England and Wales Court of Appeal (Civil Division) Decisions

IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM
THE HIGH COURT OF JUSTICE (HH JUDGE MACKIE QC)
[2011] EWHC 2268 (Comm)

		Royal Courts of Justice Strand, London, WC2A 2LL
		21/02/2012

LORD JUSTICE LONGMORE:

1. This is an appeal from an order by HHJ Mackie QC ordering summary judgment for what the claimant ("Munin") says is a debt due on invoices about surveying work that it carried out using the vessel Munin Explorer in December 2008. The issue between the parties turns on the construction of the contract for that work. Essentially, Munin says it is entitled to payment of the invoices and the defendant Petrodel says that Munin is not entitled to be paid because it did not complete the work; it also counterclaims for repayment for the one instalment that it paid and for breach in failing to do all the work required.
2. On 8 September 2008 Petrodel entered into a service contract with a company called Silver Queen Maritime Ltd ("Silver Queen"), pursuant to which Silver Queen was to carry out a seismic survey of Tanzanian waters, which Petrodel had a licence to explore, using the vessel "GEO MARINER" which had a (maximum) draft of 3.5 metres. The form of the contact consists of a series of exhibits running from A to D. Exhibit A is headed SCOPE OF WORK. Exhibit A1 under "Job Description" and under "1. Nature and location of work", provides:

"1.1 Contractor shall perform certain marine geophysical surveys in specific areas designated by Company. Contactor shall deliver the results thereof to Company in accordance with the terms of this contract.

1.2 When the term 'Work' is used herein, it shall refer to the services to be provided by Contractor under this contract.

1.4 All Work performed hereunder shall be in accordance with Company's written instructions."

The Company was, of course, Petrodel and the Contractor was Silver Queen.

3. Then at 2.2, under "Commencement and duration of work", the contract provided:-

"Subject to the termination provisions contained in exhibit "D", Contractor agrees to perform the Work for acquisition of a minimum 1,200 2D Sail KM, including line tails".

4. At paragraph 7 the Company's obligations are set out and these include the following:

"7.1 Designate the areas to be surveyed and, insofar as possible, make such designations sufficiently in advance to permit orderly planning of the Work programme.

7.2 Furnish to Contractor such available maps to which it has access showing the designated areas and the location of lines or stations to be surveyed.

7.3 Designate individuals who will act as its representatives. Such representatives will convey to Contractor and the Contractor's Party Chief, Company's directions and mutually consult in planning and coordinating the Work"

5. Paragraph 12, under the heading Acquisition Deliverables, sets out the data which are to be delivered to the Company under the headings Digital Data, Paper Data and CD-ROM.
6. Exhibit A6 is headed "Maps", with paragraph 1 providing:

"PROGRAM MAPS; The following is a list of the attached maps, which define the location of the Work. Additional maps may be added at a later date."

7. It is the Company's case that those maps showed lines which were to be surveyed as a matter of contract and program maps could not be revised or cut back unless there was a variation to the contract. However maps may be added.
8. Exhibit C contains commercial terms and conditions including contract payments which include mobilisation payments, day rates and production rates.
9. By paragraph 2.1, the Contractor was to invoice the Company on completion of the work and:

"…Invoices for daily charges will reflect details of the time spent [and so on]."

10. Paragraph 2.2 has provisions for payment and there is a provision:

"If Company disputes an item billed, Company shall notify Contractor of the item disputed, specifying the reason therefore, in which event payment of the disputed item may be withheld until settlement [and so on]".

11. The Contractor's general obligations under exhibit D included an obligation to perform the work in exhibit A in accordance with the specifications and standards set out. The Company's general obligations included an obligation to pay the Contractor's payment as set out and to perform all the Company's obligations in such time and manner as would facilitate an orderly prosecution of the work.
12. There are provisions in exhibit D about quality which include the following clause, relied upon by the Company:

"…Neither Company's inspection nor failure to inspect the Work or any of Contractor's equipment shall relieve Contractor of its obligations under this contract. If any portion of the Work fails to conform to specifications or is otherwise defective, Contractor shall promptly re-perform or arrange for the re-performance of the nonconforming or defective portion of the Work at Contractor's expense. No acceptance or payment by Company shall constitute a waiver of any of the foregoing [and so on]"

13. There was a force majeure clause, at clause 23, and an entire agreement clause at clause 25.1 which indicated that the parties could only vary their contractual commitments in a specific manner.
14. Silver Queen advised that the GEO MARINER was unavailable because of a piracy risk and, as a result, some correspondence took place between the parties about a substitute, the detail of which will have to be considered. This led to a novation of the contract made between the parties to the original contract and a company in the same (Seabird) group called "Munin" which owned the "MUNIN EXPLORER", a vessel recognised to have a deeper draft than the "GEO MARINER".
15. The agreement provided:-

"Petrodel agrees that the Munin Explorer is an appropriate replacement for the Geo Mariner….

Munin Navigation and Petrodel agree that, as a result of the change of vessel, clauses in the Original Agreement that refer to the technical capabilities of the Geo Mariner are no longer applicable. The parties agree that all technical references to the Geo Mariner in the original agreement shall be interpreted as being references to the Munin. Furthermore, the parties agree to provide each other, upon request, with any updated information needed as a result of this change of survey vessel."

16. There were then provisions by which the remuneration under the contract was reduced and the mobilisation fee came down from $400,000 to $300,000. The demobilisation fee came down about $50,000 and the day rate by a small amount.
17. Following the entering into of the novation agreement, work was carried out under it. Munin began work on 16 December 2008. Munin says that as a result of that work it surveyed 1,212 kilometres in accordance with the Company's instructions and is entitled to payment under the terms of the service contract.
18. Differences began to arise when the master of the MUNIN EXPLORER refused to survey certain lines mentioned in exhibit A6 because they were too close to the shore. A survey report compiled by the Company's representative on board the vessel, Mr Holdsworth, contains passages which are now relied upon to suggest that there was a breach of contract which entitles the defendants to withhold payment. Particular reliance is placed by the Company on an observation by Mr Holdsworth that:

"…The Petrodel understanding was that SeaBird would make the best endeavour possible to accommodate the planned survey but unfortunately this didn't happen"

19. It is right to point out that those criticisms have to be seen in the light of other observations in the report including the following at 3.2.2:

"Crew performance was generally good and equipment performance was very acceptable. The crew was one of the most pleasant and helpful that the author has worked with. SeaBird as a Contractor also appears to be one of the most pragmatic and helpful with an excellent attitude and with few of the vices which some of their competitors exhibit. The survey was well performed and, given the very difficult nature of the shallow, reefs, fishing and international/regional border problems, was well handled by the Contractor."

20. It is true that the next paragraph says that the MUNIN EXPLORER:

"…is not well suited to shallow water/confined areas, whilst it can be recommended for future surveys where shallow/restricted water is not a factor, it cannot be recommended for future surveys of this nature."

21. A series of invoices totalling just over US $2.3 million has been submitted but only one of these was paid.

The Contract

22. Mr. Dougherty for the Company submitted that the lines set out in Exhibit A6 were part of the contract and that it was therefore a term of the contract that all the lines be surveyed. It would not be a breach to omit one or two lines provided that a full 1200 kilometres were surveyed but there would be if the total lines surveyed were less than 1200 or if different lines were surveyed.
23. Ms. Hosking for the contractor submitted that Exhibit A6 was non-contractual but merely an intended programme without contractual effect. The words "designated by the Company" in clause 1.1 meant "to be designated in the future" not "as designated in Exhibit A6"
24. The truth, in my judgment, lies between these two extreme submissions. It would, as the judge observed, be an uncommercial construction of the contract to say that all the lines in Exhibit A6 must be surveyed and that there could, short of adopting the amendment procedure required by Exhibit D clause 25.1, be no change or adjustment in the lines to be surveyed. Clauses 7.1 to 7.3 expressly envisage that designation will take place during the operation of the contract and that the Company's representative (here Mr. Holdsworth on board the vessel for most of the time) would give directions to the Contractor on behalf of the Company.
25. No doubt if it turns out that the lines in A6 are suitable lines for the purpose of the survey, it is not contemplated by the contract that they have to be formally designated by the Company once the contract begins. They constitute, as it were a default position, if no post-contract designation is made. But if a post-contract designation is made e.g because it is accepted that a particular line in A6 is unpromising or, perhaps, because after survey it appears particularly promising and it seems sensible to designate another line nearby, there is nothing in the contract to say that that can only be done by formal amendment. It is, of course, possible that if the Company designated a particular line, the contractor might not wish to survey that line. But it is the Company's entitlement to designate and the Contractor cannot object to such designation, unless perhaps it would put the crew and ship in danger or it involved leaving territorial waters.
26. On the basis that this is the correct construction of the contract, one then just has to see whether the company did designate lines other than those in A6. If the Company did so designate and the Contractor then surveyed those lines, the Contractor would be entitled to be paid. That would be the position both under the original contract and under the novated contract.

The Novation

27. The parties could, of course, have agreed that once the GEO MARINER had ceased to become available, they would not go through with the contract. No doubt, in that event, the Company might have claimed damages from the Contractor for non-performance. But that did not happen. The parties agreed to substitute a vessel, the "MUNIN EXPLORER", albeit a vessel which (as they knew) had a bigger draft than the GEO MARINER and which would be at risk (to put it no higher – and Mr. Dougherty emphasised it must, on the evidence, be no higher) that it would be able to perform less well in shallower waters than the GEO MARINER.
28. The sequence of events surrounding the novation was as follows:-

(1) The Contractor, on or about 28 November 2008, said that, as a result of the piracy situation off Somalia, it was not in a position to send the GEO MARINER from the Persian Gulf. It could, however, provide the MUNIN EXPLORER currently in Namibia "to at least shoot the deep water – 900 km survey" and would send the vessel's specifications;

(2) The Company expressed 3 concerns: (a) their own contractor's (Tanzanian Petroleum Development Corporation) possible unhappiness with a change to the approved work plan (b) the overall cost since the Company would "incur additional costs next year sourcing a shallow-water vessel" and (c) the timing of payments;

(3) On 1^st December the Company sent an e-mail attaching an annotated programme map and an annotated line list. Those documents were the same as in Exhibit A6 but bore respectively the following annotations:-

a) On the map, "some lines in this area and close to the coast south of Tanga may have to be postponed, some may be largely obtainable"; and

b) On the line list, "some of the 3 km cable lines (above) may have to be postponed in their entirety. Others may be fully or partially achievable, even without cable shortening from 6 to 3 km. See accompanying annotated program map".

(4) On 5 December the Company suggested that a side-letter to the contract should be produced updating Exhibit A4 with the details of the MUNIN EXPLORER and the Company sending a revised map.

(5) The next day Mr. Nelson of the Company sent the following e-mail cited in the judgment:-

"I do not believe we need a revised map at this stage, as the bulk of the programme as originally designed is clearly achievable with the Munin. Any revisions will only be made "on the fly" when we (a) see that we cannot achieve the full 1200 km by sticking to the programme as is (and know which lines we have to drop with certainty) and (b) have inspected the onboard processed data from the Munin with which (hopefully) we will identify the target, or targets, that justify 100km or so infill acquisition Such infill lines would be specified with reference to the (by then) acquired data."

(6) The Novation agreement was then signed on 9^th December

(7) In due course Mr Holdsworth e-mailed the Company saying that the current estimated achievable total of all lines was 868 km, so that another 330 km was needed to reach "the 1200 km required".

(8) In response to the Contractor pressing for what Mr Nelson had called "the infill program" in his e-mail of 6^th December, Mr Nelson then on Christmas Day sent an infill program of 353 km, hoping it would reach the Contractor "in time to keep going without standby".

(9) In due course those 353 km of lines were surveyed and on 1^st January Mr. Nelson e-mailed the Contractor:-

""A big THANK YOU to all involved in the MUNIN survey of the Tanga block. The data look stunning".

29. There is no evidence that the Company had designated any lines before the novation save in the sense that Exhibit A6 constituted the default position. Once Munin had taken over the obligations of the Contractor from Silver Queen, it was open to the Company to designate lines if it wanted a different programme from that contained in Exhibit A6. That is exactly what the Company did.
30. The Contractor submitted its bill in January 2009 but, in spite of Mr. Nelson's "big THANK YOU" and the complimentary terms of Mr. Holdsworth's subsequent report, no part of that bill has been paid. It was only when the Contractor had to serve a statutory demand in mid-2010 that it emerged that the Company wished to allege that the original Exhibit A6 constituted a term of the contract which required the Contractor to survey all the lines there set out and that, since they had not done so, nothing was due. Moreover the Company asserted a cross-claim that, if anything was due, it was entitled to damages for the cost of surveying lines not surveyed by the Contractor.
31. On analysis the defence and counterclaim are hopeless. For the reasons I have given, Exhibit A6 was not contractual in the sense of immediately constituting an obligation to survey the lines there identified and no others. There was bound to be adjustment from time to time as clause 7 of Exhibit A1 envisaged. Any designation was to be in the future. The novation made no difference to that position. The Company did make its designation, after the novation, as the contract contemplated. Having made that designation, the Company must pay for the work following that designation. The case is as short and simple as that and is thus fit for summary judgment, as the judge ordered.
32. Mr. Dougherty sought to argue that the novation had to be construed against a matrix of fact in relation to which there were (or might be) facts and nuances which could only be evaluated at a trial. But he was unable to pinpoint what those facts or nuances might be and, indeed, once his submission that Exhibit A6 was part of the original contractual obligation has been rejected, it is impossible to see any impediment to the Contractor's claim.
33. For these reasons I would dismiss this appeal.

Lord Justice Rimer:

34. I agree.

Lord Justice Jackson:

35. I agree.