costs, but before the trial in Texas had started. Under the Settlement Agreement, the Defendants (including all the BP/Amoco parties and Enterprise) agreed to pay to the Rowan plaintiffs a sum of US$175...

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