International Finance Corporation v DSNL Offshore Ltd & Ors

International Finance Corporation ("IFC") has obtained summary judgment against DSNL Offshore Ltd ("DSNL") for US$19,732,734.75. On 31st May 2005, IFC issued a writ of fi fa against the assets of DSNL. Pursuant to that writ, on 3rd June 2005 the High Court Enforcement Officer ("HCEO") took walk-in possession of two rig modules and equipment being constructed by DSNL at the premises of KYE Ltd in Middlesborough on the basis that DSNL had title to that equipment. However, title to the modules and equipment has been claimed by Chevron Nigeria Ltd ("Chevron") and by KYE. The HCEO has interpleaded under RSC Order 17. IFC maintain that DSNL has title to all the relevant equipment, thereby entitling it to execution against that equipment. The determination of this issue has been brought before this court with great urgency, in view of the fact that the rig modules and equipment are needed by Chevron at the South Offshore Field, Nigeria to be fitted on to a rig platform for the purpose of operating a water injection programme. In order to carry out the offshore installation during the next weather window at the field, the modules and equipment will have to be shipped from Middlesborough during early August this year. If the weather window is missed, with the result that the water injection programme has to be postponed for many months, the rate of oil output at the field will be seriously reduced. It is said that this will cause Chevron very large losses. Shortly before this hearing, KYE withdrew its claim for a proprietary interest in the relevant equipment.

Three groups of equipment are in issue. They are topside modules 1 and 2, together with items of equipment and materials which may recently have been incorporated into them by DSNL and the so-called "item 22", which consists of various loose items of equipment in crates. All such equipment and materials have been acquired from Solar Turbines International Company ("Solar"). The topside modules incorporate a series of turbine generators and pump sets, as well as a central control room ("the MCC"). The most valuable components of those two topside modules, specifically the turbine generators and the pump sets, were purchased from Solar in the United States, delivered to the Middlesborough construction yard, and attached in various ways by DSNL to two steel framework bases known as pancakes. The pancakes were constructed by DSNL and title to them was at all material times in DSNL. The whole assembly of topside modules attached to the pancakes is to be shipped to Nigeria, where it will be bodily attached to Chevron's offshore platform. The crated Solar equipment is yet to be attached to the pancake or the platform, but that is its ultimate purpose.

Under a written contract entered into with Chevron in July/August 2003 ("the Main Contract"), DSNL undertook to design, construct, transport and install the Work as defined, which included the topside modules and their component equipment. By Article 5.1 DSNL undertook to carry out the work in accordance with the Project Schedule. This provided for completion within 574 days of the date of the agreement and no later than 30 June 2005. Solar was a nominated subcontractor to supply the turbines and pumps, purpose built in accordance with the agreed specifications and installation drawings, as well as the ancillary crated equipment. It was expressly specified that construction and assembly of the gas turbine engines would be completed by 5 March 2004 and that the whole of the Solar equipment, including the pumps, would be constructed ready for delivery by 30 June. In circumstances which I shall describe in more detail later in this judgment, there came a time in January/February 2004 when, for reasons which I shall consider, it was agreed between Chevron and DSNL that instead of DSNL acquiring various items, including the topside modules, by making payment to Solar and taking delivery and procuring transportation of them from the United States to Middlesborough, Chevron would pay Solar direct for this equipment and would arrange and pay for delivery and transportation of it to DSNL at Middlesborough. In the ordinary way, title to that equipment would have passed from DSNL to Chevron in accordance with the terms of the Main Contract only when Chevron issued a Notice of Final Acceptance, that is to say after completion of construction, transportation and installation of the entire assembly, unless the Main Contract had been previously terminated for contractor default, contractor insolvency, force majeure or "for convenience" as defined by Article 15.

However, Chevron submit that in consequence of their agreement to pay Solar direct for the equipment covered by Purchase Order 0501, namely the turbines, pump sets, as well as the crated equipment, they obtained title to those items and still retain it, notwithstanding the items have been attached to the pancakes. For this proposition they rely on certain terms of the main contract and of Contract Amendment No. 1, entered into in early February 2004.

On behalf of IFC, it is submitted that DSNL obtained title from the outset and never lost it. Alternatively, if Chevron had title to any of the disputed equipment up to the time when it was incorporated into the structure by attachment to the pancakes, DSNL acquired title to that equipment by accession upon the happening of that attachment. Chevron submit, as an alternative case, that, assuming that they had no title to the equipment when it was attached to the pancakes, they still retained an equitable lien for the amount of the cost to them of procuring delivery of the equipment to DSNL, including payment of the price to Solar. Alternatively, DSNL was a constructive trustee for an equivalent amount. This is challenged by IFC. Alternatively, Chevron submit that if they obtained no equitable lien nor was there a constructive trust, they became owners in common of the topside modules with DSNL in proportion to the value of their and DSNL's respective contributions in terms of work and materials. It is said that the value of DSNL's work and materials is no more than US$314,000, whereas Chevron has made direct payments to suppliers totalling some US$36,337 million.

Chevron's submissions can be summarised as follows:

The Main Contract made express provision for the passing of title where Chevron, as distinct from DSNL, provided equipment. This is to be found in Article 6, which provided as follows:

The equipment acquired under Purchase Order 0501 from Solar constituted "company provided items" within Article 6.1 and, accordingly, Chevron was to be treated as having title to it. Although Contract Amendment No. 1 made no express reference to Chevron acquiring title to the equipment from Solar, such a provision was to be implied to fill an obvious gap in the terms of that amendment. That such a gap was obvious arose from the fact that it would never have been mutually expected that Chevron would have put up the funds for this equipment in advance of the payment requirements under the Main Contract in circumstances where, on the evidence, DSNL was encountering cash flow problems, without some form of security such as retention of title in the equipment so acquired. Since the purpose of Articles 6.1, 6.4 and 6.5 was to protect Chevron by retention of title in a case where the contract work was not completed by DSNL, so similarly it must have been the mutual intention to protect Chevron by similar means where it had paid for the equipment in accordance with the special arrangements evidenced by Contract Amendment No. 1. Chevron draw attention to the fact that when, for example, in July 2004 Chevron and DSNL agreed by a further Contract Amendment No. 4 and subsequently by further contract amendments to pay DSNL's suppliers direct in respect of other equipment required for installation under the Main Contract, they inserted the following term:

It is said that inasmuch as the insertion of this term evidenced an intention at that time that Chevron should be protected by retention of title in respect of those items for which it had agreed to pay the subcontractor or supplier direct, it was to be inferred that there must have been a similar mutual intention earlier in the year when Contract Amendment No. 1 was entered into. Chevron refer in this connection to the second paragraph of the recitals to the Amendment No. 1:

The Operative Provisions of Contract Amendment No. 1 provided as follows:

Chevron also rely on their Progress Report of February 2004, which refers to DSNL's staff in Teesside working a reduced working week, due to cash flow problems, to progress of engineering and fabrication having been impacted by the non-payment of the workforce and to purchase orders having been held due to non-availability of funds, as well as to DSNL having requested Chevron to pay Solar direct. Accordingly, it is submitted that there were at the time when the Contract Amendment No. 1 was agreed to at the end of January or early February 2004 good reasons for the parties to have in mind the need for Chevron's title to be retained if they paid for any of the components, particularly those covered by Solar Purchase Order 0501, the total value of which was US$11,243,915.00.

Whereas title to all materials provided by DSNL was to pass to Chevron in accordance with Article 6.2 of the Main Contract at the issuance by Chevron of Notice of Final Acceptance of the works as a whole, Chevron was required to make payment for such materials well before that time. Under Article 8, DSNL was entitled to issue invoices each month covering the previous month's work and materials provided by it and Chevron was obliged to pay "compensation" as defined of the invoice amount, less a 10 per cent retention. Payment had to be made under Article 8.4.3.1 within 45 days of receipt of invoice. However, under Exhibit B to the Main Contract, clause 2.2(d), where DSNL made a major purchase of materials or equipment such that under the applicable purchase order US$1 million or more had to be paid, Chevron was obliged to pay DSNL immediately upon receipt and approval by it of DSNL's invoice subject to confirmation that payment had been made or was to be made by DSNL to its supplier, in the form of wire transfer instructions to DSNL's bank. It was therefore the position under the Main Contract that, although Chevron was obliged to make payment of monthly compensation for work and materials within 45 days of DSNL's monthly invoice and of the amount of major purchases of materials and equipment costing over US$1 million, title to the equipment purchased might not pass to Chevron for very many months, until completion of construction and issue of a Notice of Final Acceptance. During this period between payment and the passing of title to Chevron there was no express provision for Chevron to have any security interest in the equipment for which it had already paid DSNL.

Under the Purchase Order No. 0501, dated 17th December 2003, between DSNL and Solar, the total price of US$11,243,915.00 was largely made up of the price of the two gas turbine generator sets at US$1,595,000 each, totalling US$3,190,000 and the three pump sets at US$2,608,733.30 each, totalling US$7,826,199.90. The balance of the purchase order was for miscellaneous ancillary items. DSNL c/o KYE was described as "the Purchaser". It was to make payment in accordance with a schedule which provided for four milestone payments on the happening of specified events on certain calendar dates, namely:

All these dates were designed to meet the Project Schedule under the Main Contract. All these payments, as well as the aggregate, exceeded US$1 million, thereby engaging Chevron's immediate back-to-back reimbursement obligation under Exhibit B, clause 2.2(d).

DSNL had by 26th January 2004 received from Solar two invoices covering the first two payments of 10 per cent due under the purchase order. They had passed on these invoices to Chevron but had paid neither. On that day, DSNL wrote to Chevron as follows:

Although this request related only to the first two milestone instalments, Chevron replied on 29th January 2004 in the following terms:

That which was enclosed was the wording of Contract Amendment Number 1. DSNL signed it on 4th February 2004 and Chevron made payment direct to Solar of the first two instalments, totalling US$2,248,683.00 on 3rd March 2004.

Payment of the milestone 3 instalment, that is US$3,373,174.20, was made by Chevron direct to Solar on 7th June 2004. On 16th June 2004, Chevron wrote to DSNL confirming that, following discussions between Chevron and DSNL, Chevron would take over responsibility for the transportation and associated logistics relating to various items, including the Solar turbines and pumps, which would otherwise have been DSNL's responsibility under Exhibit N of the Main Contract.

In his second witness statement, Mr Masri, Chevron's project manager for the South Offshore Water Injection Project ("SOWIP"), explained CNL's entry into Contract Amendment No. 1 by reference to Chevron's perception that DSNL were not able to pay the Solar invoices due to cash flow problems. He makes no mention of payment transmission problems attributable to a national strike in Nigeria. I infer that in taking over the responsibility of making direct payment for all Solar items, Chevron was primarily concerned that there should be no delay in the Project Schedule for the construction of the modules at Middlesborough and that their belief was that delays in Solar making delivery might in future be caused by DSNL's apparently deteriorating financial position. Had a strike been their sole concern, they would have been much more likely to confine their direct payment engagement to the instalments immediately due. Mr Masri's evidence as to DSNL's problems in paying their own employees confirms that Chevron's main concern at least by mid-2004 was DSNL's cash flow difficulty.

Under the Main Contract, it was expressly provided by Article 2.1 that DSNL was to provide "all services, labour, supervision, consumables, personnel and materials needed to perform the work."

Article 3.2 of the Main Contract provided:

Under the Main Contract, before it was amended by Contract Amendment Number 1, the function of Article 6.1 was primarily to cater for the exceptional case where Chevron, and not DSNL, provided items for incorporation into the works under Article 3.2. The cost of such items would be invoiced to DSNL and credited by way of payment by DSNL. Unlike items provided by DSNL, title would already be in Chevron. But for Article 6.1, title would first pass to DSNL and then, upon Notice of Final Acceptance of the works, would be reversed back to Chevron. Instead of this needless reversal of title, Article 6.1 has the effect of anchoring the title in Chevron, where it is to remain until final acceptance of the work as a whole, whereupon title in the remainder of the equipment finally passes to Chevron. The effect of Article 6.1 is therefore that title to company provided items remains in Chevron throughout.

The function of Article 6.4, 6.5 and 6.6 is, in my view, primarily to protect Chevron in circumstances where title has passed to Chevron following or in consequence of termination of the contract or part of it under the provisions of Article 15. It is in those circumstances that title to any part of the facility might have passed to Chevron when that part was already in the possession, care or custody of DSNL or its subcontractors. The provision does not point to transference of title to Chevron otherwise than as expressly provided for in the contract, although the scope of 6.4 also extends to company provided items, initially provided by Chevron.

Against this background, what is the effect of Contract Amendment No. 1? In particular, was the effect that the items of equipment acquired from Solar under Purchase Order 0501 became "company provided items" within Article 6.1, or was there otherwise a transference of title to Chevron by operation of an implied term of the amendment?

The effect of that amendment was, in my judgment, that Chevron undertook to DSNL that the process of payment by Chevron for equipment and materials acquired by DSNL from Solar would be changed from the milestone instalments or, more pertinently, the back-to-back reimbursement of purchase order payments of US$1 million or more, by Chevron paying the Solar invoices as if they were DSNL's bankers. Instead of almost immediate reimbursement of DSNL, they paid Solar direct. In practice, this had the effect that payment by Chevron was advanced by a few days at the most. The terms of Amendment No. 1 show that, as between Chevron and DSNL, they were continuing to treat the stage payments as due from DSNL to Solar under Purchase Order 0501. There is no suggestion that, by effecting payment to Solar direct, Chevron was to replace DSNL as a party to the contract with Solar or was to acquire title to the equipment direct from Solar. Had it been the intention that there was to be novation of the Purchase Order Contract whereby Chevron replaced DSNL as purchaser, the terms of the amendment would have made express provision to that effect and Solar would have been involved. The effect of clause 7 is to preclude any such implied term: the only amendments to the Main Contract were to be those expressly provided for.

Given that upon delivery of the equipment title was to pass from Solar to DSNL, there is no basis for these items being treated as "company provided items" within Article 6.1. That provision is, as I have held, to cater for the supply by Chevron to DSNL by way of sale of items which were the property of Chevron and in which title would otherwise pass temporarily to DSNL.

Even if clause 7 of Amendment No. 1 were wide enough to permit an implied term that title should, as between Chevron and DSNL, be deemed to be in Chevron because the equipment was to be treated as if it were "company provided items," there is, in my judgment, no basis for any such term. It is not necessary to make the Main Contract as amended work. Above all, the notion that the assumption by Chevron of the obligation to make direct rather than indirect payment to Solar would give rise or reflect to a mutual intention that there should be superadded to that obligation the transference of title for security purposes is unsustainable simply because Chevron's credit risk was not being significantly increased above that already arising from operation of the Main Contract without amendment. The notion that against this background there should be some unexpressed mutual intention locked into the express terms of the Amendment No. 1 that title should be treated as having passed to Chevron presents itself to me as quite unsustainable, whether it is said to be in order to fill an obvious gap or in order to make the contract work or on Moorcock principles.

That being the position as to title when Contract No. 1 was entered into, was that position altered in the light of after events? On behalf of Chevron, Mr Kenneth McLean QC submits that by Chevron's further undertaking on 16th June 2004 to take over the provision of transportation and associated logistics in respect of the Solar equipment, the Main Contract was in effect further amended to the effect that the Solar equipment became "company provided items" under Article 6.1.

I am not able to accept this submission. Although it is probably true that if there were to be company provided items they would be transported and delivered to DSNL at Middlesborough by Chevron, it does not follow that Chevron's agreement to provide such ancillary services converted the items covered by Purchase Order 0501 into "company provided items". Just as the provision of a direct payment facility by Chevron did not have that effect, so the provision of other ancillary services did not have that effect. In neither case did Chevron acquire title from Solar, nor by implication could it be deemed to have done so. The aggregation of the provision of transportation and associated logistic services with the payment facility does not alter that conclusion. In order to qualify as company provided items, the equipment has to be owned by Chevron and then supplied by Chevron to DSNL.

Chevron further refer to the fact that before the time when it made payment to Solar of the final milestone amount in September 2004 it had already entered into numerous further similar contract amendments and that these contained provisions which did not appear in Amendment No. 1, the effect of which was to pass to Chevron title in the equipment covered by the amendment. Thus Contract Amendment No. 2 entered into by Chevron on 1st July 2004 relating to equipment to be supplied to DSNL by some twelve different suppliers contained the following:

That same provision was, as I have said, inserted in two further Contract Amendments, No. 4 and No. 5, entered into respectively on 26th July and 31st August 2004. In its letter of 28th June 2004, DSNL wrote to Chevron in relation to the proposed terms of Amendment No. 4:

It is argued that the agreed insertion of a title transfer provision in Chevron's favour and the statement in that letter that the purpose and intent of the proposed amendment was identical to that of Contract Amendment No. 1 gave rise either to an inference that it was the common intention of the parties that Amendment No. 1 contained a similar title transference in favour of Chevron or to an estoppel to the same effect.

That submission has to be evaluated against the background that each contract amendment expressly applied to different identified equipment to be supplied by different identified suppliers. Amendment No. 1 had been entered into some five months before Amendment No. 2 and by the time that the terms of the latter amendment were first considered, Chevron had already paid the first three milestone instalments to Solar under Amendment No. 1 without any suggestion being made that Chevron would obtain title to the Solar equipment upon its delivery to DSNL. In these circumstances, the insertion of the title transference clause in Amendments Nos. 2, 3 and 5 and the statement in the letter do not give rise to any relevant inference that the parties' common intentions back in January 2004 were such that Amendment No. 1 was to be construed as incorporating by implication such a provision. In any event, a process of contractual construction by reference to the subsequent statements or conduct of the parties is an impermissible methodology: see FL Schuler AG v Wickman Machine Tool Sales Ltd [1974] AC 235. Such statements or conduct could be deployed only for the purpose of establishing a new agreement varying the original one or an estoppel. Accordingly, subsequent conduct can be relied upon in this case as having the effect of transferring title to Chevron only if it gives rise to a yet further variation or estoppel.

In the present case, each of the contract amendments is expressly confined in application to specific items of equipment. It is therefore incapable of having any contractual impact on other items of equipment. The letter did not express itself as directed to amending Amendment No. 1. It cannot be construed as having that effect.

As regards estoppel, the argument based on the incorporation of the transference of title clause in subsequent amendments and on the letter of DSNL of 28th June 2004 face what are, in my judgment, insuperable obstacles. First, a statement that one contract with a given term has the same intent and purpose as an earlier contract without such a term is capable of being a representation as to the meaning of the later contract but lacks the quality of an unequivocal representation as to the meaning of the earlier one so as to found any kind of estoppel. Second, there is no evidence that Chevron acted relevantly in reliance on the statement in the letter. There is no suggestion in the documents, and Mr Masri, Chevron's only factual witness, does not so state, that when in September 2004 he came to pay the last milestone instalment under the Solar Purchase Order No. 0501, Chevron relied on any representation by DSNL that title to the Solar equipment would be held by Chevron following delivery by Solar.

Finally, it is necessary to examine an argument relied on by Chevron based on the fact that all the relevant Solar equipment was delivered by Solar bearing metal tags showing the name "Chevron Texaco" and a number. According to the third witness statement of Mr Masri, the "labels [were] to identify the property as CNL's."

There is no evidence to suggest that Solar ever entered into an agreement with either Chevron or DSNL that title under the Purchase Order No. 0501 would pass to Chevron. It must therefore be ascertained what the significance of the labelling is.

Under the terms of the general package specification which was part of Appendix 2 to the Main Contract, it was provided by Specification 17.01 of clause 3.3.8 that major equipment such as pumps and compressors should be supplied with a permanently attached stainless steel nameplate with certain minimum information, including the name of the manufacturer, a serial number and an item or tag number. By Specification 17.03, which applied to gas turbine-driven generator sets, clause 9.1.6 provided that the contractor (DSNL) would be responsible for allocating tag numbers from a block of numbers issued by Chevron. An identical provision applied to gas-turbine driven purposes under specification 17.06. From a photograph of certain of the tags, it can be seen that they bear the name of Solar as the manufacturer, of Chevron, and that alongside the latter there is a reference number. These tags do not indicate that the equipment is the property of Chevron, they merely show the name Chevron-Texaco. They were clearly not attached to give effect to Article 6.4 of the Main Contract, but rather to comply with appendix 2. Their function was thus to identify the different items of equipment, rather than to evidence the owner of individual items. Had they had the latter function, it is in my view inconceivable that a sophisticated organisation such as Chevron would not have attached a tag expressly referring to Chevron as the owner.

I conclude that the tagging system does not assist Chevron's case that it acquired title.

It follows that Chevron never acquired title to the items delivered by Solar under Purchase Order 0501 and for which Chevron made payment pursuant to Contract Amendment No. 1 and that, upon delivery by Solar, title passed to DSNL. Since there has not yet been Notice of Final Acceptance of the Works by Chevron, title remains in DSNL and has not yet passed to Chevron. It follows that the question whether title has passed from Chevron to DSNL as submitted in the alternative by IFC by means of accession does not arise in relation to the equipment covered by Contract Amendment No. 1.

It is submitted to behalf of Chevron that on the assumption that title to all relevant equipment remained in DSNL by the time when IFC obtained the judgment in respect of which it now seeks execution, Chevron had already acquired an equitable lien over all the items of equipment for which they had paid. The sum secured by that lien is said to be US$36,337,000, being the total sum paid in respect of equipment and other goods (US$26.605 million) under the contract amendments and US$9.732 million in respect of services. The basis for this submission can be summarised as follows:

The concept of the equitable lien has long been firmly established in English law, but usually for the purpose of protecting the rights of the unpaid vendor's real property. Thus, as soon as a binding contract for the sale of land has been made, the vendor has a lien on the property for the purchase money and a right to retain the property until payment is made. That lien continues to exist even where the vendor executes an absolute conveyance and parts with possession of the property and the title deeds to the purchaser: see Snell's Equity, 31st Ed. 898, para. 42-25. In other words, transference of the legal title to the property does not destroy the vendor's lien for such part of the price as remains unpaid. As between vendor and purchaser, equity supersedes to protect the vendor against what would otherwise be an unconscionable loss to the vendor.

However, from an early stage the courts applied similar principles to protect the purchaser of land who had paid part of the price prior to conveyance of the legal title pursuant to the terms of the contract but had not received the conveyance of the legal title. In Rose v Watson (1864) 10 HLC 671, the purchasers had paid deposits under the contract but they subsequently rescinded it on the ground of fraudulent misrepresentation. The purchasers claimed back the deposits against the vendor's successors in title on the basis that they had a lien. The claim succeeded. Lord Westbury observed at p. 678:

Lord Cranworth said at p. 683:

This principle was not confined to contracts for the sale of interests in land. Thus in In Re Stucley [1906] 1 Ch. 67 it was held by the Court of Appeal that where a chose in action, namely a reversionary interest in a personal estate, had been sold and assigned by deed which wrongly stated that the consideration had been paid, the assignor was held to be entitled to an equitable lien on the legacy in the hands of the assignee's executors to the extent of the purchase price. The Court of Appeal expressly rejected the argument that the doctrine of the unpaid vendor's lien did not apply to a sale of personal property. It was held on the earlier Court of Appeal authority of Davies v Thomas [1900] 2 Ch. 462 that such principle did extend to personal property to the effect that the remedy for enforcing that lien was the same as where there was an express charge. However, in a passage relied upon by Mr Simon Rainey QC on behalf of IFC, Stirling LJ said at p. 79:

Having cited from the judgment of Rigby LJ in Davies v Thomas (supra, p. 471), Stirling LJ further observed at p. 28:

Cozens Hardy LJ observed at p. 84:

The substance of the reference by Stirling LJ to cases in which the property sale is of such a nature as that the court would decree specific performance, in my judgment, is to be understood as indicating that the lien doctrine could not be applicable to those cases where equitable relief was not available to enforce the relevant right because of the nature of the personal property involved. He could well have had in mind such personal property as the ordinary commercial goods the subject of a contract of sale within the Sale of Goods Act 1893, under which there was a statutory provision for an unpaid seller's lien, which does not emanate from the equitable lien.

Indeed, it has subsequently been held that ordinary commercial goods are not amenable to an equitable lien when the underlying contract is subject to the Sale of Goods Act 1893: see Transport and General Credit Corporation v Morgan [1939] Ch. 531. That was because that Act made express provision for a vendor's lien and, that being an exclusive code for the sale of goods, the statutory lien must be the sole such security: see Simonds J at p. 546.

A further distinction applicable to contracts for the sale of goods which might have been in mind was that in section 52 of the Sale of Goods Act 1893 (now 1979) which empowers the court to protect a buyer of specific or ascertained goods by an order for specific performance in an appropriate case, that statutory remedy is not available to provide protection in respect of an agreement for the sale of unascertained goods: see Re Wait [1927] 1 Ch. 606.

More recently, it has been held by the Court of Appeal in Chattey v Farndale Holding Inc., supra, that notwithstanding specific performance not being an available remedy in the case in question, an equitable lien may be available for enforcement by an equitable remedy of a different kind. In that case the relevant issue was whether the purchaser of a new lease in a flat conditional upon the obtaining of planning permission could recover from the developer's successor in title a 20 per cent deposit paid to the developer under the terms of the agreement. The case for the plaintiff purchasers was that they had obtained an equitable lien over the developer's interest in the land to the extent of the deposit and that the defendants were bound by it. The defendants argued that because the whole agreement was conditional upon the granting of planning permission, it was not an agreement that could have been specifically performed before planning permission had been granted. The defendants accepted that a lien arose when the contract became unconditional. But the key point was that by that time the developer had already granted a debenture to the defendants which would have priority over any such subsequent lien. It was only if the lien arose at the outset and before granting the debenture that it would benefit the purchasers.

In concluding that one of the two purchasers was entitled to an equitable lien to the extent of the deposit and interest on it, Morritt LJ referred to the following statement by Sir George Jessell MR, in London and South Western Railway Company v Gomm (1882) 20 Ch.D. 562 at p. 581:

Morritt LJ then observed:

He then referred to the decision of the Court of Appeal in Whitbread & Co. Ltd v Watt [1902] 1 Ch. 835 and to the judgment of Vaughan Williams LJ at p. 838:

Morritt LJ said at p. 307:

The decision in Chattey was concerned with an agreement for the sale of an interest in land but in my judgment the reasoning is equally referable to agreements relating to personal corporeal property not covered by the Sale of Goods Act. It is to be observed that Morritt LJ referred with apparent approval to the decision of the majority of the High Court of Australia in Hewett v Court, supra. That is the only authority which has so far been found which deals with the claim of a purchaser under a contract for work and materials to an equitable lien in respect of contractual prepayments made before the passing of title to the completed property. The builders of a prefabricated home became insolvent between payment and delivery and just before the winding up. The purchaser made an agreement with the builder to take delivery of the incomplete structure on payment of an additional amount to compensate for the work not already covered by the prepayments. If there was not an equitable lien, it was accepted that this agreement, being a preference, would not be binding on the liquidator. In concluding that such a lien did exist, Gibbs CJ observed at p. 645-6:

Further, in considering whether equitable relief was appropriate, he said at p. 647-8:

Deane J, also of the majority, sought at p. 668 to identify certain key attributes of a transaction which would be capable of giving rise to an equitable lien:

The dissenting minority of Wilson and Dawson JJ, on whose joint judgment Mr Simon Rainey QC placed reliance, based their conclusion on the foundations that at the time when the deposit was paid there was no property to which the lien could attach, for the construction of the building had not commenced and that principle did not suggest that there was any equity in favour of the purchasers, for the insolvency of the builders was no reason of itself for placing the purchasers in a secured position to advantage over other creditors and the contract was not of a type which equity would specifically enforce for it was open to the builders to deliver any house of identical type in performance of the contract.

The first point is not an obstacle to the existence of a lien, at least in English law, as is shown by Chattey, supra. Whether there was or was not an equity conferring priority over unsecured creditors depends, on the English authorities to which I have referred, on the terms of the underlying contract and the conduct of the parties in relation to it. If one proceeds from the basis that, as was clear in Hewett v Court and as is clear in the present case, that the contract is one for work and materials, it is impossible to exclude the availability of equitable relief in a case where the contracted work product and its components were to have characteristics specifically designed for the requirements of the purchaser. This would be so even if the contract fell within the Sale of Goods Act and the question were whether specific performance was an available remedy under section 52: see the decision of Wright J in relation to the sale of a ship with particular characteristics in Behnke v Bede Shipping Co. Ltd [1927] 1 KB 649. That was a decision which turned on the vessel's unusual characteristics required by the German ship owner which made her fit for immediate inclusion on the German register and almost unique in the market, such that damages would not be an adequate remedy. In my judgment, a contract for the bespoke design and purpose built construction of the superstructure of an oil platform is clearly an a fortiori case, whatever may be said about a prefabricated house of standard design. Whereas the judgments of the majority in Hewett v Court do in my view broadly accord with English law, that of the minority does not wholly do so, specifically as regards the non-existence of the property at the time of payment. Moreover, if the consequence of the attachment of the lien in giving priority over the rights of unsecured creditors does not operate as a bar to equitable relief in relation to an interest in land as in Chattey, supra, it would be seriously illogical to hold that it did so in the case of corporeal personalty.

In the present case, the milestone payments in relation to Solar's Purchase Order 0501 were to be made in respect of purpose built equipment to be incorporated into the topside modules to be attached to the pancakes, the whole works including the purpose built components being a composite structure designed to the specific requirements of Chevron. The payments to be made by Chevron to DSNL in advance of delivery under Article 8 and Exhibit B clause 2.2(d) of the Main Contract were obviously designed to provide funding to DSNL to enable it to carry out the works and to acquire from its suppliers and subcontractors the equipment necessary to be incorporated. As regards the Solar equipment, that funding was to be used by DSNL to pay Solar in stages during construction of the Solar equipment, that process of construction being DSNL's responsibility under the Main Contract. As I understand it, all that equipment has been duly constructed and delivered to DSNL's site at Middlesborough and practically all of it has been installed on to the pancakes. Certainly the turbine generators and pumps obtained from Solar have been installed. So has the MCC housing.

I have no doubt that in principle upon delivery of all the Solar equipment for which Chevron made payment to Solar, Chevron is entitled to an equitable lien from the time of delivery. The question whether the contract was such as to qualify for such an interest can be tested by asking whether it was amenable to equitable relief and in particular whether, had DSNL attempted to dispose of the Solar equipment to a third party without Chevron's consent and without discharging the amount Chevron had paid for it, Chevron could have obtained an injunction to restrain such disposal or whether they would have been left to a remedy in damages. On this I entertain no doubt whatever that, having regard to the expressly agreed contractual provision for what was to happen should the Main Contract be prematurely terminated (Article 15) and also the purpose built nature of the Solar equipment and of the Works, the contractual Project Schedule applicable and the fact that the components had been paid for by Chevron, whereas title had already passed to DSNL, injunctive relief would ordinarily have been an available remedy. That would be the relevant equitable remedy. At the very least, disposal would have been restrained unless DSNL had first reimbursed all relative payments. In this connection, it is also necessary to have regard to the fact that the whole purpose of the Main Contract was to provide Chevron with completed topside modules ready for the SOWIP at a particular time. The assertion that Chevron should be left to its remedy in damages on the basis that it would be obliged to build new topside modules for its SOWIP with all the delay involved would involve serious injustice.

I therefore conclude that the general principles so far worked out in the authorities lead to the conclusion that Chevron did originally acquire an equitable lien in all the equipment for which it paid under the Contract Amendment No. 1.

That, however, leaves to be answered the question: what, if anything, happened to the lien when the equipment had been attached to the pancakes? Much time and attention in the course of this hearing has been devoted to the question whether by reason of the attachment of the equipment to the pancakes there took place by reasonably applicable principles of accession a transference of the legal property in the Solar equipment from Chevron to DSNL on the assumption that Chevron had title to that equipment as from delivery. I have already held that this assumption is incorrect and that DSNL acquired title to that equipment under its purchase contract with Solar and retained title throughout.

There is no issue but that DSNL had title to the pancakes. Indeed, that was the only part of the works for which Chevron did not pay the suppliers direct, either under Contract Amendment No. 1 or under subsequent contract amendments. I assume for present purposes, therefore, that when the Solar equipment covered by Contract Amendment No. 1 was attached to the pancakes, the effect was simply to attach a number of items of equipment such as the turbines to which DSNL had title but subject, as I have held, to an equitable lien in favour of Chevron to another item or group of items to which DSNL also had title but not subject to an equitable lien. I further assume, without presently deciding the point, that the nature and degree of attachment was such that if Chevron had legal title to that equipment, that title would have passed to DSNL by accession. In those circumstances, and on that assumption, what happened to the equitable lien?

DSNL having received delivery of the equipment subject to the equitable lien were thereafter trustees of Chevron's equitable interest and were, as such, precluded from disposing of that interest without Chevron's consent as beneficiary. If they attached the equipment subject to Chevron's lien to their own property they could not in my view thereby divest Chevron of its beneficial interest in the equipment if severable or, if not severable, in the composite structure. Although, even if because of the nature of attachment there would have been a passing of property by accession if Chevron had had legal title to the equipment, there would be no breach of trust by DSNL in those circumstances making the attachment because it was done with the beneficiary's consent. Nevertheless, in the present case where legal title remained in DSNL throughout, there was no conduct on the part of Chevron which amounted to its consent to the extinguishing of its equity in the equipment. Indeed, the only purpose of its acquisition of the lien in the first place was that the equipment should be designed, built and deployed in the construction of the modules. It would be absurd for the beneficiary to be deprived of its lien by the performance by the trustee of the very function which the lien was intended to facilitate. The composite would in those circumstances be subject to the equitable lien. In the present case, therefore, either the Solar equipment, if severable, or the composite structure in the hands of DSNL, would be subject to a lien to the extent of the payments made by Chevron in respect of the incorporated items. That would include both the capital cost and the ancillary expenses of transportation and logistics subsequently agreed to be paid by Chevron but otherwise the responsibility of DSNL under the terms of the Main Contract.

In the result, DSNL hold the topside modules subject to Chevron's equitable lien in respect of the Solar equipment the subject of the Contract Amendment No. 1. Accordingly, execution against the topside modules in respect of the judgment debt due to IFC cannot be effected unless and until that lien has been discharged.

I think the sensible thing now is for me to rise for a short time and to allow some contemplation, insofar as anybody has had a chance to assimilate that huge long 90 minutes worth.

What I would like to do next is to deal with the letter from the HCEO solicitors and then to hear any views on whether it would be useful, fruitful or helpful for further court time to be deployed in exploring yet further whatever issues may be thrown up in relation to the other equipment. I will rise now for 15 minutes.

MR BLACKWOOD: I am grateful.