Global Process Systems Inc. and Another v Syarikat Takaful Malaysia Berhad (The "Cendor MOPU")

JurisdictionEngland & Wales
JudgeTHE HON MR JUSTICE BLAIR,Mr Justice Blair,Mr JUSTICE BLAIR
Judgment Date31 March 2009
Neutral Citation[2009] EWHC 637 (Comm)
CourtQueen's Bench Division (Commercial Court)
Date31 March 2009
Docket NumberClaim No: 2007 Folio 553

[2009] EWHC 637 (Comm)

IN THE HIGH COURT OF JUSTICE

QUEEN'S BENCH DIVISION

COMMERCIAL COURT

Before:

The Hon Mr Justice Blair

Claim No: 2007 Folio 553

Between
(1) Global Process Sytems Inc
Claimants
(2) Global Process Systems (asia Pacific) Sdn Bhd—
and
Syarikat Takaful Malaysia Berhad
Defendant

Ms Claire Blanchard (instructed by Watson, Farley & Williams) for the Claimants

Mr Luke Parsons QC and Mr Stewart Buckingham (instructed by Hill Dickinson) for the Defendant

Hearing dates: 2 nd, 3 rd, 4 th, 5 th, 9 th, 10 th, 11 th and 25 th February 2009

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.

THE HON MR JUSTICE BLAIR Mr Justice Blair

Mr Justice Blair:

1

On the evening of 4 November 2005, the starboard leg of the oil rig “Cendor MOPU” was lost at sea off the coast of South Africa just north of Durban. At the time, the rig was being towed on a barge from Texas to Malaysia, with its legs in place and elevated in the air above the deck. The following evening, the remaining two legs fell off in quick succession. The experts are agreed that the loss occurred because of fatigue cracking caused by the repeated bending of the legs under the influence of the motions of the barge as it was towed through the sea. The cracks propagated to a critical size, at which point sudden fracture finally happened. The question is whether the loss is covered by insurance or not. The answer to the question depends largely on issues of causation.

2

The claimants are the owners of the rig. They provide onshore and offshore production facilities out of Kuala Lumpur, Dubai and Singapore. The defendant is a Malaysian company providing Takaful, that is to say insurance on Islamic principles. It covered this voyage under a policy of cargo insurance. The parties agree that the weather experienced was within the range that could reasonably have been contemplated. The claimants say that the loss of the rig was accidental, and so within the terms of the “all risks” cover. They submit that the proximate cause was the failure to ensure that adequate repairs were carried out at Saldanha Bay near Cape Town, where the tow stopped en route. The defendant says that the cause was “inherent vice” in the legs themselves, alternatively that their loss was an inevitable consequence of the voyage embarked upon. Since the term “all risks” covers risks and not certainties, the defendant says that it is not liable for the loss.

3

Before analysing the facts, I should say something about the burden of proof, about which the parties are in agreement. The insurance policy incorporated the Institute Cargo Clauses (A) (“ICC(A)”) of 1 January 1982, the insured perils being “all risks” subject to specified exclusions, including the inherent vice exclusion which is relied on by the defendant insurer. The cover being all risks, the claimants are only required to show that the cause of the loss was accidental, or to put it another way, that the loss was not inevitable. Once the claimants discharge that burden, the burden is then on the insurer to make out the exclusion relied on. Quantum is not in dispute.

The facts

The acquisition of the rig

4

Only two witnesses of fact gave evidence, both on behalf of the claimants. Most of the evidence has been in the form of documentary and expert evidence. The facts as I find them are as follows. The rig is technically known as a “self elevating mat supported jack-up rig”. It was designed and built at the Bethlehem Shipyard in Singapore in 1978 for use in the offshore oil industry. It consists of a watertight working platform called the jackhouse, which can be jacked up and down the legs according to the sea depth at the in-service location. The legs are made of welded steel cylindrically shaped with an outside diameter of 12 feet and a length of 312 feet. Each of these steel tubes weighs 404 tons. There is a mat at the bottom of the legs that sits on the sea floor when she is in service.

5

The jacking system works by engaging steel pins into pinholes in the legs. Each leg has 45 sets of six pinholes at six foot intervals. To describe them as “pinholes” does not quite do credit to the holes in question, which are 16 inches wide and 10 inches high. Discontinuities such as these holes cause stresses in the steel structure to be increased locally, and since sharp corners tend to give rise to high stress concentrations, the corner of each pinhole was designed to incorporate a roughly circular hole of an inch and a half in diameter. The effect of such “rounding” is considerably to reduce stress levels at the corners. The state of the corners, and in particular the presence or otherwise of cracking at the corners, has been a key issue in this case.

6

Prior to its acquisition by the claimants, the rig was called the “Odin Liberty”. It had something of a chequered history. In May 1996, whilst underway from Singapore to Nigeria on board a barge, the port leg broke off at approximately 20 feet above the jack-house. Coincidentally, this incident happened not far from where the present incident took place, and on that occasion the rig put into Durban for repairs. Following service in Nigeria it must have crossed the Atlantic at some stage, because from about July 1999 it was laid up at the Gulf Copper Shipyard in Galveston, Texas. It was purchased by the claimants on 20 May 2005 for conversion into a mobile offshore production unit (MOPU) for use in the Cendor oil field some 200 kilometres off the coast of East Malaysia on a contract with Petrofac Malaysia Ltd. It was not in class at this time.

7

At this point, I should introduce the two factual witnesses called by the claimants. The first was Mr Keith Walker who is (and was at the time) the Group General Manager, reporting to Mr Clint Elgar who is Group President. The second was Mr Mike Ooley who was the project manager, and indeed still has responsibility for the rig, which I may say has functioned satisfactorily since the legs were replaced. Both are seasoned professionals, and I found them to be reliable witnesses. Their evidence is that the claimants are not in the business of marine transportation, and engaged outside experts to organise the transit for them. The rig was to be dry towed aboard a barge to Lumut Port, Malaysia, where conversion work was be done on it prior to its deployment in the oil field. A company called Proceanic Engineering Services Pte Ltd was engaged as project management consultant. The arrangements were going to have to be approved by a marine surveyor. Proceanic recommended Noble Denton as having a good track record acting on jack-up vessels, and as such likely to be acceptable to most underwriters. And then there is something that has featured importantly in the evidence in the case. Consultants were required to perform calculations as to the structural integrity of the legs, and a company called Viking Systems Inc was engaged for that purpose. The scope of Viking's work encompassed both transport and in-place stress analyses (the latter being required after arrival in Malaysia in respect of the contract with Petrofac).

8

Though there was a pre-purchase inspection, the claimants appear to have been largely content to purchase the rig “as was”, reflecting the brisk demand for rigs in the oil industry at that time. The rig had been laid up for nearly six years. One of the defendant's experts (Mr Jeremy Colman) says that the ABS survey carried out after purchase presents a picture of a decayed and dilapidated structure. The claimants point out however that the legs were subject to ultrasonic gauging for classification purposes conducted from inside the legs, and that no serious wastage to the legs was found. Mr Ooley told me that the overall impression was that the legs were in “good condition”. In any case, the expert evidence shows that what really matters when it comes to metal fatigue is not dilapidation in a general sense, but cracking, here cracking particularly in the pinholes in the legs, and I will come back to the cracks that were found and what was done about them.

9

At the outset, consideration had to be given as to how the rig was to be transported, and it is plain that this was a tricky question. Mr Ooley accepted that there is a history of this type of leg failing in the course of transit. In non-technical terms, the problem is the degree of stress that the legs are subjected to as the barge pitches and rolls in the sea. This is easily envisaged when one appreciates that the legs were hollow steel columns sticking into the air over three hundred feet high. Mr Ooley told me that the predominant jack-up design now is a lattice-type structure, which has different characteristics from the cylindrical design in the present case.

10

There were alternatives to transporting the rig with its legs intact and in the air. The legs could have been removed and carried on the barge, or they could have been shortened (or “cropped” as the witnesses put it). On 2 June 2005, Mr Bob Harris of SPS emailed the claimants with his views about the transport arrangements. SPS is part of Swire which as Mr Walker explained was consulted from time to time during the early stages of the project on an ad hoc basis. Mr Harris said that given the method of transport and the time of year in which the tow would be undertaken, the “consensus of opinion” was that the legs would have to be shortened. He cited a number of factors in this respect. It was, he said, generally accepted that stress limits within the legs would be exceeded with a 20 degree roll with a period of 10 seconds. Given the tow route, and the known weather conditions at and around the Cape of Good Hope, it was highly likely (he thought) that...

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3 cases
  • Global Process Systems Inc. and Another v Syarikat Takaful Malaysia Berhad (The "Cendor MOPU")
    • United Kingdom
    • Court of Appeal (Civil Division)
    • 17 Diciembre 2009
    ...EWCA Civ 1398 [2009] EWHC 637 (Comm)" class="content__heading content__heading--depth1"> [2009] EWCA Civ 1398 [2009] EWHC 637 (Comm) 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, WC2......
  • Global Process Systems Inc. and Another v Syarikat Takaful Malaysia Berhad (The "Cendor MOPU")
    • United Kingdom
    • Supreme Court
    • 1 Febrero 2011
    ...since insurance was against risks, not certainties, they were under no liability for the loss of the legs. The judge, Blair J, [2009] 2 All ER (Comm) 795, rejected this argument, concluding at para 87 "that the failure of the legs as this rig was towed round the Cape was very probable, but......
  • Global Process Systems Inc. v Syarikat Takaful Malaysia Berhad
    • United Kingdom
    • Court of Appeal (Civil Division)
    • 17 Diciembre 2009
    ...action of wind and waves but by leg-breaking waves. This was an appeal by the owner of an oil rig from a judgment of Blair J ([2009] Ewhc 637 (comm)) that the loss overboard of the legs of the rig while it was being carried on a barge round the Cape of Good Hope was not due to perils of the......
2 firm's commentaries
  • Insurance/Reinsurance Bulletin May, 2009
    • United Kingdom
    • Mondaq United Kingdom
    • 18 Mayo 2009
    ...- Proximate cause & inherent vice By Edward Rushto Global Process Systems Inc and another v Syarikat Takaful Malaysia Berhad [2009] EWHC 637 (Comm) The claimant owned a 'self elevating mat supported oil rig'. It was also the assured under a 'Takaful' policy of cargo insurance underwritt......
  • 'Inherent Vice' And Inevitable Loss Reconsidered
    • Australia
    • Mondaq Australia
    • 18 Mayo 2009
    ...White [1982] 1 Lloyd's Rep 136. BACKGROUND FACTS The case of Global Process Systems Inc & Anor v Syarikat Takaful Malaysia Berhad [2009] EWHC 637 (Comm) concerned loss at sea off South Africa of three of four legs of a jack-up oil rig which was being towed from Texas to Malaysia. It was......
1 books & journal articles
  • The Schope of Inherent Vice after The Cendor MOPU
    • United Kingdom
    • Southampton Student Law Review No. 1-2, July 2011
    • 1 Julio 2011
    ...is to be determined by “applying the common sense of a business man or seafaring man”. 5[2004] EWHC 1038 (Comm.) 6The Cendor MOPU [2009] EWHC 637 (Comm) at [111]. 7The Cendor MOPU [2009] EWCA Civ 1398 at [64]. 8Schedule 1, rule 7 to the 1906 Act 9[1987] 1 Lloyd’s Rep 32, CA 10[2009] EWHC 63......

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