The LOGIC of freedom of contract

A ringing vindication of freedom of contract, and of grown-up contract interpretation, from the English Court of Appeal today in Transocean v Providence.

Transocean provided a drilling rig to Providence to explore for oil off the shores of the Emerald Isle. The contract was a bespoke version of the LOGIC offshore construction, etc contract.  Problems arose when operations had to stop for 4 weeks owing to problems with Transocean’s rig, which were found to be due to Transocean’s breach of contract. Providence sued for “spread costs” (accountant-speak for capital equipment left idle) during that time. Transocean countered with a reference to Clause 20, part of a complex and comprehensive knock-for-knock arrangement:

“20. CONSEQUENTIAL LOSS. For the purposes of this Clause 20 the expression “Consequential Loss” shall mean:

(i) any indirect or consequential loss or damages under English law, and/or

(ii) to the extent not covered by (i) above, loss or deferment of production, loss of product, loss of use (including, without limitation, loss of use or the cost of use of property, equipment, materials and services including without limitation, those provided by contractors or subcontractors of every tier or by third parties), loss of business and business interruption, loss of revenue (which for the avoidance of doubt shall not include payments due to CONTRACTOR by way of remuneration under this CONTRACT), loss of profit or anticipated profit, loss and/or deferral of drilling rights and/or loss, restriction or forfeiture of licence, concession or field interests whether or not such losses were foreseeable at the time of entering into the CONTRACT and, in respect of paragraph (ii) only, whether the same are direct or indirect. The expression “Consequential Loss” shall not include CONTRACTOR’S losses arising in connection with (1) failure by COMPANY to provide the letter of credit as required by Clause 3.13 of Section III or resulting termination of this CONTRACT or (2) any termination of this CONTRACT by reason of COMPANY’S repudiatory breach.

Subject to and without affecting the provisions of this CONTRACT regarding (a) the payment rights and obligations of the parties or (b) the risk of loss, or (c) release and indemnity rights and obligations of the parties but notwithstanding any other provision of the CONTRACT to the contrary the COMPANY shall save, indemnify, defend and hold harmless the CONTRACTOR GROUP from the COMPANY GROUP’S own consequential loss and the CONTRACTOR shall save, indemnify, defend and hold harmless the COMPANY GROUP from the CONTRACTOR GROUP’S own consequential loss.”

This seemed comprehensive enough, but Providence still thought it worth arguing the toss. They argued that the clause only covered claims for replacement costs; that it should be aggressively construed contra proferentem; that it was apt to reduce Transocean’s obligations to nil; and that as such the courts should simply disregard it (!).

The judge at first instance accepted some of these arguments and rejected Transocean’s defence. Moore-Bick LJ, who gave the only judgment in the CA, was having none of it. Read in any sensible way the clause covered the loss; contra proferentem was inappropriate in a case of this sort between sophisticated grown-up contractors; and the freedom of parties in situations like this to make unreasonable agreements needed to be preserved.

This is, if one may say so, the sort of entirely well-reasoned and sound decision which gives us continuing confidence in English law and jurisdiction as the best system to adopt if  businessmen want to know where they stand.

See Transocean Drilling v Providence Resources [2016] EWCA Civ 372, available on BAILII.

Lex Petrolea Symposium: 21 June 2016

The idea of the lex petrolea as the customary law of the petroleum industry, and possibly even as an aspect of some more general lex mercatoria, has long been argued about in both in academic and judicial circles.

Today, in the light of the ever-increasing complexities of the global petroleum industry, the existence and composition of lex petrolea as an element of the transnational law of ownership, extraction, transportation and trade of hydrocarbon resources is more important than ever. To this end, the Institute of International Shipping and Trade Law, has organised a joint one-day seminar on the subject with the Center for Energy, Law, and Business of University of Texas Law School. This will take place on 21 June 2016 at  Etc. Venues, Monument, 8 Eastcheap, London EC3M 1AE.

For further information, please see the  Lex Petrolea Symposium (Flyer)

To register, please download the  Lex Petrolea Symposium (Registration Form)

Topics discussed will be varied, but will include:
• Boundaries of Oil and Gas Law
• Gas Pricing Disputes: Is Arbitration Delivering?
• Protection of Foreign Direct Investment in Upstream Enterprises
• Environmental Regulations and Hydraulic Fracturing: Lessons Learned from the U.S. Experience and Implications of the 2015 Paris Agreement
• Regulation of Fracking in the UK
• What is a ship in the context of petroleum law?
• Pollution from Offshore Installations- A Sui Generis Liability Regime?
• Offshore Oil and Gas Resources: Is There a Rule of Capture under International Law of the Sea?

Speakers and Chairpersons:
• Professor Simon Baughen
Institute of International Shipping and Trade Law, Swansea University

• Randy Burton
Partner, Fisherbroyles, Houston

• Tabetha Kurtz-Shefford
Institute of International Shipping and Trade Law, Swansea University

• Sophie Nappert
Arbitrator, Gray’s Inn, London

• Simon Rainey QC
Quadrant Chambers

• Professor Melinda E. Taylor
Executive Director, Kay Bailey Hutchison Center for Energy, Law, and Business, University of Texas

• Dr Nima Tabari
Institute of International Shipping and Trade Law, Swansea University

• Stephen Tromans QC
39 Essex Chambers

• Professor Michael F. Sturley
Fannie Coplin Regents Chair in Law, University of Texas

• Professor Andrew Tettenborn
Institute of International Shipping and Trade Law, Swansea University

• Youri van Logchem
Institute of International Shipping and Trade Law

When is the Fund not the Fund? Venezuela’s unsuccessful fishing expedition.

The 1971 IOPC Fund ceased to exist on 31 December 2014. The 1992 IOPC Fund, however, is still going strong. This fact was not lost on the Venezuelan fishermen’s union who lodged a claim in Venezuela in respect of damage sustained as a result of an oil spill in May 1997 from the tanker Plate Princess. In 2009 they obtained a judgment against the shipowner and also against ‘The International Fund for Compensation for Oil Pollution Damage’. In March 2015 Master Eastman made a Registration Order in respect of that judgment.

In Sindicato Unico de Pescadores del Municipio Miranda del Estado Zulia v. IOPC [2015] EWHC 2476 (QB); [2016] 1 Lloyd’s Rep Plus 2, Picken J has set aside the Registration Order. The 1992 Fund was not involved in an incident which occurred at a time when Venezuela, although a signatory to the 1992 Protocol, had yet to ratify, accept, approve or accede to it. The Venezuelan judgment could not be regarded as applying to the 1971 Fund Convention as amended by the 1992 Protocol. Even if the judgment had been against the 1992 Fund, there was no relevant exception to the 1992 Fund’s immunity under art. 5(1) of the International Oil Pollution Compensation Fund 1992 (Immunities and Privileges) Order 1996. The only possible exception, in art. 5(1)(b) “in respect of actions brought against the 1992 Fund in accordance with the provisions of the [1992] Convention” would not apply.

The Commission has spoken. No EU civil liability regime for offshore oil and gas operations.

The 2013 Offshore Safety Directive is the EU’s response to the ‘Deepwater Horizon’ incident in 2010. Although article 4(3) requires Member States to require the licensee to maintain sufficient capacity to meet their financial obligations resulting from liabilities for offshore oil and gas operations, and to put in place compensation procedures, the Directive does not address the question of civil liability in the event of pollution from an offshore installation. This remains to be dealt with by national laws. However, article 39 mandated the Commission to prepare three reports on liability: (1) on the “availability of financial security instruments, and on the handling of compensation claims, where appropriate, accompanied by proposals”; (2) on the “assessment of the effectiveness of the liability regimes in the Union in respect of the damage caused by offshore oil and gas operations”; (3) on “the appropriateness of bringing certain conduct leading to a major accident within the scope of Directive 2008/99/EC of the European Parliament and of the Council of 19 November 2008 on the protection of the environment through criminal law.”

On 14 September 2015 the Commission produced a single report on all three issues COM(2015) 422. It proposes no new EU legislation in these areas. With regard to financial security, although there were currently only two compensation mechanisms in the EEA, namely OPOL and Norway’s Oil Pollution Act 1998, the provisions in art. 4 of the OSD should lead to significant improvements. With regard to civil liability, it was not currently appropriate to broaden liability provisions through EU legislation, noting that in certain cases, the Brussels I and Rome II regulations would prevent differences in national regimes from disadvantaging claimants from other EU Member States. Also the financial security requirements of the OSD might lead some Member States to reappraise their existing liability regimes for offshore accidents. The Commission would be able to conclude on the need for further steps by the time of the OSD’s first implementation report in 2019. With regard to criminal liability, given the transposition deadline for the OSD of 19 July 2015, it was too early properly to assess whether EU criminal law measures were needed for achieving effective levels of offshore safety in the Union