Kellogg Brown & Root Inc. v (1) Concordia Maritime AG (3) Stena Bulk AB (4) Concordia Maritime AB (5) Northern Marine Management USA LLC (formerly Universe Tankships (Delaware LLC)
| Jurisdiction | England & Wales |
| Judgment Date | 21 December 2006 |
| Neutral Citation | [2006] EWHC 3358 (Comm) |
| Docket Number | Case No: 2005 Folio 171 |
| Court | Queen's Bench Division (Commercial Court) |
| Date | 21 December 2006 |
[2006] EWHC 3358 (Comm)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Mr Justice Cresswell
Case No: 2005 Folio 171
Mr Stuart Catchpole QC (instructed by Pinsent Masons) for the Claimant
Mr Nicholas Hamblen QC and Mr Sean O'Sullivan (instructed by Stephenson Harwood) for the Defendants
Hearing dates:
Judgment Approved by the court
for handing down
(subject to editorial corrections)
If this Judgment has been emailed to you it is to be treated as 'read-only'.
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Mr. Justice Cresswell:
INDEX
INTRODUCTION / CLAIMS
CONTRACT DOCUMENTS AND PETROBRAS SPECIFICATIONS
CHRONOLOGY OF EVENTS
TECHNICAL TERMS AND PROCEDURES
WITNESSES
LIST OF ISSUES, ANALYSIS AND CONCLUSIONS
APPENDICES
APPENDIX A CHRONOLOGY OF EVENTS
APPENDIX B TECHNICAL TERMS AND PROCEDURES
INTRODUCTION / CLAIMS
This case arises out of the purchase by Kellogg Brown & Root Inc (“KBR”) and Halliburton Produtos Limitada of two 25 year old Stena VLCCs (Very Large Capacity Carriers) for the purpose of converting the tankers into Floating Production Storage and Offtake (“FPSO”) vessels. The VLCCs which were eventually purchased were the Stena Continent and the Stena Concordia. Each vessel was purchased under a separate memorandum of agreement. The claim in respect of the Stena Concordia has been compromised. The seller of the Stena Continent is not a party to these proceedings.
The Claim under the Guarantee
KBR's claims against Concordia Maritime AG (“D1”) are (for the most part) brought pursuant to a Guarantee provided by D1 on 26 January 2001 (“the Guarantee”). KBR claims D1 is liable for the cost of all steel replacement in excess of an initial 150 tonnes under the Guarantee.
The primary issue is what quantity of renewal steel was in fact required to meet the relevant Petrobras Specification requirements. KBR contends that it was required to renew substantially in excess of 150 tonnes, including significant bottom plate steel replacement of c.1630 tonnes, in order to meet the applicable Petrobras Specification. D1 says that much of this replacement steel can be explained by KBR's misunderstanding/mis-application of the Petrobras Specifications.
In terms of bottom plate, there is a central issue over the meaning of the words “t o– original plate thickness”, which KBR contends means the original thickness of the vessel's bottom plate when built in 1975 (i.e. 35mm in the parallel midbody). D1 says that “t—o” is a reference to the thickness actually required for the start of the vessel's new life as an FPSO, i.e. the reassessed thickness, which D1 says was calculated as 27mm, although KBR says that the reassessed/adopted thickness as approved by ABS and Petrobras was 30mm.
KBR contends that it is entitled to recover the cost of the full amount of steel actually replaced in the tanks bottoms, on the basis that all of this was required even using criteria which were less onerous than required by the Petrobras Specifications (namely the Present Thickness criteria and then the TQ1028 criteria). D1 says that if “t o” had been understood to refer to the reassessed thickness of 27mm, only about 16.8 tonnes of renewal steel would have been required. KBR contends that it was only after Petrobras agreed to relax its criteria that the extent of the steel renewals decreased.
If, contrary to D1's primary case, ““t o” is a reference to the original, or “as built”, thickness of the bottom plate, D1 says that:
i) KBR should have approached Petrobras for a clarification/correction permitting the use of criteria akin to TQ1028 before commencing the close up inspections or, at worst, before making any decisions about renewals; or
ii) once discussions had begun with D1 and ABS about the use of reassessed thickness, KBR should not have gone ahead with renewals based on the Present Thickness criteria at the 1 st (“DD1”) and/or 2 nd drydocking (“DD2”).
In any event, D1 takes issue with:
i) the way in which inserts identified in accordance with both the Present Thickness criteria and the TQ1028 criteria were amalgamated to result in larger areas being renewed;
ii) the use of replacement steel of as-built thickness rather than the reassessed thickness; and
iii) the unit rate which KBR agreed to pay to the Hull Conversion Sub-Contractor Jurong Shipyard (“JSPL” or “Jurong”) for the renewals.
KBR also advances an additional claim against D1 based on an alleged implied term contained in an agreement it says was reached in a meeting at Heathrow on 12 October 2001, to the effect that KBR would or might seek a “concession” from Petrobras and would or might reinspect the bottom plate in the light of that concession. It was implicit (KBR says) in that approach that D1 would be liable for the costs incurred in substitution for the plate replacement which KBR alleges would otherwise have been required, and for which KBR alleges D1 would have been liable under the Guarantee.
Mis-statement and Collateral Warranty Claims
The mis-statement and collateral warranty claims are based upon certain statements allegedly made by D3-D5 or individuals employed by them during the negotiations leading up to the agreement of the MOA in 1999–2000, concerning the quality and suitability of the Concordia Class vessels (which included the Stena Continent and the Stena Concordia), for conversion to FPSOs.
KBR's case is that D3-D5 owed a special duty of care to KBR, which they breached by making these alleged statements, because they were made negligently. Alternatively, KBR says that some of these alleged statements amounted to, or perhaps gave rise to, collateral warranties which were broken in view of what, KBR says, was the true condition of the Continent.
CONTRACT DOCUMENTS AND PETROBRAS SPECIFICATIONS
It is convenient at this point to set out the relevant Contract Documents and Petrobras Specifications.
MEMORANDUM OF AGREEMENT
The MOA between KBR and the seller was agreed on 19 April 2000. It was on amended Norwegian Sale Form terms. The most relevant terms of the MOA are:
“4.0 Inspections Refer to Appendix 1 – Particular Conditions of Agreement
a)*
b)* Stena Conductor. The Buyer shall have the right to inspect the Vessel's classification records and declare whether the same are accepted or not within 20 days of the signing of this Agreement. Buyer to inspect vessels records prior to physical inspection…
The Buyer shall undertake the inspections without undue delay to the Vessel. Should the Buyers cause undue delay they shall compensate the Sellers for the losses thereby incurred. The Buyers shall inspect the Vessel without opening up and without cost to the Sellers. During the inspection, the Vessel's deck and engine log books shall be made available for examination by the Buyers. If the vessel is accepted after such inspection, the sale shall become outright and definite, subject only to the terms and conditions of this Agreement, provided the Sellers receive written notice of acceptance from the Buyers within 72 hours after completion of such inspection.
Should notice of acceptance of the Vessel's classification records and of the Vessel not be received by the Sellers as aforesaid, the deposit together with interest earned shall be released immediately to the Buyers, whereafter this agreement shall be null and void.
11. Condition on delivery
The vessel with everything belonging to her shall be at Seller's risk and expense until she is delivered to the Buyers, but subject to the terms and conditions of this Agreement she shall be delivered and taken over as she was at the time of inspection, fair wear and tear excepted.
However, the Vessel shall be delivered with her class maintained without condition/recommendation*, free of average damage affecting the Vessel's class, and with her classification certificates and national certificates, as well as other certificates the Vessel had at the time of inspection, valid without condition/recommendation* by Class or the relevant authorities at the time of delivery.
“Inspection” in this Clause 11, shall mean the Buyer' inspection according to clause 4 a) or 4 b), if applicable, or the Buyers' inspection prior to the signing of this Agreement. If the Vessel is taken over without inspection, the date of this Agreement shall be the relevant date.
Notes, if any, in the surveyor's report which are accepted by the Classification Society without condition/recommendation are not to be taken into account.”
In addition, the parties negotiated certain particular conditions which were agreed to form part of the MOA, including the following:
“ 1.0 Purchase
1.1 Buyer shall not be in a position to effect the formal purchase of the vessel, until such time that Buyer's Client has provided Buyer with Notice to Proceed…for the provision of two FPSO's for the Barracuda & Caratinga Field Development. This notification date is expected to be mid 2000…
1.2 In the event that Buyer has not been provided with the Notice to Proceed by its Client by 31 st October 2000, Seller shall be entitled to withdraw from this Agreement and re-offer the subject vessel for disposal at no cost to Buyer…
2.0 Inspection and Acceptance
2.1 Acceptance of the Stena Conductor is subject to satisfactory inspection by the Buyer in accordance with Clause 4b) of the [MOA]. Furthermore it is a requirement of Buyer's Client (BCDC), that each vessel proposed for the Barracuda & Caratinga Fields Development Project is approved by them. In the event of non-approval of the Stena...
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