COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE QUEEN'S BENCH DIVISION
Mr Justice David Steel
Strand, London, WC2A 2LL
B e f o r e :
Vice-President of the Court of Appeal, Civil Division
LORD JUSTICE LONGMORE
LORD JUSTICE RICHARDS
| (1) Shell U.K. Limited & Ors
|- and -
|Total UK Limited & Anr
(2) Total UK Limited
- and -
WordWave International Limited
A Merrill Communications Company
165 Fleet Street, London EC4A 2DY
Tel No: 020 7404 1400, Fax No: 020 7404 1424
Official Shorthand Writers to the Court)
Lord Grabiner QC, Christopher Butcher QC, Alan Maclean QC, and Alexander Antelme (instructed by Davies Arnold Cooper LLP) for the First Respondent, Total UK Limited
Justin Fenwick QC and Paul Sutherland (instructed by Pinsent Masons LLP) for the Second and Third Respondents
(2) Lord Grabiner QC, Christopher Butcher QC, Alan Maclean QC, Alexander Antelme and Colin West ( instructed by Ashurst LLP) for the Appellants
Jonathan Sumption QC and Michael Bools (instructed by Herbert Smith LLP) for the Respondents
Hearing dates : 13th – 22nd January 2010
Crown Copyright ©
This is a judgment of the court, to which all members of the constitution have contributed.
Does Total have a right to an indemnity?
Introduction to indemnity aspect
The terms of the relevant contracts
The first stage - Avonmouth
"Texaco and Petrofina shall exercise all voting and other powers of control available to them in relation to the Operator so as to procure (insofar as they are able by the exercise of such rights and powers) that the Operator shall undertake inter alia the following responsibilities in connection with the operation and maintenance of the Facilities:"
"indemnify the other as to one half of any claim by or liability to (including any costs and expenses necessarily incurred in respect of such claim or liability) any party not being a party hereto, arising from the Joint Operations"
1.1 The Company shall indemnify, hold harmless and defend the Participants from and against any and all liabilities, claims, demands, proceedings, damages, losses, costs, charges and expenses whatsoever arising directly or indirectly out of or as a consequence of the death or illness of or injury to any employee, servant or agent of the Company or any of its sub-contractors or the loss of or damage to the Terminal or to any equipment or property of the Company or its sub-contractors or any of its or their respective employees, servants or agents, whether or not resulting from or contributed to by any negligence or default on the part of the Participants or any of its or their employees, servants or agents.
1.2 Each of the Participants shall likewise indemnify, hold harmless and defend the Company from and against any and all liabilities, claims, demands, proceedings, damages, losses, costs, charges and expenses whatsoever arising directly or indirectly out of or as a consequence of the death or illness of or injury to any employee, servant or agent of such Participant or the loss of or damage to any equipment or property (including, without limitation, the Products stored within the Terminal under these Operating Regulations) of such Participant or any of its employees, servants or agents, whether or not resulting from or contributed to by any negligence or default on the part of the Company or any of its employees, servants or agents. For the avoidance of doubt each of the Participants shall be separately and fully responsible for the Products delivered from the Terminal for its own account and, as the vendor or distributor of such products, will protect and save harmless the other Participants hereto and the company from any claim, demand or expense for loss, damage or injury arising out of or in any way connected with the quality, use or conditions of any Product delivered (including the delivery and the handling and use of the product after delivery) at the Terminal.
1.3 Save as otherwise expressly provided herein, the Company shall indemnify and hold harmless the Participants from and against any and all claims by third parties in respect of the injury to or death or illness of any person or the damage to or loss or destruction of any property which may arise out of or in the course of or by reason of the Terminal Operations, save and except if and to the extent that the Company is not indemnified in respect of any such personal injury, death or illness or damage to or loss or destruction of property by insurance taken out by the Company pursuant to paragraph 2.1.2. of these Operating Regulations, then each of the Participants shall indemnify and hold harmless the Company from and against any such claims by third parties (and from and against any and all actions, proceedings, liabilities, losses, damages, costs, charges and expenses whatsoever in respect thereof or in relation thereto).
. . .
2.1.2 Primary Liability Insurance in respect of the liability of the Company under paragraph 1.3 above, with a limit of not less than one million pounds (£1,000,000) for any one incident or series of incidents arising from one event;"
First stage- Buncefield
7.1.2 of the Management Agreement
Clause 1.3 of section C of the Operating Regulations
9.2 under the JVA
Stage 2- Elf joins
"In its capacity as manager of the Buncefield Terminal, Fina shall during the Buncefield Interim Period conduct all ordinary business in relation to the Buncefield Terminal in a proper and workmanlike manner and shall conduct operations in accordance with methods and practices customarily used in good and prudent oil storage terminal practice and with that degree of diligence and prudence reasonably and ordinarily exercised by experienced managers engaged in a similar activity under similar circumstances and conditions."
"The Participant shall, each as to its Participating Interest, keep the Manager indemnified and held harmless against any loss, injury or damage arising out of the performance of the Manager's duties and obligations hereunder except insofar as the said loss, injury or damage shall arise out of the Wilful Misconduct of the Manager provided that the Manager shall not be liable in any event, regardless of Wilful Misconduct, for any consequential loss."
Thus an indemnity was to cover the Manager's own negligence.
"1.1 Each of the Participants shall indemnify, hold harmless and defend each other from and against any and all liabilities, claims, demands, proceedings, damages, losses, costs, charges and expenses whatsoever arising directly or indirectly out of or as a consequence of the death or illness of or injury to any employee, servant or agent of such Participant or the loss of or damage to any equipment or property…of such Participant or any of its employees, servants or agents, whether or not resulting from or contributed to by any negligence or default on the part of the Manager or any of the other Participants or any of their employees, servants or agents…
1.2 Save as otherwise expressly provided herein, the Manager shall indemnify and hold harmless the Participants from and against any and all claims by third parties in respect of the injury to …any person or the damage to or loss or destruction of any property which may arise out of or in the course of or by reason of the Terminal Operations, save and except if and to the extent that the Manager is not indemnified in respect of any such personal injury, death or illness or damage to or loss or destruction of property by insurance taken out by the Manager pursuant to paragraph 2.1.2 of these Operating Regulations, then each of the Participants, to the extent of its Participating Interest, shall indemnify and hold harmless the Manager from and against any such claims by third parties (and from and against any and all actions, proceedings, liabilities, losses, damages, costs, charges and expenses whatsoever in respect thereof or in relation thereto)."
The terms with HOSL still in place
"1(a) Elf shall, for all purposes, become a party to the Joint Venture Agreement in respect of the Texaco Assigned Interest and the Fina Assigned Interest in the place of Texaco and Fina respectively.
(b) Elf undertakes with each of Texaco and Fina to observe, perform, discharge and be bound by all liabilities and obligations of Texaco in respect of the Texaco Assigned Interest and Fina in respect of the Fina Assigned Interest in the place of Texaco and Fina respectively whether actual, contingent or otherwise arising on or after the Effective Date as if Elf had at all times been a party to the Joint Venture Agreement in relation to such respective interests in place of Texaco and Fina."
"Schedules 1,2,3,4 and 5 shall be deleted in their entirety and replaced by the Accounting Procedure attached hereto as Schedule 1, the Operating Regulations attached hereto as Schedule 2 and the Product Specification attached hereto as Schedule 3. Such Accounting Procedure and Operating Regulations to be interpreted as if references to the Manager are to HOSL and references to the Management Committee are to the HOSL Board." [our underlining]
"Subject as expressly provided in this Novation Agreement all other provisions of the Joint Venture Agreement shall remain in full force and effect and binding on the parties thereto, insofar as the same are in force and effect and binding on those parties immediately prior to the Effective Date."
Variation of the Management Agreement
"… I confirm that I replied to your letter of 6th August 1992, confirming my agreement to each of Texaco and Fina being indemnified by BOSL or HOSL (as the case may be) unless the relevant party was guilty of wilful misconduct. Attached is a copy of my letter dated 25th August 1992 agreeing to your proposed amendment to both Management Agreements."
"If I had been contacted, I think my reaction to the proposal would been at best equivocal and more likely opposed. I would not have liked the idea of removing this liability from over Fina's head when we, Texaco, had no control over what went on day to day at the HOSL terminal. The other side of the coin was that I had confidence in the Texaco systems and procedures which governed how the BOSL terminal was operated so that I would have had no great concern regarding Texaco's potential liability in negligence. Therefore, even if Brian [Spittlehouse] had approached me about this idea, I think it is more likely that I would have rejected it."
What indemnity was thus available to Fina if the explosion had occurred during
Stage 3 - Total purchase of Elf and Fina – did it become a participant?
"Subject as hereinafter provided, all of the property and other assets acquired or held for use in connection with the operation and maintenance of the Buncefield Terminal in accordance with this Agreement (as supplemented/amended and/or novated) shall be owned and borne by Texaco, Fina and Elf and their permitted assigns and successors ('the Participants') in proportion to their undivided participating interests ('Participating Interests') as follows …."
6.1.1. No assignment or transfer of any interest under this Agreement shall be made by any Participant otherwise than in respect of an undivided interest in all or part of its interest in the Terminal, this Agreement and any other assets held by it at the Terminal including, for the avoidance of doubt, any Independent Use Expansion assets ('the Interest').
6.2.1 Each of the Participants hereto may assign all or part of its Interest to an Affiliate which has demonstrated to the reasonable satisfaction of the other Participants that it has the financial capability to meet its prospective obligations hereunder provided that the assignor Participant has notified the other Participants that there is no current intention to subsequently dispose of the assignee Affiliate."
"4.3 In any case where the consent or licence of any person not a party to this Agreement is required to the transfer or assignment from the Vendor of any of the Assets or where for any other reason the Vendor is unable at Completion to transfer the same to the Purchaser
(a) the Vendor or its nominee or nominees shall (until such consent or licence shall have been obtained or inability remedied or legal estate passed) hold such Assets upon trust for and for the benefit of the Purchaser absolutely
(b) the Vendor shall use all reasonable endeavours (subject to the co-operation of the Purchaser) to procure that such Assets are novated or transferred to and fully vested in the Purchaser as aforesaid at Completion or as soon as is reasonably practicable thereafter and shall act as agent under the direction of the Purchaser in all matters relating thereto for so long as the Vendor is required and authorised so to do by the Purchaser
(c) the Vendor shall account to the Purchaser for all profits receipts and payments received by or made to it in the course of its agency under this sub-clause …."
"I act for Total UK Limited, Total Downstream UK PLC [formerly Fina] and Total Milford Haven Refinery Limited [formerly Elf].
Following the mergers of Total, Fina and Elf Groups, it is proposed that Total Downstream UK PLC and Total Milford Haven Refinery Limited (the 'Transferors') transfer to Total UK Limited (the 'Transferee') their shares held in Hertfordshire Oil Storage Limited ('HOSL') and their respective Participating Interest (as defined in the Joint Venture Agreement of 18th March 1988 as amended by Novation Agreement dated 1st January 1994) (The 'Joint Venture Agreement') held in relation to Buncefield Terminal and Avonmouth Terminal (hereinafter the 'Terminals') and any and all contracts (the 'Contracts') entered into by the Transferors with you in relation to or in connection with the Terminals (a list of the Contracts is attached hereto in Schedule 1);
Would you therefore please accept this letter as formal notification of the transfer and request for consent to the Transferee assuming all the obligations of the Transferors and to the Transferors being released from all the obligations pursuant to the terms of the said Joint Venture Agreement and Contracts.
If you agree with the above transfer could you please confirm this by signing and returning to us the accompanying copy attached hereto."
"A. TEXACO has consented to the transfer to TOTAL of the shares held by FINA and ELF in Bristol Oil Storage Limited ('BOSL') and to the novation of all and any agreements entered into among TEXACO, FINA and ELF with regard to the operation of Avonmouth terminal (the 'Terminal') including, without limitation the agreements set out in Schedule 1 ('the Contracts'); and
B. To the extent that the Contracts relate to the Terminal, FINA and ELF wish to be released and discharged from the Contracts and TEXACO has agreed to release and discharge FINA and ELF upon the terms of TOTAL's undertaking to perform the Contracts and to be bound by the terms of the Contracts in place of FINA and ELF."
Clause 3 contained provisions relating to the novation in respect of Avonmouth. Clause 4 provided:
"4. For the avoidance of doubt and notwithstanding anything else in this Deed, the Joint Venture Agreement dated 18th March 1988 between TEXACO, FINA and ELF as amended (the 'Joint Venture Agreement') shall be novated pursuant to clause 3 only to the extent that such novation relates to the Terminal and not to the Buncefield Terminal and TEXACO, FINA and ELF acknowledge that they will remain bound by the Joint Venture Agreement to the extent that it relates to the Buncefield Terminal."
The Shell Appeal
"… in order to enable a person to claim in negligence for loss caused to him by reason of loss of or damage to property, he must have had either the legal ownership of or a possessory title to the property concerned at the time when the loss or damage occurred, and it is not enough for him to have had only contractual rights in relation to such property which have been adversely affected by the loss of or damage to it."
In that case the claimants were buyers of steel coils shipped on the vessel Aliakmon which became damaged during the voyage but they did not acquire either legal or possessory title until after the goods had been discharged and paid for. They were therefore unable to recover.
Mr Anthony Clarke QC (as he then was) for the claimants felt constrained to accept this principle as the law because only the previous year it had been approved and applied in Candlewood Navigation v Mitsui OSK Lines (The Mineral Transporter)  AC 1 by a Privy Council, the composition of whose judicial committee had a certain (and, perhaps, unwelcome) similarity to the composition of the committee with which he was faced in The Aliakmon. He argued (inter alia) that his clients had the equitable ownership of the goods although they did not have legal title and that that equitable ownership should be enough to enable them to bring an action for damage to the cargo, even if they were not in possession of the goods. But Lord Brandon rejected that submission because the legal owner had not been joined as party to the action.
i) even if it had no possessory title to the damaged tanks and pipelines it had a (shared) equitable ownership of them and that is enough to give it title to claim for its economic loss. To the extent that it needs to join the legal owners of the pipelines, it has done so because UKOP Ltd and WLPS Ltd are parties to the action;
ii) it anyway did have a good (shared) possessory title to the pipelines at the time of the damage;
iii) the rule requiring a legal or possessory title before recovering for economic loss has always been subject to exceptions (see Hedley Byrne and the Greystoke Castle) and justice requires a further exception to be made to fit the facts of this case;
iv) the rule should anyway be abandoned, although Shell recognised that that is not an option open to this court;
v) whatever the law of negligence may be, Shell has alternative claims in nuisance and under the rule of Rylands v Fletcher, which cover the same ground; beneficial ownership of land has always been sufficient to sustain a claim in nuisance, of which the rule in Rylands v Fletcher is an aspect.
"WLPS [Ltd] hereby declares that … it shall hold the assets in question upon trust absolutely for the Participants as tenants in common in the shares and proportions to which they are entitled under the Participants Agreement or any amendment thereof."
In 2000 Total became a party to this deed and by the date of the explosion the beneficial tenants in common of the pipelines and the tanks on the WLPS site were Shell, BP, Total and Chevron.
"Each User shall notify WLPS by the 14th day of each Month ("Month M") the details of its required Deliveries for the next Month ("Month M +1") in the format laid down by WLPS from time to time. At the same time, such User shall also indicate any major variation it wishes from the details previously given in respect of the Deliveries required from Month M, it being understood that WLPS shall use reasonable endeavours to accommodate such variation but shall not be obliged to do so.
WLPS shall use such notifications and its own stock records to formulate a Monthly Movement Programme of Receipts and Deliveries for Month M +1 which will be issued to all Users by the 28th day of the Month M. This Monthly Movement Programme which may be modified from time to time by agreement between WLPS and a User shall be co-ordinated with the Thames-Mersey Pipeline System movement programme and the term "Monthly Movement Programme" shall herein mean the latest agreed version.
WLPS shall determine the time at which it will require a Receipt from a User for entry into either Buncefield Storage or the Pipeline System on the date specified in the Monthly Movement Programme. Not less than eight hours' notice of the requirement for such time of Receipt shall be given by WLPS to the User concerned.
The User shall make a quantity of Aviation Fuel available from the Thames-Mersey Pipeline System or from the Fina Aviation Storage for delivery to an Entry Point as a receipt in accordance with the Monthly Movement Programme. The User shall be liable to WLPS for any reasonable expenses incurred by WLPS as a result of any failure by the User to do so. Subsequent acceptance by WLPS of any such quantity which was not made available as a Receipt at the time notified by WLPS shall be at WLPS's absolute discretion.
In the event of conflicting requirements, WLPS shall use reasonable endeavours to resolve such conflict by agreement with Users but shall have absolute discretion in formulating the Monthly Movement Programme in the best interests of all Users.
Each User shall furnish WLPS with estimates of projected volumes for planning purposes as and when required by WLPS and in a format laid down by WLPS."
This condition will be of particular importance when it comes to deciding whether Shell had any possessory title to the relevant pipelines.
Equitable ownership on its own provided legal owner is joined in the action?
"There may be cases where a person who is the equitable owner of certain goods has also a possessory title to them. In such a case he is entitled, by virtue of his possessory title rather than his equitable ownership, to sue in tort for negligence anyone whose want of care has caused loss of or damage to the goods without joining the legal owner as a party to the action: see for instance Healey v Healey  1 K,B. 938. If, however, the person is the equitable owner of the goods and no more, then he must join the legal owner as a party to the action, either as co-plaintiff if he is willing or as co-defendant if he is not. This has always been the law in the field of equitable ownership of land and I see no reason why it should not also be so in the field of equitable ownership of goods."
In this passage Lord Brandon appears to contemplate that joining the legal owner will suffice to enable the beneficial owner to sue for his loss or, perhaps more accurately, that once both the legal owner and the beneficial owner are parties to the action they can recover, subject to the rules of remoteness of damage, for all the loss which they have suffered.
"As regards the position of an equitable owner of goods, the House of Lords in [The Aliakmon at p. 812] held that unless the equitable ownership conferred a possessory title (as in Healey v Healey  1 KB 938) the equitable owner could not sue in the tort of negligence for damage to the goods unless he joined the legal owner as a party to the action."
This does little more than paraphrase Lord Brandon's words but the editors may perhaps be indicating that the beneficial owner's loss can indeed be recovered. What, after all, would be the point of requiring the beneficial owner to join the legal owner in the action if the beneficial owner could then recover only his physical loss, but not his associated economic loss.
"no duty is owed by a defendant who negligently damages property belonging to a third party, to a claimant who suffers loss because of a dependence upon that property or its owner."
So on the facts of this case Total, who has admittedly damaged the pipelines owned by UKOP Ltd and WLPS Ltd, submits that it owes no duty to Shell who has a contractual right to have its fuel loaded into, carried and discharged from the pipelines. If Shell was a complete stranger to the transaction that would be understandable but Shell is not a complete stranger. It is the (co-) beneficial owner of the pipelines and the contract to use the pipeline is only an incident of its beneficial ownership (albeit a necessary incident, since it is a co-owner of the pipelines with others who also wish to use it). On the face of things, it is legalistic to deny Shell a right to recovery by reference to the exclusionary rule. It is, after all, Shell who is (along with BP, Total and Chevron) the "real" owner, the "legal" owner being little more than a bare trustee of the pipelines.
"In the present case the objection is technical and against the merits, and we should be glad to avoid giving it effect. But if we did so, we should establish an authority for saying that, in such a case as that of Fletcher v Rylands Law Rep. 1 Ex. 265; Law Rep. 3 H.L. 330 the defendant would be liable, not only to an action by the owner of the drowned mine, and by such of his workmen as had their tools or clothes destroyed, but also to an action by every workman and person employed in the mine, who in consequence of its stoppage made less wages than he would otherwise have done. And many similar cases to which this would apply might be suggested. It may be said that it is just that all such persons should have compensation for such a loss, and that, if the law does not give them redress, it is imperfect. Perhaps it may be so. But, as was pointed out by Coleridge J, in Lumley v Gye 2 E & B, at p. 22 L.J. (QB) at p.479, Courts of justice should not "allow themselves, in the pursuit of perfectly complete remedies for all wrongful acts, to transgress the bounds, which our law, in a wise consciousness as I conceive of its limited powers, has imposed on itself, of redressing only the proximate and direct consequences of wrongful acts". In this we quite agree. No authority in favour of the plaintiff's right to sue was cited, and, as far as our knowledge goes, there was none that could have been cited."
Beneficial ownership of the damaged property goes well beyond contractual or non-contractual dependence on the damaged property and does indeed constitute a special relationship of the kind required by the learned editors. It is, in fact, a closer relationship in many ways than that of a bare trustee having no more than the legal title.
"27. … An example which was raised during argument was that of a bare trustee who seeks advice from a solicitor as to whether to distribute trust property, where the right advice is that the property should be distributed as soon as possible, because its income would attract a much lower rate of tax in the hands of the beneficiary than in the hands of the trustee, for some reason. If the solicitor delayed giving this advice for 5 years, it seems to me that it would be the trustee, and not the beneficiary, who would be entitled to sue the solicitor for the extra tax paid during that period. In such a case, it would be the trustee who was the client of the solicitor, and it would be the trustee who had had to pay the extra tax.
28. The fact that it would be the beneficiary who, in practical terms, lost the tax which was paid, and it was the beneficiary who, but for the negligence of the solicitors, would have legally owned the trust property during the period when the loss was incurred, would not alter the fact that the appropriate claimant would be the trustee. I believe that it would be the trustee who should claim even in a case where the last instalment of extra tax was payable by the beneficiary after distribution, but it is not necessary to decide the point. As here, of course, the trustee would have to account to the beneficiary for any damages recovered from the solicitor."
Right to possession
a) WLPS and UKOP were joint venture vehicles set up with the purpose of holding title to real estate interests at Buncefield owned and pooled by the participants.
b) WLPS and UKOP also were accorded possession of the assets for the purposes of their operation.
c) WLPS and UKOP retained constructive possession but accorded actual possession of the bulk of the assets to BPA.
d) Shell and the other participants were merely entitled to make such use of the facilities in respect of their individual capacity requirements as the various co-ordinating committees (presumably acting on a unanimous basis) allowed.
e) This structure was wholly inconsistent with the right of any individual participant to call for immediate possession of the pipeline systems."
"absolute discretion in formulating the Monthly Movement Programme in the best interest of all Users."
There were similar arrangements in relation to the UKOP pipelines.
"as agents for its members."
Nuisance and Rylands v Fletcher