Transocean Drilling UK Ltd v Providence Resources Plc & Anor

This is a dispute about the financial consequences of delays which occurred to the drilling of an appraisal well in the Barryroe Field off the south coast of Ireland between November 2011 and March 2012. The Claimant (“Transocean”) provided the rig GSF Arctic III (“the Rig”) to the Defendant (“Providence”) pursuant to a drilling contract dated 15 April 2011 (“the Contract”). The Rig is a six-leg semi-submersible drilling unit built in 1984. The delays occurred following problems with the Blow Out Preventer (BOP) stack. The main problems arose out of (1) a stinger misalignment with the Blue POD receptacle on the lower BOP and (2) the inoperability of the wedgelocks on the lower BOP due to a plug blowing out. Additionally there were problems caused or allegedly caused by (3) a mini collet gasket falling out, (4) an issue with the upper annular preventer and (5) other control POD problems.

The delays occurred between 18 December 2011, when operations were first interrupted as a result of Blue POD misalignment problems, and 2 February 2012 when the Rig was in a position to resume operations from the same point as when work was suspended on 18 December 2011. This period was described by the parties as “the Disputed Period”. Transocean claims remuneration of US$13,035,083.97 and £3,516,758.45 in accordance with the rates provided for in the Contract together with reimbursables. Only a minority of this arises in respect of the Disputed Period. Providence contends that (1) in respect of the remuneration claim for the Disputed Period, it is not liable for periods of delay caused by breaches of contract by Transocean and (2) in respect of most of the balance of the remuneration claim, it is entitled to set off its counterclaim, which is for wasted costs comprising sums payable to personnel, suppliers and service providers for the periods of delay within the Disputed Period caused by Transocean’s breaches of contract and/or misrepresentation. Even on Providence’s case, there is a balance due to Transocean of something over US$1 million.

The BOP stack, designed and built by Cameron International Corporation (“Cameron”), provides well control by preventing formation fluids reaching the surface through the well bore. It comprises two sections. The upper section is the Lower Marine Riser Package (LMRP); the lower section is the lower BOP, sometimes referred to simply as the BOP (which is also an expression sometimes used to describe the combined stack). The lower BOP is latched directly to the wellhead which is cemented to the seabed by the cement pumped into the annular gap between the sections of casing and the drilled hole. The LMRP and BOP are hydraulically operated and controlled from the surface through Points of Distribution (PODs). There are two PODs which are located on the LMRP, coloured blue and yellow. Each is sufficient to control the entire hydraulic system necessary to operate the whole BOP stack. In other words, having two PODs allows for 100% redundancy. The complete BOP stack is about 13.5 m high and weighs about 200 tons.

The well control mechanisms within the stack comprise (1) preventers and (2) choke and kill lines. The preventers come in one or other of two forms, namely ram preventers and annular preventers. In simple terms the ram preventers close the hole by rams moving to close off the pipe (or in the case of a shear ram, to shear the pipe); annular preventers seal the well bore by closing the drill pipe using an elastomer packing like a doughnut. When the ram preventers are deployed they are locked tight by wedgelocks, whose function is to hold them in place mechanically so as not to rely on the maintenance of hydraulic pressure. The BOP stack on the Rig had six preventers. On the LMRP there was the upper annular preventer. On the lower BOP there was the lower annular preventer, below which sat four ram preventers. The choke and kill lines lead to valves which may be used to prevent the escape of formation fluids. Kill lines seek to cut off fluids flowing out of the well bore, whereas choke lines are used to enable fluids to be pumped into the well bore to achieve the same purpose.

The LMRP sits on top of the lower BOP and when latched is connected to it as follows. There is a hydraulically operated riser connector through which the well bore runs. The choke and kill lines connect via two mini collet connectors. On the underside of the connector on the LMRP there is a gasket held in place by four dogs screwed to the assembly, designed to achieve a tight seal. One of these gaskets fell out in the course of the events giving rise to the dispute. The PODs connect through two shallow cylindrical receptacles, one each for the Blue and Yellow POD, which sit on the top of the lower BOP plate. These receptacles have an internal diameter of 17″ and are connected to the lower BOP plate by four feet comprising welded mounts to each of which the receptacle is attached by an elastomer “spring” bolted to the receptacle. On the inner surface of the receptacle are holes of different sizes which connect to hoses attached to the outer side of the receptacle in order to carry the hydraulic fluid to the various valves required for the operation of the lower BOP. The PODs make a connection with these holes by a stinger which comes down from the lower side of the LMRP. Before latching, the stinger sits in a test receptacle, a shallow cylinder also of 17″ internal diameter, which is on the LMRP. The stinger comprises a cylindrical assembly with ports in its outer perimeter which are designed to line up with the holes in the lower BOP receptacle as the means by which the hydraulic fluid passes to operate the lower BOP. The stinger has four extendable segments which in its retracted mode sit flush with the four fixed sections on each of which is mounted a Teflon guide strip. The guide strip is designed to fit exactly into the internal 17″ diameter of the receptacle, whereas the stinger segments when first lowered are designed to sit slightly shy of the internal diameter of the receptacle. The stinger is then deployed by being “energised”, that is to say the segments are moved outwards so that the ports, which have rubber seals round the holes, are pressed tight against the inner diameter of the lower BOP receptacle to form a sealed connection through which the hydraulic fluid can pass. This energising is achieved by pulling up an activator cone which is located within the centre of the stinger behind the segments. The activator operates by pressing against the segments internally pushing them outwards and holding them in place. When the LMRP is unlatched from the lower BOP, the stingers are “de-energised” by the lowering of the activator cone which should cause the segments to retract.

Lining up these connections in the latching process is achieved with four aids.

The Rig had been laid up in cold store in Sicily in 2009. It was recommissioned in the summer of 2010 to be let to ExxonMobil under a contract dated 2 August 2010 for work on a field in Scottish waters. For these purposes the BOP stack was sent for overhaul and repair to Yardbury Engineering and Oil Products Ltd (“Yardbury”), a mechanical and engineering contractor based in Aberdeen. The PODs themselves were not sent to Yardbury, but remained on the Rig in a shipyard in Rotterdam where they were the subject matter of repair and renewal by Transocean personnel under the supervision of a representative from West Engineering Services (“West”), which was appointed by ExxonMobil.

Providence is a small company and accordingly engaged the services of NRG Well Management Ltd and NRG Holdings Ltd (together “NRG”) to assist in relation to the sourcing of a rig, negotiation of contract terms with Transocean, and the drilling operation itself. Providence had hoped that the Rig would be able to commence drilling in the summer or early autumn of 2011, but in the event delays were experienced in completing the ExxonMobil contract and it was not until 5 November 2011 that the Rig was mobilised from Scottish waters and came into service under the Contract. She arrived at the drilling location at Barryroe at 1630 on 15 November 2011.

The Rig sat about 335 feet above the seabed. The drilling of the appraisal well was intended to be achieved to a total depth of 7645ft TVD (TVD is true vertical depth measured from the rotary table) by five sections of hole/casing of decreasing diameter as follows:

The well was spudded on 20 November 2011 when the top hole was drilled. Drilling and casing of the first two sections was completed on 26 November 2011. On that day the BOP stack was successfully function and pressure tested in preparation for deployment. It was latched to the wellhead on 28 November 2011 and again successfully function and pressure tested that day. Drilling of the next section commenced.

On the morning of 30 November it was observed that there was excessive movement of the wellhead. The observation was taken from the bullseye on the wellhead and the Remote Operated Vehicle (“ROV”) captured footage of the movement of the BOP stack. It was recognised by those involved at the time that it was greater than the +/- 1° which was the operating parameter provided for by Section IV of the Contract and the relevant section of the Well Control Handbook. As a result the parties entered into an agreement in the form of a side letter signed by both parties under which Transocean agreed to continue drilling in return for Providence accepting responsibility for the consequences of doing so. Although Transocean contends that the well head movement was causative of subsequent problems and delays, it advances no claim or defence in reliance on the terms of this side agreement.

The weather conditions deteriorated and on 1 December 2011 a decision was taken to recement the well head. The BOP stack was unlatched from the well head and raised at about 1800 that day.

The recementing was successfully completed on 2 December 2011, which prevented any subsequent excessive well head movement. Operations were then delayed by bad weather.

At 0730 on 4 December 2011 the BOP stack was relatched to the well head. Again it was successfully function and pressure tested. During the relatching operation No 2 guideline broke. Drilling of the 17½″ hole commenced on 5 December 2011 and was completed at 0315 on 10 December 2011, following which Providence started running the 13⅜″ casing.

On 11 December 2011 the 13⅜″ casing run was suspended because of bad weather. Providence took the decision to hang off the 13⅜″ casing, using the emergency drill pipe hang off tool, and to unlatch the LMRP from the lower BOP, because of the existing and forecast weather conditions. The lower BOP remained latched to the well head. Between 12 and 16 December 2011 bad weather prevented operations.

On 17 December 2011 two unsuccessful attempts were made to relatch the LMRP to the lower BOP. During the course of the attempts guideline No 4 parted and guideline No 3 was found damaged. It is Transocean’s case, disputed by Providence, that in the course of these relatch attempts there was contact with the lower BOP Blue POD receptacle which was causative of the subsequent misalignment problems.

On 18 December 2011 the LMRP was successfully latched to the lower BOP at about 1200 after two new temporary guidelines had been attached, following which pressure and function testing occurred. The function testing of the BOP started to reveal problems at about 1600 hours. This marks the commencement of the period of delay which is in issue in these proceedings.

Function testing anomalies with both PODs continued until 20 December 2011. In the light of the POD function testing failures it was decided to unlatch the LMRP from the lower BOP to enable the ROV to survey the POD receptacles. When this occurred at 2030-2245 it was observed that one of the mini collet gaskets had come out of the LMRP and was lying on top of the lower BOP, and that one of the retaining dogs was loose. Accordingly a decision was taken to lift the LMRP to surface to enable a replacement gasket to be fitted. It would not have been possible to unlatch the whole BOP stack and recover it to surface at this time: the 13⅜″ casing was hung off in the well and two physical barriers (a cemented shoe and a packer) would have had to have been set to replace the physical barrier provided by the lower BOP stack with its closed preventers in order to satisfy safety requirements before the lower BOP could have been raised.

On 21 December 2011 the LMRP was recovered to surface at about 1000, following which function testing of the PODs resumed. Function and pressure testing took place between 21 and 26 December 2011, but was not completed until the early hours of 27 December 2011. Providence contends that during this time a number of defects and malfunctions affecting the BOP stack were discovered, including the problems with the Yellow as well as the Blue POD. The majority of these deficiencies are disputed by Transocean. In addition, on the evening of 22 December 2011, a leak was discovered coming from the upper annular weep hole. It was agreed between the parties that given the protection available from the lower annular preventer and ram preventers, if operative, this was not a problem which required immediate remedy.

When function testing was completed on 27 December 2011, preparations were made to relatch the LMRP, but by 2015 weather conditions prevented further operations before the operation could be completed. Weather prevented relatching operations until 2100 on 29 December, when preparations started for relatching which was successfully completed at 0600 on 30 December 2011.

Following relatch on 30 December 2011 the function and pressure testing of the BOP stack revealed a pressure loss affecting the closing of the wedgelocks. The cause was identified on 31 December 2011 when it was discovered that a blanking plug had blown out from the forward cylinder head housing the wedgelock for the upper pipe ram. This broke the hydraulic circuit and so compromised the ability to apply all the wedgelocks. It affected the functionality of the entire BOP stack in this safety critical way and necessitated the recovery of the BOP stack to surface to remedy the defect. This first required an effective packing of the hole before the lower BOP could be unlatched, in order to maintain a sufficient hole barrier. Because the 13⅜″ casing had been left hung off since 11 December 2011, this required recovery of the hung off casing, rerunning and cementing the 13⅜″ casing and then inserting a packer to complement the barrier at the shoe.

Meanwhile between 30 December 2011 and 1 January 2012 operations had already started to recover the 13⅜″ casing and run a partial wiper trip of the hole to assess its condition in order to rerun the casing and cementing operation.

On 2 January 2012 weather conditions required the LMRP to be unlatched from the lower BOP and operations remained suspended due to bad weather until 6 January 2012 when the LMRP was relatched.

On 7 January 2012 a wiper trip of the hole was completed revealing problems with the integrity/stability of the hole. On 8 January 2012 at 1115 the 13⅜″ casing run commenced, reaching the required depth at 0930 on 9 January 2012. At 1200 on 9 January 2012 cementing of the 13⅜″ casing commenced but at 1630, towards the end of the operation, the casing floated up 34 ft into the well head.

After a number of unsuccessful attempts to cut the casing and set the packer, those operations were completed on 14 January 2012 at 2030, following which it then became possible to lift the BOP stack to the surface to remedy the problem caused by the wedgelock plug blow out.

Bad weather again held up operations and the BOP stack was recovered to surface at about 1430 on 16 January 2012. Before splitting the LMRP from the lower BOP it was observed that the Blue POD receptacle was cocked: the spring on one of the mounts was compressed by approximately 6 mm. When the LMRP was unlatched, this spring regained its form. It was concluded that this cocking of the receptacle had caused a misalignment between the stinger segment ports and the holes in the receptacle which had compromised the functionality of the Blue POD control system. A picture taken of the receptacle shows the marks left by the stinger segment seals on the receptacle which suggest that the stinger ports were out of line with the receptacle ports both vertically and rotationally.

Between 16 and 24 January 2012 repairs were carried out to cure the two identified problems with the BOP stack, namely the Blue POD misalignment and the missing plug on the wedgelock cylinder head. The BOP stack was relatched to the well head at 0545 on 24 January 2012.

Following successful testing of the BOP stack, operations resumed on 25 January 2012 at 2115 with washing and reaming out of the cement in the 13⅜″ casing. Conditions in the hole led Providence to conclude that it was necessary to side track the well, which reached the same depth which had been reached prior to the problems encountered in December at 1830 on 2 February 2012.

Thereafter drilling continued without giving rise to dispute, and the programme was completed on 25 March 2012. The Rig remained on hire until 1 April 2012.

Transocean’s claim is for remuneration and reimbursables in the total amount of US$13,035,083.97 and £3,516,758.45. Of these sums US$5,761,675.25 and £1,257,083.33 are referable to the period between 18 December 2011 and 2 February 2012 (the “Disputed Period”). The Contract provides for different day rates to be applied according to the functions the Rig is performing at any given time. Transocean’s remuneration claim is calculated by applying one of four such day rates to constituent parts of the Disputed Period as set out in the Appendix to this judgment. The four rates are the Operating Rate, the Standby Rate, the Repair Rate, and the Waiting on Weather (“WOW”) Rate. Periods are calculated to the nearest ¼ hour for the purposes of allocating the appropriate rate.

Providence disputes Transocean’s entitlement to any remuneration for the Disputed Period. It contends that:

Further, Providence claims a sum equivalent to about US$10 million at current exchange rates for what were referred to as its “spread costs”, namely the costs of personnel, equipment and services contracted from third parties, which it says were wasted as a result of the delay. Under the Contract Providence is responsible for directing drilling operations, and for the provision of various services which include amongst other things, well logging, well testing and cementing, mud engineers and mud logging services, geological services, diving and ROV services, weather services, directional drilling services, and running casings. Providence seeks to set off these wasted spread costs against Transocean’s claim for remuneration both for the Disputed Period and the other periods for which Transocean’s claim to remuneration is otherwise undisputed. The spread costs claim is advanced by way of set off because it is accepted that even on Providence’s best case there is a balance due to Transocean in a sum in excess of US$ 1 million. In relation to its spread costs claim, Providence contends that:

In relation to its remuneration claim, Transocean contends that:

In relation to Providence’s spread costs claim, Transocean’s case is that:

In response to Transocean’s reliance on Clause 20, Providence alleges that:

It is convenient to address the issues in the following order.

The relevant remuneration provisions in the Contract provide as follows:-

“… SECTION II – CONDITIONS OF CONTRACT

…

13.

TERMS OF PAYMENT

13.1

For the performance and completion of the WORK, [Providence] shall pay or cause to be paid to [Transocean] the amounts provided in Section III – Remuneration at the times and in the manner specified in Section III and this clause.

…

13.2

[Transocean] shall submit to [Providence] an invoice within thirty (30) days of the end of each calendar month. [Transocean] shall not be entitled to receive any payment on any invoice received by [Providence] after [four months after the completion of the WORK]. Nevertheless [Providence] may, at its sole discretion, make payment against any such invoice.

…

13.4

Each invoice shall show separately the individual amounts under each of the headings in Section III – Remuneration …

13.5

Within thirty (30) days from receipt of a correctly prepared and adequately supported invoice by Providence]….[Providence] shall authorise payment in respect of such invoices ….

13.6

If [Providence] disputes any items on any invoice in whole or in part or if the invoice is prepared or submitted incorrectly in any respect, [Providence] shall return a copy of the invoice to [Transocean] advising [Transocean] of the reasons and requesting [Transocean] to issue a credit note for the unaccepted part or whole of the invoice as applicable. [Providence] shall be obliged to pay the undisputed part of a disputed invoice in accordance with the provisions of Clause 13.5.

If any other dispute connected with the CONTRACT exists between the parties [Providence] may withhold from any money which becomes payable under the CONTRACT the amount which is the subject of the dispute. [Providence] shall not be entitled to withhold monies due to [Transocean] under any other contracts with [Providence] as set off against disputes under the CONTRACT, nor shall it be entitled to withhold monies due under the CONTRACT as set off against disputes under any other contract.

On settlement of any dispute [Transocean] shall submit an invoice for sums due and [Providence] shall make the appropriate payment in accordance with the provisions of Clause 13.5.

SECTION III – REMUNERATION

…

1.1

General

Subject to the terms of the CONTRACT and as full compensation for performing the scope of work and for complying with the obligations of the CONTRACT, [Providence] shall pay [Transocean] in accordance with the format outlined hereunder.

…

3.0

EQUIPMENT PRICES AND RATES

3.1

General DRILLING UNIT Rates

…

All dayrates shall be applied on the basis of a twenty-four (24) hour day and shall be pro rata to the nearest quarter hour for part days.

Only one dayrate shall apply at any one time. Determination of the rate to apply shall be by mutual agreement, having due regard to the circumstances prevailing and the operations intended to be covered by the following rates.

The rates are to include for the provision of the DRILLING UNIT as specified in Section IV(B), all equipment materials and services detailed in Section IV(c) Checklist … and for all DRILLING UNIT personnel specified in Section IV(d) …

…

3.2

Daily Operating Rate $250,000

This rate will apply from when the last anchor has been dropped, is anchored on location, that all anchors have been pre-tensioned and that the DRILLING UNIT is ballasted to drilling draft at [Providence’s] well location designated hereunder and is ready to start the WORK, and through until the DRILLING UNIT is ready with the last anchor racked, to commence tight tow to [Providence’s] next drilling location.

The following provisions shall also apply:

…

(ii)

Rate offered is for the DRILLING UNIT “as is”...

(iii)

Although the rates herein are presented in US$ [Transocean] requests a split US$/£Sterling payment. A portion of the day rate equivalent to £40,000.00/day shall be paid to [Transocean] in £Sterling with the remainder payable in US Dollars. [The clause goes on to fix a mechanism for calculating the exchange rate to be used] ...

3.5

Standby Rate $245,000

The Standby Rate shall apply to Drilling Unit when [Providence’s] operations are not being progressed for any period of the following

(a)

During the conduct of any inspection by [Providence] whether before or after where the COMMENCEMENT DATE [5 November 2011], where actual stand-by is incurred as a result of such inspection being carried out.

(b)

Any period of Force Majeure in excess of 14 days where [Providence] has NOT terminated the CONTRACT;

(c)

Periods when operations are delayed waiting on any member of COMPANY GROUP;

(d)

Any period of repairs or inspection either on location or in sheltered water/dock facility where repairs or inspection are required due to damage or suspected damage caused by any member of COMPANY GROUP or in the circumstances provided for in the CONTRACT or where due to an act or omission of the COMPANY GROUP. Cost of towing the DRILLING UNIT from/to drilling location in such circumstances shall also be to COMPANY’s account;

(e)

Delays in granting of necessary Government approvals and/or licences or delays in providing site specific details which delays the DRILLING UNIT from moving to drilling location;

(f)

Waiting on the instructions of [Providence];

(g)

Delays due to failure, loss, destruction or damage of COMPANY GROUP equipment and materials or failure to supply or delay in supplying such equipment and materials as required to be provided by [Providence] in terms of the CONTRACT;

(h)

Waiting on [Providence] provided vessels or helicopters;

(I)

Periods during upgrades or modifications (and reinstatement thereof, if required, by [Transocean]) to the DRILLING UNIT to meet [Providence’s] specifications, to meet Irish regulatory requirements, or as a result of change in law as set out in the CONTRACT which period shall include tow time and cost of all anchor handling and towing vessels, fuel (DRILLING UNIT and boats) and all ancillary services if such upgrades or modifications are required to be carried out in sheltered waters, port, dry dock or similar locations;

(j)

Periods during waiting on access to [Providence’s] location(s), during loading/unloading of COMPANY GROUP materials and equipment including where the COMMENCEMENT DATE is delayed;

(k)

Periods when the DRILLING UNIT is required to undergo any scheduled or other periodic inspection whether for class or otherwise together with attendant repairs as a result of such inspection identified during the term of the CONTRACT. [Providence] shall remain responsible for the provision of towing and anchor handling vessels with all other services to be provided by it or at its expense as set out in the Schedule IV(c).

(l)

Periods spend (sic) inspecting top drive before, after and, if required, during jarring operations.

(m)

Periods spent repairing top drive resulting from jarring operations.

(n)

When the DRILLING UNIT’s drilling equipment is not being utilised due to [Providence] or any other Contractor of [Providence] conducting speciality operations such as drill stem testing, electrical logging etc.

(o)

Further periods as may be specifically described in this CONTRACT.”

[“COMPANY GROUP” is defined as any of Providence, its co-venturers, service companies and affiliates, directors, officers or employees of any of them]

…

3.7

Fishing Rate $245,000

The Fishing Rate will apply if the fishing is due to, or arises out of negligent acts or omissions of [Transocean] or its PERSONNEL

3.8

Redrill Rate $225,000

Applicable for any period of redrilling a lost or damaged hole or drilling a substitute hole caused by the negligence of [Transocean] in accordance with the provisions of Clause 18.6 of the CONTRACT

3.9

Repair Rate $245,000

Except as otherwise provided, the Repair Rate will apply in the event of any failure of [Transocean’s] equipment (including without limitation, non-routine inspection, repair and replacement which results in shutdown of operations under this CONTRACT including the time up to recommencement of [Providence’s] operations at the same point (including any trip time, eg “drill to drill”) as when the failure occurred excluding any period when the failure has been remedied but operations cannot proceed due to adverse weather or sea conditions, or while waiting on [Providence’s] instructions, materials or services or any period of time when the failure or repair has been caused due to an act or omission of any member of COMPANY GROUP or a Force Majeure Event…

In such circumstances the Standby Rate shall apply subject to the following:

(a)

for the time not exceeding twenty-four (24) hours cumulative per month (provided however that the twenty-four (24) hours per month allowance cannot be carried forward) when operations are suspended due to failure of CONTRACTOR’s equipment at the Repair Rate;

(b)

for any repair time in excess of twenty-four (24) hours cumulative per month the day rate will be reduced to zero (0).

Notwithstanding the foregoing, for Subsea equipment (as described in Clause 18.5 of Section II), when Subsea Downtime (defined below) results in suspension of operations whereby activities cannot be conducted as a result the Repair, then CONTRACTOR shall be entitled to an allowance of seventy two (72) hours to be paid at the Repair Rate. All Subsea Downtime in excess of the allowable hours per calendar month shall be at the Zero Rate.

“Subsea Downtime” is defined as any period of time elapsing between the suspension of operations and the time when normal operations may resume (excluding weather delay as aforesaid), where operations are suspended to facilitate the recovery, deployment, repair or replacement of Subsea Equipment that is lost, damaged, or not functioning as required. Subsea Downtime does not include periods of shutdown or delay for CONTRACTOR’s scheduled maintenance of Subsea equipment including tripping and running time associated therewith.

The Repair Rate SHALL NOT apply to the time required for routine DRILLING UNIT maintenance which shall include (but not be limited to) slipping and cutting of drill lines… routine inspection, surface maintenance and testing of BOP and well control equipment including tripping time …

The Repair Rate shall apply to re-testing BOP well equipment when testing is to confirm the integrity of equipment which has replaced in its entirety failed equipment.

3.10

Force Majeure Rate $225,000.00

Applicable in respect of any period during which operations are suspended as a result of force majeure in accordance with Clause 12 of the CONTRACT.

3.11

Waiting on Weather Rate $245,000.00

The Waiting on Weather (WoW) rate will be applicable per twenty-four (24) hour day or pro rata for part thereof from COMMENCEMENT DATE, for any period of delay when CONTRACTOR’s DRILLING UNIT is unable to proceed because of adverse sea, or weather conditions, this includes time consumed in shutting down and starting up operations before and after period of weather downtime …”

Transocean submits as follows. These provisions contain a complete code for one of the rates to be applicable in all eventualities irrespective of breach by Transocean, and involve an allocation of risk irrespective of fault. Only one day rate can apply at any one time (Clause 3.1). The default position is that the Operating Rate of US$250,000 applies throughout the period unless one of the other identified rates applies (Clause 3.2). This is expressed to apply by reference to a period of time rather than the function being performed by the Rig. It is not expressed to be applicable simply when the Rig is operating. The other lower rates cover periods of standby (when there is delay for a series of identified causes most of which are attributable to Providence: Clause 3.5), moving (Clause 3.6), fishing (Clause 3.7), redrilling (Clause 3.8), repairs (Clause 3.9), force majeure (Clauses 3.10 and 3.5(b)), and adverse weather (Clause 3.11). These are a detailed list of events which may affect the working of the Rig and involve a careful allocation of risk in the form of differential rates. The allocation of rates to these identified causes is not fault based: there is a reduced rate for waiting on weather; force majeure has its own regimen; there are periods for which Transocean gets a reduced rate notwithstanding that delays are due to Providence’s actions or fault, for example when the Standby Rate applies under Clause 3.5; and there are periods when a substantial rate applies notwithstanding that delays are caused by negligent acts or omissions of Transocean, for example the Redrill Rate under Clause 3.8 and the Fishing Rate under clause 3.7 (fishing is the process of retrieving anything which has been left in a wellbore, whether it be junk metal, a hand tool, a length of drill pipe, a measurement tool or other equipment). There is therefore no presumption that the parties did not intend any of the rates to apply where delays were due to the fault of Transocean. Such a presumption is not in any event appropriate in a rig contract where it is common to have “knock for knock” provisions which allocate risk to one party for losses caused by the other party’s breach of contract or negligence, as is the case with the indemnities in clause 18 of the Contract. The Repair Rate does not by its terms apply where the repair is due to acts or omissions of Providence, its co-venturers or service companies, or to force majeure, or to routine rig maintenance. Its scope might therefore be expected to extend to repair delays caused by breaches of contract on the part of Transocean. The Repair Rate is weighted strongly in favour of Providence. For repairs to equipment other than Subsea equipment, Transocean is only entitled to the US$245,000 rate for a maximum of 24 hours in any month, and receives nothing for any further period of delay. For subsea equipment it receives nothing after 72 hours delay of subsea downtime, as defined. Clause 3.9 is drafted in terms which suggest application to all repairs however caused. The natural meaning of the word “failure” itself encompasses breakdowns due to default as well as non-culpable breakdowns. The clause expressly refers to “any” failure which is defined to include “without limitation” non-routine repair and replacement. There is good commercial sense in an allocation of risk for periods of delay arising from the repair of rig equipment which does not depend upon an investigation into the cause of the equipment failure and whether it results from a breach of contract by Transocean. As the circumstances of this case demonstrate, such investigation may be complex, involving an analysis of maintenance history, and its outcome may be the subject matter of dispute. The simple allocation of risk provided for by the clause provides clarity and certainty.

Despite the cogency and attraction of these arguments, I am unable to accept this construction. The starting point is to consider three well known lines of authority on the approach to construction which afford helpful guidance in the present case. First there are the cases which stand for the proposition that unless a contract contains clear language to the contrary, it will not be construed as enabling a party to take advantage of his own breach of contract: see Alghussein Establishment v Eton College [1988] 1 WLR 587 and the cases there considered. Secondly there is the line of authority emanating from the threefold test expounded by Lord Morton in Canada Steamship Lines v The King [1952] AC 192, 208 to the effect that where an exemption clause is capable of applying to negligent and non negligent breaches, which are not fanciful, one should approach the clause on the basis that it was not intended to exclude liability for negligence unless the clause makes such an intention clear. Thirdly there is the approach to clauses relied on to exclude the right of abatement captured in the speech of Lord Diplock in Gilbert-Ash (Northern) Ltd v Modern Engineering (Bristol) Ltd [1974] AC 689. At p. 717B-G Lord Diplock explained that abatement is a remedy which enables a person who buys goods, or who contracts for work or labour, to defend a claim for the contractual remuneration by showing how much less the goods or services are worth by reason of the breach of contract of the other party; and that it is remedy which exists by way of a defence at common law to the claim for remuneration, separately from any equitable right of set-off or procedural arguments based on circuity of action. He went on at p. 717H:

“It is, of course, open to parties to a contract for sale of goods or for work and labour or for both to exclude by express agreement a remedy for its breach which would otherwise arise by operation of law or such remedy may be excluded by usage binding upon the parties (cf. Sale of Goods Act 1893, section 55). But in construing such a contract one starts with the presumption that neither party intends to abandon any remedies for its breach arising by operation of law, and clear express words must be used in order to rebut this presumption.”

In Sonat Offshore SA v Amerada Hess [1998] 1 Lloyd’s Rep 145, these principles were applied to a claim for remuneration under a rig contract where arguments similar to those in the present case arose. In that case there had been a fire on a rig as a result of the rig owner’s failure to maintain equipment, which led to the vessel going into Peterhead for repairs. Saville J, as he then was, held that the owner was entitled to remuneration under the rig contract for the period during which the rig was out of service, notwithstanding that the delay was caused by its own breach and negligence. The Court of Appeal reversed the decision. The remuneration terms in the rig contract in that case followed the same structure as those in the Contract, although they were by no means identical. The payment obligation at the beginning of article 8 in that case was to pay “for the work performed services rendered and materials equipment and supplies furnished by” the rig owner at the rates set out thereafter in the clause. Article 8.3 provided for an operating rate expressed to be payable for the term of the agreement except when other specific rates applied. Article 8.6 provided for an Equipment Breakdown Rate, article 8.7 for a Rig Repair Rate and article 8.8 for a Force Majeure Rate.

The leading judgment was given by Purchas LJ. Having cited the Canada Steamship line of authorities and the dictum of Lord Diplock from Gilbert-Ash which I have quoted above he went on at p. 157 col 1:

“From the authorities just cited in cases involving clauses excluding or exempting a party from liability for his own negligence or wilful default some general principles may be derived which are applicable to the construction of a term providing for payment for “work performed, services rendered and materials, equipment and supplies furnished”. They are as follows:

(1)

Contracting parties in a commercial world are not likely to agree to pay for work performed, services rendered, etc in circumstances in which the other party does not perform the work or render the services. Put bluntly they are unlikely to contract to pay something for nothing, particularly if the failure to perform by the payee is due to his own negligence or default.

(2)

Applying principle (1), if the stipulation is to make continuing and regular payments throughout a defined period of time whether or not the work is being performed the services being rendered or materials, equipment and supplies being furnished, one would expect to find an express term which provided for such payments related to the period during which the payments were to continue, rather than one related to the work etc for which the payment is to be made.

(3)

In the absence of an express stipulation to pay in the circumstances in principle (2) then r.3 in the Canada Steamship Lines case is applicable in the sense that an obligation to pay in the absence of work being performed etc. will only be inferred if there is no other reasonable alternative. The Court will not, of course, look for remote or fanciful avenues in order to construe the clause contrary to the sense of principle (1) above.

(4)

In construing clauses of an agreement providing for payments for work performed, services rendered or materials, equipment and supplies furnished, express words or necessary intentions proven are required before the scope of such clauses can be extended to exclude rights and liabilities arising under other clauses in that agreement. This will particularly be the case where the agreement contains numerous clauses dealing in detail with such rights, duties and liabilities.”

In a concurring judgment Parker LJ said at p. 161 col 2:

“[The main issue] is whether the company, having been deprived of all benefit from the rig for one month due to the negligence and breach of contract of the contractor, is nevertheless obliged to pay, during that period, the equipment breakdown rate without any right of reduction, set-off or counterclaim. Unless the terms of the agreement are such as to exclude such a right, the company is clearly not so obliged.”

And at p. 162 col 2:

“The express provisions for the exercise of care coupled with - i) express provision as to the consequences of lack of care in certain cases; ii) the absence of any such provision in arts. 8.6 and 8.7; and iii) the inherent unlikelihood that the company would have intended to pay, or the contractor to exact, payment when due to the contractor’s lack of care whether the duty of care was contractual or tortious particularly payment in excess of that recoverable when the rig was out of action due to force majeure all reinforce the conclusion that Cll 8.6 and 8.7 were not intended to apply if the eventualities which would otherwise bring them into force were due to the contractor’s negligence.”

Stocker LJ in a concurring judgment said at p. 162 col 2:

“As Lord Justice Purchas has pointed out, if it was the intention of the parties that one party should make payments to the other for services not in fact carried out due to the negligence of that other, one would expect such an intention to be expressly stated in the contract. No such intention is expressed and if on its proper construction this is the effect of the contract then that construction can only have arisen, if essential, to give effect to the contractual terms in fact expressed.”

The contract terms in that case were not identical to those in the Contract in this case and a number of the construction arguments in that case are of no relevance in this. In particular one striking feature which influenced the Court in that case and is absent in the present is that if the rig owners were correct they would have been entitled to be paid more for downtime caused by their own wilful default than if caused by force majeure.

Nevertheless three important points emerge. First, the applicable principles governing the approach to construction apply as much to a rig contract as to any other contract for goods and services. It does not assist Transocean to say that such contracts may commonly contain knock for knock clauses (as this one does in Clause 18) or allocates to one party liability for the financial consequences of the other party’s negligence (as this one does in Clauses 3.7 and 3.8). Where the Contract does so, it is because the parties have chosen to use clear words to that effect in fulfilment of the principles of construction, not because the principles of construction do not apply to such contracts. It may fairly be said that where there is a willingness to agree to such provisions covering particular events or situations, there is less potency in an approach to construction which takes as its starting point the inherent unlikelihood of one party agreeing to bear the financial consequences of the other party’s negligence or breach. But the potency is not altogether removed. Outside the specific situations covered by the knock for knock regime to be found in Clause 18 of the Contract, which is not uncommon, hirers of a rig are no more likely than any other person who contracts for the provision of goods and services to agree to pay something for nothing, particularly if the failure to perform is due to the negligence or default of the payee. This is the point made by Purchas LJ at (1) in the passage quoted above, specifically in the context of a rig contract.

Secondly the framing of the remuneration obligation as being in return for the work, rather than by reference to a particular period of time, is indicative that the right of abatement is preserved and the obligation is only to pay for work being performed: this is Purchas LJ’s point at (2). It applies to Clause 13 of Section II and Clause 1 of Section III of the Contract in this case, just as it applied to the opening words of article 8 of that contract. Moreover, Transocean is a large and experienced rig owner who might be expected to be aware of standard forms and Court decisions on particular wordings when entering into an English law contract. If it had wished to make remuneration payable irrespective of the work being performed and exclude the right of abatement, it might have been expected to adopt the solution suggested by Purchas LJ in (2) rather than entering into a contract in which Clause 13 of Section II and Clause 3 of Section III were drafted to follow the same structure as in Sonat.

Thirdly, the four factors identified by Parker LJ in the passage at p. 162 quoted above apply equally to the provisions of this Contract, with the exception only of the comparison with a force majeure event. There is an express provision for the exercise of care: Clause 4.2 of Section II; there is express provision for the consequences of lack of care in certain cases: Clauses 3.7 and 3.8 of Section III; there is the absence of such express provision in the clauses in question: Clauses 3.2, 3.5, 3.9 and 3.11; and there is the inherent unlikelihood that Providence would have intended to make, or Transocean exact, payment when payment would only become due as a result of Transocean’s lack of care, whether the duty of care was contractual or tortious.

Applying these principles, there is nothing in the wording of Clauses 3.2 (Operating Rate), 3.5 (Standby Rate), 3.9 (Repair Rate) and 3.11 (WOW Rate) which makes clear that Transocean is to be paid at the day rates it is seeking to apply when the rig is not performing the work required of her due to Transocean’s breach. There is no express language to that effect, by contrast with the express language which is employed to achieve that result in clauses 3.7 and 3.8. Mr Persey QC did not identify any such language save for reliance on the words “any failure” and “without limitation” in Clause 3.9. The words “without limitation” cannot enhance the effect of the words “any failure”: they mean “including”, and are intended to ensure that the list of enumerated events or causes which follow are not to be construed as narrowing “any failure”. The entire weight of Mr Persey’s argument of a clear contrary intention therefore falls on the word “any”, a weight it will not bear to express a clear intention to pay for work not performed, to give up a right of abatement or to accept an obligation to pay for the consequences of Transocean’s negligence. In this latter respect, it is true that repair delays may be caused by non negligent breaches of contract or duty by Transocean, as for example a breach of warranty of condition or breach of statutory duty resulting from a latent defect. But neither side contended for a distinction to be drawn between breaches of warranty and breaches comprising negligence in construing the remuneration provisions. If Transocean’s argument were correct, it would be entitled to be paid remuneration for periods where delays were caused by its own negligence or by a breach of contract which was deliberate.

There is no difficulty in giving content to Clause 3.9 if construed as Providence suggests. It would apply, for example, in the event of heavy weather damage, which would not fall within clause 12 as a force majeure event. It would apply to a subsea mishap which was not due to the act or omission of Providence, as Transocean alleges happened in this case by an impact during relatching on 17 December 2011.

Providence’s construction is further supported by Clause 20 of Section II which provides:

“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 [Transocean] 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 [Transocean’s] losses arising in connection with (1) failure by [Providence] 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 [Providence’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 [Providence] shall save, indemnify, defend and hold harmless [Transocean] from the COMPANY GROUP’s own consequential loss and Transocean] shall save, indemnify, defend and hold harmless the COMPANY GROUP from the CONTRACTOR GROUP’s own consequential loss.”

This is an exclusion as well as indemnity clause (see Farstad Supply A/S v Envirico Ltd [2010] 2 Lloyd’s Rep 387). I shall return to the losses which this clause covers in the context of Providence’s spread costs claim. But the important aspect for present purposes is that in a clause whose effect is to exclude Transocean’s liability for certain losses suffered by Providence as a result of Transocean’s breach of Contract, there is saving wording which carves out of the exclusion the right to rely upon such losses in relation to claims for remuneration. This is to be found both in the body of subclause (ii) (“loss of revenue which for the avoidance of doubt shall not include payments due to [Transocean] by way of remuneration under this CONTRACT”) and in the final paragraph (“subject to and without affecting the provisions of this CONTRACT regarding (a) the payment rights and obligations of the parties”).

It does not assist Transocean to rely upon the fact that the Operating Rate in clause 3.2 is defined by reference to a period of time, and to argue that because only one rate can apply, the various rates in Clause 3 are a complete code. The same was true of article 8 in Sonat. The Operating Rate does indeed operate as a default rate where other rates do not apply, even where the events in question might otherwise fall within the subject matter of the other clauses. So, for example, clause 3.9 does not apply to repairs which are caused by acts or omissions by Providence; nor does it deal with all other delays due to repairs or breakdowns in the Rig and equipment: it applies only to failures which result in a shutdown or suspension of operations, not those which may slow down operations. Clauses 3.7 and 3.8 do not address fishing or redrilling arising otherwise than from Transocean’s fault, in which case the Operating Rate potentially applies. The force majeure events in Clause 12 of Section II which trigger the Force Majeure Rate in Clause 3.10 of Section III are specifically and relatively narrowly confined. They do not comprehend events which might be treated as force majeure in other contracts. But this does not alter the fact that all the clauses enumerating the day rates are to be interpreted in accordance with the principles of construction identified above.

Nor does Transocean’s construction promote contractual certainty by avoiding the need to investigate the cause of breakdowns or failures. Clause 3.9 excludes from its scope failures which are due to acts or omissions of Providence or its affiliates, co-venturers or subcontractors.

For these reasons, none of the day rate provisions are to be interpreted as entitling Transocean to remuneration if and to the extent that such entitlement would arise from Transocean’s breach of the Contract or from Transocean’s failure to perform the Work in a way which would give rise to a defence of abatement. I will return to consider the effect of such construction on particular periods of delay when considering causation under Issue 3.

Cause

Both parties have espoused theories of the cause of the Blue POD misalignment which have changed over time, and shifted during the course of the proceedings. Each party supported its case with the evidence of an expert, Mr Lewis for Transocean and Mr O’Donnell for Providence. Both were well qualified and seeking to assist the Court.

In an internal investigation report, Transocean concluded that the two root causes were (1) excessive well head movement between 29 November 2011 and 1 December 2011 resulting in movement of the PODs and the hoses hanging from the BOP receptacle; and (2) a build up of debris in the POD stinger segment cavities preventing full retraction and resulting in uneven downward pressure on the receptacle. Its pleaded case until 25 July 2014 was that the wellhead movement was the sole cause. By an amendment of that date it added a new allegation that the misalignment resulted from damage caused by the relatching attempts on 17 December 2011 due to adverse weather conditions. By the conclusion of the hearing, its case was that the primary cause was physical damage caused by the relatching attempts in bad weather on 17 December; and that an alternative or contributory cause was one which it had not pleaded but which Providence had advanced, namely that the misalignment was due to the hoses on the receptacle being too heavy and exerting a vertical and rotational force. The allegation of well head movement being causative was relegated to a suggestion that it “may have” exacerbated the effect of the hoses being too heavy.

Providence’s case advanced in the first report of its expert, Mr O’Donnell, was that the primary cause was that the hoses exerted an uneven loading on the receptacle over time; they were too heavy, exerting a vertical force; they also exerted a rotational force because they did not hang vertically all the way from the valves on the receptacle to their various connections on the lower BOP; they ran roughly vertically down through a cut out in the plating but then attached to their respective positions on the lower BOP with some lateral deviation; and so each time each hose was used, the pressure would exert a rotational loading on the receptacle. Additional contributory causes were (1) the overtorquing of the retaining bolt on the relevant spring mount which weakened the elastomer spring by overcompressing it; (2) the build up of debris in the stinger cavities which caused it to physically depress the receptacle on one side; (3) the bolt on the energising activator cone being loose. By the conclusion of the hearing, Providence’s case was that the primary cause was the build up of debris in the stinger cavities; and that an alternative or additional contributory factor was the weight and effect of the hoses.

The photograph of the inside of the receptacle following the dismantling of the assembly reveals the circular marks left by the stinger seals. These are out of concentric alignment with the holes in the receptacles both vertically and rotationally. Two potential causes were canvassed for the rotational misalignment. One was that it may simply have been the result of the stinger ports and receptacle holes not being perfectly lined up when the receptacle was mounted; the diameter of the seals is large enough that it is not critical that the hole in the receptacle is lined up exactly with the centre of the circle of the stinger segment seal. The other was that the receptacle had moved rotationally as a result of the rotational force exerted by the configuration of the hoses. My conclusion is that it is more likely that this degree of rotational misalignment arose from the original assembly rather than as a result of any subsequent rotational movement. There is little scope for significant lateral movement in the spring mount, and the problems were not encountered in the Yellow POD which had the same weight and configuration of hoses as the Blue POD. But whichever is the correct explanation, the rotational displacement was not causative of the problems in this case. It was the vertical displacement, evidenced by the 6mm compression of the spring which was observed and photographed when the stack was pulled to surface, which prevented the stinger segment seals and the receptacle ports lining up properly. Any rotational misalignment did not prevent full functioning and was not causally significant.

I am not persuaded that the weight of the hoses played any significant part in the Blue POD misalignment for the reasons explained by Mr Lewis in paragraph 3 of his second report, which I find compelling. First, an engineering bulletin dated 22 March 1993 produced by Cameron and known as EB 729C provides that the hoses will compress the springs by 1.6mm, that the landing of the LMRP will compress them by 10.2mm, and that the maximum compression allowed is 17.8mm. It was agreed by the experts that this envisaged hoses of an earlier design and that modern hoses would be heavier. But it is most improbable that they would be so much heavier as to produce 6 mm rather than 1.6 mm of compression, which is the amount necessary both to reach the maximum compression tolerance and to cock the receptacle in way of the hoses by the amount observed on this occasion. Secondly, if the weight of the hoses were responsible for compression of the spring mount, the spring would not have regained its profile when the LMRP was unlatched. Thirdly, there was no prior or subsequent vertical displacement of the Yellow POD receptacle, which had the same weight and configuration of hoses. Fourthly, the PODs were successfully function and pressure tested on a number of occasions since installation of the hoses, most recently on 26 and 28 November 2011 and 4 December 2011. This supports the conclusion that “something happened”, as Mr Persey put it, rather than that the receptacle suffered from a chronic problem. It is more likely that the receptacle was subjected to some particular physical force.

For similar reasons, I am not persuaded that wellhead movement between 29 November and 1 December played any causative part in the Blue POD misalignment. There was some conflicting evidence of the exact extent to which the BOP stack deviated from the vertical. It was at times as much as 3° from vertical and 4½° in total range. This exceeded the +/- 1° which was the operating parameter provided for in the Contract and Well Control Handbook, but that parameter was designed to protect against key seating damage, that is to say damage caused by the drilling string against the housing. The BOP stack itself formed a rigid structure, so that there would have been no movement of the LMRP relative to the lower BOP irrespective of the deviation from the vertical of the whole stack caused by the insecure cementing of the casing and the movement of the well head at the sea bed. The only potential effect on the BOP receptacle could have been increased movement of the hoses swaying as a result of the movement of the stack. I accept the view of Mr O’Donnell that this is unlikely to have had any significant effect on the receptacle.

There were two attempts to relatch the LMRP to the lower BOP on 17 December, one of which commenced at about 1330 and the second at about 2115. Neither was successful. The LMRP was successfully relatched on 18 December.

I reject the argument that the misalignment was caused or contributed to by a physical impact between the LMRP and the BOP receptacle during those relatching operations for a number of reasons.

First the evidence from those on board at the time does not support the suggestion that there was such an impact. Neither side called any witnesses who had been on board at the time. The contemporaneous written records of events during the two unsuccessful relatch attempts on 17 December comprised the following:

Although the first two reports refer to contact between one of the funnels and a guidepost during the first relatch attempt on 17 December, neither record any damage to the funnel and none was recorded as found when the LMRP was pulled to surface on 20 December, despite the Subsea7 report of it as “broken”. Whatever the state of the funnel, these reports do not suggest an operation in which there could have been contact with the BOP receptacle or any physical damage caused. Normal operations would involve monitoring the relatch attempts by using the ROV to observe the underwater events, and the above reports confirm that this is what happened. If there had been a significant collision it would likely have been observed by those watching the ROV footage at the time and recorded.

Similarly, the contemporaneous records for the successful relatching on 18 December do not record anything untoward.

Secondly the evidence gathered by Transocean in its investigation does not support the collision theory. In January 2012, Transocean conducted an investigation into the causes of the problems on the Rig. The investigative team was led by Mr Scott, Transocean’s Operational Integrity Manager, with Mr Clyne, the North Sea Division General Manager, having overall responsibility. The day to day conduct of the investigation was in the hands of Mr Leslie who held the title Rig Manager Performance. Mr Leslie went out to the Rig and interviewed five individuals who held the titles of Offshore Installation Manager, Senior Toolpusher, Senior Subsea Supervisor, Maintenance Supervisor and Subsea Supervisor. He also obtained further information from, amongst others, Mr Hugo who was the NRG representative who compiled the daily log for 17 December. Transocean called Mr Scott and Mr Clyne as witnesses but chose not to call Mr Leslie, and did not disclose any notes or other records of Mr Leslie’s interviews with those on the Rig. The terms of reference for the investigation specifically included establishing the weather conditions and operational activities at the time of unlatching and relatching the LMRP between 11 and 18 December and establishing any “equipment issues” encountered during this latching and unlatching. One of the principal purposes of the investigation was to establish the cause of the Blue POD misalignment. The resulting report went through a number of drafts and was considered by senior management. It had been agreed that the results would be sent to Providence. In fact what was sent to Providence was a version which had been deliberately doctored to remove references to stinger segment debris and lack of maintenance as a cause, despite that being Transocean’s internal view as one of the root causes. This deception reflects no credit on Transocean’s senior management, and in particular on Mr Scott and Mr Clyne, whose evidence sought to explain the change in an unconvincing way. The kindest thing I can say about their evidence is that they did not do themselves justice.

What is most significant for present purposes about Transocean’s internal investigation is that initial and final drafts recorded that during the relatch attempts on 17 December, the LMRP only got as far as moving above the guideposts before being aborted; and no version of the report or any of its drafts referred to any untoward incident during relatching attempts on 17 December (or indeed during the successful relatching operation on 18 December). There was no reference in any of the findings of the investigation, at any stage, to any collision or impact as a cause of the problem; on the contrary the final internal report concluded that the loss of the guidelines during the first relatch attempt was not considered to be a contributory cause of the problems experienced with control of the lower BOP. The clear inference to be drawn is that Mr Leslie carefully investigated with those on board the Rig at the time whether there had been any incident during the relatching attempts on 17 December which could have caused the misalignment problem, and concluded that it could be ruled out as a cause.

Thirdly, as Mr O’Donnell explained in a passage of his report on which he was not challenged in cross examination, a lateral impact between the bottom of the LMRP and the receptacle on the lower BOP is impossible given the physical configuration of the two parts of the stack. When the LMRP is being relatched, the first potential point of contact between the LMRP and the lower BOP is for the LMRP gates to slide over and down the BOP guidepost. The gates cannot miss the posts completely because of the guidelines running through them, and this would be so even if only two opposing corners had guidelines in tact. When the gates engage with the guide posts, the LMRP plate is 5ft 6 ins above the top of the BOP receptacle. The LMRP alignment pins extend below the bottom of the LMRP plating by 22 ins. Accordingly they could not reach the level of the BOP receptacle until the LMRP gates were 3 ft 8 ins down the guide posts. This would prevent sufficient lateral movement to allow a side impact with the receptacle. Under cross examination, Mr Lewis was unable to advance any explanation of how any lateral collision between part of the LMRP and the receptacle could have taken place.

Mr Lewis advanced an alternative theory that there had been a heavy vertical impact. This was raised for the first time at the experts’ meeting and was something of an afterthought. This new theory is not supported by the contemporary evidence about what happened on 17 December, the gravamen of which suggests that the LMRP never got below engagement of the funnels on the guideposts, nor with the results of Mr Leslie’s investigations with those on the Rig.

Mr Lewis also posited a heavy landing when the relatch was successful on 18 December. This formed no part of Transocean’s pleaded case, and Providence was thereby deprived of the opportunity of adducing potentially relevant evidence, such as ROV footage of the operation. In any event it was not supported by any evidence from those on the Rig at the time or any contemporaneous record. Again it must have been considered and ruled out by Mr Leslie’s investigation with those on board at the time.

Fourthly, it is likely that had there been a lateral impact, it would have left some sign of such impact on the outside of the receptacle, and would have affected more than a single spring on the mount. The LMRP is a heavy unit, and had it been swaying in a way which could have collided laterally with the BOP receptacle, it is unlikely that the damage would have been confined to the slight lateral movement of the receptacle by the compromise of a single spring mount.

Fifthly the evidence of debris in the stinger cavities makes it a much more likely cause than a relatching impact, for the reasons explained below.

Mr Lewis relied on a photograph of a mounting bolt, assumed to be that which had secured the receptacle to the welded mount on the plate through the middle of the spring which collapsed. It showed signs of bending which Mr Lewis attributed to a lateral impact. The small bolt also shows signs of necking as well as having been bent. Mr Lewis’ view was that the necking was the result of it being bent. Mr O’Donnell’s view was that the necking suggests overtightening and that the weakening of the bolt by overtorquing could have led to it bending as a result of the cocking taking place when the stinger segment failed to de energise and caused downward pressure on the receptacle. I regard the evidence about the bolt as of little assistance in determining the cause of the misalignment. There is no direct evidence that this was the bolt which was in the spring which collapsed. In any event the experts’ views had to be based on a photo of a small bolt where the bending is of a few millimetres at most. No secure conclusions can be drawn from that evidence of the condition of the bolt even if the assumption be correct that it was securing the spring which collapsed.

Mr Lewis also relied on the condition of one of the Teflon strips shown in one of the photographs and an apparent vertical mark on the receptacle as demonstrating that there must have been previous lateral movement of the receptacle causing the Teflon strip to become deformed by dragging against that part of the receptacle which was above the spring mount which failed. The Teflon strip shows signs of having deformed by dragging against the receptacle when the stinger retracted upward: the deformation of the strip is downwards. However it emerged in evidence from Mr O’Donnell that the mark could not have been made by the Teflon strip shown in the photograph because of the configuration of the stinger ports. If the apparent mark was in way of the mount which failed, the Teflon strip was not. Accordingly the wear on the Teflon strip could not have been caused by the same displacement as caused the misalignment which led to the collapse of the spring mount. In any event Mr O’Donnell’s view, which I accept, is that the wear shown on the Teflon strip could have been caused by the stinger being dragged out of the cocked receptacle after the event. If so, it sheds no light on what caused the cocking of the receptacle in the first place.

When the stack was pulled to surface on 16 January 2012, the receptacle was observed to be cocked by being vertically depressed on one side with the spring compressed by about 6mm. When the LMRP was unlatched, the spring resumed its uncompressed shape and the receptacle returned to the horizontal. The stinger and receptacle were examined and disassembled for inspection. A number of photographs were taken.

The only witness to give evidence about that examination of the stinger assembly and receptacle was Mr Thompson, a subsea engineer and consultant employed by Hands On Subsea Engineering International Ltd (“HOSE”). HOSE was engaged by Providence to carry out an inspection and audit of the well control equipment on the Rig after the problems emerged in December 2011. Mr Thompson attended on the Rig between 9 and 25 January 2012. He took photographs and kept a daily log, which he sent to his managing director in Aberdeen, Mr Campbell, as well as to NRG. He supplemented these written logs with intermittent oral contact with Mr Campbell.

Also present on board on Transocean’s side were, amongst others, the senior figures of Mr Stuart, the North Sea Division Subsea Superintendent, and Mr Mike Smith, owner of Raisepower Ltd, a specialist subsea well control contractor which had been engaged by Transocean to assist in troubleshooting the POD issue in January 2012.

I assessed Mr Thompson as a truthful and generally reliable witness, although inclined at times to argue Providence’s case. His evidence was that when the LMRP was detached, the stinger was initially inspected by Mr Smith and another Raisepower engineer who confirmed to him that the inboard segments of the stinger had not retracted but were protruding; that he, Mr Thompson, then inspected the stinger and found that one of the four segments was still in an energised position and protruding so as potentially to catch the BOP receptacle and cock it; that when the stinger was disassembled on 17 January 2012 he observed that it was generally suffering from a severe level of rust, that there was a level of “crud” which had built up in the segment cavities, and that it was this crud which had hardened and prevented the stinger segment from de energising. By “crud” he meant loose material or debris of the kind that occurs from electrolysis and from fine particles of mud and cement which have combined and hardened. He described the level of rust that he saw as being “severe, and not simply rust that you could brush off with a cloth or a wire brush.” A photo taken by him shows something filling the segment cavity and supports his evidence, as does his contemporaneous note for 17 January 2012 which records: “we have dismantled the stinger and it is very dirty with a lot of crud and rust.” Mr Thompson’s view was that the crud which was present, and had hardened in the gaps between the stinger segments, must have been building up over a sustained period of time.

Transocean’s own internal investigation confirmed that there was a build-up of debris in the POD segment cavities and that periodic clearing of debris from the segments and the cone cavity was not captured in the Transocean maintenance schedule. The author of this passage, Mr Leslie, must have seen the stinger while he was on the rig between 16 and 19 January 2012 and this must reflect his views.

Transocean sought to rely upon an attachment to an email from Mr Campbell to Mr O’Brien and Mr Roe dated 18 January 2012, which contains the statement that the POD stinger segments look to be in good condition and that the corrosion stated is only surface corrosion and the normal state of the stingers and sliding surfaces. Mr Campbell was not in fact talking about the surfaces of the areas between the segments. In any event he was not present on the rig to see the stinger, and did not give evidence. Mr Thompson’s evidence is a surer guide to the condition he personally observed.

Mr O’Donnell’s view, expressed in his second report and his evidence to me, was that this failure of the segment to de energise was the primary cause of the cocking of the receptacle and the consequent misalignment. The segment pressed against the side of the receptacle causing asymmetrical downward pressure on the receptacle which in turn caused it to cock and the elastomer spring mount to deform. This evidence represented the elevation of this theory from a contributory cause in his first report to a primary cause in his second report and evidence to me. Despite this shift in his position, I regard it as by far the most likely cause of the misalignment problem for a number of reasons.

First, this is a coherent and feasible explanation which fits the narrative of events on the Rig. The Blue POD was functional when function and pressure tested on 26 and 28 November 2011 and again on 4 December 2011. Something must have happened to cause the misalignment by 18 December 2011, when it is common ground that the anomalies found on testing were the result of the misalignment. If this was not lateral movement of the receptacle, which I have rejected for the reasons given earlier, it must have been something which exerted a new force on the receptacle. The stinger is the obvious candidate, especially in the light of the subsequent discovery that one of the segments was not retracted. The stinger segment was said by Transocean at the time to be “flush with the wear guide” (i.e. the Teflon strip) and it was this very segment which was adjacent to the spring which collapsed. A seizure of the segment because of a build up of material in the cavity is just the kind of event which could explain the difference between the state of the assembly when last successfully tested and its condition on 18 December 2011. The explanation is consistent with damage to the stinger seals which was observed when the LMRP was pulled to surface in December, which as Mr O’Donnell explained, can be caused by the segments being pressed against the walls of the receptacle when being inserted or retracted.

I reject Mr Lewis’ suggestion, and Transocean’s case, that this theory is technically impossible. It is said to be disproved by the fact that the stinger sits in the test receptacle in the LMRP and when extended into the BOP receptacle slides down what is in effect a single combined cylinder, such that the stinger cannot extend beyond the extent of the Teflon strips which will prevent the stinger applying any downward pressure. The Teflon strips are designed to be relatively frictionless in comparison to the sides of the stinger segments with their metal surfaces punctuated by circular rubber seals. I see no technical objection to Mr O’Donnell’s theory that if a stinger segment has failed to de energise, and so is as hard up against the test receptacle after its last retraction as it would be when energised, it is capable of forming downward pressure on the BOP receptacle when next inserted, both indirectly whilst dragging against the wall of the test receptacle and directly by dragging against the wall of the BOP receptacle.

That such a mechanism is technically feasible is amply borne out by it being espoused as a possible explanation by Transocean itself (as well as by Mr Thompson and Mr Campbell). The Transocean internal investigation concluded that this explanation was a root cause for the misalignment. There was also a conference call set up for 15 February 2012 with Mr Quintero, Transocean’s Senior VP Operations to discuss the lessons to be learned from the problems with the Rig. Mr Milne prepared and Mr Scott presented a number of slides. One slide identified as a potential cause of the misalignment “Pod stinger not fully de-energised during pod engagement into receptacle leading to side loading of pod receptacle when extending into the stinger”. If it were technically impossible, that could not realistically have been overlooked by the experienced and expert investigative team, and it would not have been being considered as even a potential cause by senior management.

Secondly the alternative explanations for the misalignment put forward by Transocean do not bear scrutiny for the reasons I have identified.

Thirdly the conclusion of the Transocean investigation provides positive support for this as the likely explanation. In its final draft of the investigation report of 31 January 2012, Transocean concluded that this was one of the two root causes for the misalignment, the other being well head movement, which I have rejected. It is of course possible that Transocean was mistaken: the opinions of the parties and experts on both sides have to some extent shifted over time, and my task is to decide the causation issue by reference to all the evidence before me, not just by reference to what Transocean initially concluded. Nevertheless I have not had the benefit, which the Court sometimes has, of a more rigorous investigation by reference to a fuller range of primary evidence. Mr Leslie and his team had access to those who were on the Rig at the time and who witnessed both the events in question and the state of the parts when they were disassembled and inspected; by contrast, I have heard only from Mr Thompson and have had argument on what can or cannot be seen from a few photographs which are neither clear nor comprehensive, without the benefit of evidence from those on board at the time to whom Mr Leslie and his team had access. This was a significant incident for Transocean and it sought to learn lessons from a thorough investigation. It not only had access to a fuller range of primary evidence than has been available to me, but was also able to apply a level of collective experience and expertise of subsea equipment and operations which exceeds that available to me.

Fourthly this was the immediate contemporaneous view of Mr Thompson, the only witness to the condition of the stinger and receptacle from whom I heard. He has considerable experience with subsea equipment and had been involved, at an early stage of his career, in assisting on the between wells maintenance on this very rig, before its acquisition by Transocean. He recorded this conclusion in his daily log.

Fifthly, Raisepower identified this at the time as the cause of the misalignment, both in conversation with Mr Thompson and in Mr Smith’s report to Transocean. The Raisepower personnel were specialists in subsea well control, and had the benefit of having seen the stinger and the assembly when it was removed and dismantled.

Sixthly, this was the explanation supported by Mr O’Donnell, whose evidence I found generally to be more persuasive than that of Mr Lewis where it was possible to test it by reference to its underlying reasoning and technical evidence.

For these reasons I conclude that the sole effective and proximate cause of the Blue POD misalignment was the debris in the stinger segment cavities.

Breach

Providence relied on the following terms of the Contract:

“SECTION II CONDITIONS OF CONTRACT

4.

[TRANSOCEAN’S] GENERAL OBLIGATIONS

4.1.

On the COMMENCEMENT DATE …..[Transocean] shall provide the DRILLING UNIT fully equipped as set out in section IV(b) – Rig Specification. Subject to its design limitations, the DRILLING UNIT the Drilling Unit shall be adequate to conduct the WORK at the location(s) specified by [Providence] and contemplated by this CONTRACT. The DRILLING UNIT and all other equipment, materials and supplies hereinafter specified as being provided by [Transocean] shall be in good working condition and together with the personnel, shall be provided and maintained by [Transocean].”

[Transocean] shall carry out all of its obligations under the CONTRACT and shall execute the WORK with all due care and diligence and with the skill to be expected of a reputable contractor experienced in the types of work to be carried out under the CONTRACT.”

“[Transocean] shall take full responsibility for the adequacy, stability and safety of all its operations and methods necessary for the performance of the WORK...”

SECTION IV(a) SCOPE OF WORK

…

1.2

DRILLING UNIT Requirements

Provision of a suitable mobile offshore drilling unit to meet both the projected well timing and also location (water depth) requirements.

…

4.0

POLICIES AND PROCEDURES

…

Transocean must ensure that the DRILLING UNIT can operate efficiently and to recognised API and IADC industry standards and is therefore capable to conduct the Work at [Providence’s] locations as specified in the Scope of Work….

5.0

WORK SCOPE

…

5.10

[Transocean] shall install, operate, test, repair and maintain its well control equipment, in good condition at all times and shall use all reasonable means to control and prevent fires and blowouts and to protect the hole.

7.0

EQUIPMENT

[Transocean] shall ensure that all tools, equipment, facilities and other items for use by [Transocean] in the performance of the WORK, however and by whoever provided, are maintained in a safe, sound and proper condition, are certified and are capable of performing the functions for which they are intended.”

Providence contended that the terms upon which it relied were warranties as to the state of the Rig and its equipment which were broken if there was any deficiency. Transocean contended that the terms imported a duty to maintain the Rig and equipment which was not an absolute obligation, but one to exercise due diligence or reasonable care; that there could be no breach of the terms unless Providence established that there had been a failure to have in place or implement a proper maintenance plan.

The first part of Clause 4.1 is addressed to the condition of the Rig and all other Transocean supplied equipment at the Commencement Date which was 5 November 2011. It requires the Rig and her equipment (1) to be adequate to conduct the WORK (which by section 1.2 of Section IV requires it to be suitable for meeting the projected well timing) and (2) to be in good working condition. This is a warranty as to the condition of the Rig at 5 November. It is not an obligation to use due diligence to provide the Rig in this condition.

A Rig which at the time of delivery has equipment in such a state that it is susceptible to breakdown or malfunction during normal use in the projected well operation is not then in good working condition or in a state which is “adequate to conduct the WORK”. The effect of this warranty is that it will be broken if there is a subsequent breakdown or malfunction of the Rig during the projected work which is not caused by some abnormal operation of the rig or some supervening causative event.

Clause 4.1 also contains an obligation on Transocean to “maintain” the Rig and her equipment. A maintenance obligation may be interpreted as an obligation to exercise due diligence to maintain, or as a warranty that its subject matter will remain in the stated condition. In the New York Produce Exchange form of time charter, the obligation to maintain the vessel in a thoroughly efficient state in hull machinery and equipment throughout the charter is generally to be construed as an obligation to exercise due diligence, in the context of incorporation of the Hague Rules. But depending on its terms, it may amount to a warranty that the vessel will remain in a thoroughly efficient state: see Adamastos Shipping v Anglo-Saxon Petroleum (The Saxon Star) in the Court of Appeal reported at [1957] 1 Lloyd’s Rep 271. As Parker LJ observed at p. 280, the nature of the obligation to maintain must depend upon the exact words used.

In this case the natural reading of the final words in clause 4.1 is that the Rig and equipment shall be maintained in the condition described earlier in the clause, not merely that there shall be an obligation to “maintain” in a general and undefined sense. This means that it must be maintained as adequate to conduct the “WORK”, whose scope is defined in Section IV. Clauses 4, 5.10 and 7 make clear that this is a continuing warranty, not a due diligence obligation. Clause 4 imposes an obligation that Transocean must ensure that the Rig and her equipment are capable of conducting the WORK. This is the language of achieving a stated result, not of following a process of due diligence in order to seek to achieve it. Clause 5.10 provides that Transocean must maintain its well control equipment in good condition at all times; this is expressed in absolute terms in contrast to the second half of the clause which imports an obligation to use all reasonable means to prevent fires and blow outs and protect the hole. Where the parties wished to identify a due diligence obligation, they did so in terms. By contrast the obligation to maintain in clause 5.10 is not so qualified. Clause 7 imposes an obligation to ensure that the equipment is maintained in a sound and proper condition and is capable of performing its intended function. This again is the language of warranting a result, not following a due diligence process.

Accordingly the deficient state of the stinger on 18 December 2011 is such as to put Transocean in breach of the Contract, irrespective of its condition on 5 November 2011 or the maintenance history of the PODs.

That is sufficient to conclude the issue of Transocean’s breach. But in case I be wrong in my construction of the Contract, I should record my findings in relation to the POD’s condition on 5 November 2011 and the adequacy of Transocean’s maintenance of it. I conclude that the debris in the stinger segment cavities was of long standing, and was already present on 5 November 2011; that it was as a result of a failure by Transocean to implement an adequate maintenance programme on the PODs; and that the condition of the stinger on 5 November 2011 rendered it liable to seize in the course of the well project, which is what I have found occurred and caused the misalignment. I can state my reasons for these conclusions briefly.

The maintenance procedure for the stingers and receptacles which is recommended by Cameron is contained in its 1993 engineering bulletin EB 729C. This bulletin recommends a semi-annual inspection which, if performed, would involve removing the cones and cleaning inside the segment areas and around the hydraulic actuator cylinders with a high-pressure washer.

In 2010 Transocean’s planned maintenance programme had a 90 day task for the PODs which required, amongst other things, that those performing the task should “thoroughly wash the POD internally and externally with potable water” and should then “de-energise and extend LMRP and BOP stingers”.

In the summer of 2010 the BOP was overhauled by Yardbury at Yardbury’s facilities. This overhaul did not include the PODs. At around the same time, the PODs underwent a servicing programme carried out in Rotterdam. Transocean called no witness who was involved in that overhaul, which was supervised by West. The documentary records refer to considerable work, but do not contain any reference to the stinger segments being disassembled and internally cleaned. There is an RMS record for 18 August 2010 which identifies the relevant 90 day SPM task (and its requirement for internal washing) tags the task as “complete”. However in listing the work done it does not refer to washing. This was not “reporting by exception” listing only what was not done out of what the task required; it was a listing of what was done, albeit not complete. Although the other documentary records of work on the PODs at Rotterdam record considerable work, none records any internal washing of the stingers. In the absence of any documentary record or witness evidence supporting any such washing, I conclude that none was carried out on this occasion.

In December 2010, Transocean carried out some further maintenance work on the stingers pursuant to the 90-day task. Transocean called no witness to speak to what occurred at that stage. The work recorded as done in December 2010 includes “cleaned both stinger [sic] and replaced damaged seals sa [sic] required”. There is no evidence that this included cleaning the inside of the stinger segments as recommended by Cameron.

There followed a change in Transocean’s maintenance programme which in March 2011 involved replacing this 90-day task with a combination of the Between Wells Maintenance Plan (VPM-0869) and a 360-day programme (VPM-0867). The Between Wells Maintenance Plan included the requirement to “remove and service the PODs”. VPM-0867 did not require any washing of the POD stinger assemblies. VPM-0867 is expressed to be in addition to the Between Wells Maintenance Plan. It is apparent from this, and the documentation produced in the context of Transocean’s internal investigation, that Transocean considered the 90-day task to be a more comprehensive task than that which replaced it.

In 2011, there is no record of any maintenance work being done on the stingers prior to 5 November 2011, which is the Commencement Date under the Contract.

However work was carried out on the PODs by Mr McLean, the senior subsea supervisor on board the Rig, on 20 November 2011 prior to deployment of the BOP stack. The nature of the task which Transocean’s amended maintenance plan required to be carried out on this occasion was a combination of the 360-day task for PODs (VPM-0867) and its Between Wells Maintenance Plan for the Arctic III (VPM-0869).

Transocean did not call Mr McLean to explain what he had done on 20 November 2011. What was done was addressed in the witness statement of Mr Scott, but I did not feel able to rely on his evidence which was based on, but traduced, the documentary records. There are three sets of documents which cast light on what was done. The first is the RMS Work Done Report which records that the VPM-0867 360 day task was “complete”, but sets out the tasks actually performed which do not extend to all those required by VPM-0867. The time recorded as having been spent on the work done is three hours, which is to be contrasted with the scheduled time of 12 hours per POD. The work as recorded describes only an exterior cleaning; it did not include cleaning the interior of the stingers and between the segments as recommended by Cameron. Such cleaning (involving dismantling and reassembling the stingers) would take well in excess of three hours.

The second is the Subsea Engineer’s daily log which records for the nightshift of 20 November 2011 the following:

“Extended, cleaned and retracted blue and yellow pod BOP stingers.
Cleaned LMRP connector sealing faces and C+K flanges.
Cleaned BOP stinger receptacles.”

This too seems to refer to an external cleaning only.

The third set of documents casting light on what occurred arises out of a telephone call 24 November 2011 referred to as the “pre-deployment call”, in which one of the two senior subsea supervisors, Mr Ingram, was questioned by senior management as to the work that had been carried out. Prior to this call, Mr Ingram had sent an email to Mr Malcolm setting out a list of the required tasks and their status. This list records both VPM-0867 (the 360-day task) and the task of removing and servicing both PODs (the between wells maintenance) as being “complete”. Mr McLean had been the senior subsea supervisor on the Rig when the work was carried out; Mr Ingram had just taken over from Mr McLean; and it was Mr Ingram who was being required to answer for what had been done and not done. An account of what took place on the call on 24 November 2011 is contained in an email from Mr Ingram to Mr McLean that evening which records:

“Then we got to the Pods and when they asked if they were removed as described on the list, I said they had only been inspected and visually checked. They then asked why they were not removed and I couldn’t answer due to lack of sufficient info, regards why”

A subsequent call was held on Saturday morning, 26 November 2011 in which Mr McLean said that the PODs had been removed and serviced during the previous end of well maintenance procedure. Seemingly on this basis, the list of work done that had previously been sent to Mr Malcolm was amended on 26 November 2011 so that the status of the task for removing both PODs and servicing them was recorded as follows: “removed and inspected last EOW.” There is no record in any of Transocean’s documentation of this task in fact having been carried out “last EOW”. It is clear, however, that Mr McLean was saying that the PODs had not been removed and serviced on 20 November 2011. This was a failure to implement the task required by the Between Wells Maintenance Plan.

I have already referred to the evidence of Mr Thompson, which I accept, that the level of rust which he saw in the stinger was severe, his contemporaneous note that it was “very dirty with a lot of crud and rust” and his view that the crud which was present, and had hardened in the gaps between the stinger segments, must have been building up over a sustained period of time.

The final version of Transocean’s internal investigation report of 31 January 2012 concluded that a root cause was that “periodic cleaning of debris from the Segments and the Cone Cavity was not captured in the Transocean maintenance Schedule.”

On 10 February 2012, Mr Doug McEwan, Transocean’s Operations Manager Performance, said in an email: “Looks like no maintenance had been done on the POD’s [sic] for years, in that the stinger locking mechanism and extend functions where [sic] in a very poor state.”

The BOP was inspected by Subsea Solutions on behalf of Nexen in March and April 2012 for the purposes of the Rig’s next employment. Mr Frizell of Nexen said in an email of 19 April 2012:

“To say I am disappointed in the condition of the BOP is an understatement! The condition does not reflect only recent problems but a much longer term lack of maintenance, care and improvement of the whole system – the poor condition of the BOP didn’t happen overnight”

Mr Clyne’s reaction to this is set out in his email dated 20 April 2012 to Mr Doug McEwan, in which he said:

“Extremely disappointing reading and backs up what Providence were saying …

We need to turn this around as the report is shocking.”

This history shows that the stingers had not been properly washed and cleaned, as Cameron recommended as a semi-annual task, since the Rig went into cold storage in 2009. The poor condition of the stinger segment cavities which caused the Blue POD misalignment in December 2011 was a longstanding deficiency, resulting from the inadequacy of Transocean’s planned maintenance programme, which was not in any event implemented by Transocean.

Had I concluded that the weight and configuration of the hoses had played a causative part in the misalignment, I would have held that Transocean did not fail to exercise due diligence in this respect, because this was not known generally within the industry as a problem and was not previously known as a problem on this Rig. Nevertheless Transocean would have been in breach of Contract because the relevant terms were warranties, not due diligence maintenance obligations.

Cause

The blanking plug was never found. It is very rare for such a plug to blow out. It blew out because it had not been properly tightened, and had worked itself loose during service to a point where, as could be observed from the threads on the cylinder head, it had blown out when retained only by the last few threads.

Other plugs in the same vicinity were observed to have recessed heads so as to be tightened with a hexagonal allen-key type tool, whereas the Cameron recommended type was a plug having a proud hexagonal head for tightening. I do not regard this as a significant factor. Recessed head plugs would be capable of being properly tightened to the required torque so as not to be susceptible to working loose during service. Nor do I regard as significant the fact that other plugs in the vicinity were engaged to the extent of 0.375 to 0.4 inches which is less than the recommended extent of 0.5337 inches. The well head movement did not play any part in causing the plug to blow out. Nor did the relatching attempts on 17 December 2011, or any other aspect of the Rig’s operational functions.

The sole effective cause of the plug blowing out was human error in failing to tighten it properly and sufficiently when it was installed, which rendered it susceptible to working loose and blowing out during normal service.

A blanking plug was installed by Yardbury during the overhaul in the summer of 2010. The weight of the evidence suggests, however, that it had been replaced by Transocean personnel prior to the casualty, and that it was they who had not properly installed the plug which blew out.

Breach

Consequently Transocean was in breach of the Contract because in this respect the Rig and her equipment were not in good working condition and adequate to conduct the work at the Commencement Date (5 November 2011); nor were they maintained in good condition so as to be capable of doing so.

Transocean contended that there was no failure to maintain because the blowing out of plugs is such a rare event that the exercise of due diligence would not require the checking of blanking plugs for tightness. The factual premise is correct but the legal conclusion flawed and in any event insufficient to prevent Transocean being in breach of contract because:

By the conclusion of the evidence it was clear that the gasket had fallen out because the retaining dog had not been properly screwed in and was loose; it was not as a result of any damage to the retaining dog. Transocean had replaced the mini collet gaskets on 20 November 2011. Its subsea engineer failed properly to tighten the retaining dog. Accordingly Transocean was in breach of contract in this respect.

The weeping from the upper annular preventer weep hole observed on 22 December 2011 was the result of a design defect. It constituted a breach of the warranty of the condition of the Rig and her equipment at the Commencement date.

In the light of my findings on the other issues, it is not necessary for me to make any findings on the numerous disputes which arose in this category, which were not in the forefront of Providence’s case.

Transocean contends that even if it cannot claim at the relevant day rates for periods of delay caused by its breach, certain periods within the Disputed Period do not come within this category because of what occurred during these periods and/or what would have occurred but for the breach; and that for the same reasons spread costs are not recoverable for such periods. This applies to the following periods:

It is convenient first to identify the periods of delay which prima facie resulted from the breaches of contract, before considering the parties’ arguments by reference to particular periods and operations which Transocean contended should be excepted.

Prima facie the Blue POD misalignment problem caused delays for the whole of the Disputed Period, that is to say from 1600 on 18 December 2011 to 1830 on 2 February 2012. It is common ground that the delays from 18 to 27 December 2011 were so caused. Thereafter the problem could only be rectified by bringing the whole BOP stack to the surface, which could not occur until the 13⅜″ casing, which had been left hung off on 11 December 2011, had been cased and fitted with a packer so as to provide the double barrier to the hole which was required before the lower BOP could be unlatched. Once that had occurred and the lower BOP recovered to surface on 16 January 2012, the problem was identified and rectified, but it was then necessary to side track the well because of the length of time for which the hole had been open. The well was not at the same depth and ready to continue drilling from the equivalent position to that reached on 18 December 2011 until 2 February 2012.

Prima facie the wedgelock blanking plug problem caused delay from 1500 on 30 December 2011, when the leak on the upper pipe ram which it was causing was discovered, until the end of the Disputed Period. Again the problem could only be rectified after it became possible to unlatch the lower BOP and recover the stack to surface, which was not possible without a functioning lower BOP until the packing of the 13⅜″ casing, following which the stack was recovered to surface on 16 January 2012, and following its remedy thereafter, the works were not back to an equivalent point to that reached on 18 December 2011 until 2 February 2012. However Mr O’Donnell’s evidence is that had the blanking plug been the only problem it would only have taken two days to repair. Accordingly 6 of the 8 days between 16 and 24 January 2012 whilst repairs were also being made to cure the Blue POD misalignment problem, cannot be attributed to this breach.

Prima facie the mini collet gasket problem caused delay from 1930 on 20 December 2011, when the gasket fell out at the time of unlatching the LMRP. It continued until 24 December 2011 when the retainers were ready to be reinstalled. Thereafter what prevented the relatching were the Blue POD misalignment problems, not the bad weather which intervened on 27 December 2011. Had the retainers been reinstalled and the gasket replaced on 24 December 2011 and the relatching operations then undertaken, this would have taken an additional 28.75 hours through to completion of function testing.

The upper annular problem was not causative of any delay. Following its discovery on 22 December 2011, the parties agreed that it did not need to be remedied immediately. When the stack had been recovered to surface on 16 January 2012, the opportunity was taken to repair it whilst other work was being carried out. The repairs took something of the order of 72 hours. Providence contended that this was undertaken in parallel with other work. If so, it does not appear that this breach was causative of any additional delay. Transocean, on the other hand, contended that the repair to the annular extended the delay by a period of 72 hours. This would only assist Transocean if, contrary to my findings, the upper annular problem occurred without breach on the part of Transocean. On either view, therefore, no separate causation point arises in relation to this breach. Had it mattered I would have found that the period was not extended by the repairs, which were only undertaken at this time because they were not going to cause any additional delay; and accordingly that the breach had no significant causative effect on the timing of works.

Providence did not seek to ascribe any period of delay to the Yellow POD and other miscellaneous problems.

2100 on 27 December to 0600 on 30 December: WOW

Transocean has claimed at the Standby Rate for this period up to 2100 on 29 December 2011, and thereafter at the Repair Rate (now zero) for the remaining 9 hours. As I understood Transocean’s case, it was that the Standby Rate applied not under the terms of Clause 3.5 but by operation of Clause 3.9, the Repair Rate clause, which expresses the rate to be the standby rate in certain circumstances. Transocean contends that during this period:

Providence contends that:

These arguments raise legal and factual issues. It is convenient to state my conclusions on the factual issues first.

Providence’s case that drilling and casing operations would have been undertaken during this period if the Rig had been ready to do so was supported by the evidence of Mr Roe and based on records of the weather during the period. I reject it for the following reasons. Mr Roe accepted that the decision was one for the OIM in the light of the existing and forecast weather conditions, a decision making process of which he had no personal experience. His opinion was therefore of no greater value than what could be concluded from the documentary record. The Operating Manual contains recommended limitations on operations for various categories of operation by reference to wind and sea state. The parameters for heave are 2.4m for drilling, 0.9m for BOP handling, 1.2 m for running casing and 1.5m for cementing. As appears from the weather records the heave was outside the operating parameters of the Rig for drilling from 2000 on 27 December and for the vast majority of 28 December. The weather forecast was poor for the 29 December and Transocean’s OIM was concerned about starting operations given the time needed to unlatch. The heave conditions exceeded those recommended for running casing throughout 27, 28, 29 and the early hours of 30 December and exceeded the parameters for drilling operations from 2000 on 27 December, the vast majority of 28 December and the small hours of 29 December. I conclude that this period would have been lost to bad weather had the Rig been ready for, and required to undertake, drilling and casing operations.

Mr Roe’s evidence was that certain of the spread costs would have been saved had drilling reached the anticipated stage by 27 December, in particular all equipment and services associated with the 17½″ section and the drilling of the 12¼″ section. His analysis was based on the “lookahead” programme prepared by NRG on 18 December. That document envisaged some equipment leaving the Rig on 20 December following completion of the 13⅜″ casing but recorded no other planned removal of equipment prior to 27 December, even though it anticipated that by 27 December the 13⅜″ casing would have been run and cemented, and the next 12¼″ section drilled and cased, with logging of that interval under way. Mr Roe’s evidence depended upon two assumptions. The first was that the weather on 23 December would not have interrupted operations. This is not borne out by the records. One of the four hourly observations records heave of 2.9m which exceeds the recommended limit for drilling, and all heave recorded for that day exceeded by a considerable margin the limits of 0.9m for BOP handling, 1.2 m for running casing and 1.5m for cementing. The second is that upon completion of the casing of the 12¼″ section, the equipment and personnel associated with it would have been promptly landed so as to bring to an end the obligation to pay for it. This was not justified for the 12¼″section: it was not envisaged in the lookahead that it would be landed by 27 December, and there were in practice delays by Providence in landing equipment and bringing to an end their periods of hire. I am not persuaded that had operations run as planned from 18 December Providence would have got the relevant equipment off the Rig and avoided paying for it for the period 27 to 30 December, save for that scheduled for landing in the lookahead document on 20 December.

One approach to the effect of weather on causation might have been to look at the whole of the remainder of the project, including that after the Disputed Period, and to determine the length of time by which the total period was extended by reason of the breaches by identifying the date by which the work would have been completed in the absence of breach, including bad weather during that period, and comparing it with the period by which the project was in fact completed, taking account of bad weather over the whole period, including that occurring after the date on which work would have been completed but for the breach. However neither side suggested such an approach or analysed the weather during periods subsequent to the Disputed Period.

Different considerations may potentially apply to Transocean’s remuneration claim from those which apply to Providence’s wasted spread costs claim. In relation to the former, Transocean must bring itself within the scope of one of the day rates which are to be interpreted as I have set out above. In relation to the spread costs claim it is for Providence to establish that the breach caused the loss claimed. A loss will not be so caused if the time would have been incurred during the relevant period in non productive operation even had Transocean not been in breach. In those circumstances the claim for wasted costs would not satisfy a but for test of causation.

So far as concerns Transocean’s remuneration claim, Providence’s argument that weather delays following from other delays caused by the breach automatically fall outside the right to remuneration fails properly to give effect to the true construction of the remuneration provisions. If those provisions would otherwise apply upon their terms, the effect of breach is, as a matter of construction, that they will not allow Transocean to recover if and because such breach would either give rise to a right of abatement, or to an equivalent sum as damages for breach of contract which would defeat the remuneration claim for circuity of action. The doctrines of abatement and circuity each depend upon the breach having causative effect. The paying party is only entitled to abate the price if and to the extent there has been a diminution in the value of the contractual services: see for example Lord Simon in Aries Tanker Corporation v Total Transport Ltd [1977] 1 WLR 185 at p. 192. If no work would have been done on that day even if there had been no breach of contract, there has been no diminution in the value of the services rendered as a result of the breach of contract. There is a similar test of causation underlying the concept of circuity of action: remuneration is not recoverable because the entitlement to remuneration would only arise as a result of the breach of contract which Providence would be entitled to claim back as damages. It is because the remuneration provisions are to be construed as not entitling Transocean to claim in circumstances where the amounts claimed would either be subject to abatement or recoverable as damages so as to engage the doctrine of circuity, that remuneration is irrecoverable in such circumstances. That arises for periods of delay if, but only if, they are caused by Transocean’s breach. Where such payments would have fallen due had Transocean not been in breach of contract, they are not caused by the breach and there would be no argument that the claim should fail for circuity or that the doctrine of abatement would apply. There is no presumption or canon of construction that a party should not pay that which he would have had to pay for in any event, irrespective of the breach or negligence of the payee.

Transocean’s point that the Rig was ready to perform the operation immediately required of it, namely the relatching, is misplaced. The Rig was not ready to perform the operation required of it, namely casing and drilling, because it had to undergo a prior exercise of retrieving the lower BOP before it could do so, an exercise which was only necessary because of Transocean’s breach of contract. But this is not sufficient to bring the doctrines of abatement or circuity into play. The effect of the Contract is that Transocean is not entitled to be paid under clause 3.9 for periods during which the Rig is not operating as a result of Transocean’s breach. Such periods include periods of bad weather which prolong the time taken to remedy the breach if, but only if, normal drilling and casing operations would have occurred during that period in the absence of breach. If there would have been no drilling or casing in the absence of breach, the breach has not prolonged the operation for that period; and the delay for that period has caused no diminution in the value of the services as a result of the breach.

The remaining question for Transocean’s remuneration claim for this period is, therefore, whether Transocean is entitled to claim at the Standby Rate by virtue of the operation of the Repair Rate clause for 48 hours from 2100 on 27 December 2011 to 2100 on 29 December 2011, which raises two issues. Is it the correct rate? If not, should Providence be allowed to take the point?

Providence argued that the Repair Rate clause, Clause 3.9, did not apply, and that there was no claim based on the WOW Rate clause which might otherwise apply. The argument under Clause 3.9 was that the Repair Rate/Standby Rate only applied “when the failure has been remedied” and the failures had not been remedied at this time. I do not so read the clause. The Repair Rate is expressed to apply where there is a shutdown of operations as a result of any failure in Transocean’s equipment, until the operations are at the same point as when the failure occurred. There is excepted from this any period after remedy of the repairs whilst waiting on weather, or sea conditions or Providence’s instructions. For so long as the shutdown in operations continues and the failure has not been remedied there is no room for that exclusion to come into play and the Repair Rate applies, subject to the other conditions and qualifications in the clause. Transocean is correct in its contention that the Repair Rate clause governs this period. The way Clause 3.9 is structured is that once the Repair Rate has been triggered by a failure of equipment resulting in a shut down of operations, the Repair Rate/Standby Rate of $245,000 per day applies until the failure has been remedied and the Rig recommences operations at the same point as when the failure occurred subject to two relevant qualifications. The first is that periods of delay resulting from bad weather, sea conditions or Providence’s instructions between the time of remedy of the failure and commencement of operations is not to count. This is of no application to this period because the failure had not been remedied. The second qualification is that the rate is the Repair Rate for the first 24 hours per month when operations are suspended “due to” the failure and thereafter the (same) Standby Rate reduced to zero for repair time in excess of 24 hours, subject to the application of the Subsea Downtime provision. If the latter does not apply, the reduction of the rate to zero occurs “for any repair time in excess of 24 hours per month”, an expression in subparagraph (b) of the clause which must take its colour from subparagraph (a) and introduce the same causative concept that the repair time must be “when operations are suspended due to [the] failure”. The period of bad weather here being addressed does not fulfil those conditions because the suspension of operations was not caused by the failure but by the bad weather, which would have precluded operations in any event. The Subsea Downtime provision does not apply either: it is expressed to be confined to circumstances when Subsea Downtime as defined, which includes the suspension of operations “to facilitate the recovery, deployment, repair or replacement of subsea equipment” gives rise to a “suspension of operations whereby activities cannot be conducted as a result of the Repair”. The italicised words again introduce a causative requirement which is not fulfilled for the period of bad weather here under consideration. The Subsea Downtime provision is inapplicable. The Standby Rate is therefore correctly claimed for this part of the period.

Had it been necessary to decide the issue, I would have held that this point was open to Providence. Providence’s Defence put Transocean to proof of the applicability of the day rates claimed. The point raises no factual issues which caused prejudice to Transocean in seeking to meet it.

So far as concerns Providence’s spread costs claim for this period, Providence must show that the costs incurred in this period would not have been incurred but for the breach. They have not done so. But for the breach, the operations would still have been delayed by bad weather and the costs incurred.

0600 to 1715 on 30 December 2011

This was the period after relatching in which the LMRP was being function tested for a period of 11 hours 15 minutes. This delay was caused by Transocean’s breach. Had the Rig been functional on 18 December 2011 it would not have been necessary to unlatch the LMRP from the BOP on 20 December 2011, and the bad weather between 27 and 30 December would not itself have necessitated it.

Transocean contended that the decision to hang off the casing on 11 December was causative of delay from 30 December 2011, because it was that which prevented the BOP stack being immediately recovered to surface; it was necessary to leave the lower BOP in place whilst barriers were put in the hole, which required running and cementing the 13⅜″ casing and setting a packer. There are two answers to this point. First, no criticism can properly be levelled at Providence for hanging off the casing on 11 December; it was a normal and routine rig operation in the circumstances. In this respect the state of the Rig when Transocean’s breaches took effect was the foreseeable condition of a rig in normal service. Transocean is responsible for the effect of its breaches on a rig in a normal and foreseeable condition. Secondly, even if the casing had not been hung off, it would still have been necessary to complete the casing and set a packer before the lower BOP could have been brought to surface.

1715 on 30 December 2011 to 0230 on 31 December 2011

During this period the hung off casing was being recovered. That is work which would have had to be undertaken on 18 December had there been no breach of contract because the casing had been left hung off on 11 December 2011. The Rig was operating for that period; accordingly Transocean is entitled to be paid at the Operating Rate, as it has claimed for this period. The Repair Rate clause, clause 3.9, is not the governing clause because there was not a shutdown of operations. Conversely, Providence is not entitled to its spread costs claim for this period because the costs were not wasted. They would have been incurred in any event.

0230 to 2215 on 31 December 2011

During this period the Rig was preparing for and carrying out a wiper trip until abandoned for bad weather. A wiper trip would in any event have had to be conducted had there been no problems encountered on 18 December 2011. It took longer, on 31 December and when resumed after bad weather on 7 January 2012, than was anticipated on 18 December. The anticipated time for the wiper operation was 18 hours. The additional time included an hour on 31 December when the wiper met with an obstruction and further delays on 7 January. Providence contended that the additional time taken was caused by the length of time the hole had been left open consequent on the delays caused by Transocean’s breach, which I accept. Accordingly I conclude that 18 hours of the period here being considered on 31 December was a period for which Transocean is entitled to charge at the Operating Rate and Providence not entitled to claim wasted costs. Otherwise it is not an excepted period, and nor is any of the period for conducting the wiper trip when it was resumed on 7 January 2012.

There were periods within (3) and (4) above when, as Transocean concedes, there were delays for troubleshooting caused by the wedgelock problem. These are 3 hours on 29 December, 6 hours on 30 December and 1.5 hours on 31 December. Transocean cannot claim remuneration for these periods (they have been charged at the Zero Repair Rate), and Providence’s spread costs for these periods were caused by Transocean’s breach.

2215 on 31 December 2011 to 0130 6 January 2012:

During this period the Rig was waiting on weather to continue the wiper trip. On 3 January 2012 the weather was serious enough to require unlatching of the LMRP from the lower BOP. It was relatched at 0130 on 6 January 2012. The weather would have prevented drilling and casing during this period in any event. Accordingly, for the same reasons as apply to the WOW period between 27 and 29 December 2011, Transocean is entitled to claim remuneration for this period and Providence is not entitled to all its spread costs for the period. Providence is however, entitled to claim some of its spread costs for the period. Providence advanced the argument, based on Mr Roe’s evidence, that for this period it would not have incurred the costs associated with the 13⅜″ casing and cementing operation, and the drilling and casing of the 12¼″ hole, because the equipment would have been landed and off hire by late on 31 December 2011 when the bad weather set in. As I have explained, I am not satisfied that if operations had proceeded normally from 18 December the equipment would have been landed before the bad weather set in on 27 December 2011; I am, however, satisfied that such is the case by before 1 January 2012, given the good weather window of over 36 hours on 30 and 31 December 2011. Mr Roe’s evidence is to be accepted on this point. Providence has established that such costs were wasted as a result of Transocean’s breach of contract. There is to be excluded from this category the Halliburton “safety joint” and “mechanical settings” items.

0130 to 2400 on 6 January 2012

During this period the Rig was function testing the LMRP which had had to be unlatched as a result of the bad weather between 3 and 6 January 2012. It is common ground that the weather between 3 and 6 January 2012 was sufficiently severe that the LMRP would have had to be unlatched even if the Rig were waiting on weather to resume drilling and casing operations. Accordingly this period falls to be treated in the same way as the WOW period between 31 December 2011 and 6 January 2012.

0630 on 8 January 2012 to 1645 on 9 January 2012

There is a period of 34.25 hours over these two days during which the 13⅜” casing string was made up, the casing was run, and the casing was cemented into position. Providence accepted that was operational work which would have been incurred in any event and was not a delay caused by the breach. Accordingly Transocean is entitled to remuneration and Providence is not entitled to its spread costs for the period.

1900 12 January 2012 to 2030 14 January 2012

During this period the Rig was setting the packer in order to allow the BOP to be pulled to surface. This would normally be expected to take 6 hours, but on this occasion required four attempts and took much longer. The first attempt took from 1900 on 12 January to 0415 on 13 January and failed because the clamps could not be removed from the packer; the second attempt undertaken between 0415 on 13 January and 0345 on 14 January failed because there was not enough room for the packer in the wellhead and an additional piece of casing had to be cut; the third attempt between 0345 and 1000 failed because the packer did not inflate properly; the successful fourth attempt took from 1000 to 2030 on 14 January. None of these difficulties were of Transocean’s making or attributable to its breach. Mr Roe attributed them to “human error”, which is Providence’s responsibility. Accordingly only 6 hours of this period is to be excluded from Transocean’s remuneration claim and included within the spread costs claim.

0245 to 2400 on 15 January 2012

After completion of setting of the packer on 14 January, the Rig was waiting on weather to pull the BOP to surface. The weather conditions during this period were severe enough to prevent BOP handling, running casing and cementing, but not so severe that they would have interrupted drilling. Whether remuneration and spread costs are recoverable for this period depends on what operation the Rig would have been performing had there been no problems in respect of which Transocean was in breach. Neither party addressed me in argument on the evidence on that question. I will invite the parties to address me by way of further argument (but not further evidence) when handing down this judgment.

26 January 2012

The Rig was waiting on weather for a period on 26 January. Transocean has calculated a period of 17.25 hours, but it appears, as Providence contends, that the period is between 0415 and 1500 amounting to 10.75 hours. This falls to be dealt with in the same way as the WOW period between 31 December 2011 and 6 January 2012.

2330 on 28 January to 0045 29 January 2012

During this period a function integrity test was undertaken which Providence accepts would have been undertaken in any event. The period of 1.25 hours is therefore to be included in Transocean’s remuneration claim and excluded from the spread costs claim.

It is common ground that the indemnity provisions of Clause 20 also operate by way of exception to exclude recovery of a claim for costs falling within the definition of consequential loss. Providence contends that the clause does not preclude set-off of its spread costs claim because they do not fall within the definition; or alternatively that the clause only precludes recovery of consequential loss as damages; it does not preclude set-off.

Certain matters were common ground:

On behalf of Transocean Mr Persey submitted that the spread costs were “loss of use” and within the particularisation in the parenthesis in subparagraph (ii) on three alternative bases. His primary argument was that these were claims for loss of use of the property, equipment, materials and services provided by contractors, subcontractors and third parties. His alternative case was that the claim was for was loss of use of property, namely the Rig or was for business interruption. In each case this was, he submitted, the natural and straightforward meaning of the words used. He relied on the adoption of such an approach by Mrs Justice Carr in Fujitsu Services Ltd v IBM United Kingdom Ltd [2013] EWHC 752 (TCC) at paras [32]-[38]. He also relied upon the approach adopted by Mr Justice Morison in Smit International (Deutscheland) GmbH v Josef Mobius Bau-gesellschaft mbH & Co [2001] CLC 1545 applying a knock for knock clause as a “crude but workable allocation of responsibility”.

I prefer the submissions of Mr McCaughran QC on behalf of Providence on this issue which may be summarised as follows.

The clause falls to be construed contra proferentem against Transocean, notwithstanding that it is a bilateral clause with mutual exclusions and indemnities. Parties in commercial contracts are entitled to apportion risk of loss as they see fit and provisions which limit or exclude liability in such contracts are in general to be construed according to the same principles as other terms: Tradigrain SA v Intertek Testing Services (ITS) Canada Ltd [2007] EWCA Civ 154 per Moore-Bick LJ at para [46]. Knock for knock provisions in a rig contract (as with clause 18 of the Contract) or in tug and tow contracts (as in Smit) are examples of such an approach. Nevertheless a party relying on an exclusion clause must establish that the words show a clear intention to deprive the other party of a remedy to which he would otherwise be entitled, because one starts with the presumption that neither party intends to abandon any remedies for breach by the other arising by operation of law, and clear words must be used in order to rebut that presumption: Gilbert-Ash v Modern Engineering per Lord Diplock at p. 717H. That applies to commercial contracts such as a rig contract, and to both parties to the contract even where the exclusion is mutual and is to be found in an indemnity clause: see EE Caledonia Ltd v Orbit Valve Co Europe Plc [1994] 1 WLR 1515 at p. 1523B-D.

Sub paragraph (ii) must be construed in the context of it being a specifically defined incursion into the territory of the first limb of Hadley v Baxendale, and should therefore be approached by treating the enumerated types of loss as incremental incursions into that territory, construed narrowly to limit the scope to specific categories narrowly defined rather than a widespread redefinition of excluded loss.

In that context “loss of use” is more naturally to be read as connoting the loss of expected profit or benefit to be derived from the use of property or equipment.

This construction gains strength and colour, by application of the eiusdem generis principle, from the other identified types of loss. The body of the subparagraph identifies seven other types of loss apart from loss of use, namely (i) loss or deferment of production (ii) loss of product (iii) loss of business and interruption (iv) loss of revenue, which is defined to exclude for the avoidance of doubt remuneration due to Transocean (v) loss of profit or anticipated profit (vi) loss/deferral of drilling rights and (vii) loss/restriction/forfeiture of licence, concession or field interests. Subject to possible debate in the case of loss of product, these are all loses of income or benefit. This is consistent with the approach of Mr Justice Andrew Smith in Ease Faith Ltd v Leonis Marine Management Ltd [2006] 1 Lloyd’s Rep 673, in which at paragraphs [142]-[143] he determined that an exclusion of loss of profit by a tug or tow did not cover loss comprising diminution of the price when construed eiusdem generis with “loss of use” and “loss of production” which were directed to future use of the tug or tow.

“Cost of use…..” is an example given within the parenthesis of a loss of use. It covers the cost of hiring in equipment or services, or replacing property the benefit of which has been lost, in order to mitigate the loss of benefit. It has no application to the spread costs where the costs are for equipment and services which were provided. Providence did not lose the use of that equipment or those services, which remained available to it, which is why Providence incurred wasted expenditure in paying for them.

If the clause were to be construed as Transocean contends, the exclusion would cover all losses which Providence might conceivably suffer by way of damages for which Transocean would otherwise be liable. Losses involving damage to the parties’ own property or injury to their own employees are allocated to that party, irrespective of cause or fault, under clauses 18.1, 18.2, 18.5 and 18.8. Liability of Providence to third parties for personal injuries suffered by third party employees as a result of Transocean’s breach of tortious or statutory duty is allocated to Transocean by Clause 18.1(c) and the converse position dealt with similarly in Clause 18.2(c). Pollution risks are allocated by Clause 18.4. The final paragraph of clause 20 makes clear that it is not to apply to the allocation of risk in clause 18. Mr Persey could not identify any head of loss which Providence might suffer for which Transocean would be liable as damages for breach of its contractual obligations, outside the specific indemnities in clause 18, if consequential loss were to be construed as widely as he suggested. This is a clear indication that it cannot bear such a construction. The Court will not readily construe a clause as having this effect because to do so is to render the primary performance obligations in the contract effectively devoid of contractual content, there being no sanction for non performance: see Tor Line AB v Alltrans Group of Canada Ltd [1984] 1 WLR 48, 58-9, Kudos Catering (UK) Ltd v Manchester Central Convention Complex Ltd [2013] 2 Lloyd’s Rep 270 at para [19], AstraZeneca UK Ltd v Albemarle International Corporation [2012] 2 CLC 252 at para [313]. As Lord Wilberforce put it in Suisse Atlantique Societe d’Armement Maritime SA v NV Rotterdamsche Kolen Centrale [1967] 1 AC 361 at p. 432B:

“One may safely say that the parties cannot, in a contract, have contemplated that the clause should have so wide an ambit as in effect to deprive one party’s stipulations of all contractual force; to do so would be to reduce the contract to a mere declaration of intent”.

In this Contract there are detailed warranties and other terms as to the condition of the Rig which can only have been intended to have the force of obligation on Transocean’s part, such that liability in damages would at least in some circumstances attach to their breach. Mr Persey submitted that a breach of such obligations would not be without consequence or reduce them to a statement of intent: if, as I have held, the remuneration provisions are to be construed as not extending to delays caused by Transocean’s breach, the obligations are given substance and consequence through Providence’s relief from the obligation to make payment. This does not meet the point. Clause 20 is plainly designed to cover damages claims by a party, and if a construction of the clause gives it no content in relation to damages claims, that is a powerful indication that the construction is not what the parties intended. Mr Persey also drew attention to clause 22.1(d) which entitles Providence to terminate the Contract if a breakdown in Transocean’s equipment which is not caused by Providence’s actions results in 15 or more consecutive days of inability to perform the work. This too gives no content to clause 20 in its application to a damages claim if Transocean’s construction were correct. Moreover, the remedy in Clause 22.1(d) is not dependent on breach of any obligation by Transocean, but merely on a breakdown of the Rig or equipment for a defined period. It cannot therefore give content to contractual warranties and terms as imposing obligations on Transocean where a construction of clause 20 would otherwise deprive such terms of any contractual content.

I have derived no assistance from the cases of Smit and Fujitsu. Those are cases concerning different terms and different facts. The approach in those cases is entirely consistent with the approach to Clause 20 advocated by Providence in this case.

Accordingly Clause 20 affords no answer to Providence’s set-off of its spread costs claim.

Mr McCaughran’s alternative submission, that if the spread costs were consequential loss the effect of clause 20 was to preclude recovery of a damages claim but not to preclude the right of set-off against remuneration, does not arise. If it did, I would reject it. A set-off cannot arise where there is no recoverable claim to set off. A damages claim which is excluded by contract is no claim at all. There is no legal entitlement to a sum of money and nothing to set off. If authority were needed for this self evident proposition it is to be found in Aries Tanker Corporation v Total Transport Ltd [1977] 1 WLR 185 per Lord Wilberforce at p. 188E-F. Nor could any set off in such circumstances be equitable. Equity lies in enforcing the parties’ bargain, which would be (if I were wrong in my construction of what constituted consequential loss) that Providence would save and hold Transocean harmless from the spread costs. If a set off were allowed, Transocean would not be saved or held harmless from such loss, but made to feel it.

Mr McCaughran relied on the fact that clause 20 is expressed to be subject to, and not to affect, the provisions of the Contract regarding “the payment rights and obligations of the parties”, which include clause 13. He relied in particular on clause 13.6 which entitles Providence to withhold from payment of remuneration sums which are the subject matter of a dispute under the Contract. This does not assist the argument. Clause 13.6 provides for a temporary right to withhold sums claimed as remuneration when invoiced, pending resolution of the dispute. The clause goes on to provide that once the dispute is resolved, any sum due must be paid. If the Court determines that there is no valid deduction to be made, Clause 13.6 does not confer a right of deduction.

Given my findings on breach of contract and Clause 20, the claim in misrepresentation cannot affect the result. I can deal with it briefly.

Providence engaged NRG to conduct the tender process. NRG drafted an invitation to tender (“the ITT”) which was sent to four rig contractors, one of whom was Transocean on 7 February 2011. The ITT was a lengthy document. Amongst other things it identified the scope of work and contained detailed terms which would form the terms of the contract. They included warranties of the fitness for purpose of the rig, and of its maintenance in good condition.

Transocean’s tender (“the Tender”) was submitted to NRG on 18 February 2011. It too is a lengthy document. At section 8 which was headed “EQUIPMENT FITNESS FOR PURPOSE” it included the following passage (I have highlighted in bold the statements relied on as misrepresentations):

“1.

GENERAL

Transocean maintain the rig and associated hardware fit for purpose. All necessary certification requirements are complied with. A programme of surveys and inspections is in place to maintain this compliance. MODU compliance, maintenance and modification processes are detailed in the Transocean Maintenance Manual.

The RIGNAME Rig Manager (supported by Technical Field Support as required) is the focal point for all matters related to equipment fitness for purpose and the certification process.

Third Party Equipment refers to all equipment supplied by the client, client Third Party Contractors and Transocean Third Party Contractors.

For further guidance on what is defined as Work Equipment (see Figure 8.2.)

2.

MODIFICATION CONTROL PROCEDURES

Prior to commencing significant MODU modification, the appropriate safety and engineering analysis shall be performed in accordance with the Transocean Maintenance Manual. Any modifications requested by CLIENT must likewise follow the same procedures.

3.

MAINTENANCE

Transocean shall be responsible for ensuring that all tools, equipment, facilities and other items for use in the performance of the operations are maintained in a safe and proper condition and are capable of performing the functions for which they are intended. The Transocean Planned Maintenance System ensures that standards are in place and equipment is suitably maintained.”

The tenders were evaluated by Mr Walsh of NRG. An evaluation document was sent to Providence on 4 March 2011. This was the document on which those at Providence relied in choosing which rig to hire. It made no reference to the representations. It recommended that another rig operated by Awilco Drilling Ltd be chosen. It soon became apparent that that rig was unavailable to meet the projected timing for the Barryroe drilling programme and on 14 March 2011 Providence instructed NRG to secure the Rig from Transocean. That process took until 15 April 2011, when the Contract was signed with an effective date of 21 March 2011. The negotiation of the detailed terms was largely left to the judgment of NRG.

Transocean disputed the misrepresentation claim on the grounds that:

The statements were untrue by reason of the deficiencies in the LMRP stinger which were of long standing and resulted from an inadequate maintenance programme. It is only in this respect that they were untrue. I cannot safely conclude that there was at the time of the Tender an inadequately screwed in blanking plug; it is equally possible that that occurred when replaced subsequently by Transocean personnel. There was no system maintenance failure in relation to the blanking plug.

The statement was not made with reasonable grounds for belief in its truth given the inadequacies in the stinger maintenance programme I have identified above.

Providence sought to rely on the evidence of its Commercial Manager, Mr O’Brien, to establish reliance. However he did not see or know of these provisions in the Tender at the time. It was clear from his evidence that Providence relied on NRG to assess the reliability of the rig operators in relation to the condition of the rigs and made its decision based on the evaluation prepared by NRG and relying on its advice.

There is nothing in the evaluation prepared by NRG for Providence to suggest that the statements had been taken into account in framing it. There was no evidence from anyone at NRG, including in particular Mr Walsh. In the absence of evidence I am not prepared to infer that he or anyone else at NRG read or relied on the two particular sentences upon which the misrepresentation claim focuses in framing the evaluation document or NRG’s advice to Providence. These are two sentences in a lengthy document. There were to be contractual terms, already identified, under which the successful bidder would give warranties as to fitness for purpose and maintenance. In the evaluation for Providence there was a focus amongst other things on NPT (Non Productive Time) of each of the rigs, suggesting that condition, maintenance and reliability of the rig equipment were being assessed by the historical record of downtime. The ITT had called, at paragraph 1.5 of Attachment 1, for tenderers to submit details of their Safety Management System including a copy of the contents list of each system. Transocean did not provide those details with its Tender and there is no suggestion that Mr Walsh either noticed or cared. Transocean was a well known and substantial rig operator whose reputation would have been known to Mr Walsh and it was Transocean’s reputation, coupled with his own knowledge and experience of Transocean and records of downtime for this rig which are likely to have been of weight in any judgments on maintenance and rig condition, rather than any self serving statement from Transocean itself, in circumstances where rig condition and maintenance were to be addressed as contractual warranties with the contractual consequences which would follow from any breach.

Mr McCaughran sought to rely on a principle that once a misrepresentation is established as being material there is a presumption that it was relied upon, by reference to Cartwright on Misrepresentation, Mistake and Non-Disclosure 3^rd Edn 3-53 and the cases there cited, including Matthias v Yetts (1882) 46 L.T. 497, 502 and Smith v Chadwick (1884) 9 App Cas 187, 196. This is to mischaracterise the principle. Materiality is not itself a necessary ingredient of the cause of action, but is relevant as informing the issue of whether the representee in fact relied upon the misstatement. There may arise an inference of fact, not a presumption of law, that the representee did so rely if the misstatement is material in the sense that it is of such a nature as is likely to have induced someone in the representee’s position to enter into the contract. The strength of the inference of fact will vary depending upon all the circumstances of each case. These principles do not assist Providence. It cannot establish that the misstatements were read or focussed on prior to entering into the Contract. In those circumstances no inference of factual reliance can be derived from the materiality of the statements. Moreover on the facts of this case, even if I were satisfied that Mr Walsh, or someone else at NRG, had read or focussed on them, I would not be prepared to infer that he relied on them for the reasons given in the previous paragraph.

Accordingly Providence has not established reliance, which is fatal to the claim in misrepresentation.

Providence claimed the same loss pursuant to its misrepresentation claim as in contract, namely the wasted spread costs. It contended that once a claimant had established that it had been induced to enter into an agreement by a misrepresentation which the representee failed to establish was made with a reasonable belief in its truth, the representee’s damages pursuant to s. 2(1) of the Misrepresentation Act 1967 were to be calculated on the same basis as if the representation had been made fraudulently and covered all losses flowing from entry into the agreement. The damages are those which will put the representee in the position he would have been in if he had not entered the agreement, not the position he would have been in had the misrepresentation been true. See Chitty on Contracts 31^st edn paras 6-074, 075 and the cases there cited. Accordingly the damages to which Providence is entitled are to be calculated by taking all the expenditure incurred by reason of having entered into the Contract, including its wasted expenditure, and deducting the amount of expenditure that it would have incurred under a notional contract at the same rates, properly performed, without interruption to remedy the problems which arose under the Contract. It was not necessary, so Providence submitted, to allege or prove that it would actually have entered into a different contract at the same rates.

I am unable to accept this last submission. If the misrepresentation claim were established, Providence would be entitled to be put in the same position as if it had not entered into the Contract, which in the circumstances of this case posits achieving the same benefit by entering into an alternative contract for performance of the work. That is not a “notional contract” in the sense of one which may or may not have been available. If, for example, any other available rig contract involving no breakdowns would have cost Providence the same, in terms of remuneration and costs incurred, as the cost to Providence under the Contract taking into account the delays which occurred, Providence would have suffered no loss from entering into the Contract. All depends on the capabilities of the rig and the terms of the contract in respect of an alternative rig available to Providence at the time. It is clear from the tenders that to the extent that alternative rigs were available at all, they were being offered on different terms. In the absence of any attempt to calculate the difference in cost between the Contract and an alternative available contract, Providence has not proved what if any loss was suffered as a result of entering into the Contract.

Clause 20 applies to a claim in misrepresentation to the same extent as a claim for breach of contract, as is made clear by clause 18.8. If Providence had established reliance and loss, the latter would not have been excluded by clause 20.

It was agreed between the parties that they would seek to calculate and agree the financial consequences of my findings. In the absence of agreement, I will resolve any further issues which may arise.