Global Process Systems Inc. and Another v Syarikat Takaful Malaysia Berhad (The "Cendor MOPU")
| Jurisdiction | England & Wales |
| Judge | Lord Justice Waller,Lord Justice Carnwath,Lord Justice Patten |
| Judgment Date | 17 December 2009 |
| Neutral Citation | [2009] EWCA Civ 1398 |
| Docket Number | Case No: A3/2009/0859 |
| Court | Court of Appeal (Civil Division) |
| Date | 17 December 2009 |
[2009] EWCA Civ 1398
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE QUEEN'S BENCH DIVISION
COMMERCIAL COUT
Mr Justice Blair
Royal Courts of Justice
Strand, London, WC2A 2LL
Lord Justice Waller
Vice-president of the Court of Appeal, Civil Division
Lord Justice Carnwath
Lord Justice Patten
Case No: A3/2009/0859
Claire Blanchard (instructed by Watson Farley & Williams LLP) for the Appellant
Luke Parsons QC and Stewart Buckingham (instructed by Hill Dickinson LLP) for the
Respondent
Hearing dates : 17 th, 18 th November 2009
Lord Justice Waller :
In November 2005 the oil rig “Cendor MOPU”, owned by the appellants, was being carried on a barge round the Cape of Good Hope with its legs elevated in the air above the deck. Fatigue cracking, caused by the repeated bending of the legs under the motion of the barge as it was towed, caused first the starboard leg and then the other two legs to break and be lost. The appellants had insured the rig under an all risks policy and the issue before Blair J was whether the loss was covered by the policy. Blair J dealt with a number of points which are no longer in issue on the appeal, but on the critical issue raised by this appeal he ruled that since it was common ground that the action of the waves were no greater than was “reasonably to be expected” in November round the Cape of Good Hope, the loss was not due to perils of the sea, and was due to inherent vice and thus excluded from the policy. In ruling as he did the judge seemed to follow the approach of Moore-Bick J (as he then was) in Mayban General Insurance v Alston Power Plants [2004] 2 Lloyd's Rep 609 ( Mayban). In granting permission to appeal Toulson LJ said that the question whether that approach was right gave rise to a seriously arguable point of law of some general importance.
The facts
The full detail appears in the judge's judgment. It is sufficient to summarise the facts as follows. The rig was laid up in Galveston Texas. It was purchased by the appellants in May 2005 for conversion into a mobile offshore production unit (MOPU) for use in the Cendor Field some 200 metres off the coast of East Malaysia. The appellants engaged experts Proceanic Engineering Services Pte Ltd (Proceanic) to organise transit. It was appreciated that any arrangements would have to be approved by a marine surveyor for the purpose of insurance and Proceanic recommended Noble Denton. It was further appreciated that one problem if the rig was transported with its legs protruding upwards was metal fatigue due to the actions of the waves. Consultants were required to perform calculations as to the structural integrity of the legs both for the purpose of transportation and for use in Malaysia. Viking Systems Inc were engaged for that purpose.
The rig was ultimately carried with its legs extending 300 feet into the air. It was well-recognised that stresses would be imposed on the legs by virtue of the motions of the waves and the structural integrity was assessed very much with that in mind. An alternative method of transportation would have involved the shortening or “cropping” of the legs and indeed it was the view of a Mr Harris, consulted at the time on an ad hoc basis, that that was what should happen, given the likely weather conditions round the Cape of Good Hope. But cropping was expensive and was thus an option which the appellants were reluctant to adopt. The judge found that the appellants' reluctance to crop was understandable and he found that if the appellants had been advised to “crop” by Noble Denton they would have done so.
The charter with Seaspan (Cyprus) Ltd for carriage of the rig to Malaysia was entered into on 28 th June 2005. The rig was to be carried on the “Boabarge 8”. On 9 th July Seaspan sent Noble Denton what was described as preliminary engineering for the barge, including a sea motions analysis together with weather data for the intended route. On 18 th July Noble Denton confirmed it had inspected the rig and found her ready for wet tow to the load out location and that preparations for the “Boabarge 8” were also complete. Other essential data, in the form of “design constraint (worst case)” response amplitude operators for the transit, was sent by Seaspan's naval architects (Grand Marine). The loading onto the barge was completed between 22 nd and 23 rd July 2005.
Meanwhile the appellants had been seeking insurance. A cover note was sent on 20 th July. The terms of the policy are not in issue and are recorded by the judge in these terms.
“The policy of insurance
16. Meanwhile, the claimants sought insurance through brokers called Insfield Insurance Brokers Sdn Bhd. A cover note issued by the defendant insurers was sent to them on 20 July 2005, and a placement slip, schedule and certificate followed. It is common ground that it was a condition of the policy that Noble Denton approved the arrangements for the tow. The terms are not in dispute and so far as material are as follows (the references to RM are to Malaysian ringgit):
“ Cover Note
Period of Cover 20 th July 2005 to 30 th November 2005
Description of Risk On Cendor MOPU …
For commencement of loading operations in Galveston Texas until completion of discharge in Lumut Port, Perak, Malaysia.
Total sum covered: RM38 million (Equivalent to USD10 million)
Placement Slip
…
ENDORSEMENTS 9. Institute Cargo Clauses (A) 1.1.82
…
DEDUCTIBLE USD1,000,000 or equivalent to RM3,800,000 …”
17. Further, by reason of the incorporation of the ICC(A) terms, the policy of insurance incorporated the following terms:
“RISKS COVERED
1. This insurance covers all risks of loss of or damage to the subject-matter insured except as provided in Clauses 4, 5, 6 and 7 below.
…
EXCLUSIONS
4. In no case shall this insurance cover:
…
4.4 loss damage or expense caused by inherent vice or nature of the subject matter covered.”
The policy was therefore an “all risks” policy, excluding (among other things) “inherent vice”.”
The condition relating to Noble Denton was in these terms :-
“Survey Clause or Pre shipment Survey including loading and Unloading, Tow Out to be supervised by approved and nominated surveyor. Noble Denton has been nominated and approved.”
Before the barge set off further inspections were carried out. At one stage it seems Noble Denton were contemplating recommending that the rig did not have adequate fatigue life for the transit, despite “simplistic” fatigue assessments carried out by Viking relating to the pinhole subject to the highest stress showing a total damage ratio of 0.26. This was well within the parameters published by Det Norske Veritas (DNV), according to the expert evidence, (1.0 being the figure at which fatigue life would be considered expended, and 0.33 the maximum allowable value for critical structures where inspection and repairs during the operation were not planned and 0.5 where they were planned.) Ultimately Noble Denton issued a certificate of approval on 23 rd August 2005. As the judge said:-
“22. The Noble Denton Certificate of Approval was issued at 18.30 on 23 August 2005. It recommended among other things that the barge roll motions should be kept under 5 degrees. With regard to the legs it says as follows:
“1 The ODIN LIBERTY legs have been the subject of a simplified fatigue analysis. Taking into account the fact that some of the fatigue life has already been used in the rig's previous history, and the uncertainty associated with the simplified fatigue analysis for the wet tow from Galveston to Lumut, it is possible that the legs in way of the pinholes may not have sufficient fatigue life to undertake the full tow to Lumut.
2 Since the fatigue analysis shows possible damage, it is required that the legs be re-inspected at Capetown for crack initiation in way of the six levels of 'pinholes' above the mat. Capetown is, broadly speaking, the half way point and remedial work could be undertaken should it be found necessary. Inspection should be using eddy current or equivalent NDT [non-destructive testing] technique.”
With approval from Noble Denton thus in hand, the tow sailed away from Galveston on the same day.”
The barge set sail and while on the voyage from Galvaston to Saldanha Bay just short of Cape Town further calculations were done. A further simplistic fatigue assessment was issued by Viking on 20 th September 2005 showing a figure of 0.68 and stating that “the legs were expected to withstand fatigue damage during transportation from the Gulf of Mexico to Malaysia via the Cape of Good Hope”. That figure, according to the judge, was taken from an earlier draft because the actual analysis showed 0.89 to be compared (as the judge said) with the 0.26 of 20 th August. That assessment recommended that, because of the uncertainties of a simplistic fatigue analysis, a spectral fatigue analysis be carried out.
A spectral fatigue analysis was carried out and produced on 21 st September and that showed a figure of 2.13 and this analysis did not have the words recommending that the legs would be expected to withstand the transportation round the Cape of Good Hope. This analysis was never seen by Noble Denton and the judge described that as “something of a mystery”. In the context of this use of language it is right to emphasise that it seems clear that the appellants, and indeed the insurers, relied on Noble Denton to assess the capabilities of the legs to withstand the voyage round the Cape of Good Hope. There is no suggestion that the...
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