England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
(Mr Justice Garland)

		Royal Courts of Justice Strand London WC2 Thursday 2nd May, 2002

1. LORD JUSTICE TUCKEY: Lord Justice Rix will give the first judgment.
2. LORD JUSTICE RIX: On 10th January 1998 Shaun Campbell, an employee of Salamis SGB Ltd ("Salamis") sustained serious personal injuries while working on a North Sea oil platform occupied by Conoco (UK) Ltd ("Conoco"). The oil platform was operated by Britannia Operator Ltd ("Britannia") on behalf of the co-venturers concerned, who for present purpose can be represented by Conoco. Thus Britannia had on Conoco's behalf entered into a contract dated 5th January 1995 with Amec Process and Energy Ltd ("Amec") for the hook-up and commissioning of the platform ("the main contract"). Amec, in turn, had on the same day entered into a sub-contract with Salamis to carry out fireproofing ("the sub-contract"). As the judge below, Garland J, said:

"The sub-contract was expressly accepted on a back to back basis with the main contract."

3. This was a reference to the language of the sub-contract, whereby, in the opening preamble, express reference was made to the main contract, and it was then said:

"The Sub-Contractor accepts The Contract on a back to back basis with Contract BRT-YH1 between BOL and Contractor.

For the avoidance of doubt, where reference is made, within the Contract, to Operator these should be read as Contractor, and, where reference is made to Contractor, these should be read as Sub-Contractor."

4. Thus the actual terms of the main contract were incorporated into the sub-contract, and those terms had to be manipulated to alter "operator" to "contractor", that is Amec, and to alter "contractor" to "sub-contractor", viz. Salamis.
5. Amec and Salamis are agreed that Mr Campbell's injuries were caused when he was struck in the back by the sudden venting of compressed air from a diesel line while he was working below the deck carrying out fireproofing. The escape of the compressed air was in no way related to Mr Campbell's work. It was a fail-safe response when the platform shutdown system operated due to an error.
6. As a result of his injuries Mr Campbell sued Conoco, Conoco brought Part 20 proceedings against Amec, and Amec brought Part 20 proceedings against Salamis. Conoco submitted to judgment to Mr Campbell for damages to be assessed - as they subsequently were for some £338,000 - and Amec submitted to judgment to Conoco. The reason why Conoco sued Amec and Amec sued Salamis was that both the main contract and the sub-contract contained identical cross-indemnities in clause 26(a) as follows:

"(i) The Operator hereby agrees to indemnify and hold harmless the Contractor against all liabilities for and all claims arising in respect of any injury, death, sickness or ill health caused to or suffered by the Operator's employees as a result of or arising out of the performance or non-performance by the Contractor of the Contract regardless of the cause or reason therefor and regardless of the negligence or breach of statutory duty of the Contractor and against all costs, charges, expenses, damages and proceedings incurred in connection with such claims or liabilities howsoever arising.

(ii) The Contractor hereby agrees to indemnify and hold harmless the Operator against all liability for, and all claims arising in respect of any injury, death, sickness or ill health caused to or suffered by the Contractor and any Personnel as a result of or arising out of or in connection with the performance or non-performance of the Contract regardless of the cause or reason therefor and regardless of the negligence or breach of statutory duty of the Operator and against all costs, charges, expenses, damages and proceedings incurred in connection with such claims or liabilities howsoever arising."

7. Those terms appeared, as I have said, in identical form in both main contract and sub-contract. In the main contract, of course, the operator was Conoco and the contractor Amec, and in the sub-contract the operator was Amec and the contractor was Salamis.
8. The cross-indemnities, although in very similar terms to one another, are not quite identical. Thus it may be noticed that in the indemnity given by the operator the reference is to the personal injury suffered by "the Operator's employees as a result of or arising out of the performance or non-performance by the Contractor of the Contract"; whereas in the indemnity given by the contractor the respective language is "caused to or suffered by the Contractor and any Personnel as a result of or arising out of or in connection with the performance or non-performance of the Contract". Thus the indemnity given by Amec refers to Amec's employees and does not include the linking words "or in connection with", but does contain the words "by the Contractor" immediately after the words "the performance or non-performance"; whereas the indemnity given by Salamis refers to "injury ... caused to or suffered by the Contractor and any Personnel", does include the additional connecting link "or in connection with", but does not include the additional words "by the Contractor" or any similar words immediately after the words "the performance or non-performance".
9. As I have said, Amec submitted to judgment on Conoco's claim, and it did so because it accepted that it was liable to Conoco under clause 26(a)(ii) of the main contract. However, Salamis does not accept that it is in turn liable to Amec under the identical clause in the sub-contract. Before Garland J two points of construction were taken in this regard, and the same two points have been taken on this appeal by Mr Howard Palmer QC, who represents Salamis here.
10. The first point is that in circumstances where the escape of the compressed air which caused the injury to Mr Campbell was in no way related to the work being carried out at the time of his injury by Mr Campbell, the connecting links expressed in the indemnity, namely the words "as a result of or rising out of or in connection with the performance or non-performance of the Contract" did not engage this indemnity.
11. The second point is that whereas the indemnity covered liability for and claims arising in respect of personal injury in the case of a direct tortious claim, such as that brought by Mr Campbell against Conoco, those words did not cover the contractual liability of Amec to Conoco under the main contract. In other words, despite the back to back nature of these main and sub-contracts, the indemnity stopped at the first stage.
12. I shall take those two points in turn. Mr Palmer began by invoking well-known authorities regarding the strictness with which such indemnity clauses are to be construed. In particular, he relied on certain dicta from the speeches of Lord Dilhorne and Lord Keith of Kinkel in Smith v South Wales Switchgear Co Ltd [1978] 1 WLR 165, at 168B and D-E, 169D and 179A-C. However, those dicta were made very much in the context of the problem which arose in that case, which was the well-known problem of whether an exemption clause, a fortiori an indemnity clause, covers negligence: in the case of an indemnity clause, the negligence of the indemnified party.
13. In the present case the cross-indemnity clauses are in very broad language extending to negligence, and indeed nothing on the facts of this case arises in the context of any problem of negligence and whether or not as a result of negligence the indemnity clause operates in the present circumstances. Nevertheless, Mr Palmer is well entitled to remind the court that an indemnity clause like an exemption clause, or perhaps even a fortiori an exemption clause, needs to be considered carefully to see whether it clearly does embrace the case under consideration.
14. Against that background, Mr Palmer submits that the phrases in question, "as a result of or arising out of or in connection with", are phrases expressive of and requiring a causal nexus. He submits that "as a result of" is clearly a connecting link of that kind and so is "arising out of", and that the looser language "or in connection with" should take its meaning from its association with the earlier phrases. In this context he relies also on the definition of the word "Personnel" in the contract, which is as follows:

"`Personnel' means all natural persons including employees, servants or agents engaged by or through the Contractor and its Sub-Contractors and utilised in and about the performance of the Contract;"

15. Mr Palmer points in particular to the concluding words in that definition "and utilised in and about the performance of the Contract", and submits that if those words were written into the clause 26(a)(ii) indemnity, it can be seen that the connecting link phrases "as a result of or arising out of or in connection with" must add something more than that the employee concerned was utilised in and about the performance of the contract.
16. He also relies upon the words "performance or non-performance", and in particular the addition of the words "or non-performance", because he submits that in particular the expression "non-performance" indicates that what the clause is talking about is the doing or the not doing of something by an employee engaged in carrying out the contract works, as a result of which or in connection with which or arising out of which the injury is suffered.
17. In the light of these linguistic indications, Mr Palmer submits that when the indemnity clause talks about the "performance or non-performance" of the contract, what is really being talked about is the doing or not doing of work under the contract by Salamis' employees. He is prepared to consider that things done or not done by Amec's employees may also be contemplated, if only because, as the court reminded Mr Palmer in the course of argument, the clause goes on to speak about the indemnity existing "regardless of the negligence or breach of statutory duty" of Amec. However, it is Mr Palmer's submission that despite the difference in language in this respect between clause 26(a)(i) and clause 26(a)(ii), in that the former clause contains the additional words "by the Contractor" immediately after the words "the performance or non-performance" and no such language is to be found in the latter clause, nevertheless what is being talked about in the latter clause is things done or not done primarily by Salamis' employees or perhaps by Amec's employees as well.
18. The judge below was not persuaded by these submissions. He said this, at paragraph 24 of his conclusions:

"I am in no doubt that the very wide wording of Clause 26(a)(ii) is apt to include the circumstances of the Claimant's accident. I cannot read into it a requirement for some form of nexus to the performance of the subcontract. With the qualifications I have expressed in paragraph 14, I have found the decisions in EE Caledonia helpful. While fully accepting Mr Palmer's submission that an indemnity which includes the indemnified's own negligence requires very careful scrutiny, nevertheless if the words are clear, as they are, `regardless of the negligence or breach of statutory duty of [Amec]', there is no justification for imposing a strained or artificially restrictive interpretation on `as a result of or arising out of or in connection with' which, in my judgement, would have been sufficient to support the indemnity even without the words `regardless of the cause or reason therefor'."

19. I agree that the words of the indemnity, and in particular the connecting links contained in the relevant part of the clause, cover the facts of this case. The words throughout the clause are very wide and the connecting links expressed are themselves of increasing width, ending with the words "in connection with" which are widely regarded as being as wide a connecting link as one can commonly come across. In themselves they do not express the need for a causal connection, although of course they do express a need for a connection of some kind. That is the essence of the words "in connection with".
20. The next thing to be noted, in my judgment, about the clause is that it is drafted in passive terms, speaks about personal injury etc "caused to or suffered by the Contractor and any Personnel". It says nothing about how that injury must be suffered, save by reference to the broad connecting links which immediately follow.
21. So far as the words "the performance or non-performance of the Contract" are concerned, there are no additional words in clause 26(a)(ii) stating by whom such performance or non-performance must be carried out, and that can be directly contrasted to the position under clause 26(a)(i). I do not accept that the words "the performance or non-performance of the Contract", standing by itself is expressive or the equivalent of Salamis' or any of its Personnel's performance or non-performance of the contract. Moreover, the words are "performance or non-performance of the Contract". The word "Contract" is not itself defined in the contract, but the word "Works" are, and the word "Works" could easily have been used instead of the word "Contract".
22. So far as the broad definition of the word "Personnel" is concerned, ending with the words "utilised in and about the performance of the Contract", that qualification is of course necessary to distinguish employees of Salamis - or it may be of other people - deployed or engaged on different contracts. It may be that Salamis' employees could be present upon the oil platform who were not being deployed or utilised for the purposes of this contract.
23. However "Personnel" in this context is an expression really talking about the status of people, and I do not consider that the status of Salamis' employees would for these purposes change from hour to hour, depending upon whether they were actually engaged in carrying out work under the contract, or were having a cup of coffee (or perhaps something stronger) in the bar or - an example used by Mr Palmer which refers to an authority to which I will turn in due course - were asleep in their bunks on board the oil platform.
24. In that context it is not surprising to find the indemnity clause, whether to some extent redundantly or not, going on to use language such as that found in the part of the clause under consideration. I do not need to consider for the purpose of this appeal whether, if Mr Campbell had been injured while he was asleep in his bunk on the oil platform or otherwise relaxing, enjoying his leisure hours, that would have been within the connecting link factors of the clause. For the facts of the case are that Mr Campbell was at work on the sub-contract at the time of his injury. But it may well be that that would have been within the clause: see below.
25. So far as the additional words "or non-performance" are concerned, in my judgment they are there out of caution in case any too great reliance were put on the word "performance", in circumstances where what was happening at the moment was a failure or prevention of performance at the time. In effect the indemnity clause, with its very broad language, places on Salamis, in return for the cross-indemnity in Salamis' favour, the risk of personal injury to Salamis itself - although it is difficult to see how a company can suffer personal injury - and to personnel in the circumstances set out in the clause.
26. This construction of the clause, wider than that contended for by Mr Palmer, is, in my judgment, supported by the case of EEC Caledonia Ltd v Orbit Valve Co Europe [1994] 1 WLR 221 (Hobhouse J), and [1994] 1 WLR 1515 (CA). That was a case of cross-indemnities, not in identical terms, where the employee was asleep and not on duty at the time when he was killed by the explosion of Piper Alpha. The critical words in that clause were "resulting from or in any way connected with the performance of this order". Another sub-clause in the indemnity provisions clause had referred to the "performance of the work". At first instance Hobhouse J said this, at 233H-234E:

"The plaintiffs argue that the words `resulting from or in any way connected with the performance of this order' are sufficiently wide to cover a liability which has arisen because Mr Quinn, the person who was performing the order, was on the platform, at the time he met his death, solely because of the need to perform the order; he was on the platform pursuant to the obligation to perform the order which necessitated his spending some 10 days on the platform. On the ordinary use of language, it would be said that the fact that he met his death was `connected with the performance of the order.'

The contrary argument is that the word `performance' must be treated as relevant to the doing of the actual `work' itself so that, in the present case, it would only be if his death had arisen in some way in connection with the actual work that the incident would have come within the terms of article 10(b). The defendants referred me to several cases where contracts have been construed so as to have that effect, for example, the South Wales Switchgear case [1978] 1 WLR 165, 178, where Lord Keith said: `In my opinion the words "execution of this order" mean "the doing by the suppliers of the contractual work."' Each contract depends upon its own wording and context. The defendants' argument is, in my judgment, unnecessarily restrictive in the context of the present contract and fails to give effect to the choice of the word `order' by the parties and the full breadth of the phrase `in any way connected with.' In part (a) there are references to `the work'; in parts (b) and (c) a different phrase has been used (`the performance of the order') which has a wider ambit. Nor is any restrictive interpretation required by the fact that the same phrase is used in part (c). ... Giving the phrase which the parties have used in article 10(b) its natural meaning does not give rise to any absurdity or expose the contractor (or the company) to an unreasonable liability."

27. In the Court of Appeal Steyn LJ (giving the leading judgment) came to a similar conclusion and added, at page 1527D:

"But I am also persuaded that Mr Quinn's death `resulted from' the fact that he was on the platform to perform the order, i.e. the agreement. I agree with the judge's further observations on this point."

28. In my judgment, although of course each contract has to be construed according to its own language and context, that authority is of telling support for the conclusion of the judge below. In this case, too, the words are "performance or non-performance [I have dealt with that point] of the Contract", which is a word very similar to or in effect of identical meaning with the word "order". Moreover, in this contract the qualifying words "by the Contractor" are not found in clause 26(a)(ii).
29. I therefore think that both on the clear language of this clause and on a closely analogous and helpful authority, the injury to Mr Campbell was suffered by him at least "in connection with the performance or non-performance of the Contract", and that is all that is necessary for that point.
30. I turn therefore to Mr Palmer's second point, which is that the language "all liability for, and all claims arising in respect of any injury" do not cover a contractual liability under an indemnity. On this point the judge said this, at paragraph 25:

"I have not found Mr Palmer's second argument as easy to resolve. Clearly there is a fundamental difference between a `claim arising in respect of any injury' and a claim based on a contractual indemnity given by Amec to Conoco but of which Salamis had notice by virtue of the `back to back' recital. I am, however, persuaded that the second line of the indemnity should be read disjunctively as `all liability for any injury' in contrast to `all claims arising in respect of any injury' and that the former is apt to include Amec's claim based on their indemnity to Conoco for the latter's liability to the Claimant for his injuries. The use of the words `all' and `any', in my judgment, widen the scope of the phrase sufficiently."

31. Mr Palmer submits, in effect, that the two parts of this indemnity should be read together and that if, as the judge said, the words "all claims arising in respect of any injury" would not include a claim under a contractual indemnity, then it ought to follow that the words "all liability .. for any injury" should have the same meaning and content. In this connection he refers to Burns v Shuttlehurst Ltd [1999] 2 All ER 27, where in the context of a claim for pre-action disclosure under the old regime, this court held that the words in section 33(2) of the Supreme Court Act 1981 "claim in respect of personal injuries" or the language found in the rule made pursuant to that section in RSC Ord 24, r 7A "a claim for personal injuries", defined in rule 7A(7) as meaning "a claim in respect of personal injuries to a person or in respect of a person's death", did not cover a claim as a statutory assignee under the Third Party (Rights Against Insurers) Act 1930.
32. However, there are two difficulties with reliance on that authority. One is that it is an authority only on the words, for the purposes of the present clause, "claims arising in respect of any injury" on which the judge below and I, for my part, as well are in Mr Palmer's favour.
33. Secondly, however, the context of that decision was rules relating to pre-action disclosure. Pre-action disclosure, of course, arises as a procedural matter in the context of intended litigation. It raises the question whether a would-be claimant in the courts can apply even before issuing proceedings for pre-action disclosure against a putative defendant to assist him in the bringing of his claim. The whole context points therefore to the claimant being a person who has suffered personal injuries who seeks to bring a direct claim. This at that time exceptional provision was introduced for the very reason that such claimants so often found that they were unable to plead their claim or to obtain legal aid in respect of their claim in the absence of having sight of basic documents, such as archetypally the medical notes of their doctor or the hospital which they had attended. So that is the context of the Burns v Shuttlehurst case.
34. The context of this case, however, is very different indeed. Not only does one find here the wider words "all liability for any injury" in addition to the words "all claims arising in respect of any injury". But the context of this language is not a procedural problem arising out of litigation or intended litigation, it is the problem of there being back to back indemnities down a chain of contractors and sub-contractors in the commercial context of large-scale engineering in the North Sea.
35. Against that background, in my judgment, one would be surprised to find that identical indemnity clauses found in a main contract and a sub-contract, described in the sub-contract as being back to back contracts, would not cover contractual liability under an indemnity clause as well as direct tortious liability. The very fact that the words "liability for any injury" are added to the words "all claims arising in respect of any injury" and indeed take precedence in the clause over the phrase "all claims in respect of any injury" indicates to my mind that the draftsman of this clause had very much in mind the chain of contractual indemnity liability which, in my judgment, the words "liability for any injury" do express.
36. Therefore on this point, too, I am in agreement with the judge below. In these circumstances, Mr Palmer fails on both points and the appeal must be dismissed.
37. LORD JUSTICE TUCKEY: The first of the two points of construction which we have to decide is whether Mr Campbell's injury was suffered by him "as a result of or arising out of or in connection with the performance or non-performance" of Salamis' sub-contract with Amec. He was injured on the platform whilst performing sub-contract work, but otherwise there was no nexus between that work and his injury. Nevertheless, in the context of a contract, the intention of which is self-evidently to make each party liable for injury to its employees, irrespective of whether the other is negligent, I think the words "arising out of or in connection with" are wide enough to cover the present claim. Mr Campbell, an employee of Salamis was performing sub-contract work. His injury arose out of or in connection with what he was doing, even though it was not directly the result of it. That is enough to decide this case, although I agree with my Lord that the clause also extends to situations where the employee is not actually working at the time of his injury, as was the case in EE Caledonia.
38. The second and shorter point of construction is whether Amec's claim for indemnity against Salamis comes within the words "all liability for injury". I think the claim for indemnity in respect of their liability to indemnify Conoco for Conoco's liability for Mr Campbell's injury is a liability for injury within the meaning of the contract.
39. For these reasons and the reasons given by my Lord, I agree that this appeal should be dismissed.
ORDER: Appeal dismissed with costs, to be the subject of detailed assessment. (Order not part of approved judgment)