England and Wales High Court (Commercial Court) Decisions

IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT

		Court No 1 Royal Courts of Justice St Dunstan's House 133-137 Fetter Lane London EC4A 1HD
		8th August 2005

(2.05 pm)

MR JUSTICE COLMAN: Before I give the reasons for this decision, which I gave last week, I would like just to ask the parties whether they have received a copy of a faxed letter from Mr Mitchell of Grays Solicitors in York who are acting for the High Court Enforcement Officer?

MR BLACKWOOD: My Lord, we have, very recently indeed.

MR BAYFIELD: I am here for Chevron. We have not seen the fax.

MR WINTER: I am here for KYE, and we have not seen the fax.

MR JUSTICE COLMAN: I will get it copied and it will be given to you in the next few minutes.

The thing I would just like to say is this: I am grateful for the quick response to this suggestion which I made that the reasons for this decision should be given this afternoon. It seemed to me right that the parties should know at the earliest possible opportunity the route by which I arrived at the conclusions which were communicated on Friday, and the purpose of that, of course, is to enable them to take a considered view as to what, if anything, should further be decided. The reason was to enable them to take a considered view as to two things: firstly, whether there was already enough by way of decision to enable it to be decided whether this rig -- not rig, but these modules -- can be shipped out to Nigeria this week or next; and, secondly, if not, to be very precisely clear as to what further decision should be taken for that ultimate decision to be arrived at; that is to say, what further decision should be taken by me.

So these are the reasons for the decision, which was, I am afraid, only communicated to Clifford Chance, because I had not got any means at that time of communicating with Herbert Smith, or indeed anybody else, I then being at home on Friday morning.

J U D G M E N T

Introduction

1. International Finance Corporation ("IFC") has obtained summary judgment against DSNL Offshore Ltd ("DSNL") for US$19,732,734.75. On 31st May 2005, IFC issued a writ of fi fa against the assets of DSNL. Pursuant to that writ, on 3rd June 2005 the High Court Enforcement Officer ("HCEO") took walk-in possession of two rig modules and equipment being constructed by DSNL at the premises of KYE Ltd in Middlesborough on the basis that DSNL had title to that equipment. However, title to the modules and equipment has been claimed by Chevron Nigeria Ltd ("Chevron") and by KYE. The HCEO has interpleaded under RSC Order 17. IFC maintain that DSNL has title to all the relevant equipment, thereby entitling it to execution against that equipment. The determination of this issue has been brought before this court with great urgency, in view of the fact that the rig modules and equipment are needed by Chevron at the South Offshore Field, Nigeria to be fitted on to a rig platform for the purpose of operating a water injection programme. In order to carry out the offshore installation during the next weather window at the field, the modules and equipment will have to be shipped from Middlesborough during early August this year. If the weather window is missed, with the result that the water injection programme has to be postponed for many months, the rate of oil output at the field will be seriously reduced. It is said that this will cause Chevron very large losses. Shortly before this hearing, KYE withdrew its claim for a proprietary interest in the relevant equipment.
2. Three groups of equipment are in issue. They are topside modules 1 and 2, together with items of equipment and materials which may recently have been incorporated into them by DSNL and the so-called "item 22", which consists of various loose items of equipment in crates. All such equipment and materials have been acquired from Solar Turbines International Company ("Solar"). The topside modules incorporate a series of turbine generators and pump sets, as well as a central control room ("the MCC"). The most valuable components of those two topside modules, specifically the turbine generators and the pump sets, were purchased from Solar in the United States, delivered to the Middlesborough construction yard, and attached in various ways by DSNL to two steel framework bases known as pancakes. The pancakes were constructed by DSNL and title to them was at all material times in DSNL. The whole assembly of topside modules attached to the pancakes is to be shipped to Nigeria, where it will be bodily attached to Chevron's offshore platform. The crated Solar equipment is yet to be attached to the pancake or the platform, but that is its ultimate purpose.
3. Under a written contract entered into with Chevron in July/August 2003 ("the Main Contract"), DSNL undertook to design, construct, transport and install the Work as defined, which included the topside modules and their component equipment. By Article 5.1 DSNL undertook to carry out the work in accordance with the Project Schedule. This provided for completion within 574 days of the date of the agreement and no later than 30 June 2005. Solar was a nominated subcontractor to supply the turbines and pumps, purpose built in accordance with the agreed specifications and installation drawings, as well as the ancillary crated equipment. It was expressly specified that construction and assembly of the gas turbine engines would be completed by 5 March 2004 and that the whole of the Solar equipment, including the pumps, would be constructed ready for delivery by 30 June. In circumstances which I shall describe in more detail later in this judgment, there came a time in January/February 2004 when, for reasons which I shall consider, it was agreed between Chevron and DSNL that instead of DSNL acquiring various items, including the topside modules, by making payment to Solar and taking delivery and procuring transportation of them from the United States to Middlesborough, Chevron would pay Solar direct for this equipment and would arrange and pay for delivery and transportation of it to DSNL at Middlesborough. In the ordinary way, title to that equipment would have passed from DSNL to Chevron in accordance with the terms of the Main Contract only when Chevron issued a Notice of Final Acceptance, that is to say after completion of construction, transportation and installation of the entire assembly, unless the Main Contract had been previously terminated for contractor default, contractor insolvency, force majeure or "for convenience" as defined by Article 15.
4. However, Chevron submit that in consequence of their agreement to pay Solar direct for the equipment covered by Purchase Order 0501, namely the turbines, pump sets, as well as the crated equipment, they obtained title to those items and still retain it, notwithstanding the items have been attached to the pancakes. For this proposition they rely on certain terms of the main contract and of Contract Amendment No. 1, entered into in early February 2004.
5. On behalf of IFC, it is submitted that DSNL obtained title from the outset and never lost it. Alternatively, if Chevron had title to any of the disputed equipment up to the time when it was incorporated into the structure by attachment to the pancakes, DSNL acquired title to that equipment by accession upon the happening of that attachment. Chevron submit, as an alternative case, that, assuming that they had no title to the equipment when it was attached to the pancakes, they still retained an equitable lien for the amount of the cost to them of procuring delivery of the equipment to DSNL, including payment of the price to Solar. Alternatively, DSNL was a constructive trustee for an equivalent amount. This is challenged by IFC. Alternatively, Chevron submit that if they obtained no equitable lien nor was there a constructive trust, they became owners in common of the topside modules with DSNL in proportion to the value of their and DSNL's respective contributions in terms of work and materials. It is said that the value of DSNL's work and materials is no more than US$314,000, whereas Chevron has made direct payments to suppliers totalling some US$36,337 million.

Title under the Main Contract and Contract Amendment No. 1:

6. Chevron's submissions can be summarised as follows:
7. The Main Contract made express provision for the passing of title where Chevron, as distinct from DSNL, provided equipment. This is to be found in Article 6, which provided as follows:

"6. TITLE

"6.1 Where CONTRACTOR takes delivery of COMPANY provided items, title will remain vested in COMPANY, however, CONTRACTOR shall be solely responsible for the care, custody and control of such items and shall remain responsible for the risk of loss or damage of such items in accordance with Article 19.

"6.2 CONTRACTOR warrants good title to all Materials and tools provided by it, its subcontractors and their suppliers which become part of the Facilities or are purchased by COMPANY for the maintenance and/or construction thereof, and that such Materials and tools are free of all lien and retention of title claims from third parties. Other than as outlined in Article 6.1 above, title to all or a portion of the said Materials and tools shall pass to Group in proportion to their respective participating interest shares upon COMPANY's issuing of a Notice of Acceptance in accordance with Article 16, or upon termination or default in accordance with Article 15 whichever occurs first. However, CONTRACTOR shall retain care, custody and control of said Materials and tools and exercise due care thereof to protect them from loss and damage until COMPANY's issuance of such Notice of Acceptance or until termination of this Contract, whichever occurs first. Said transfer of title shall in now way affect COMPANY's right (including those which may be exercised by COMPANY on behalf of Group pursuant to the relevant provisions hereof) as set forth in other provisions of this Contract.

"6.3 All drawings, documents, engineering and other data prepared or furnished by CONTRACTOR in performing the Work shall become the property of COMPANY from the time of preparation and may be used by COMPANY for any purpose whatsoever without obligation or liability whatsoever to CONTRACTOR.

"6.4 Any portion of the Facility for which title has passed to COMPANY but which remains in the care and custody of CONTRACTOR or subcontractor, including any COMPANY provided items shall be clearly identified as being the property of COMPANY and shall be segregated from CONTRACTOR's property.

"6.5 For the purpose of protecting COMPANY's interest in all Materials and tools with respect to which title has passed to COMPANY but which remain in the possession of another party, CONTRACTOR shall take or cause to be taken all steps necessary under the laws of the appropriate jurisdiction(s) to protect COMPANY title thereto and interests therein and shall protect, defend and hold harmless Indemnities against claims by other parties with respect thereto.

"6.6 CONTRACTOR shall cause all conditions of this Article 6 to be inserted in all of its subcontracts and purchase orders so that COMPANY and CONTRACTOR shall have the rights set forth herein with respect to each subcontractor and supplier of any tier."

8. The equipment acquired under Purchase Order 0501 from Solar constituted "company provided items" within Article 6.1 and, accordingly, Chevron was to be treated as having title to it. Although Contract Amendment No. 1 made no express reference to Chevron acquiring title to the equipment from Solar, such a provision was to be implied to fill an obvious gap in the terms of that amendment. That such a gap was obvious arose from the fact that it would never have been mutually expected that Chevron would have put up the funds for this equipment in advance of the payment requirements under the Main Contract in circumstances where, on the evidence, DSNL was encountering cash flow problems, without some form of security such as retention of title in the equipment so acquired. Since the purpose of Articles 6.1, 6.4 and 6.5 was to protect Chevron by retention of title in a case where the contract work was not completed by DSNL, so similarly it must have been the mutual intention to protect Chevron by similar means where it had paid for the equipment in accordance with the special arrangements evidenced by Contract Amendment No. 1. Chevron draw attention to the fact that when, for example, in July 2004 Chevron and DSNL agreed by a further Contract Amendment No. 4 and subsequently by further contract amendments to pay DSNL's suppliers direct in respect of other equipment required for installation under the Main Contract, they inserted the following term:

"Title in respect of all goods and materials listed in the Exhibit which are paid for by COMPANY shall pass to the COMPANY in accordance with the provision of Incoterms 2000 edition and CONTRACTOR shall in writing instruct SUPPLIERS to provide directly to COMPANY lien waiver certificates in the form stipulated by the COMPANY."

9. It is said that inasmuch as the insertion of this term evidenced an intention at that time that Chevron should be protected by retention of title in respect of those items for which it had agreed to pay the subcontractor or supplier direct, it was to be inferred that there must have been a similar mutual intention earlier in the year when Contract Amendment No. 1 was entered into. Chevron refer in this connection to the second paragraph of the recitals to the Amendment No. 1:

"The Parties shall ensure Solar receives stage payments properly due to it by CONTRACTOR agreeing that COMPANY shall make stage payments direct to Solar rather than the CONTRACTOR invoicing COMPANY and then CONTRACTOR making payments to Solar on receipt of funds from the COMPANY which would be the process in accordance with the current provisions of the Contract."

10. The Operative Provisions of Contract Amendment No. 1 provided as follows:

"OPERATIVE PROVISIONS

"In order to expedite processing of stage payments due to Company nominated Supplier, Solar, for the supply of turbine generators and pump sets, including design, procurement, assembly of components and delivery to UK work site under CONTRACTOR Purchase Order DSNL/4574/OI/SO/0501 dated 17th December 2003, both CONTRACTOR and COMPANY mutually agree that COMPANY shall make all applicable future stage payments directly to Solar under the following additional terms and conditions:

"1. Payments of invoices related to all future stage payments for the procurement of turbine generators and pump sets under the Purchase Order shall by made by COMPANY directly to Solar with effect from the date of this Amendment.

"2. Solar shall submit copy invoices to CONTRACTOR for Contractor Representative to confirm to COMPANY in writing that work performed and invoiced has been satisfactorily completed in accordance with the terms of the CONTRACTOR's Purchase Order.

"3. Payments of invoices to be made to Solar by the COMPANY shall not exceed a cumulative total sum of $11,243,915.00 (Eleven Million Two Hundred and Forty Three Thousand Nine Hundred and Fifteen Dollars) only. These payments shall be payable 100% in United States Dollars.

"4. Payments to Solar shall not be subject to the retention conditions of the Contract .

...

"7. Except as provided for in this Amendment No. 1, all other terms and conditions of the Contract and any addenda signed prior to the date of this Amendment shall remain in full force and effect save as varied by this Amendment No. 1. Nothing contained in this Amendment No. 1 shall represent any waived by the COMPANY of any of its rights against the CONTRACTOR under the contract."

11. Chevron also rely on their Progress Report of February 2004, which refers to DSNL's staff in Teesside working a reduced working week, due to cash flow problems, to progress of engineering and fabrication having been impacted by the non-payment of the workforce and to purchase orders having been held due to non-availability of funds, as well as to DSNL having requested Chevron to pay Solar direct. Accordingly, it is submitted that there were at the time when the Contract Amendment No. 1 was agreed to at the end of January or early February 2004 good reasons for the parties to have in mind the need for Chevron's title to be retained if they paid for any of the components, particularly those covered by Solar Purchase Order 0501, the total value of which was US$11,243,915.00.
12. Whereas title to all materials provided by DSNL was to pass to Chevron in accordance with Article 6.2 of the Main Contract at the issuance by Chevron of Notice of Final Acceptance of the works as a whole, Chevron was required to make payment for such materials well before that time. Under Article 8, DSNL was entitled to issue invoices each month covering the previous month's work and materials provided by it and Chevron was obliged to pay "compensation" as defined of the invoice amount, less a 10 per cent retention. Payment had to be made under Article 8.4.3.1 within 45 days of receipt of invoice. However, under Exhibit B to the Main Contract, clause 2.2(d), where DSNL made a major purchase of materials or equipment such that under the applicable purchase order US$1 million or more had to be paid, Chevron was obliged to pay DSNL immediately upon receipt and approval by it of DSNL's invoice subject to confirmation that payment had been made or was to be made by DSNL to its supplier, in the form of wire transfer instructions to DSNL's bank. It was therefore the position under the Main Contract that, although Chevron was obliged to make payment of monthly compensation for work and materials within 45 days of DSNL's monthly invoice and of the amount of major purchases of materials and equipment costing over US$1 million, title to the equipment purchased might not pass to Chevron for very many months, until completion of construction and issue of a Notice of Final Acceptance. During this period between payment and the passing of title to Chevron there was no express provision for Chevron to have any security interest in the equipment for which it had already paid DSNL.
13. Under the Purchase Order No. 0501, dated 17th December 2003, between DSNL and Solar, the total price of US$11,243,915.00 was largely made up of the price of the two gas turbine generator sets at US$1,595,000 each, totalling US$3,190,000 and the three pump sets at US$2,608,733.30 each, totalling US$7,826,199.90. The balance of the purchase order was for miscellaneous ancillary items. DSNL c/o KYE was described as "the Purchaser". It was to make payment in accordance with a schedule which provided for four milestone payments on the happening of specified events on certain calendar dates, namely:

Milestones 1 and 2 at 10 per cent each on 17th December 2005, the events being the issue by DSNL of the Purchase Order and the mailing by it of product mechanical installation drawings;

Milestone 3 at 30 per cent upon completion of engine assembly by Solar on 5th March 2004; and

Milestone 4 at 50 per cent upon Solar's notice of readiness for transportation/shipment of the entire Solar equipment on 30th June 2004, the latter for an amount of US$5,621,958.80.

14. All these dates were designed to meet the Project Schedule under the Main Contract. All these payments, as well as the aggregate, exceeded US$1 million, thereby engaging Chevron's immediate back-to-back reimbursement obligation under Exhibit B, clause 2.2(d).
15. DSNL had by 26th January 2004 received from Solar two invoices covering the first two payments of 10 per cent due under the purchase order. They had passed on these invoices to Chevron but had paid neither. On that day, DSNL wrote to Chevron as follows:

"With reference to the above, as you are aware a national labour strike has occurred in Nigeria and this has compromised the ability of DSNL to make the requisite invoice payments to Solar Turbines in accordance with the terms of the DSNL Purchase Order with Solar Turbines and the CNL Worldwide Supplier Alliance Agreement.

"DSNL have already submitted to CNL invoices 9386 and 9384 for payment of Solar invoices 7552 and 7575 respectively.

"DSNL request CNL to make arrangements with Solar to pay Solar invoices 7552 and 7575 directly from CNL to Solar ... due to these in country difficulties that DSNL are encountering and to confirm to DSNL that this is acceptable to DSNL in order for us to raise the appropriate credit notes."

16. Although this request related only to the first two milestone instalments, Chevron replied on 29th January 2004 in the following terms:

"Dear Sirs.

"We are in receipt of your letter, ref. DSNL/CNL/4574/L003 dated 26th January 2004, stating that you are unable to fulfil your contractual obligations, with regards to the two payments now due to Solar Turbines International, and requesting that Chevron Nigeria Ltd assist in this matter by making payment direct to Solar Turbines Ltd.

"Chevron Nigeria Ltd is willing to assist DSNL with this matter, but with the following provisos:

"1) The contract is amended to reflect that Chevron Nigeria Ltd will make all payments directly to Solar Turbines Ltd, relating to the supply of gas turbine generator and pump sets, as detailed in Purchase Order DSNL/4574/PO/SO/0501.

"2) The amendment is to be signed by a duly appointed Officer of DSNL and returned to CNL immediately.

"3) All original invoices (2 No) are forwarded to Mr Walid Masry immediately.

"4) DSNL to write to Solar Turbines International and inform them that Chevron Nigeria Ltd will be paying them.

"5) Credit Notes to be issued to CNL to cover KYE invoices 9386 and 9394.

"6) All future invoices received from Solar Turbines International are to be immediately forwarded to Mr Walid Masry.

"7) All other terms and conditions with effect to the contract between DSNL and Chevron Nigeria Ltd remain unchanged.

"Please find enclosed Amendment No. 1 for signing and return to the CNL head office in Leki as soon as possible to ensure that the payments to Solar Turbines are not unduly delayed."

17. That which was enclosed was the wording of Contract Amendment Number 1. DSNL signed it on 4th February 2004 and Chevron made payment direct to Solar of the first two instalments, totalling US$2,248,683.00 on 3rd March 2004.
18. Payment of the milestone 3 instalment, that is US$3,373,174.20, was made by Chevron direct to Solar on 7th June 2004. On 16th June 2004, Chevron wrote to DSNL confirming that, following discussions between Chevron and DSNL, Chevron would take over responsibility for the transportation and associated logistics relating to various items, including the Solar turbines and pumps, which would otherwise have been DSNL's responsibility under Exhibit N of the Main Contract.
19. In his second witness statement, Mr Masri, Chevron's project manager for the South Offshore Water Injection Project ("SOWIP"), explained CNL's entry into Contract Amendment No. 1 by reference to Chevron's perception that DSNL were not able to pay the Solar invoices due to cash flow problems. He makes no mention of payment transmission problems attributable to a national strike in Nigeria. I infer that in taking over the responsibility of making direct payment for all Solar items, Chevron was primarily concerned that there should be no delay in the Project Schedule for the construction of the modules at Middlesborough and that their belief was that delays in Solar making delivery might in future be caused by DSNL's apparently deteriorating financial position. Had a strike been their sole concern, they would have been much more likely to confine their direct payment engagement to the instalments immediately due. Mr Masri's evidence as to DSNL's problems in paying their own employees confirms that Chevron's main concern at least by mid-2004 was DSNL's cash flow difficulty.
20. Under the Main Contract, it was expressly provided by Article 2.1 that DSNL was to provide "all services, labour, supervision, consumables, personnel and materials needed to perform the work."
21. Article 3.2 of the Main Contract provided:

"3.2 Items to be provided by COMPANY. Unless otherwise provided in this Contract, COMPANY shall not provide any items necessary for the completion of the Work. If company elects to provide labor, service, utilities, consumables, supplies, tools or equipment at CONTRACTOR's request COMPANY may invoice and CONTRACTOR shall pay for such at costs plus fifteen percent (15%)."

22. Under the Main Contract, before it was amended by Contract Amendment Number 1, the function of Article 6.1 was primarily to cater for the exceptional case where Chevron, and not DSNL, provided items for incorporation into the works under Article 3.2. The cost of such items would be invoiced to DSNL and credited by way of payment by DSNL. Unlike items provided by DSNL, title would already be in Chevron. But for Article 6.1, title would first pass to DSNL and then, upon Notice of Final Acceptance of the works, would be reversed back to Chevron. Instead of this needless reversal of title, Article 6.1 has the effect of anchoring the title in Chevron, where it is to remain until final acceptance of the work as a whole, whereupon title in the remainder of the equipment finally passes to Chevron. The effect of Article 6.1 is therefore that title to company provided items remains in Chevron throughout.
23. The function of Article 6.4, 6.5 and 6.6 is, in my view, primarily to protect Chevron in circumstances where title has passed to Chevron following or in consequence of termination of the contract or part of it under the provisions of Article 15. It is in those circumstances that title to any part of the facility might have passed to Chevron when that part was already in the possession, care or custody of DSNL or its subcontractors. The provision does not point to transference of title to Chevron otherwise than as expressly provided for in the contract, although the scope of 6.4 also extends to company provided items, initially provided by Chevron.
24. Against this background, what is the effect of Contract Amendment No. 1? In particular, was the effect that the items of equipment acquired from Solar under Purchase Order 0501 became "company provided items" within Article 6.1, or was there otherwise a transference of title to Chevron by operation of an implied term of the amendment?
25. The effect of that amendment was, in my judgment, that Chevron undertook to DSNL that the process of payment by Chevron for equipment and materials acquired by DSNL from Solar would be changed from the milestone instalments or, more pertinently, the back-to-back reimbursement of purchase order payments of US$1 million or more, by Chevron paying the Solar invoices as if they were DSNL's bankers. Instead of almost immediate reimbursement of DSNL, they paid Solar direct. In practice, this had the effect that payment by Chevron was advanced by a few days at the most. The terms of Amendment No. 1 show that, as between Chevron and DSNL, they were continuing to treat the stage payments as due from DSNL to Solar under Purchase Order 0501. There is no suggestion that, by effecting payment to Solar direct, Chevron was to replace DSNL as a party to the contract with Solar or was to acquire title to the equipment direct from Solar. Had it been the intention that there was to be novation of the Purchase Order Contract whereby Chevron replaced DSNL as purchaser, the terms of the amendment would have made express provision to that effect and Solar would have been involved. The effect of clause 7 is to preclude any such implied term: the only amendments to the Main Contract were to be those expressly provided for.
26. Given that upon delivery of the equipment title was to pass from Solar to DSNL, there is no basis for these items being treated as "company provided items" within Article 6.1. That provision is, as I have held, to cater for the supply by Chevron to DSNL by way of sale of items which were the property of Chevron and in which title would otherwise pass temporarily to DSNL.
27. Even if clause 7 of Amendment No. 1 were wide enough to permit an implied term that title should, as between Chevron and DSNL, be deemed to be in Chevron because the equipment was to be treated as if it were "company provided items," there is, in my judgment, no basis for any such term. It is not necessary to make the Main Contract as amended work. Above all, the notion that the assumption by Chevron of the obligation to make direct rather than indirect payment to Solar would give rise or reflect to a mutual intention that there should be superadded to that obligation the transference of title for security purposes is unsustainable simply because Chevron's credit risk was not being significantly increased above that already arising from operation of the Main Contract without amendment. The notion that against this background there should be some unexpressed mutual intention locked into the express terms of the Amendment No. 1 that title should be treated as having passed to Chevron presents itself to me as quite unsustainable, whether it is said to be in order to fill an obvious gap or in order to make the contract work or on Moorcock principles.
28. That being the position as to title when Contract No. 1 was entered into, was that position altered in the light of after events? On behalf of Chevron, Mr Kenneth McLean QC submits that by Chevron's further undertaking on 16th June 2004 to take over the provision of transportation and associated logistics in respect of the Solar equipment, the Main Contract was in effect further amended to the effect that the Solar equipment became "company provided items" under Article 6.1.
29. I am not able to accept this submission. Although it is probably true that if there were to be company provided items they would be transported and delivered to DSNL at Middlesborough by Chevron, it does not follow that Chevron's agreement to provide such ancillary services converted the items covered by Purchase Order 0501 into "company provided items". Just as the provision of a direct payment facility by Chevron did not have that effect, so the provision of other ancillary services did not have that effect. In neither case did Chevron acquire title from Solar, nor by implication could it be deemed to have done so. The aggregation of the provision of transportation and associated logistic services with the payment facility does not alter that conclusion. In order to qualify as company provided items, the equipment has to be owned by Chevron and then supplied by Chevron to DSNL.
30. Chevron further refer to the fact that before the time when it made payment to Solar of the final milestone amount in September 2004 it had already entered into numerous further similar contract amendments and that these contained provisions which did not appear in Amendment No. 1, the effect of which was to pass to Chevron title in the equipment covered by the amendment. Thus Contract Amendment No. 2 entered into by Chevron on 1st July 2004 relating to equipment to be supplied to DSNL by some twelve different suppliers contained the following:

"5. Title in respect of all goods or materials listed in the Exhibit which are paid for by COMPANY shall pass to the COMPANY in accordance with the provision of Incoterms 2000 edition and CONTRACTOR shall in writing instruct SUPPLIERS to provide directly to COMPANY lien waiver certificates in the form stipulated by the COMPANY."

31. That same provision was, as I have said, inserted in two further Contract Amendments, No. 4 and No. 5, entered into respectively on 26th July and 31st August 2004. In its letter of 28th June 2004, DSNL wrote to Chevron in relation to the proposed terms of Amendment No. 4:

"The purpose and intent of this Contract Amendment 4 is identical to that of Contract Amendment 1, which was put in place solely to cover CNL making payments on behalf of KYE directly to Solar.

"As a general note, a number of the points raised by CNL request detailed information which is in excess of that reasonably required to administer this Contract Amendment.

"In each case, taking a step back from the minor details, the information provided demonstrates beyond any doubt that each of the Purchase Orders and Subcontracts are both bona fide associated with SOWIP and have been placed and accepted/acknowledged by the respective Vendors.

"CNL have consistently made the statement that 'CNL is unable to accept this Purchase Order and incorporate it into Contract Amendment No. 4 until the above has been provided.' We would remind CNL that the purpose of the Contract Amendment is simply to effect a direct payment mechanism. The copy POs are not provided for CNL's 'acceptance'. They are provided as evidence of placement and value."

32. It is argued that the agreed insertion of a title transfer provision in Chevron's favour and the statement in that letter that the purpose and intent of the proposed amendment was identical to that of Contract Amendment No. 1 gave rise either to an inference that it was the common intention of the parties that Amendment No. 1 contained a similar title transference in favour of Chevron or to an estoppel to the same effect.
33. That submission has to be evaluated against the background that each contract amendment expressly applied to different identified equipment to be supplied by different identified suppliers. Amendment No. 1 had been entered into some five months before Amendment No. 2 and by the time that the terms of the latter amendment were first considered, Chevron had already paid the first three milestone instalments to Solar under Amendment No. 1 without any suggestion being made that Chevron would obtain title to the Solar equipment upon its delivery to DSNL. In these circumstances, the insertion of the title transference clause in Amendments Nos. 2, 3 and 5 and the statement in the letter do not give rise to any relevant inference that the parties' common intentions back in January 2004 were such that Amendment No. 1 was to be construed as incorporating by implication such a provision. In any event, a process of contractual construction by reference to the subsequent statements or conduct of the parties is an impermissible methodology: see FL Schuler AG v Wickman Machine Tool Sales Ltd [1974] AC 235. Such statements or conduct could be deployed only for the purpose of establishing a new agreement varying the original one or an estoppel. Accordingly, subsequent conduct can be relied upon in this case as having the effect of transferring title to Chevron only if it gives rise to a yet further variation or estoppel.
34. In the present case, each of the contract amendments is expressly confined in application to specific items of equipment. It is therefore incapable of having any contractual impact on other items of equipment. The letter did not express itself as directed to amending Amendment No. 1. It cannot be construed as having that effect.
35. As regards estoppel, the argument based on the incorporation of the transference of title clause in subsequent amendments and on the letter of DSNL of 28th June 2004 face what are, in my judgment, insuperable obstacles. First, a statement that one contract with a given term has the same intent and purpose as an earlier contract without such a term is capable of being a representation as to the meaning of the later contract but lacks the quality of an unequivocal representation as to the meaning of the earlier one so as to found any kind of estoppel. Second, there is no evidence that Chevron acted relevantly in reliance on the statement in the letter. There is no suggestion in the documents, and Mr Masri, Chevron's only factual witness, does not so state, that when in September 2004 he came to pay the last milestone instalment under the Solar Purchase Order No. 0501, Chevron relied on any representation by DSNL that title to the Solar equipment would be held by Chevron following delivery by Solar.
36. Finally, it is necessary to examine an argument relied on by Chevron based on the fact that all the relevant Solar equipment was delivered by Solar bearing metal tags showing the name "Chevron Texaco" and a number. According to the third witness statement of Mr Masri, the "labels [were] to identify the property as CNL's."
37. There is no evidence to suggest that Solar ever entered into an agreement with either Chevron or DSNL that title under the Purchase Order No. 0501 would pass to Chevron. It must therefore be ascertained what the significance of the labelling is.
38. Under the terms of the general package specification which was part of Appendix 2 to the Main Contract, it was provided by Specification 17.01 of clause 3.3.8 that major equipment such as pumps and compressors should be supplied with a permanently attached stainless steel nameplate with certain minimum information, including the name of the manufacturer, a serial number and an item or tag number. By Specification 17.03, which applied to gas turbine-driven generator sets, clause 9.1.6 provided that the contractor (DSNL) would be responsible for allocating tag numbers from a block of numbers issued by Chevron. An identical provision applied to gas-turbine driven purposes under specification 17.06. From a photograph of certain of the tags, it can be seen that they bear the name of Solar as the manufacturer, of Chevron, and that alongside the latter there is a reference number. These tags do not indicate that the equipment is the property of Chevron, they merely show the name Chevron-Texaco. They were clearly not attached to give effect to Article 6.4 of the Main Contract, but rather to comply with appendix 2. Their function was thus to identify the different items of equipment, rather than to evidence the owner of individual items. Had they had the latter function, it is in my view inconceivable that a sophisticated organisation such as Chevron would not have attached a tag expressly referring to Chevron as the owner.
39. I conclude that the tagging system does not assist Chevron's case that it acquired title.
40. It follows that Chevron never acquired title to the items delivered by Solar under Purchase Order 0501 and for which Chevron made payment pursuant to Contract Amendment No. 1 and that, upon delivery by Solar, title passed to DSNL. Since there has not yet been Notice of Final Acceptance of the Works by Chevron, title remains in DSNL and has not yet passed to Chevron. It follows that the question whether title has passed from Chevron to DSNL as submitted in the alternative by IFC by means of accession does not arise in relation to the equipment covered by Contract Amendment No. 1.

Equitable Lien

41. It is submitted to behalf of Chevron that on the assumption that title to all relevant equipment remained in DSNL by the time when IFC obtained the judgment in respect of which it now seeks execution, Chevron had already acquired an equitable lien over all the items of equipment for which they had paid. The sum secured by that lien is said to be US$36,337,000, being the total sum paid in respect of equipment and other goods (US$26.605 million) under the contract amendments and US$9.732 million in respect of services. The basis for this submission can be summarised as follows:

(1) Under the terms of the Main Contract, DSNL undertook to provide all services, labour, supervision, consumables, personnel and materials needed to perform the Work, specifically, the detailed design of the facility, procurement of materials, construction, load-out, transportation, installation, hook-up and commissioning of the facility in accordance with Chevron's technical requirements and such additional drawings and explanations as Chevron might provide (Article 2.1). As such, the Main Contract was a contract for work and materials.

(2) It was the obligation of DSNL to construct the rig modules and to acquire from suppliers the equipment designed and constructed for that purpose, in some cases from Chevron's nominated subcontractor such as Solar. That equipment was specifically designed for the requirements of the SOWIP.

(3) Title to that equipment was passed by those suppliers to DSNL under the various purchase contracts such as Purchase Order No. 0501.

(4) As between DSNL and Chevron, DSNL obtained title to that equipment and materials for the purpose of building it into the rig modules, with the mutual intent that when the work had been completed and Chevron's final acceptance had been given, title would ultimately pass to Chevron.

(5) Chevron would pay for the equipment, materials and work required and/or provided by DSNL against monthly invoices under Article 8 or by means of ad hoc payments in respect of DSNL's purchase orders to its suppliers having a value of US$1 million or more. In relation to the materials and equipment covered by Purchase Order No. 0501, the payment system had been amended by Contract Amendment No. 1 as already described in this judgment and in relation to most of the subsequent materials and equipment by later contract amendments to the effect that Chevron would pay the suppliers direct. In most cases, however, except Contract No. 1, title was to pass to Chevron upon delivery by the supplier.

(6) The obtaining by DSNL of title to some of the equipment direct from its suppliers (specifically under Purchase Order 0501) and the retention of that title after Chevron had paid for the equipment gave rise to an equitable lien because under the terms of the Main Contract, notably Article 15, if the contract were terminated, Chevron would be entitled to require DSNL to sell to it such partially completed work and materials as Chevron elected to purchase. I interpose that, if Chevron had already paid for that equipment, it would be entitled to be credited with the price. It would in any event be unconscionable for DSNL to dispose of the equipment to a third party without reimbursing Chevron in respect of the amount already paid by Chevron. To that extent, the lien provided Chevron with an equitable interest in that equipment which could be enforced by an injunction restraining DSNL from disposing of the equipment unless it first reimbursed Chevron's relative payment.

(7) In support of this argument, Mr Kenneth MacLean QC relied heavily on the decision of the majority in Hewett v Court [1981-2] 149 CLR 639 in the High Court of Australia and on the decision of the Court of Appeal in Chattey v Farndale Holdings Inc. (1996) 75 P&CR 298.

42. The concept of the equitable lien has long been firmly established in English law, but usually for the purpose of protecting the rights of the unpaid vendor's real property. Thus, as soon as a binding contract for the sale of land has been made, the vendor has a lien on the property for the purchase money and a right to retain the property until payment is made. That lien continues to exist even where the vendor executes an absolute conveyance and parts with possession of the property and the title deeds to the purchaser: see Snell's Equity, 31st Ed. 898, para. 42-25. In other words, transference of the legal title to the property does not destroy the vendor's lien for such part of the price as remains unpaid. As between vendor and purchaser, equity supersedes to protect the vendor against what would otherwise be an unconscionable loss to the vendor.
43. However, from an early stage the courts applied similar principles to protect the purchaser of land who had paid part of the price prior to conveyance of the legal title pursuant to the terms of the contract but had not received the conveyance of the legal title. In Rose v Watson (1864) 10 HLC 671, the purchasers had paid deposits under the contract but they subsequently rescinded it on the ground of fraudulent misrepresentation. The purchasers claimed back the deposits against the vendor's successors in title on the basis that they had a lien. The claim succeeded. Lord Westbury observed at p. 678:

"When the owner of an estate contracts with a purchaser for the immediate sale of it, the ownership of the estate, is in equity, transferred by that contract. Where the contract undoubtedly is an executory contract, in this sense, namely, that the ownership of the state is transferred, subject to the payment of the purchase-money, every portion of the purchase-money paid in pursuance of that contract is a part performance and execution of the contract, and, to the extent of the purchase-money so paid, does, in equity, finally transfer to the purchaser of the ownership of a corresponding portion of the estate.

"My Lords, that being so, we have only to inquire under the terms of the present contract whether the sums of money paid by the Respondent were, or were not, paid in pursuance of that contract. About that, my Lords, there is no controversy whatsoever. They were bona fide payments made by the Respondent, in conformity with the contract which required such payments to be made in part of the purchase-money; and they were accepted by the vendor as portions of that purchase-money. In conformity, there, with every principle, the purchase paying the money acquired an interest in the estate by force of the contract and of that part performance of the contract, namely, the payment of that portion of the purchase-money."

44. Lord Cranworth said at p. 683:

"There can be no doubt, I apprehend, that when a purchaser has paid his purchase-money, though he has got no conveyance, vendor becomes a trustee for him of the legal estate, and he is, in equity, considered as the owner of the estate. When, instead of paying the whole of the purchase-money, he pays part of it, it would seem to follow, as a necessary corollary, that, to the extent to which he has paid his purchase-money, to that extent the vendor is a trustee for him; in other words, that he acquires a lien, exactly in the same way as if upon the payment of part of the purchase-money the vendor had executed a mortgage to him of the estate to that extent.

"It seems to me that this is founded upon such solid and substantial justice, that if it is true that there is no decision affirming that principle, I rejoice that now, in your Lordships' House, we are able to lay down a rule that may conclusively guide such questions for the future."

45. This principle was not confined to contracts for the sale of interests in land. Thus in In Re Stucley [1906] 1 Ch 67 it was held by the Court of Appeal that where a chose in action, namely a reversionary interest in a personal estate, had been sold and assigned by deed which wrongly stated that the consideration had been paid, the assignor was held to be entitled to an equitable lien on the legacy in the hands of the assignee's executors to the extent of the purchase price. The Court of Appeal expressly rejected the argument that the doctrine of the unpaid vendor's lien did not apply to a sale of personal property. It was held on the earlier Court of Appeal authority of Davies v Thomas [1900] 2 Ch 462 that such principle did extend to personal property to the effect that the remedy for enforcing that lien was the same as where there was an express charge. However, in a passage relied upon by Mr Simon Rainey QC on behalf of IFC, Stirling LJ said at p. 79:

"In my opinion, Davies v Thomas is an authority for the doctrine is not limited to the case of a sale of real estate but extends, at any rate in some cases, to a sale of personal estate, and in my opinion to all cases in which the property sold is of such a nature as that the court will decree specific performance of a contract for purchase of it."

46. Having cited from the judgment of Rigby LJ in Davies v Thomas (supra, p. 471), Stirling LJ further observed at p. 28:

"If a court of equity had been administering the fund it would have inquired into the facts and, finding that the purchaser had not paid the purchase money, it would have held that it was its first duty to see that the mortgagee and through him the mortgagor had been satisfied before handing over the purchase share to the purchaser. The court would have had no difficulty in doing that and in my opinion the trustees are bound to do that which the court would have done had it been administering the fund. So here the fund was under the legal control of the father in his capacity as trustee and executor. If the court had been administering the fund and had found that the trustee of this fund had on purchasing the reversionary interest in it failed to pay his purchase money, the court would have had no difficulty in enforcing the right of the unpaid vendor."

47. Cozens Hardy LJ observed at p. 84:

"I see no reason in principle why the doctrine should not apply to every case of personal property in which the court of equity assumes jurisdiction over the subject matter of the sale."

48. The substance of the reference by Stirling LJ to cases in which the property sale is of such a nature as that the court would decree specific performance, in my judgment, is to be understood as indicating that the lien doctrine could not be applicable to those cases where equitable relief was not available to enforce the relevant right because of the nature of the personal property involved. He could well have had in mind such personal property as the ordinary commercial goods the subject of a contract of sale within the Sale of Goods Act 1893, under which there was a statutory provision for an unpaid seller's lien, which does not emanate from the equitable lien.
49. Indeed, it has subsequently been held that ordinary commercial goods are not amenable to an equitable lien when the underlying contract is subject to the Sale of Goods Act 1893: see Transport and General Credit Corporation v Morgan [1939] Ch. 531. That was because that Act made express provision for a vendor's lien and, that being an exclusive code for the sale of goods, the statutory lien must be the sole such security: see Simonds J at p. 546.
50. A further distinction applicable to contracts for the sale of goods which might have been in mind was that in section 52 of the Sale of Goods Act 1893 (now 1979) which empowers the court to protect a buyer of specific or ascertained goods by an order for specific performance in an appropriate case, that statutory remedy is not available to provide protection in respect of an agreement for the sale of unascertained goods: see Re Wait [1927] 1 Ch. 606.
51. More recently, it has been held by the Court of Appeal in Chattey v Farndale Holding Inc., supra, that notwithstanding specific performance not being an available remedy in the case in question, an equitable lien may be available for enforcement by an equitable remedy of a different kind. In that case the relevant issue was whether the purchaser of a new lease in a flat conditional upon the obtaining of planning permission could recover from the developer's successor in title a 20 per cent deposit paid to the developer under the terms of the agreement. The case for the plaintiff purchasers was that they had obtained an equitable lien over the developer's interest in the land to the extent of the deposit and that the defendants were bound by it. The defendants argued that because the whole agreement was conditional upon the granting of planning permission, it was not an agreement that could have been specifically performed before planning permission had been granted. The defendants accepted that a lien arose when the contract became unconditional. But the key point was that by that time the developer had already granted a debenture to the defendants which would have priority over any such subsequent lien. It was only if the lien arose at the outset and before granting the debenture that it would benefit the purchasers.
52. In concluding that one of the two purchasers was entitled to an equitable lien to the extent of the deposit and interest on it, Morritt LJ referred to the following statement by Sir George Jessell MR, in London and South Western Railway Company v Gomm (1882) 20 Ch.D. 562 at p. 581:

"The right to call for a conveyance of the land is an equitable interest or equitable estate. In the ordinary case of a contract for purchase there is no doubt about this and option for repurchase is not different in its nature. A person exercising the option has to do two things, he has to give notice of his intention to purchase, and to pay the option money; but as far as the man who is liable to convey is concerned, his estate or interest is taken away from him without his consent, and the right to take it away being vested in another, the covenant giving the option must give that other an interest in the land."

53. Morritt LJ then observed:

"I propose to deal with the conditionality argument first. It seems to me that the argument for Farndale would give rise to anomalies. First, the lien would not be directly related to the purchaser's payments sought to be secured and would be denied in those circumstances where such protection was most required. Thus on the facts of this case no lien would have arisen when the deposits were paid on the exchange of contracts on March 25, 1988, notwithstanding that in accordance with the statement of Sir George Jessell, MR the plaintiffs then had an equitable interest in the property by virtue of their respective conditional rights to call for the legal estate in their respective flats. Secondly, if, as Farndale contends, the lien arises at the time of and in consequence of the accrual of the right to specific performance of the contract it is hard to understand why the lien does not cease if the right to specific performance is subsequently lost. That the lien is not lost is conceded by Farndale and in any event established by the decision of Stirling J in Levy v Stogden. In that case the claim for specific performance of the contract by assignees of the purchaser was dismissed on the grounds of delay but the claim for the lien was upheld. It is true that a similar anomaly would arise on the plaintiffs' rival submission, but that does not detract from the anomalous nature of the case for Farndale. Thirdly, it is hard to see why the substantive right of the purchaser to a lien should depend on the availability to him of a remedy, particularly one which if successfully invoked would negate the need to rely on the right at all.

"In my view both principle and authority support the argument for the plaintiffs. The statement of Sir George Jessell shows that the purchaser has an equitable interest or estate in the land if he has a right to call for the legal estate, albeit future and conditional, which the vendor has no right to refuse. In this case the vendor was contractually bound to use his best endeavours to obtain a satisfactory planning consent on the grant of which the contract became unconditional. The equitable interest or estate of the purchaser was one which entitled him to seek specific relief in the form of injunctions so as to protect that right notwithstanding that a claim for specific performance might have been premature."

54. He then referred to the decision of the Court of Appeal in Whitbread & Co. Ltd v Watt [1902] 1 Ch 835 and to the judgment of Vaughan Williams LJ at p. 838:

"The lien which a purchaser has for his deposit is not the result of any express contract: it is a right which may be said to have been invented for the purpose of doing justice. It is fiction of a kind which is sometimes resorted to at law as well as in equity. For instance, when an action is brought for money had and received to the use of the plaintiff, it is not true that the money has been so received, but that is the way in which the law states the case in order to do justice. When Lord Westbury in Rose v Watson speaks of a 'transfer to the purchaser of the ownership of a part of the estate corresponding to the purchase-money paid', and Lord Cranworth speaks of the purchaser being exactly in the same position of a mortgagee of the estate to the extent of the purchase-money which he has paid, those expressions are merely verbal vehicles to carry the right which justice demands that the purchaser should have. Having read the report of Rose v Watson, I must say that, speaking for myself, I agree with Mr Brinton to this extent, that the decision does not expressly carry the purchaser's lien beyond a case in which the contract has gone off through the default of the vendor."

55. Morritt LJ said at p. 307:

"In my judgment the circumstances in which a purchaser's lien would arise are not limited to those in which the contract is or has been specifically enforceable but include those in which there is or has been a right to call for the legal estate, whether presently, in the future or conditionally so as to give rise to the equitable interest or estate to which Sir George Jessell referred. I accept the submissions for the plaintiff in this respect. This conclusion is in line with Blackburne J in dealing with the issue of conditionality. I have not previously referred to the judge's conclusion for he did not deal with the point expressly in connection with the submission for Farndale that the existence of the lien depended on the specific enforceability of the contract. At p. 76, having referred earlier to London and South Western Railway Co. Ltd v Gomm and Whitbread & Co. Ltd v Watt, he said:

"'In my view, the plaintiffs became owners in equity of the premises (of which they were contracting to take subunderleases) as soon as their contracts were entered into and, subject to the effect of clause 21, became entitled to liens on those properties on payment of their initial deposits, and it matters not that, until August 1988, their contracts remained purely conditional.'

"Provided that ownership in equity is understood to refer to the equitable interest or estate to which Sir George Jessell referred in London and South Western Railway Co. Ltd v Gomm, I agree with the judge. My conclusion is supported by the decision of the majority in Hewett v Court. I have not referred to it earlier because the decision was reached by a bare majority and the relevant issue appears to have been conceded in the opposite sense to the majority decision.

"I can deal with what was described as the conceptual objection more shortly. The objection, which arises from Rose v Watson, is to the effect that because the leasehold interest contracted to be sold had no previous separate existence, for it was to be granted on completion of the contract, the purchaser never could have been the beneficial owner of such a term, even when the contract became unconditional and therefore specifically enforceable. Once it has established that the existence of the lien is not restricted to cases where the purchaser has been entitled to specific performance, the concept on which the objection is based disappears too. What is important is that the purchaser shall have had the right, whether present, future or conditional, to call for the legal estate. It would be absurd if the lien should be denied merely because that legal estate did not exist but another out of which the vendor would grant it did."

56. The decision in Chattey was concerned with an agreement for the sale of an interest in land but in my judgment the reasoning is equally referable to agreements relating to personal corporeal property not covered by the Sale of Goods Act. It is to be observed that Morritt LJ referred with apparent approval to the decision of the majority of the High Court of Australia in Hewett v Court, supra. That is the only authority which has so far been found which deals with the claim of a purchaser under a contract for work and materials to an equitable lien in respect of contractual prepayments made before the passing of title to the completed property. The builders of a prefabricated home became insolvent between payment and delivery and just before the winding up. The purchaser made an agreement with the builder to take delivery of the incomplete structure on payment of an additional amount to compensate for the work not already covered by the prepayments. If there was not an equitable lien, it was accepted that this agreement, being a preference, would not be binding on the liquidator. In concluding that such a lien did exist, Gibbs CJ observed at p. 645-6:

"Equitable lien does not depend either upon contract or upon possession. It arises by operation of law, under a doctrine of equity 'as part of a scheme of equitable adjustment of mutual rights and obligations'; those words of Isaacs J were used in Davies v Littlejohn, in relation to the doctrine of the vendor's lien, but they have a general application. It would be difficult, if not impossible, to state a general principle which would cover the diversity of cases in which an equitable lien has held to be created, a new vendor's lien for unpaid purchase money has been said to be founded on the principle that 'a person having got the estate of another, shall not, as between them, keep it, and not pay the consideration': Mackreth v Symmons. The lien of a purchaser for the purchase money that he has paid to the vendor on a sale that has gone off through no fault of the purchaser may perhaps rest on the converse principle that he who has agreed to convey the property in return for a purchase price will not be allowed to keep the price if he fails to make the conveyance. At all events, the rule has said to be founded on 'solid and substantial justice': Rose v Watson. In each of these cases the vendor or the purchaser, as the case may be, is treated as a secured creditor (cf Combe v Lord Swaythling) -- the lien is the security for the money which is justly due. In other circumstances an equitable lien may arise because of the relationship that exists between the parties (eg that of partnership or trustee and beneficiary or solicitor and client) or by reason of subrogation or estoppel."

57. Further, in considering whether equitable relief was appropriate, he said at p. 647-8:

"The contract recognises that the home which will be constructed and placed on the site will be a particular building which will be ascertained and identified at latest by the time when the first instalment of the purchase price, other than the deposit, is paid. That instalment is to be paid on the pitching of the roof, and that of course means that it is necessary to identify the particular house on which the roof is pitched. Moreover, the construction of the house, once commenced, is to be concluded within 60 working days, unless time can be extended under the contract. The contract did not simply require that a house which conformed to the appellants' plans and specifications should be completed within 60 working days. What it required was that the company should construct, and conclude the construction of, 'the home'; in other words, the company was obliged to conclude the construction of the particular home which it commenced to build to the appellants' plans and specifications and it could only suspend the construction of that home in the circumstances of cl.6(b). It was that home which, when completed, it was obliged to transport to the site and place on stumps there, having first insured it while in transit. I cannot, with all respect, agree that the company could, consistently with the contract, have sold to somebody else the home which was being constructed for the appellants, once it had been identified, and then satisfy its contractual obligations by building another house.

"Moreover, although the contract stated (in cl.8) that the property in the home was to remain in the company until the whole of the price had been paid, that does not mean that the intention of the parties was that the appellants could acquire no interest in the house until payment had been made in full. That this is so is shown by cl.10 which, (albeit with a disregard for grammar) entitled the company to recover from the appellants a proportion of the purchase price if the appellants should terminate the contract. It cannot be supposed that it was intended that the company, having obtained the requisite proportion of the price from the appellants, would be entitled to keep the home as well, thus keeping both the product of the work and the payment for it. The necessary implication is that in such a case the appellants would be entitled to the benefit of the work for which they paid."

58. Deane J, also of the majority, sought at p. 668 to identify certain key attributes of a transaction which would be capable of giving rise to an equitable lien:

"It is adequate for present purposes that I identify what I consider to be the circumstances which are sufficient for the implication, independently of agreement, of an equitable lien between parties in a contractual relationship. Those circumstances have, to some extent, been indicated in what has been said above. They are: (i) that there be an actual or potential indebtedness on the part of the party who is the owner of the property to the other party arising from a payment or promise of payment either of consideration in relation to the acquisition of the property or of an expense incurred in relation to it (see Middleton v Magnay; Whitbread & Co. Ltd v Watt; Combe v Lord Swaythling); (ii) that that property (or arguably property including that property: see Pollock, loc. cit.) be specifically identified and appropriated to the performance of the contract (see Lord Hanworth MR In re Wait; and (iii) that the relationship between the actual or potential indebtedness and the identified and appropriate property be such that the owner would be acting unconscientiously or unfairly if he were to dispose of the property (or, if it be appropriate, more than a particular portion thereof) to a stranger without the consent of the other party or without the actual or potential liability having been discharged. It may be that the above circumstances or tests, particularly (i), would be unduly restrictive if propounded as a statement of exclusion. As has been said however, they are formulated as a statement of what is sufficient rather than of what is essential. Whether or not they exist or are satisfied in a particular case should, like most questions involved in the application of equitable doctrines, be determined by reference to the substance of the transaction rather than its form."

59. The dissenting minority of Wilson and Dawson JJ, on whose joint judgment Mr Simon Rainey QC placed reliance, based their conclusion on the foundations that at the time when the deposit was paid there was no property to which the lien could attach, for the construction of the building had not commenced and that principle did not suggest that there was any equity in favour of the purchasers, for the insolvency of the builders was no reason of itself for placing the purchasers in a secured position to advantage over other creditors and the contract was not of a type which equity would specifically enforce for it was open to the builders to deliver any house of identical type in performance of the contract.
60. The first point is not an obstacle to the existence of a lien, at least in English law, as is shown by Chattey, supra. Whether there was or was not an equity conferring priority over unsecured creditors depends, on the English authorities to which I have referred, on the terms of the underlying contract and the conduct of the parties in relation to it. If one proceeds from the basis that, as was clear in Hewett v Court and as is clear in the present case, that the contract is one for work and materials, it is impossible to exclude the availability of equitable relief in a case where the contracted work product and its components were to have characteristics specifically designed for the requirements of the purchaser. This would be so even if the contract fell within the Sale of Goods Act and the question were whether specific performance was an available remedy under section 52: see the decision of Wright J in relation to the sale of a ship with particular characteristics in Behnke v Bede Shipping Co. Ltd [1927] 1 KB 649. That was a decision which turned on the vessel's unusual characteristics required by the German ship owner which made her fit for immediate inclusion on the German register and almost unique in the market, such that damages would not be an adequate remedy. In my judgment, a contract for the bespoke design and purpose built construction of the superstructure of an oil platform is clearly an a fortiori case, whatever may be said about a prefabricated house of standard design. Whereas the judgments of the majority in Hewett v Court do in my view broadly accord with English law, that of the minority does not wholly do so, specifically as regards the non-existence of the property at the time of payment. Moreover, if the consequence of the attachment of the lien in giving priority over the rights of unsecured creditors does not operate as a bar to equitable relief in relation to an interest in land as in Chattey, supra, it would be seriously illogical to hold that it did so in the case of corporeal personalty.
61. In the present case, the milestone payments in relation to Solar's Purchase Order 0501 were to be made in respect of purpose built equipment to be incorporated into the topside modules to be attached to the pancakes, the whole works including the purpose built components being a composite structure designed to the specific requirements of Chevron. The payments to be made by Chevron to DSNL in advance of delivery under Article 8 and Exhibit B clause 2.2(d) of the Main Contract were obviously designed to provide funding to DSNL to enable it to carry out the works and to acquire from its suppliers and subcontractors the equipment necessary to be incorporated. As regards the Solar equipment, that funding was to be used by DSNL to pay Solar in stages during construction of the Solar equipment, that process of construction being DSNL's responsibility under the Main Contract. As I understand it, all that equipment has been duly constructed and delivered to DSNL's site at Middlesborough and practically all of it has been installed on to the pancakes. Certainly the turbine generators and pumps obtained from Solar have been installed. So has the MCC housing.
62. I have no doubt that in principle upon delivery of all the Solar equipment for which Chevron made payment to Solar, Chevron is entitled to an equitable lien from the time of delivery. The question whether the contract was such as to qualify for such an interest can be tested by asking whether it was amenable to equitable relief and in particular whether, had DSNL attempted to dispose of the Solar equipment to a third party without Chevron's consent and without discharging the amount Chevron had paid for it, Chevron could have obtained an injunction to restrain such disposal or whether they would have been left to a remedy in damages. On this I entertain no doubt whatever that, having regard to the expressly agreed contractual provision for what was to happen should the Main Contract be prematurely terminated (Article 15) and also the purpose built nature of the Solar equipment and of the Works, the contractual Project Schedule applicable and the fact that the components had been paid for by Chevron, whereas title had already passed to DSNL, injunctive relief would ordinarily have been an available remedy. That would be the relevant equitable remedy. At the very least, disposal would have been restrained unless DSNL had first reimbursed all relative payments. In this connection, it is also necessary to have regard to the fact that the whole purpose of the Main Contract was to provide Chevron with completed topside modules ready for the SOWIP at a particular time. The assertion that Chevron should be left to its remedy in damages on the basis that it would be obliged to build new topside modules for its SOWIP with all the delay involved would involve serious injustice.
63. I therefore conclude that the general principles so far worked out in the authorities lead to the conclusion that Chevron did originally acquire an equitable lien in all the equipment for which it paid under the Contract Amendment No. 1.
64. That, however, leaves to be answered the question: what, if anything, happened to the lien when the equipment had been attached to the pancakes? Much time and attention in the course of this hearing has been devoted to the question whether by reason of the attachment of the equipment to the pancakes there took place by reasonably applicable principles of accession a transference of the legal property in the Solar equipment from Chevron to DSNL on the assumption that Chevron had title to that equipment as from delivery. I have already held that this assumption is incorrect and that DSNL acquired title to that equipment under its purchase contract with Solar and retained title throughout.
65. There is no issue but that DSNL had title to the pancakes. Indeed, that was the only part of the works for which Chevron did not pay the suppliers direct, either under Contract Amendment No. 1 or under subsequent contract amendments. I assume for present purposes, therefore, that when the Solar equipment covered by Contract Amendment No. 1 was attached to the pancakes, the effect was simply to attach a number of items of equipment such as the turbines to which DSNL had title but subject, as I have held, to an equitable lien in favour of Chevron to another item or group of items to which DSNL also had title but not subject to an equitable lien. I further assume, without presently deciding the point, that the nature and degree of attachment was such that if Chevron had legal title to that equipment, that title would have passed to DSNL by accession. In those circumstances, and on that assumption, what happened to the equitable lien?
66. DSNL having received delivery of the equipment subject to the equitable lien were thereafter trustees of Chevron's equitable interest and were, as such, precluded from disposing of that interest without Chevron's consent as beneficiary. If they attached the equipment subject to Chevron's lien to their own property they could not in my view thereby divest Chevron of its beneficial interest in the equipment if severable or, if not severable, in the composite structure. Although, even if because of the nature of attachment there would have been a passing of property by accession if Chevron had had legal title to the equipment, there would be no breach of trust by DSNL in those circumstances making the attachment because it was done with the beneficiary's consent. Nevertheless, in the present case where legal title remained in DSNL throughout, there was no conduct on the part of Chevron which amounted to its consent to the extinguishing of its equity in the equipment. Indeed, the only purpose of its acquisition of the lien in the first place was that the equipment should be designed, built and deployed in the construction of the modules. It would be absurd for the beneficiary to be deprived of its lien by the performance by the trustee of the very function which the lien was intended to facilitate. The composite would in those circumstances be subject to the equitable lien. In the present case, therefore, either the Solar equipment, if severable, or the composite structure in the hands of DSNL, would be subject to a lien to the extent of the payments made by Chevron in respect of the incorporated items. That would include both the capital cost and the ancillary expenses of transportation and logistics subsequently agreed to be paid by Chevron but otherwise the responsibility of DSNL under the terms of the Main Contract.
67. In the result, DSNL hold the topside modules subject to Chevron's equitable lien in respect of the Solar equipment the subject of the Contract Amendment No. 1. Accordingly, execution against the topside modules in respect of the judgment debt due to IFC cannot be effected unless and until that lien has been discharged.
68. I think the sensible thing now is for me to rise for a short time and to allow some contemplation, insofar as anybody has had a chance to assimilate that huge long 90 minutes worth.
69. What I would like to do next is to deal with the letter from the HCEO solicitors and then to hear any views on whether it would be useful, fruitful or helpful for further court time to be deployed in exploring yet further whatever issues may be thrown up in relation to the other equipment. I will rise now for 15 minutes.
70. MR BLACKWOOD: I am grateful.

(3.30 pm)

(A short break)