Farstad Supply A.s. V. Enviroco Limited+asco Uk Limited (formerly Called Aberdeen Service Company (north Sea) Limited
| Jurisdiction | Scotland |
| Judge | Lady Paton,Lord Carloway,Lord Osborne |
| Judgment Date | 01 May 2009 |
| Neutral Citation | [2009] CSIH 35 |
| Docket Number | CA23/07 |
| Date | 01 May 2009 |
| Court | Court of Session |
| Published date | 01 May 2009 |
| EXTRA DIVISION, INNER HOUSE, COURT OF SESSION | |
| Lord Osborne Lady Paton Lord Carloway | [2009] CSIH 35 CA23/07 OPINION OF LORD OSBORNE in the Appeal by FARSTAD SUPPLY A.S. Pursuers and respondents; against ENVIROCO LIMITED Defenders and Reclaimers: and ASCO UK LIMITED (formerly called Aberdeen Service Company (North Sea) Limited) Third Parties; _______ |
Defenders and Reclaimers: Howie Q.C.; Paull & Williamsons
Non Participating Party - Third Party; Simpson & Marwick
1 May 2009
The background circumstances
[1] The respondents were the owners of the oil rig supply vessel, MV Far Service, when it was damaged by fire when berthed in Peterhead harbour on 7 July 2002. The respondents have claimed damages against the reclaimers, a service company, averring that the fire in question resulted from the fault and negligence of the reclaimers' employees when they were engaged in removing residue from the starboard base oil tank of the vessel. It is averred that the fire started when the reclaimers' employees disconnected their hosepipes following the substantial completion of the extraction of the residue. This happened at a time when the main engines of the vessel had been started up, preparatory to the vessel leaving her mooring. Base oil flowed back from the pipes that had been used in the extraction operation and came into contact with a hot engine, whereupon it ignited, thus causing the fire.
[2] The reclaimers, as well as averring contributory negligence against the respondents' employees, seek a contribution from the third parties, who were charterers of the vessel, averring that the third parties had failed in their duty as charterers and base operators to direct and supervise the operations carried out on the vessel while it was in port. Although it is not expressly averred, the pleadings imply that the third parties failed in their duty to the respondents to take reasonable care to avoid causing physical damage to the vessel. In the event that they are found liable in damages to the respondents, the reclaimers seek to recover from the third parties a contribution in terms of section 3 (2) of the Law Reform (Miscellaneous Provisions)(Scotland) Act 1940.
[3] The Charter Agreement between the respondents and the third parties, dated 4 February 1994, contained a condition in the following terms:
".....the Owner shall defend, indemnify and hold harmless the Charterer....from and against any and all claims, demands, liabilities, proceedings and causes of action resulting from loss or damage in relation to the Vessel.....irrespective of the cause of loss or damage, including where such loss or damage is caused by [sic], or contributed to, by the negligence of the Charterer....".
That provision forms part of a clause which allocates the risk of various events as between the owner and charterer of the vessel.
[4] The respondents stated a preliminary plea in the following terms:
"1. The defenders' averments anent contribution by the third party being irrelevant et separatim lacking in specification, the said averments should not be remitted to probation."
The averments against which that plea was taken are to be found at page 30D-E in the Reclaiming Print. Those averments were supported by a plea of contribution, plea-in-law 5 for the reclaimers. The respondents' preliminary plea came before the Lord Ordinary at a debate on 28 January 2008. On 23 April 2008, the Lord Ordinary sustained the first plea-in-law for the respondents and excluded from probation the averments to which reference has just been made; furthermore, he excluded from probation certain averments of the reclaimers to be found on page 20C-D of the Reclaiming Print, concerning an alleged contribution to the accident on the part of the third parties. The Lord Ordinary also repelled the fifth plea-in-law for the reclaimers. Against that interlocutor, the reclaimers have now reclaimed to this court.
Submissions of the reclaimers
[5] Senior counsel for the reclaimers commenced his submissions by explaining the background to the case and the issues which had arisen on the pleadings, already described. He pointed out that the third parties were not individually represented; it was the pursuers and respondents that had an interest to argue the point decided by the Lord Ordinary. Senior counsel went on to refer to the Opinion of the Lord Ordinary. His characterisation of the issues that had arisen in paragraph [9] of his Opinion was uncontroversial. The terms of the ASCO Charter Agreement (1992), 6/1 of process, were important, particularly the terms of clause 33, to be found between pages 14 and 16 of the Appendix.
[6] Senior counsel went on to draw to our attention the provisions of section 3 of the Law Reform (Miscellaneous Provisions) (Scotland) Act 1940, which are reproduced in paragraph [6] of the Lord Ordinary's Opinion.
[7] Senior counsel submitted that these statutory provisions were capable of affecting the rights of persons who were outwith the pursuers' "contractual ambit", someone who was a "stranger to the pursuer". In consequence of that fact, under reference to the words in section 3 (2) of the 1940 Act "might also have been held liable....", the interpretation to be favoured was that least likely to restrict the rights of contribution or relief to which that outsider might be entitled.
[8] In paragraph [31] of the Lord Ordinary's Opinion, he had mentioned what might be thought to be an inequitable result of his view; it was submitted that the law should strive to make such occasions as rare as possible. The phrase "....might also have been held liable...." was satisfied when the court could hold that the person from whom a contribution was sought was indeed a wrongdoer. It was not the position that the language of the statute necessitated a situation in which there was a net movement of funds from the "contributor", the third parties, to the pursuer. In response to a question by the court, senior counsel said that the word "liable" in section 3 (2) of the 1940 Act meant abstract liability, according to the merits of the dispute. To be "liable" did not involve necessarily the payment of damages as a net transfer of funds. If a party was "liable", that party might operate an indemnity in their favour. Again, in response to a question by the court, senior counsel submitted that the expression "held liable" in section 3 (2) of the 1940 Act did not necessarily infer an adjudication by a court in the sense of the rendering of a party liable to another. It might refer to a situation in which a court simply pronounced a declarator. In this connection senior counsel relied upon Central S.M.T. Company Limited v Lanark County Council 1949 S.L.T. 310. That was an example of a case in which such a declarator had been held competent. Reference was made particularly to the observations of Lord Keith at page 314. Senior counsel submitted that what an indemnity did was not to affect liability; it affected responsibility for ultimate payment. What the third parties were doing in the averments at pages 34-35 of the Reclaiming Print was relying on clause 33.5 of the Charter Agreement as an indemnity. Senior counsel said that the construction for which he was contending was consistent with the approach of the court in other circumstances, where it had been said that it was not open to a pursuer to "affect" the rights of outsiders by contractual arrangements. In that connection he relied on Singer v Gray Tool Company (Europe) Limited 1984 S.L.T. 149. It was there held that section 3 (2) of the 1940 Act did not put it into the hands of a pursuer at his whim to defeat the rights of a person to obtain relief against a joint wrongdoer; the words "if sued" in that subsection had to be construed as "if sued to judgement". However, senior counsel agreed that the present case was not one where the rights of a joint wrongdoer had been affected by the pursuer's whim, because of the chronology of events, in particular the date of the Charter Agreement. However, the "whim principle" was an indication of the policy underlying the 1940 Act. Senior counsel went on to rely upon Comex Houlder Diving Limited v Colne Fishing Company Limited 1987 S.L.T. (H.L.) 443, at page 445, where the operation of section 3 (2) of the 1940 Act was discussed. There was a distinction between an indemnity clause, which required to be invoked before it would operate, and an exclusion clause, which, if valid, operated inevitably. An exclusion clause required to be taken into account in an issue involving section 3 (2) of the 1940 Act, but an indemnity clause did not. In the present case clause 33.5 of the Charter Agreement was an indemnity clause, which dealt with how the consequences of liability were to be handled. If a third party were held liable, who had the benefit of an indemnity clause, that would be enforceable against the indemnifier, but would not affect the operation of section 3 (2) of the 1940 Act.
[9] Senior counsel then proceeded to examine the terms of clause 33.5 of the Charter Agreement. Looking at the case pleaded by the third parties, the clause concerned had to be seen as an indemnity clause. In effect, what it said was "here is a liability; I am not going to bear the cost of that; you are." That amounted to passing on the consequences of an existing liability. The language of the clause included the words "...shall defend, indemnify and hold harmless the charterer....from and against any and all claims, demands, liabilities....". That clause did not free the third parties from liability. It provided indemnification against the financial consequences of liability. It did not bear at all upon the question of whether there was liability in the first place. The words "indemnify and hold harmless" were tautology in this case. The word "defend", used in the clause was intended to cover the...
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