Mobil North Sea Ltd v P J Pipe & Valve Company (trading as P J Valves or P J Valve Ltd)
| Jurisdiction | England & Wales |
| Judge | LORD JUSTICE ALDOUS,Lord Justice Rix |
| Judgment Date | 03 May 2001 |
| Neutral Citation | [2001] EWCA Civ 741 |
| Court | Court of Appeal (Civil Division) |
| Docket Number | A1/2000/3390 {PRITAVE} |
| Date | 03 May 2001 |
[2001] EWCA Civ 741
IN THE SUPREME COURT OF JUDICATURE
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
TECHNOLOGY AND CONSTRUCTION COURT
(His Honour Judge David Wilcox)
Royal Courts of Justice
Strand
London WC2
Lord Justice Aldous
Lord Justice May
Lord Justice Rix
A1/2000/3390 {PRITAVE}
MR C REESE QC and MR S BRAGGIGAN (Instructed by Messrs Shadbolt & Co, London EC4M 7AA) appeared on behalf of the Applicant
MR J STOREY QC and MR J CROSS (Instructed by Messrs J & T MacKintosh, Liverpool L2 5RH) appeared on behalf of the Respondent
I invite Lord Justice Rix to give the first judgment.
This is an application for permission to appeal, with appeal to follow if permission granted, from a judgment of His Honour Judge David Wilcox of 20 October 2000. 3. The applicant is the defendant, PJ Pipe & Valve Co Ltd ("PJ Pipe"). PJ Pipe was a sub-contractor under a contract for the supply of valves for a North Sea gas project. That project was operated by the first claimant, Mobil North Sea Ltd ("Mobil"). Mobil entered into a head contract with the second claimant, Fluor Enterprises Ltd ("Fluor"), and did so on behalf of all those within the project consortium.
In essence what happened was that the valves were supplied by PJ Pipe to Fluor under the sub-contract and by Fluor to Mobil under the head contract. There were in fact four sub-contracts, but nothing turns on that. The valves were supplied in June to October 1997. The contractual date for mechanical completion of the project as a whole was 31 March 1998, and not long before that, in January 1998, the valves started to fail. As a result of some extremely hard work, as the claimants' evidence would suggest, the valves were completely replaced in time to prevent that completion date being missed. In consequence of what are claimed to be these defective valves, both Mobil and Fluor have brought a claim against PJ Pipe in these proceedings. Their claim is for the cost of replacing the valves in a sum of approximately £1.3 million.
PJ Pipe has sought to use the procedure under CPR Part 24.1 to bring an application in advance of trial for the dismissal of the whole of Fluor's case, while leaving in place Mobil's claim, on the basis that, even if the valves were defective and there was a breach of contract under the sub-contract, nevertheless Fluor has no substantial claim for damages, but at best a nominal claim for damages, because in June 1999, before the commencement of these proceedings, it made a settlement agreement with Mobil under which, so the submission of PJ Pipe goes, it avoided all the loss claimed.
I will need to say something about the structure and terms of the mainand sub-contracts but I do not think it will be necessary to cite in detail from them and I will also need to refer to the settlement agreement relied upon by PJ Pipe.
The judge below rejected this application on the basis that the settlement agreement was a collateral matter and, in the well-known phrase (even if it is Latin), something res inter alios acta, a wholly independent transaction.
In requesting permission to appeal and in seeking to bring this appeal Mr Colin Reese QC, on behalf of PJ Pipe, has made it clear that he wishes what he calls a short point of construction to be decided once and for all. He does not want the matter simply to go off on the basis, were he to be unsuccessful, that there was an arguable case which entitled Fluor to go to trial. For that reason – and, for my part, I would say for that reason only – I would grant permission to appeal on the basis of the submissions which Mr Reese has addressed to us today, although he will hear in the course of my judgment reasons why, in my view, his appeal must fail. If, however, the matter was simply to be dealt with as an interlocutory matter and the only question was whether there was a properly arguable case on the part of Fluor which was fit to go to trial, I would not have been prepared to give permission to appeal.
Let me say something about the sub-contract and head-contract before reverting to the settlement agreement. Under the sub-contract, of course, PJ Pipe had obligations to supply valves which, in the terms of the contract, were fit and within specification. Under the head contract Fluor had similar obligations, but the relationship between Mobil and Fluor was more complicated. In particular I refer to Article 10 of the head contract, which it will suffice if I simply say – because Mr Reese in the course of argument accepted this analysis – that it rendered Fluor liable to Mobil for defective valves; that Fluor was obliged to obtain a proper sub-contract under which the sub-contractor would be liable in turn for providing defective valves; that Fluor was obliged to take proceedings to enforce that sub-contract in the event of something going wrong; that if, as a result of those proceedings, Fluor was unable to obtain any recovery against the sub-contractor, then Fluor had no liability itself (save in circumstances where Fluor was responsible for some personal failing), and that such provisions against it was to be regarded simply as a mere conduit for the supply of defective valves coming from a sub-contractor. I put the matter very broadly, perhaps for that reason somewhat inaccurately, but I think it will suffice for present purposes. I am certainly not seeking to construe that contract in detail if any point upon it remains live at trial.
For the purposes of this Article 10, Mobil would, through the mechanism of a zero account, provide the finance with which Fluor could carry out such replacement or repair as defective supply might make necessary. Mobil also agreed under Article 10 to bear the costs of Fluor's litigation. Any recovery from that litigation from the sub-contractor would go to Mobil in extinction of the finance provided and Mobil's liability in general.
I should say something about Mobil's part in these proceedings. Mobil claims to be entitled to a contractual remedy directly against PJ Pipe on the basis of collateral warranties, which it alleges were brought into existence between it and PJ Pipe as a result of its general terms being incorporated into the sub-contract. Forensically it would seem that the purpose of PJ Pipe's application is to see whether it could first knock out Fluor on the basis submitted, ie due to an absence of substantial loss, and then, if it succeeded in that, it would, no doubt, turn its attention to seeking to knock out Mobil as well on the basis that there was no direct contractual responsibility owed to it. I say that that was forensically the purpose, because otherwise it is difficult to see what advantage there might be to PJ Pipe in undertaking this interlocutory enterprise. Without knocking out Mobil at an interlocutory stage as well, there is no way that PJ Pipe would be able to avoid the no doubt time-consuming and expensive process of investigating at trial the technical issues which arise on the complaint that defective valves had been supplied.
I turn now to the settlement agreement, where Mobil again represented all its consortium partners. This provides, in essence, as follows. First of all it is stated that, subject only to some detailed provisions which would come into play if the claim against PJ Pipe were compromised in circumstances where one out of Mobil and Fluor wished to settle but the other did not, Fluor was guaranteed what is called a guaranteed minimum payment of £250,000, plus interest from the beginning of 1999. It is then provided that any monies recovered from PJ Pipe in a sum greater than twice that guaranteed minimum payment should be split 50/50 between Fluor and Mobil. Mobil would continue to pay all the costs of litigation, at any rate so far as external lawyers are concerned. Each side would bear its own internal legal costs. There were detailed provisions to deal with various possibilities as to settlements at various levels and the willingness of one party to proceed in circumstances where the other party wished to withdraw. I need not go into all those details.
The agreement concluded with clause 10, which provided as follows:
"The agreement set out in this letter is in full and final settlement of any claim that Mobil, SAGE [SAGE was the name of the consortium] or Fluor Daniel may have against each other in connection with the defective materials supplied by PJ Valves."
The agreement said nothing expressly about whether Fluor was obliged to carry on litigation against PJ Pipe in the absence of a joint decision not to do so, nor did it deal expressly with what was to happen with the first £500,000, taking that as the figure up to twice the guaranteed minimum payment of any recovery from PJ Pipe. In my judgment that is because the underlying premise of the settlement agreement was that Fluor would continue to be under an obligation, in the absence of a joint decision not to proceed, to carry on litigation against PJ Pipe and that the recoveries from such litigation would continue to go to Mobil, subject to the express term that a recovery over twice the guaranteed payment allowed was to be split 50/50. It was also, in my judgment, the implicit premise of this whole agreement that, pending resolution of the prospective litigation against PJ Pipe, Fluor remained liable to Mobil...
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