1

OPINION OF LORD CAPLAN
in the cause
ELF CALEDONIA LTD (VOLUME 1)
Pursuers;
against
1. LONDON BRIDGE ENGINEERING LTD
2. NORTHERN INDUSTRIAL & MARINE SERVICES CO LTD
3. BRITISH TELECOMMUNICATIONS PLC
4. WOOD GROUP ENGINEERING CONTRACTORS LTD
5. EASTMAN CHRISTENSEN LTD
6. KELVIN INTERNATIONAL SERVICES LTD
7. STENA OFFSHORE LTD
Defenders:
______

I N D E X

Chapter / Title / Pages / Volume
One / Introduction / 1
Two / The Platform / 1
Three / The Production Process / 1
Four / Safety / 1
Five / Causation 1 / 2
Six / Causation 2 / 3
Seven / Causation 3 / 4
Eight / Some Legal questions / 5
Nine / Indemnities / 5
Ten / The Settlements / 5
Eleven / Quantification of Loss / 6
Twelve / Contribution / 6
Thirteen / Conclusions / 6

1

VOLUME 1

OPINION OF LORD CAPLAN
in the cause
ELF ENTERPRISE CALEDONIA LTD
Pursuers;
against
1. LONDON BRIDGE ENGINEERING LTD
2. NORTHERN INDUSTRIAL & MARINE SERVICES CO LTD
3. BRITISH TELECOMMUNICATIONS PLC
4. WOOD GROUP ENGINEERING CONTRACTORS LTD
5. EASTMAN CHRISTENSEN LTD
6. KELVIN INTERNATIONAL SERVICES LTD
7. STENA OFFSHORE LTD
Defenders:
______

2 September 1997

CHAPTER ONE-INTRODUCTION

1.1.General

This is one of a series of cases arising out of the tragic accident on the Piper Alpha oil platform which occurred on the evening of 6 July 1988. As is well known the oil platform in question, located in an oilfield in the North Sea about 110 miles north-east of Aberdeen, was destroyed in an explosive conflagration with considerable loss of life. 166 persons lost their lives as a result of the accident either through being on board the platform or through being involved in rescue operations. Of those killed 159 were British and of the balance only one was an American citizen, he being from Texas. 62 of those aboard the platform survived the accident but many of these suffered varying degrees of injury or trauma. The accident was the worst disaster in the history of the British off-shore oil industry. The pursuers in each of the said cases are Elf Enterprise Caledonia Limited who are the successors to the owners and operators of the platform at the time of the incident. Following upon the accident the families of deceased victims and the survivors combined in various ways to present their claims against the platform operators and in particular they indicated that they were proposing to litigate their claims against the pursuers’ predecessors in Texas. The reason for this selection of Texas as a prospective forum to litigate claims, arising from an event largely involving British victims and occurring in Scottish waters, was that it was conceived that the Texas legal system was materially the most favourable which was potentially available for the pursuit of such claims both in relation to its Jury procedures and in quantification of damages. Negotiations took place throughout the autumn of 1988 between the pursuers’ predecessors and the representatives of the victims’ interests and eventually settlement terms were agreed and then implemented. The validity of the claimants’ assertion that a Texas court would accept jurisdiction in litigating their claims was a critical issue but compromise was reached on the assumption that the level of damages finally offered and accepted represented an approximate mid-point between the assumed Texas level of damages and the assumed Scottish one. This basis of settlement was referred to by the parties as a “mid-Atlantic formula”. The relatively prompt settlement of claims is clearly to be applauded on humanitarian grounds but the question of who bears the ultimate responsibility for the monies paid to claimants raises contentious issues which have given rise to the present litigations. The operators of the platform employed a certain number of their own employees but most persons on board the platform at the time of the accident were in fact employees of various contractors who had arrangements with the operators to carry out specialist work tasks. Thus for example drilling, diving and catering work on the platform was conducted on behalf of the operators by specialist contractors. The contractors had each entered into contracts in connection with the work they had to perform and these contracts provided that in certain circumstances the contractors were to indemnify the operating parties in the event that damages had to be paid to those contractors’ employees as a result of incidents occurring while they were working on the platform. At the time of the accident there were 226 persons on board the platform. Of these 165 died and 61 survived. Of the persons who died 31 were employees of the Operators and 134 were employees of one or other of the contractors. There were also two persons killed while working on a rescue craft. Of the survivors 6 were employed by the Operators and 55 employed by contractors. There are 146 actions in the present series of cases and these are each directed against contractors who employed persons killed or injured in the accident and in respect of whom monies have been paid by way of damages and expenses to claimants under the settlement terms to which I have previously alluded. The pursuers claim that the defenders in each case are bound in terms of their contract to indemnify the pursuers for the monies paid out under the settlement. It is claimed by the pursuers that they were bound to compensate the victims or their relatives and that the sums that were payable under each settlement were reasonable. In the actions the pursuers are seeking to recover not only the sums paid to claimants as actual damages but also sums of expenses paid to the claimants in respect of legal expenses said to have been necessarily incurred in pressing home their claims including expenses incurred for representation at the Cullen Inquiry. The defenders for their part deny that they have any liability under the alleged indemnities. This puts in sharp focus the cause of the accident and any attribution of fault therefor. It also raises questions concerning the construction of the indemnity provisions in the contractors’ contracts. There is also a major dispute between the parties about the reasonableness of the damages and expenses paid out to claimants by the 0perators. The defenders contend that the Operators over-estimated the likelihood that a Texas court would have accepted jurisdiction in the cases and in any event that a Jury sitting in Texas would not have awarded (or been allowed to award) the high levels of damages on which the operators based their settlement offer. The level of expenses paid out is also queried. Lastly but not least the defenders advanced an argument that the pursuers had misconceived the present actions for indemnity and that the appropriate procedure following upon the settlement should have been actions by their insurers for contribution. The dispute between the parties in the various actions (which I have merely outlined above) gave rise to a multiplicity of complex questions as the considerable length of the Proof denotes.

At the commencement of the Proof I was informed by Counsel that the 146 actions before the Court largely raised the same questions. It was therefore proposed that seven of the actions which illustrated such differences as there were between the cases should proceed on a test case basis, and that Proof in these actions be conjoined. These seven actions, (which include the present action), were said to focus all the issues which arise in the other actions and I was asked to sist these other actions. Since there were no objections to these proposals I agreed to give effect to them. The seven actions which went to Proof were the cases against London Bridge Engineering Limited (employers of the deceased Robert Carroll), Northern and Industrial & Marine Services Limited (employing the deceased John Duncan), British Telecommunications P.L.C. (employing the deceased Graham Gill Whyte) , Wood Group Engineering Contractors Limited (employing the deceased Michael O’Shea), Eastman Christensen Limited (employing the deceased Neil Pyman), Kelvin International Services Limited (employing the deceased William John Cowie), and Stena Offshore Limited (employing the injured party Andrew Murray Carroll).

1.2The Parties

The pursuers in all these actions are Elf Enterprise Caledonia Ltd. This company were formerly known inter alios as Occidental Petroleum (Caledonia) Ltd (hereinafter referred to as OPCAL). OPCAL were registered in England and had their principal place of business in London with further places of business in Scotland. In 1988 at the time of the accident OPCAL were the Operators of the Piper Alpha and Claymore oil production platforms as well as the Flotta terminal to which the oil was pumped. In 1988 OPCAL were a member of a large international group of companies known as the Occidental Group. Since the accident OPCAL has been acquired from Occidental by a French company known as Elf Enterprises and this no doubt explains the changes in the name of the company. Before a company can explore for or develop a North Sea oilfield it requires a licence to do so from the Government. By licence no. P220 dated 28 April 1972 the Secretary of State for Trade and Industry granted licence to four companies namely Occidental Petroleum (UK) Ltd. (hereinafter referred to as OPUK), Getty Oil International (England) Ltd., Allied Chemical (Great Britain) Ltd, and Thomson Scottish Associates Ltd. By 1988 the four last mentioned companies had transformed themselves into Texaco, Union Texas Petroleum and Thomson North Sea Ltd. respectively . The said licence was granted to relate to a number of exploration blocks including the block where Piper Alpha was eventually situated, namely the Piper Field. OPUK was another Occidental subsidiary and was a British Company (which attribute was needed to secure a licence). However the company was at that time effectively a nominee for an American company of the Group which provided the finance required. The said American company was Occidental of Britain Ltd. ( hereinafter referred to as OBI). They were registered under the laws of California and had a place of business in London. By a Deed of Variation dated 3 October 1974 Licence no. P220 was restricted to the Piper Field and it was agreed that a licence for the residual fields should be granted to OPCAL (and the three other companies who were licensees under the original licence). Moreover OPCAL and the said three licensee companies were by further licences given permission to lift oil from the Claymore field and from other blocks. All these oil fields were located in the United Kingdom sector of the North Sea in the Scottish area. On 28 July 1982 a further Deed of Variations was entered into by the relevant parties with reference to licence no. P220 with a view to amending certain model clauses. By an agreement dated 1January 1984 Occidental Petroleum (Great Britain) Ltd., the holding company of OPCAL, sold to OPCAL the share capital of OPUK and indeed on that date OPCAL took over their whole interest in the Piper Field. The effect of a series of arrangements entered into at that time was that OPCAL became the representative of the Occidental interests in the North Sea and in particular acquired Occidental’s rights and liabilities in the Piper Field. On 1 March 1984 OPCAL were named in the licence for the Piper Field in place of OPUK. In 1977 the original four licensees entered into a Joint Venture Operating Agreement (the JVOA) in terms of which OBI were to act as Operators of the Piper Alpha platform on behalf of all the licensees whose respective interests in the operations were also defined. OBI were also “throughput parties” in the original JVOA. Throughput agreements were arrangements which enabled American companies to provide finance to British companies for North Sea oil development and obtain oil income in return. The parties to the JVOA were defined as “Participants”. On 1 March 1984 the participants were parties to what is described as a “Novation Agreement” which related to the JVOA and this was made to operate retrospectively from 1 January 1984. In terms of this Novation Agreement OPCAL by agreement with the interested parties took over the former interests under the JVOA of OBI and OPUK and became Operators of the Piper Alpha platform on behalf of the Participants. A similar Joint Operating Agreement had been entered into in 1977 making OPCAL the Operators on behalf of the licensees of Claymore and by a further agreement on 27 July 1986 the effect of this was clarified. By the date of the accident in 1988 the Participants were OPCAL (successors to the original interest of OPUK), Texaco Britain Ltd (successors to the original interest of Getty Oil International (England) Ltd.), Union Texas Petroleum Ltd (successors to the original interest of Allied Chemical (Great Britain) Ltd.), and Thomson North Sea Ltd. (successors to the original interest of Thomson Scottish Associates Ltd.). Since the disaster Thomson North Sea Ltd have been taken over to become Lasmo (TNS) Ltd. At the date of the accident the said four Participants jointly owned the Piper Alpha platform as well as their joint interest in the licence and oil concession. Their respective shares in the Piper Alpha operations were as follows; OPCAL’s share was 36.5%, Texaco’s share was 23.5%, Union Texas Petroleum’s share was 20%, and Thomson’s share was 20%. In effect in operating the platform OPCAL were acting as agents for the other three Participants as well as looking after their own interest in the operations. In terms of the JOAV they had authority on behalf of the Participants to enter into such contracts as were necessary for the operations. Provision was made for the way in which the operations were to be supervised. Each participant had a right to its participation percentage of the petroleum recovered and the costs and expenses of the operations were to be borne by the participants on the basis of these percentages. The liabilities of the Participants were declared by the JOAV to be several and not joint. It was further declared that there was no intention to create a partnership. English law was to apply to the Agreement and there was an agreement to submit to the English Courts. In relation to the Piper Alpha platform the Operators had authority to enter into the relevant contracts on behalf of all the Participants but a requisite of approval was reserved for contracts of value over £5 million. There was a lack of precision in the evidence as to when the relevant platforms came on stream and began producing but Piper Alpha was certainly in production by the end of 1976 and Claymore by the end of 1977.

OPCAL pursues each of the actions on its own behalf and on behalf of the other Participants. They do this in terms of a contract entered into between the Participants in l987 which is governed by the law of Scotland and which provides that OPCAL as Operators should pursue all claims under the relevant indemnities on behalf of all the Participants. The respective claim of each Participant to any indemnity monies recovered is to be determined by their said participation percentage. The defenders are each contractors who at the time of the accident were employing a particular victim in respect of which a claim under the indemnities is made.

1.3The Operations

By July 1988 when the accident happened OPCAL had developed important interests in the North Sea. They had discovered two major Oilfields, built the platforms needed to support them (Piper Alpha and Claymore), and constructed the necessary pipelines to the shore. OPCAL had a terminal in the Orkney Islands namely the Flotta Terminal. They had extensive related offices at Aberdeen, a warehouse facility at Peterhead and a helicopter facility at Aberdeen Airport. When I come to consider the Contracts entered into with the Contractors, it will be seen that there are references to “Operations envisaged herein” and the significance of the operations which I have just described derives from the defenders’ submissions that these are the backbone of the operations which OPCAL were conducting at the time when they entered into these contracts. These operations are to be distinguished from the contractual responsibilities of the contractors which are described as the “Work” and are detailed in the contracts as the “workscope”. It is interesting to note that MrJoseph Snape occupied a function until shortly before the accident which could generally be described as Managing Director of OPCAL (although it was designated by a variety of descriptions) and when he gave his evidence he did not list the sale of oil as being part of OPCAL’s North Sea operations. This may be significant when I come to consider the question of Texas jurisdiction. The outline of the management structure on Piper Alpha is set out in number 13/62 of process. In this production the references to “operations” have a more generalised meaning and refer to the production processes on the Piper Alpha platform. In effect the personnel who are described as production personnel operate the process and ensure that the oil and gas flow. Thus a person in the Divers section would not be considered as being part of the operations team. On the other hand the defenders contend, and I think that they are right, that on the platform everyone working there is ultimately responsible to an OPCAL supervisor. The Offshore Installation Manager (OIM) is the person in overall control of the platform. In respect of the Maintenance of equipment the hierarchy is the Superintendent, Deputy Maintenance Superintendent, and Lead Maintenance Hand. The technicians below the Lead Maintenance Hand are the Maintenance Technicians and other relevant personnel such as electricians. For Safety there is a Safety Supervisor, a Lead Safety Officer (vacant when the accident occurred), OPCAL’s safety operators and the Contractor’s Safety Operators. The most significant personnel are of course the Production personnel for apart from safety they would take over if anything went wrong. Moreover they were OPCAL’s own employees. Under the OIM there was an Operations Superintendent, a Deputy Operations Superintendent, Lead Production Operators, and the actual Operators. Of course there were also many employees of the various contractors on the platform but subject to the overall supervision of the permanent production staff. In fact there was no dispute that OPCAL’s management and staff structures affecting Piper Alpha were as set out in numbers 13/62 and 12/ 209 of process. As Mr Snape observed “This was our business, we take the oil out and export it”. Ancillary services were generally provided by contractors brought on to the platform.