IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
TECHNOLOGY and CONSTRUCTION COURT
Royal Courts of
Strand, London, WC2A 2LL
Friday 28 July 2000
B e f o r e :
- v -
Mr T. Elliott QC and Mr M. Taverner QC (instructed by Messrs Cameron McKenna for the Claimants)
Mr S. Furst QC, Mr P. Coulson and Mr J. Lee (instructed by Messrs Watson, Farley and Williams for the Defendants)
The System 5 - 16
The Agreements 17 - 37
History of Events up to 17 July 1998 38 - 43
The meeting of 17 July 1998 44 - 50
History of events from 17 July to 24 September 1998 51 - 66
The meetings of 24 and 25 September 1998 67 - 85
From the MOU to the MOA 86 - 90
The Misrepresentation issues 91 - 94
What representation (if any) was made 96 - 100
Was the representation false? 114-126
Why did PGS enter into the MOA? 130
Was the MOU entered into under duress? 131-142
The Termination issue 149-150
Article 16.3 151-154
Article 16.1 155
Was there a breach of contract? 156-192
Which breach of contract? 193-194
Reasonable opportunity to remedy 195-199
1. The Banff sector of the North Sea is located approximately 200 miles east of Aberdeen. Conoco (UK) Ltd with other joint venturers ("Conoco") owned the licence to extract oil and gas from the Banff Field. Conoco awarded a contract for a substantial part of the development and operation of the field to PGS Floating Production UK Ltd. This included all the systems on the Floating Production Storage and Off-Take vessel ("FPSO"), the export systems and all subsea systems linking various parts of the overall development. It will be necessary to consider the components of the system in some detail later.
2. On 3 June 1997, DSND Subsea Ltd ("DSND") entered into a contract ("the Contract") with PGS Offshore Technology AS ("PGS") for the subsea work. The contract was subsequently varied by Heads of Agreement ("HOA") made between the parties on 2 April 1998. Further relevant agreements were concluded between them on 25 September and 9 October 1998. These were the Memorandum of Understanding ("MOU") and Memorandum of Agreement ("MOA") respectively. It is PGS' case that it was induced to enter into the MOU by a misrepresentation made by DSND, and that it entered into this agreement under economic duress.
3. On 19 November 1998, PGS purported to terminate the Contract on the grounds of DSND's failure to remedy a "serious breach of contract".
4. Litigation ensued, and an order was made for the trial of certain preliminary issues. I shall identify these when I have explained the nature of the systems in more detail, and have referred to the relevant contractual provisions.
5. At the heart of the overall system is the FPSO which, upon completion of the project, is kept permanently moored on field. The FPSO is responsible for pumping water in the water injection wells, and for receiving oil and gas from the production wells. It exports gas to a sub-sea pipeline which links to the mainland, and oil to tankers which can moor about 1.6km away. A turret is the means by which both the FPSO is moored to the field, and the overall system is connected to the FPSO. The turret is a steel structure, in the shape of a vertical cylinder, which passes through the FPSO, and terminates about 2.5 metres below the hull.
6. The subsea work comprised everything between the well heads and the FPSO, all the works required for the two export systems, and the mooring systems for the FPSO and the oil export system. Of particular relevance to this case are the connections between the FPSO and the seabed, which pass through the turret. There are 6 such connections, comprising 5 flexible risers and one umbilical (which is a composite bundle of other connections). The five risers are: one water injection rise ("W1"); two production risers ("P1 and P2"); one oil export riser; and one gas export riser. Each riser is connected to the topsides pipework at the top deck of the turret, and suspended from hang off clamps on this deck. The water depth below the FPSO is about 90 metres, but the risers are between about 200 and 300 metres in length, as they hang from the top deck of the turret, and take a catenary path down to the sea bed. The W1, P1 and P2 risers are connected to riser bases on the sea bed. The other risers are held in place by short tethers. The umbilical carries a variety of control pipes and wires from the FPSO to the sea bed, where it is connected to a subsea termination unit. Unless otherwise stated in this judgment, I shall use the term "risers" to refer to the 5 risers and the umbilical.
7. The riser system comprises the risers themselves, bend stiffeners and the buoyancy system used to form the catenaries. The risers are complex pieces of engineering. They have to be able to withstand the pressures and temperatures involved in the transport of production and expert fluids. They have to be sufficiently strong to be able to carry their own weight, and sufficiently flexible to be able to accommodate movement. They can be damaged and their life expectancy can be impaired if they are bent in an arc of a radius smaller than their minimum bend radius. Ensuring that minimum bend radii are not breached is one of the fundamentals of riser design. Design engineers are required to consider not only the way the risers will be bent with the FPSO in different positions on its moorings, but also to take account of dynamic forces and moments on the risers as the FPSO moves about. It is, therefore, necessary to develop installation methods and procedures which ensure that the risers are not over-bent during their installation. At the end of each riser is a riser end-fitting. The riser end-fitting provides the location from which the riser can be pulled during installation by a pull-in head and supported after installation by a hang-off clamp.
8. At points along a riser where it is calculated that minimum bending radii may be breached, it is possible to use a device known as a bend stiffener to provide sufficient additional stiffness to prevent a riser from over-bending. One such point occurs where the riser enters the FPSO via the turret. The bend stiffener is a funnel-shaped polymer tube which is slid over the riser.
9. Buoyancy is relied on to achieve the catenaries. Buoyancy modules are clamped to the risers as the risers are installed. They are spaced along the riser and provide the buoyancy needed to form the mid-water catenaries. The clamps are designed to withstand the forces that they will encounter during installation, particularly the slamming loads. In the case of buoyancy modules, these are the forces induced on the modules by wave and vessel motion as they are lowered, attached to the risers, over the stern of the vessel into the sea.
10. The turret of the FPSO is constructed with 15 tubes or slots; this means that it can accommodate up to 15 risers, although only 6 are used for the Banff Project. Each riser is allocated to a slot. In cross-section, the turret has two decks, and the slots appear as vertically aligned holes (called "I-tubes"). During the installation of a riser, a winch line is lowered from above the top deck of the turret down that riser's allocated slot. Once the riser has been attached to the line, it is pulled through the turret from below the bottom I-Tube to above the top I-Tube. A hang-off clamp is then installed on the top deck of the turret around the riser. The riser is then lowered so that its weight is supported through its end-fitting on the hang-off clamp.
11. As I have already stated, a point at which the risers are especially vulnerable to damage by over-bending is immediately beneath the turret. A means of connecting the bend stiffeners to the base of the turret was required. This interface became known on this Project as the Riser Turret Interface Assembly ("RTIA"). There is one RTIA for each riser. The design of the RTIAs, in outline, is as follows. There is a split tubular lower assembly, which is assembled around a riser, and pulled into a lower I-tube of the turret with the riser. Once installed in the lower I-tube, the lower assembly is locked into place by three spring-loaded docking dogs. When it has been locked in place, the lower assembly is released from the end-fitting, and the riser pulled up through the bend stiffener and lower assembly of the RTIA, as the end fitting is taken up to the top deck of the turret. The upper section of the RTIA shrouds the riser end-fitting. It also houses hydraulic mechanisms for supplementing the mechanical release of the pins which holds the lower section to the riser end-fitting during the pull-in to the lower I-tube. It serves other purposes too, but it is not necessary to discuss these. The upper section is designed to travel up to the top deck of the turret with the riser, where it can be disassembled and stored in case it becomes necessary to use it to remove a riser.
12. Clearly, the risers cannot be connected to the FPSO until the FPSO is moored at the field. But it is only the connection phase (which is known as "pull-in") that requires the FPSO to be present. Before the FPSO arrives at the field, there is an option to "pre-install" the risers. This involves placing the risers into the sea (with their buoyancy modules), and laying the RTIA end of the risers on the sea bed until the FPSO is moored at the field. Once the FPSO has been moored, the RTIA end of each riser is picked up from the sea bed, and pulled into the turret of the FPSO.
13. The alternative to pre-installation is post-installation of the risers. This involves the risers being kept on-shore, or on-ship, until after the FPSO is moored at the field. The risers are then installed as a single operation with the FPSO end of each riser being passed directly from the installation vessel to the FPSO. Both the contract and the HOA envisaged pre-installation of the risers. But in late July 1998, it was agreed to change to post-installation.
14. The installation of the risers was to be undertaken from a vessel which DSND chartered from the Finnish Maritime Authority, called the Fennica. The Fennica was designed primarily as an ice-breaker, but she is also used for work in the off-shore oil industry. At the stern of the vessel is a ramp, which is designed for rigid pipe-laying. For the purpose of the Banff project, she was also equipped with two reels: a large diameter reel on to which the risers were loaded, and an auxiliary reel on to which the umbilical was loaded. More than one riser could be loaded on to the main reel. The Fennica carried a Remotely Operated Vehicle ("ROV"), which is a small submarine-like robot used in off-shore work. DSND's original plan was to assemble the RTIAs around the risers when the FPSO end of each riser was on the ramp of the Fennica. In about early September 1998, however, DSND decided instead to assemble the RTIAs round the risers on the quayside, and then lift them with the RTIAs assembled and connected to the bend stiffeners on to the ramp, from where they could be released into the sea once the Fennica had reached the field.
15. The procedure adopted by DSND for post-installation of the risers was developed over a period of time. In its final form, it comprised the following principle stages. Once the Fennica reached the field where the FPSO was moored, the FPSO dropped a winch line through the selected I-tube in the turret. The Fennica was stern in to the FPSO. The ROV then took a messenger wire down to pick up the FSPO's winch wire. The Fennica then pulled in the winch wire, which was connected to the RTIA/pull-in head of the riser on the Fennica's ramp. Next, the RTIA was overboarded, and pulled towards the FPSO, the riser being spooled off the reel and over the stern of the Fennica as required. The buoyancy modules were attached to the riser from the ramp. The role of ROV at this stage was to check the orientation of the RTIA beneath the FPSO. The RTIA was then pulled into the base of the turret, and latched on to the top of the lower I-tube.
16. Finally, I need to refer at the outset to significant wave height, which is measured in terms of "metres Hs". Significant wave height has assumed considerable importance in this litigation. It represents the average height of the highest third of all waves in a given period, and should be distinguished from maximum wave height.
17. Although there were subsequent agreements, the Contract remained the primary document which governed the relationship between the parties. Clause 2.1 defined the Scope of work.
18. Exhibit A stated that PGS would supply, install and operate the FPSO and that DSND would engineer, procure, construct, install and operate the FPSO and that DSND would engineer, procure, construct, install and commission all systems described in the Exhibit, and would perform a turnkey contract, by assuming the responsibility of the subsea system in its entirety.
19. Article 4 obliged DSND to "perform the WORK in diligent, workmanlike and skilful manner and in accordance with good oil and gas field practice and in strict compliance with the CONTRACT".
20. Article 9.0 dealt with "Progress of the Work", and included the following:
9.1 CONTRACTOR shall commence performance of the WORK, continue and complete the WORK in an expeditious and timely manner and in accordance with the PROGRAMME cited in EXHIBIT C together with the specified Key Dates and Milestones. CONTRACTOR acknowledges that the timely performance of its obligations hereunder are vital, fundamental and essential for the exploitation of the FIELD. Consequently time is of the essence of this CONTRACT, as delays in the performance of the WORK would cause most substantial prejudice to OWNER. CONTRACTOR shall be entitled to schedule the performance of the WORK so as to maximise efficiency, providing always that the key dates and milestones are not delayed.
21. Article 11.0 dealt with "Variations", and provided by Article 11.2 that DSND should request a Variation Order in the event that it found inter alia that "a specific part of the required performance lies outside the SCOPE OF WORK" as defined by Article 11.1. Article 11.5 provided for the modification of the Programme and Contract Price if such modification were justified by a Variation Order.
22. Exhibit D dealt with "Contract Compensation". It provided for certain lump sums for the various elements of the work. The aggregate of these was £19.803M (including £1.6M or installing the risers). It also provided rates for variations. The vessel rates for variations included the following daily rates: for the Fennica £94k (working), and £93,500 (standby); and for the diving support vessel ("DSV") £90k (working) and £89k (standby).
23. Article 16 dealt with "Default, Termination and Suspension". Article 16.1 provided that in the event of certain specified defaults on the part of DSND, "....then in any such event OWNER having given CONTRACTOR reasonable opportunity to remedy the situation shall have the right to terminate this CONTRACT by giving written notice thereof to CONTRACTOR......" Article 16.2 stated the rights and duties of the parties following such termination. Article 16.3 provided for termination of the contract by PGS "at its sole discretion and without cause". Article 16.4 set out the consequences that would flow in the event of a termination under Article 16.3.
24. Article 18 dealt with "Liability and Indemnities". Article 18.2 provided that "OWNER GROUP" was solely liable for all damage to or loss of property owned and controlled by it, including the FPSO and the CATS pipeline system, "arising out of or in any way connected with the performance of the WORK, howsoever caused including negligence, torts or otherwise at law, of CONTRACTOR GROUP". The OWNER was to "indemnify and hold CONTRACTOR GROUP harmless from and against said damages, losses, expenses and claims. Provided that nothing in this Article ARTICLE 18.2 shall affect or diminish CONTRACTOR'S liability under ARTICLE 19.2.1.a".
25. Article 19 dealt with "Insurances". Article 19.2 provided that PGS should procure and maintain a "Builders' All Risk" insurance policy in the name of the "OWNER", but naming DSND as an additional insured. The policy was to cover all property used or incidental to the performance of the Work, including the FPSO. Any loss or damage to physical property excluded from or included in the policy was to be borne by the OWNER, except for the first 75,000 US dollars "for each such loss or damage each and any one incident, accident or occurrence arising during the performance of WORK at on onshore SITE", and the first 500,000 US dollars for each such loss or damage "arising during load-out, sea-fastening, transport from a SITE to another SITE, transport to the FIELD and all WORK performed at the FIELD".
26. This is dated 2 April 1998. It recited (correctly) that the background was that disputes had arisen between the parties under the terms of the Contract as to the Scope of Work to be performed by DSND, and the associated cost and programme for the execution of the work. PGS considered that DSND were not progressing the design of the RTIAs and other matters in accordance with the Contract. On 11 December 1997, PGS had removed the moorings and riser installation from the Scope of Work. The parties negotiated to resolve their differences. By the time the HOA came to be concluded, it was estimated that the date for arrival of the FPSO in the field would be 2 September 1998, i.e. that there had been a slippage of some 3 months.
27. The principal effect of the HOA was to restore to DSND's Scope of Work the installation and hook-up of the moorings, and the installation of the risers. PGS was to assume responsibility for the design and supply of the RTIAs. The risers were still to be pre-installed. New prices were agreed.
28. Clause 4 of the HOA dealt with the installation of the risers. DSND agreed to install the risers for a lump sum of approximately £3.4M plus a fixed daily rate for DSND's personnel on the FPSO in connection with the pull-in connection of the riser at the turret. Clause 4.8 provided that:
In the event that riser pull-in (hook-up) takes place or work continues after 1st November then all weather downtime shall be to OWNER account. In the event that the work is delayed beyond 1st December then all costs shall be reimbursed by OWNER to CONTRACTOR at cost plus fifteen %.
29. Clause 4.11 and 4.12 were in these terms:
4.11 In the event that any offshore WORK is delayed beyond the 1st November 1998 due to causes attributable to OWNER, OWNER shall in those circumstances only be liable to pay for all "Waiting on Weather". For the avoidance of doubt all "waiting on weather" prior to 1st November 1998 shall be for the sole and exclusive account of CONTRACTOR.
4.12 In the event that the PSO has not arrived at the FIELD by 1st December 1998 Riser Installation, Pull-in, Connection to Turret and Commissioning shall be performed by SUBCONTRACTOR VESSEL MARINE SPREAD and shall be reimbursed to CONTRACTOR by OWNER at open book documented cost plus a fee of fifteen percent.
30. By clause 5.7, various Exhibits of the Contract were amended, including Exhibit D. The daily variation rates for the Fennica and the DSV were reduced to: Fennica £65k (working and standby), and DSV £60k (working and standby).
31. Clause 6 dealt with "Scheduling" or programming, and it provided :
6.1 Up to 45 days prior to the FPSO arrival in field "target date" of September 2nd 1998, OWNER can change the target date provided a minimum of 45 days remains from the new target date for CONTRACTOR to plan for the remaining work. The pricing for the work will not change other than as described in the foregoing sections or the following requirements/clarifications:
1) CONTRACTOR can plan, schedule and execute the workscope at any time throughout the year provided that the work is complete 15 days in advance of the "target date".
2) The pricing mentioned herein is subject to the currently notified PGS delivery dates which are contained in Appendix A and Appendix B.
3) The price mentioned herein for the FPSO hook-up will be held firm up and until 1st November 1998.
4) In the event the FPSO arrival in the field is later than 1st November 1998 or the work continues beyond this date then all weather downtime incurred during mooring hook-up activities shall be to PGS account.
Appendix B contained a number of Riser Installation Assumptions.
32. The background to this agreement, concluded on 25 September 1998, was the realisation by both parties by the summer that post-installation was preferable to pre-installation. Between July and September, they negotiated over the modification of the Contract Price to reflect the cost of post-installation of the risers. A second feature of the discussions was DSND's concern about the installability of the RTIAs: this led to negotiations to vary the indemnify and insurance provisions of the Contract. It will be necessary to examine the course of the negotiations in some detail in relation to the economic duress issue.
33. By the MOU, daily rates were agreed to reimburse work carried out by the Fennica. These were £94,500 (working dayrate), £65k (standby/waiting on weather ("WOW") and in port dayrates), and £75k (transit dayrate). A new daily rate of £65k for standby/WOW was agreed for the DSV. New rates were also agreed for DSND personnel. The MOU expressly stated:
PGS confirms that DSND has no responsibility or liability with respect to the design of the RTIAs. Any delays or consequence that may occur during performance of the workscope caused as a result of the RTIA design shall be borne by PGS.
34. Finally, there was a provision relating to indemnities and insurance to which I shall refer when I come to deal with economic duress issue.
35. The background to this agreement, concluded on 9 October, was the concern that, if the installation were continued with the Fennica alone, there might be an unacceptable delay in completion. It was agreed that MSV Semi 2 should be chartered by DSND from Rockwater Ltd to assist in the riser installation. The MOA provided that DSND would receive a cancellation fee of £750k, and PGS undertook to pay DSND all the costs of Rockwater plus 15%.
36. The following preliminary issues have been litigated before me:
(a) Did PGS enter
into the MOU because of economic duress?
(b) Is PGS entitled to have the MOU avoided on the grounds of economic duress?
(c) Did PGS enter into the MOU in reliance on misrepresentations made by DSND?
(d) Is PGS entitled to have the MOU avoided, or damages, on the grounds of misrepresentation?
(e) Would PGS have
been obliged to enter into the MOA but for DSND's misrepresentation?
(f) Did the economic duress which applied at the time of the signature of the MOU remain, such that PGS had no realistic alternative but to enter into the MOA?
(g) (i) Is PGS entitled to avoid the MOA?
(ii) Alternatively, is PGS entitled to damages for economic duress?
(iii) Is DSND obliged to indemnify PGS against sums due under the MOA?
(iv) Does DSND's claim under the MOA fail for circuitry?
(h) Was PGS entitled
to terminate the Contract pursuant to Article 16.1, or alternatively under Article
(i) Did PGS repudiate the Contract on 19 November 1998?
37. This formulation of issues is based on the language of the pleadings. To some extent, the wording is less than felicitous. The true and precise nature of the issues that I am deciding will, I hope, become clear during the course of this judgment.
38. It is PGS' case that at a meeting on 17 July 1998, DSND made an oral representation as to the capability of the Fennica to operate in a certain sea state. It is necessary to put that meeting in its proper context. As I have already said, the HOA envisaged pre-installation of the risers. The "target date" for the arrival in the field of the FPSO was 2 September. The Riser Installation Assumptions contained in Appendix B to the HOA included that the design of the RTIAs would be completed by 1 June, and that the fabrication of the RTIAs should be complete 3 weeks before load-out to allow DSND offshore personnel to become familiar with them. DSND was not responsible for the supply of the RTIAs. Appendix C contained a schedule which showed the Fennica pre-installing the risers in 2 trips between 25 July and 17 August, and a further schedule showing the pull-in and connection taking place between 7 and 10 September, using a DVS, not the Fennica, with tests taking the completion date to 17 September.
39. The difference between pre- and post-installation of the risers was significant. For pre-installation, the Fennica would lay the risers on the seabed. This would take 24 days before the arrival of the FPSO. Once the FPSO arrived and was moored, DSND personnel and equipment on the FPSO would hook-up the risers. They would be helped by a small DSV/ROV vessel which would assist the pull-in. Hook-up of the risers would be the last operation. The pull-in and hook-up would take about 6 days. Accordingly, exposure to weather was less of a concern in pre-installation, since the second stage of the process was short, and done with a relatively inexpensive vessel. For post-installation, all the work was undertaken by the Fennica, a more expensive vessel, at a later time in the year, and in a longer single operation.
40. By May, it was becoming clear to a number of the people involved with the project that pre-installation of the risers was unlikely to be a viable proposition. The comparative advantages and disadvantages of pre-installation and post-installation were considered internally by PGS following a request for an analysis on 12 May. On 28 May, PGS called DSND to a meeting to discuss the two options. On 1 July, Mr Cameron received an in-house memorandum outlining the technical problems with pre-installations. At the same time, there were serious problems with the design and fabrication of the RTIAs that was being undertaken by Britannia Ltd on behalf of PGS. As we have seen, it was assumed by the HOA that the design would be completed by 1 June. As we shall see, the first three RITAs were not delivered to Leith with assembly instructions until 22 or 23 September. I heard a great deal of evidence as to whether the reason for the decision to change from pre-installation to post-installation (which was taken late in July) was that there were insuperable technical difficulties with pre-installation, or whether it was because of the delays and other problems over the delivery of the RTIAs. In my judgment, it is not necessary to decide the reason for the change, or whether the change was a variation instruction or not. What is incontestable is that the change was agreed between the parties, and that the Contract (as modified by the HOA) did not contain a price for post-installation of the risers.
41. On 7 July, there was a meeting in Oslo. It was attended by Mr Borseth, Dr Kelly and Mr Benstead of PGS, Mr Cameron of DSND, and Mr Hanssen and Mr Boressen of Golar-Nor Offshore AS ("Golar-Nor"). Golar-Nor was acquired by PGS in 1998. Mr Borseth was a PGS' Project Director. He requested the meeting with DSND because he was concerned about progress on the project, and because he wanted to reach a decision on the pre-installation v post-installation question. He favoured post-installation. His colleague, Dr Kelly preferred pre-installation. Mr Borseth said in evidence that he shared Dr Kellys' concerns about the ability of the Fennica to install risers in ad weather. Obviously, if there were to be post-installations, the second phase of the installation would be likely to take place in September or October, when the weather would be worse than earlier in the year. Mr Borseth said that it was made clear to Mr Cameron at the meeting that, if the installation were to take lace in September or October, there would need to be a vessel which could operate in sea states of at least 3M Hs. Any lower limits, he said, would be unacceptable, since the availability of weather windows much below 3M Hs would extend the total installation time unacceptably. Mr Borseth said that Mr Boressen asked Mr Cameron for a copy of the Fennica's RAOs (response amplitude operators), so that the vessel's motions could be considered. Mr Borseth said that he wanted to hear from the Fennica's masters as to her capabilities, and requested a follow-up meeting to be attended by DSND's technical people. Mr Hanssen also gave evidence about the meeting of 7 July. His recollection coincided with that of Mr Borseth. He also said that Mr Cameron was told that, if the Fennica could only do the riser installation in 2M Hs, it would be necessary to find another vessel. Mr Cameron was told that that a limit of 3M Hs was the minimum necessary for post-installation. Neither Mr Benstead nor Dr Kelly had any detailed recollection of the meeting. Mr Cameron had no clear recollection of the meeting either, although he said that he suspected that Mr Borseth asked about the Fennica's operating limits. He agreed that he had to find out what the Fennica was capable of doing. Most of the time at the meeting was occupied in a discussion about whether there should be pre- or post-installation.
42. I find that the PGS representatives at the meeting made it clear to Mr Cameron that they regarded the Fennica's operating limits as something of importance, and that Mr Cameron left the meeting knowing that there would be a further meeting at which the capability of the Fennica would be discussed. It is significant that at the next meeting attended by him, which was the important meeting of 17 July, Mr Cameron was accompanied by the masters of the Fennica.
43. On 9 July, Mr Borseth sent a memorandum to Mr Wilson (a PGS' Project Director) strongly recommending that they concentrate all resources on post-installation. He gave two reasons: first, pre-installation was not a "viable alternative" in view of the liability to Conoco for penalties if they did not complete water injection by 27 September; and secondly, the high risk of riser damage during hook-up in the event of pre-installation. At a meeting held on 15 July between various representatives of PGS and DSND, it was noted that Mr Borseth had recommended post-installation, and that a decision "must be taken by Friday 17 July".
44. The primary purpose of the meeting of 17 July was to decide whether to opt for pre- or post-installation. It is common ground that the outcome of the meeting was a consensus that post-installation was the better option, and that work should proceed on that basis. I heard evidence from a number of witnesses who attended this meeting in Oslo. Mr Wilson made a contemporaneous note in which he recorded some of the advantages and disadvantages of the two options. He said that Mr Cameron told the meeting that the Fennica's operating limit was 3M Hs, but that this was subject to two qualifications. First, the figure might need to be reduced for the section of the risers to which buoyancy modules were attached. Secondly, it might be necessary to reduce it below 3M Hs in the interests of the safety of the men working on the ramp. Mr Wilson said that Mr Cameron new that the operating limit of the Fennica was fundamentally important, and that, if the limit were 2M Hs, post-installation would be unacceptable because of the amount of time that would be taken in waiting for weather. He said that he did not think that the meeting would have concluded with a general consensus in favour of post-installation if the operating limit had been stated to be less than 3M Hs (subject only to the two qualifications to which I have referred). In his contemporary note, he recorded in relation to "weather" the notation "3M" under both the pre- and post-installation columns.
45. Mr Borseth's account was similar to that of Mr Wilson. He recalled that Mr Cameron handed over the ROAs, but was surprised and concerned that DSND were unable to produce a full analysis of the capabilities of the Fennica. Mr Cameron confirmed that the operating limit for the installation of the risers was 3M Hs, subject only to clarification of the maximum buoyancy slamming forces. He accepted that safety was mentioned, but he said that it was not a "big issue". Mr Borseth recognised that the figure of 3M Hs was not supported by any analysis, but since it was not dissented from by the two mariners from the Fennica who were present, he felt that it was reliable. Mr Borseth said that, if the limit were lower than 3M Hs, then the constraints of the weather would require pre-installation.
46. Mr Porter was another PGS representative who attended the meeting. He said that he referred to the fax dated 15 July dealing with buoyancy modules that PGS had received from DSND, which appeared to assume operating conditions of 3M Hs. He asked Mr Cameron whether the Fennica could operate at 3M. Mr Porter could not recall the exact words used by Mr Cameron, but he left the meeting with the impression that the operating limit that was to be used was 3M Hs. He had some recollection of a qualification about buoyancy, but no other qualification.
47. Mr Hanssen said that Mr Cameron stated that the Fennica would be able to operate in 3M Hs, with the single qualification about the buoyancy modules.
48. DSND called three witnesses to deal with the meting. Mr Cameron recalled that a decision to adopt post-installation was taken during the first hour. Towards the end of the meeting, he was asked by a PGS representative for his views on the limitations of the Fennica for both pre- and post-installation. He could not recall his exact reply, but he recalled saying something to the effect that he would expect the vessel to be able to operate in sea states up to 3M Hs. He said that he would have made a qualified, rather than a categorical statement. His opinion of the capability of the vessel was based on his previous experience of using the Fennica for pipelay operations. He said that he never comments on wave height "in isolation", and he did not think that he did so on this occasion. This is because the answer is never "black and white", and he never quotes a sea state without qualifying his response with reference to swell, wind, tide, currents, the specifics of the operation and vessel heading. He has been doing the job for 20 years, and, if asked about sea state operating limits, he always qualifies his answer in this way. He said, however, that DSND had already identified that when the risers were floating with buoyancy, they would be weather sensitive. He told the meeting about the problems of drag created by the buoyancy on the risers, but said that the analysis had not yet been completed, although it was clear that buoyancy would be a limiting factor. Since the buoyancy phase of the operations came in the middle of the installation process, it affected the whole of the installation procedure.
49. The two mariners who attended the meeting were Mr Gloersen and Mr Williamsson. Mr Gloersen is a Master Mariner with 23 years' experience. He recalled that there was discussion about the technical advantages and disadvantages of pre- and post-installation, and that it was agreed that post-installation was preferable. He recalled 3M being mentioned at the meeting, but could not recall the precise words that were used. He said, however, that he never gives categorical or unqualified assurances about the conditions in which offshore work can be carried out, and that if he had heard Mr Cameron give such an assurance at the meeting, he would have intervened. He said that in his experience there are many variable factors which dictate whether an offshore operation should be carried out. Wave height is one, but it is by no means the only one.
50. The witness statement of Mr Williamsson was adduced under the Civil Evidence Act. He dose not recall Mr Cameron making any statement about the capability of the Fennica or its operating limits. He says that, if he had heard Mr Cameron say something "incorrect" about the Fennica's operating limits, he would have intervened.
51. On 18 July, PGS gave 45 days notice that the FPSO would arrive at the field on 2 September. ON 23 July, it was finally confirmed that post-installation would be adopted. It was agreed in principle that DSND's so-called Option B would form the basis of reimbursement for the riser installation. Option B was a post-installation tender option that DSND had submitted on 13 March in the negotiations that culminated in the HOA. Option B included lump sums for parts of the riser installation work, but it provided for day rates for important parts of the work, in particular, the deployment, pull-in and connecting of the riser. It will be recalled that under the HOA the riser installation work was to be paid for essentially on a lump sum basis, the only reimbursable element being the cost of people on the FPSO during pull-in and connection of the risers.
52. There now began an important period which was dominated by two issues. First, the parties attempted to negotiate the basis on which the riser installation would be paid for in the light of the decision to change to post-installation; and, secondly, there were continuing problems with regard to finalising the design and fabrication of the RTIAs.
53. On 26 July, PGS told DSND that compensation in accordance with Option 2B would not be acceptable. On 28 July, there was another meeting at which PGS asked DSND to modify Option 2B so as to exclude its reimbursable (as opposed to lump sum) elements. DSND were unwilling to do this, since they did not know how long the deployment, pull-in and connecting of the risers would take, particularly as the RTIAs were untested. Nevertheless, DSND offered a lump sum of £4.15M. PGS were willing to offer £4M, with a bonus of £500k for completion by 1 October, and on the footing that DSND also assumed responsibility for the installability of the RTIAs. DSND were unwilling to accept this responsibility. Mr Cameron suggested that PGS should take the risk of waiting on weather on the basis of payment of £53k per day, up to a limit of £780k.
54. By about 27 July, PGS had received DSND's procedures document 054, which recommended that the installation of the buoyancy sections should not take place in sea states greater than 2M.
55. During August, the problems with finalising the design and fabrication of the RTIAs continued. Since no agreement had been reached as to the basis of compensation for post-installation, DSND decided to operate the contractual machinery. On 20 August, they issued Variation Order Request No 47, in which they proposed pricing the riser installation on the basis of Option 2B. The reasons given were (a) the change from pre- to post-installation, (b) the delay in delivery of the RTIAs, and (c) the delay in completing the design of the RTIAs. On 25 August, PGS made a revised offer of a lump sum of £4.3M plus a maximum bonus of £520k. It was a condition of this offer that DSND verify the riser system as acceptable for installation, and assume responsibility for the activities of PGS' riser manufacturer for and during the load-out of the risers, and for the suitability of the buoyancy modules for installation onto the risers, and thereafter for the riser system. By another fax of the same date, PGS also rejected VOR 47 on the grounds that it was not sufficiently detailed.
56. On 26 August, DSND pointed out that they were still awaiting the design and definitive schedule for delivery of the RTIAs, and that they were unable to determine a lump sum. They stated that they were only able to progress with the riser installation on a reimbursable basis, and without responsibility for the design or installability of the RTIAs.
57. On the same day, PGS amended the schedule (i.e. the programme) for the installation of the risers, and instructed DSND to give priority to the water injection riser. On 27 August, DSND withdrew VOR 47. On 1 September, PGS rejected DSND's proposal for payment on a reimbursable basis. DSND prepared File Note No 4, entitled "Review of RTIA Design Manufacture and Installation". It identified many concerns that DSND still had about the RTIAs. On 3 September, DSND sent a copy of File Note 4 to PGS, saying that they had concluded that there was a high risk that the final riser installation would not be installable. DSND offered "in the spirit of good faith" to resolve the difficulties by carrying out an offshore riser installation trial.
58. The DSND proposal of an offshore test was rejected by fax dated 8September on the grounds that it was not practical, and DSND were instructed to proceed with the installation of the risers.
59. The FPSO duly arrived at the field on 5 September. On 7 September, DSND issued VOR 50. This contained more information than VOR 47 (which it replaced), and was issued for substantially the same reasons as the earlier request. It proposed deleting the lump sum of £3.425M for riser installation contained in the HOA, and substituting payment on a reimbursable basis in accordance with the Contract. Thus, for example, it proposed the daily rate of £94,500 for the Fennica. The estimate given by DSND of the value of VOR 50 was £8,237,565. On 15 September, PGS rejected VOR 50 as "spurious". Dr Kelly's letter contained unspecific allegations of DSND's failure to comply with the Contract and the HOA. He explained in evidence that he accepted that there was a variation which justified a VOR, but that he did not accept the quantification put forward by DSND in VOR 50.
60. The problem of the RTIAs continued to exercise DSND. In about mid-September, DSND raised with PGS their concern about the adequacy of the insurance arrangements to cover any problems with the TIAs. On 17 September, DSND wrote to PGS referring to this concern, and suggesting that a full indemnity from PGS in favour of DSND for the installation work "would be the clearest and most effective method of allowing the work to proceed". They proposed that the first installation be completed as a "wet test fully indemnified by PGS", on the basis that a successful wet test should allow PGS' insurers to confirm that insurance cover was in place. They stated that they could not proceed "where a lack of indemnity or insurance cover would leave us exposed". As for payment, DSND said that they required "an agreed and definite provision for compensation in order to progress the Contract": day-rate was the only sensible means of compensation given that "the RTIA delivery, outstanding information, installation logistics and operation timings are not to be confirmed at this time". They sought accepted of VOR 50. On the same date, DSND sent PGS File Note 5 which set out a list of 30 items of information that was said to be urgently required in order that DSND could progress with its work.
61. On 19 September, DSND wrote to PGS refuting the unspecified breaches of contract and emphasising that the RTIAs were of critical importance to the installation of the risers.
62. On 21 September, PGS asserted that their all risk insurance was not at risk of being compromised, and that the proposed wet test was unnecessary. As regards payment, the agreements reached on 28 an 30 July comprehensively dealt with DSND's entitlement to compensation, and did not merit being revisited. It is clear, however, that the question of DSND's entitlement to payment for the consequences of changing to post-installation had not been the subject of any agreement.
63. At 18.47 hours on 22 September, Mr Cameron sent a draft schedule for completion of the work to PGS. It gave "indicative" dates and durations. It showed the work of riser installation being done by the Fennica in 6 trips, instead of the 2 trips shown in Appendix C to the HOA. It gave an overall completion date for riser installation of 12 November.
64. At 18.55 hours on the same day, Mr Cameron wrote again saying that DSND were unable to progress the riser/ RTIAs installations without the supply of the outstanding technical information and without agreement of new completion dates.
65. The first 3 RTIAs (together with their assembly instructions) were delivered to Leith on 22 and 23 September. DSND started assembling them at 7.30 hours on 23 September, and stopped work at 9.00 hours that same morning. Later that morning, Mr Bradley (managing director of DSND) spoke to Mr Wilson, and told him that an instruction had been given by DSND to their operatives not to accept delivery of the RTIAs until they had received clarification on the insurance issue. Mr Bradley said that he had been informed by Mr Ridley (the commercial manager) that legal advice had been taken, and that in the light of that advice, he had decided that DSND would not proceed with the RTIAs work until the insurance issue had been resolved. Mr Wilson said in evidence that he accepted that DSND were genuinely concerned that changes to the design of the RTIAs would invalidate the insurance cover, and for that reason, PGS' insurance broker was approached by PGS for confirmation that the insurance would not be compromised. Mr Wilson also stated that Mr Bradley told him that all work had stopped, and that there would be no resumption until the contractual issues were resolved, including not only the insurance issue, but also the outstanding question of compensation.
66. I am satisfied that during his conversation on 23 September, Mr Bradley merely said that work would not be resumed until the insurance issue had been resolved. There is a reference to "all contractual issues" in a document that was produced on 24 September to which I shall come shortly, but that was not Mr Bradley's document, and I do not believe that he went that far when he spoke to Mr Wilson on 23rd. I am also satisfied that Mr Bradley made it clear that DSND were stopping work, but only on the RTIAs: in his contemporaneous note, Mr Wilson recorded that Mr Bradley advised that DSND were "continuing work on analysis but have stopped physical assembly of the RTIAs. T Wilson instructed DSND to proceed with the work". Mr Wilson did indeed instruct Mr Bradley that work should proceed. DSND did not proceed with the RTIA work. They did do some other work, but it was the RTIA work that was crucial. It lay on the critical path. Without it, the riser installation could not proceed. At 14.37 hours on 23rd, PGS send DSND a fax stating that:
...all of the obligations of PGS under the CONTRACT 97003 are in place, valid for all construction activities and also naming DSND as additional assured. PGS has and will continue to comply with the requirements of our BAR policy and accordingly you are instructed to commence forthwith the RTIAs assembly and thereafter the installation at the FIELD.
67. The stance being adopted by DSND was clearly stated in their fax sent at 8.16 hours on 23 September. They wanted full documentation in respect of the RTIAs. They were "concerned" at PGS' failure to pay and rejection of the VORs. As for the insurance issue, the "scope of work and methodology" had changed since the insurance had been taken out, and DSND requested confirmation from PGS' insurers that, despite the changes, the cover remained "applicable". The alternative was an indemnity as had already been suggested by DSND.
68. A meeting was arranged in Oslo to attempt to resolve the problem. This was clearly going to be an important meeting. Mr Wilson was instructed to secure the attendance at the meeting of Mr Helge Krafft, deputy managing director of Golar-Nor. On the other side, Mr Gunnar Hirsti, Chief Executive of DSND ASA, the ultimate parent company of DSND, agreed to attend.
69. The meeting started at 18.00 hours on 24th. Mr Hirsti complained about the problems over the RTIAs. DSND made it clear that they were insistent that they were to be paid for the riser installation on a reimbursable basis. Mr Bradley was persuaded to disclose a document that he had brought to the meeting, although he was reluctant to do so. I accept the evidence of Mr Bradley that this was an aide-memoire that had been repaired by someone else for his use at the meeting. Before passing it to Mr Wilson, Mr Bradley wrote the words "Draft Unofficial" across the top of it.
70. The document proposed various day rates for the future work to be carried out from the Fennica and a SV. It also proposed a number of lump sum figures for items of work carried out to date. The document contained these words: "all contractual issues are to be subject to further discussion/agreement prior to proceeding with the work". The proposal was expressed to be valid until 12.00 hours on 25 September.
71. The document proposed day rates for the Fennica of £93,500 for port and standby, and £94,500 for working and transit. The following were the relevant corresponding rates for port and standby: £93,500 in the Contract (for variations); £65k in the Option B tender of 13 March; £65k in the HOA (for variations), and £65k in the MOU. The relevant corresponding rates for working and transit were: £94,500 (working) and £93,500 (transit) in the Contract; £65k in Option B; £65k in the HOA; and £94,500 (working) and £75k (transit) in the MOU. The rates proposed in the draft document for DSVs were £90k for transit and working, and £89k for port and standby. The relevant corresponding rates were: £90k (working) and £89k (standby) in the Contract; £60k in the Option B tender of 13 March; £60k in the HOA; and £60k in the MOU.
72. There was discussions about the insurance issue. The contemporaneous note made by Mr Krafft records that PGS were using DSV as the marine surveyor, and that they expected the all risks policy to 2honour their cover as long as DSV accepts". This reflected the advice that was conveyed to PGS by their brokers, Heath Aviation, Marine & Energy, in a fax sent at 6.41 hours on 24 September which stated that:
....as long as PGS has endeavoured to ensure that the contractor complies with the terms and conditions of the All Risks Insurance Policy, whether that be recommendations of the warranty Surveyor, implied or expressed warranties, if any, or the specific or general conditions of the policy, then the All Risks Insurance Policy extends to the contractor subject to any exclusions or limitations contained in the aforesaid police.
73. Mr Wilson said in evidence that PGS were under severe financial pressure, and that DSND knew this. In particular, there was the real risk of a substantial liability for damages to Conoco in the event of delay, and the possibility that Conoco might terminate its contract with PGS for non-performance. He said that he made it clear to Mr Hirsti and Mr Bradley that PGS had no option but to agree to DSND's demands, and that PGS was being "blackmailed" into signing an agreement. He told them that PGS was being "pushed into a corner", and that Mr Hirsti and Mr Bradley acknowledged this to be the case. Mr Hirsti used the expression "the shoe is on the other foot". After Mr Hirsti and Mr Krafft left the meeting, Mr Wilson and Mr Bradley negotiated over the rates. As we have seen, there was a reduction in some of the rates. Mr Wilson stated in evidence that he asked Mr Bradley to resume work, but that Mr Bradley refused to agree to do so until an agreement had been signed. Mr Wilson and Mr Bradley had dinner together in a restaurant later that evening.
74. Mr Wilson was the only PGS witness who attended the meeting of 24 September who gave evidence. Mr Krafft did not give evidence. The DSND witnesses who were present who gave evidence were Mr Hirsti and Mr Bradley. Mr Hirsti said that the meeting was perfectly amicable, and that no words of blackmail were used. He said that he was not prepared to allow DSND to go offshore until the indemnity/insurance issue was resolved, but that he recognised that a failure to reach agreement about compensation would not release DSND from its obligation to proceed with the work. He said that he considered the risk of proceeding with the RTIA work without resolving the indemnity/insurance issue was "too enormous2. Mr Hirsti denied saying that the shoe was now on the other foot, or that Mr Wilson said that he felt that he was being blackmailed, although he recalled Mr Wilson saying that he was under pressure.
75. Mr Bradley said that he told the meeting that it was totally unreasonable to expect DSND to go offshore until some form of payment mechanism had been agreed. But he also said that, when Mr Wilson asked him to instruct the Fennica to proceed with the work, he replied that the fax that PGS had sent on the insurance issue had sufficiently clarified the matter, and that this had enabled him to give such an instruction. The fax to which he was referring was the fax sent by PGS at 14.37 hours on 23 September. He recalled negotiating over the rates, and that Mr Wilson wanted DSND to revert to the Option 2B March tender rates. It was agreed at the end of the meeting on the 24th that Mr Bradley would draft a written proposal.
76. An important issue of fact is whether Mr Bradley informed Mr Wilson at the meeting of 24th that, in view of the contents of the fax of 14.37 hours sent on 23rd, he had earlier that day given instructions for work to resume on the RTIAs. In his oral evidence, Mr Bradley said that he did. Mr Wilson disputed this. Mr Bradley said that he gave the instruction to proceed after taking advice from Mr Ridley about the insurance position. I do not accept this part of Mr Bradley's evidence. At 20.00 hours on 24 September, after the meeting had been concluded, Mr Bradley faxed to Mr Ridley a copy of the PGS brokers' fax which was given to him at the meeting. Mr Bradley wrote to Mr Ridley: "please advise if this is sufficient". When cross-examined about this, Mr Bradley explained that the brokers' fax may have been offered by PGS as additional comfort. But if Mr Bradley had already been assured by Mr Ridley that the insurance issue was sufficiently resolved for him to give an instruction to proceed with the work, it is difficult to see why he should thereafter have felt the need to send the brokers' fax to Mr Ridley, and ask him whether it was sufficient. It would have been different if he had merely sent the fax on to Mr Ridley for information.
77. Moreover, it is difficult to see why the fax sent at 14.37 hours on 23rd should have given Mr Ridley the comfort that he had apparently not derived from the earlier faxes sent on 21st, 22nd and at 14.10 hours on 23rd, in each of which PGS had informed DSND that the relevant insurance was in place. Further, the fax sent at 14.10 hours on 23rd referred to a meeting between Mr Ridley and Mr Darby at which insurance matters had been "comprehensively dealt with". And yet the instruction to cease work on the RTIAs was given early on 23rd. Mr Ridley did not give evidence. I cannot accept that Mr Bradley instructed that work should be resumed on 24th, or that at the meeting on 24th he told Mr Wilson that this is what he had done. The evidence of Mr Hirsti that there was discussion about the insurance/indemnity issue at the meeting, and that he said that he was not prepared to allow DSND to go offshore until that issue was resolved, is inconsistent with this part of Mr Bradley's evidence.
78. I should mention the evidence of Mr Meenaghan, a DSND Offshore Manager. He said that during the second part of 24th, Mr Bradley confirmed to him that the insurance issue had been resolved, and that work on the assembly of the RTIAs should be resumed. Mr Meenaghan said that he was able to fix the date of this instruction by working backwards from the time when DSND were in fact able to resume work at 19.30 hours on 26th. It was found that the head of the umbilical (the first riser that was to be installed) needed to be repaired before work could resume. The umbilical head had to be removed and sent to the factory for repair. This took about 12 hours. Once it was returned, it had to be fitted, and there was a curing period which lasted from about midnight until 19.30 hours on 26th, whereupon work was started on the RTIA assembly. When asked in cross-examination why this timetable was not consistent with the instruction to resume work having been given some time on 25th, Mr Meenaghan said that, having refreshed his mind about the events, he was sure that it had been given on 24th.
79. The MOU was signed at about 19.00 hours on 25th: that was the recollection of both Mr Darby and Mr Bradley. Mr Wilson stated that Mr Bradley did not give the instruction to proceed with the work until immediately after the MOU was signed. If that were right, there would not have been sufficient time following the signing of the MOU for all the steps that Mr Meenaghan said had to be taken before work started at 19.30 hours on 26th. I found Mr Meenaghan to be a careful and honest witness. But he conceded that the instruction to cease work on the RTIAs did not prevent DSND from carrying out repairs to the umbilical. The records do not show when the damaged head was taken offsite. But since this work of repair was not subject to the ban imposed by DSND early on 23rd, the timing of this work does not assist in determining when the instruction to resume work was given. I find that the instruction to resume work on the RTIAs was not given until the MOU was signed.
80. On the morning of the 25th, Mr Wilson prepared an analysis of what he considered to be the likely financial effect of the DSND proposals contained in the draft document that Mr Bradley had supplied the previous day, as compared with DSND's likely entitlement under the HOA. He concluded that the worst outcome under the HOA was bout £4.7M, whereas he calculated that PGS would be liable to pay about £13.2M under the DSND proposals, excluding any allowance for weather.
81. Mr Bradley arrived to continue the negotiations. Mr Wilson informed Mr Bradley of his calculations. Mr Bradley produced a manuscript draft agreement. It still provided for day rates for the Fennica, but some of the rates proposed were lower than those that had appeared in the proposal that had been supplied the previous day. Moreover, the draft manuscript document showed a change from day rates for the DSV to lump sums (exclusive of downtime for weather). In the light of this, Mr Wilson did some more calculations, and arrived at a figure of £9,820M excluding any allowance for weather. The negotiations continued. The rate proposed by DSND for DSV standby/waiting on weather was reduced from £89k to £70k. A version of the draft agreement was typed up. The document went through several drafts, and became head "Memorandum of Understanding". As each draft was produced, Mr Wilson made manuscript comments on the document which he put to Mr Bradley. He said that Mr Bradley was prepared to some points, but refused to agree to make any significant changes to his proposal. Of particular importance, so far as Mr Wilson was concerned, was the fact that Mr Bradley was not prepared to reduce the day rate for the Fennica below £94,500.
82. Mr Hirsti joined the meeting at about 16.00 hours. Mr Wilson said that at about 17.00 hours, he spoke to Mr Olaussen, President of PGS Offshore Productions, who told him that Conoco were threatening to make life difficult for PGS unless they resolved their contractual difficulties with DSND, and work was resumed. Accordingly, Mr Wilson signed the MOU without more ado. He said that Mr Bradley immediately telephoned the DSND personnel at Leith and told them to proceed with the work.
83. Mr Darby was the PGS' Contract Manager. His responsibilities included the negotiating and drafting of contract documents, and dealing with contractual issues. He has some legal expertise. His evidence was that during the afternoon of 25th, he called Mr Marr, a shipbroker specialising in offshore vessels, to ascertain whether any alternative riser installation vessels were available. Mr Marr said that he did not know of any vessels then available: the market was very tight since many contracts had been delayed on account of bad weather. Mr Wilson was unaware of these investigations by Mr Darby, who joined the meeting after Mr Hirsti had arrived. His role was to agree a form of wording for the insurance/indemnity provisions of the MOU. After the MOU was signed, he and Mr Bradley had dinner together.
84. Mr Bradley said in evidence that the MOU was a compromise on both sides. It was not the best financial solution for DSND. He considered that he had given away a sum in the region of £1.5M during the negotiations. He said that the word "blackmail was not used at any time during the discussions. In his turn, Mr Hirsti said that DSND made significant concessions during the negotiations, and did not obtain payment for a large number of VORs which remained outstanding. The meeting on 25th, as that on 24th, was amicable, and "blackmail" was never mentioned. Mr Hirsti said that the negotiations were typical commercial negotiations. Each side sought to protect its own interests; neither side made threats to the other. He said that no-one from PGS side suggested that DSND were exerting improper pressure. At the end of the meeting on 25th, everyone shook hands, and he gave Mr Krafft (who also attended) a lift home.
85. In my judgment, Mr Hirsti was right to describe this as a typical commercial negotiation. I do not accept that the word "blackmail" was used or that Mr Hirsti said words to the effect "the shoe is on the other foot". There was give and take on both sides, although I accept that DSND achieved more of what they wanted than did PGS. In particular, DSND secured a reimbursable basis for payment, thereby transferring to PGS the risk of waiting on weather, notwithstanding that PGS had previously resisted such a basis for payment. DSND also achieved all that they could have wished in relation to the insurance/indemnity issue. On the other hand, it is accepted by PGS that the concerns expressed repeatedly by DSND about the risk of jeopardising the insurance because of uncertainty about the RTIAs were genuine. It was a matter of considerable importance to DSND that those concerns were allayed. I found the evidence of Mr Hirsti on this persuasive. DSND agreed to reduce the 21 day familiarisation period provided in the Riser Installation Assumptions contained in Appendix B to the HOA. SO far as the question of compensation was concerned, as we have seen, DSND agreed to accept a number of rates that were substantially reduced from those claimed before the negotiations began. In VOR 50, DSND had sought a payment on account of £3M, but the MOU provided for no payment on account. I shall revert to these meetings when I set out my conclusions on the duress issue later in this judgment.
86. The Fennica set sail on 29 September and arrived at the field on 2 October. The installation of the umbilical riser was completed on 4th. She departed for Leith, where the P2 riser was loaded on to her. She returned to the field on 7 October with the P2 riser. On the same day, Mr Kelly asked DSND to procure a Semi-Submersible ("Semi-Sub") to assist in the installation of the remaining 5 risers. Although the Fennica and the Semi-Sub would not be able to install risers simultaneously, the advantage of having two vessels was that as soon as the Fennica had pulled-in one riser and sailed away, the Semi-Sub would be able to commence the installation of the next riser.
87. Dr Kelly's instruction was inspired by the fact that the Fennica would have to make 6 separate trips, and by what he had learnt about the installation of the umbilical riser. He asked Mr Irving, a PGS process engineer, to undertake a weather analysis, using different sea state and rise installation durations, comparing the Fennica with an alternative vessel capable of carrying 3 risers at the same time. This analysis showed, for example, that, assuming no more than 2M Hs and a riser installation duration of 36 hours, the Fennica would require 59 days and the alternative vessel no more than 25 hours. It was clear from this that there would be a significant saving in time if a suitable alternative vessel could be found. An important, if not the principal, reason for this was the fact that the Fennica would have to make 6 separate trips.
88. Mr Cameron immediately approached a number of Semi-Sub suppliers. One of these was Rockwater, who on 9 October sent DSND an offer to su0pply their MSV Semi 2. In a letter of the same date, Mr Cameron forwarded the Rockwater offer to PGS, together with a draft Memorandum of Agreement, which provided that DSND would agree to part of the riser installation being undertaken by a nominated subcontractor.
89. Negotiations took place over the terms of the Memorandum of Agreement (MOA). The essential terms of the MOA were that the installation of some of the risers would be undertaken by Rockwater with the Semi 2, DSND would receive a cancellation fee of £750k, would be paid all the costs payable to Rockwater plus 15%, and would have no liability top for the installation of the risers installed by Rockwater. On a version of the draft MOA that was sent to Mr Cameron at 20.05 hours on 9 October at about the time when the agreement was signed, Mr Darby wrote: "many thanks for your cooperation in achieving this in such short time". Mr Darby told me that this comment was directed to Rockwater, but I cannot accept this. The fax was sent to Mr Cameron and it was with DSND that PGS had been negotiating. I am sure that it represented PGS' gratitude for easing the path to a sensible variation to the contractual arrangements that had been made at the request of PGS.
90. It is PGS' case that they were compelled to enter into the MOA in order to minimise the consequences of the DSND misrepresentation as to the capabilities of the Fennica. It will be necessary to examine the evidence about the capability of the Fennica in a little detail when I deal with the misrepresentation issue. Having reached the MOA, I propose to break off the narrative and consider the misrepresentation and duress issues that have been raised.
91. The case pleaded at paragraph 6.11 of the Defence served on 15 October 1999 was that DSND represented that:
...its vessel Fennica would be able to perform the work required of it in the installation of the risers in a 3 metre significant wave height. Such representation continued until after the signature of the MOU.
92. On 31 March 2000, PGS served Additional Information, which included:
...the Defendants aver, in respect of each of the documents identified above that it necessarily followed from the Claimant's statements that (i) the Fennica would be able to perform riser installation in sea states up to Hs=3, and (ii) that the risers themselves could be safely, and would be, installed in sea states of up to Hs=3 (save in respect of the section containing buoyancy modules which were limited to Hs=2).
93. It was pleaded in the Additional Information served on 31 March 2000 that this representation was repeated on 3 occasions. On 14 April, the Further Information was amended to add a further 7 repetitions of the alleged representation.
94. PGS assert that the representation was relied on to enter into the MOU, and that when they discovered that the representation was false, they entered into the MOA in order t mitigate the consequences of the alleged misrepresentation.
95. In the light of the evidence that was adduced before me, the case advanced by Mr Furst QC can be summarised in the following way. On 17 July 1998, Mr Cameron made a clear statement to the effect that he would expect that the Fennica could operate in 3M Hs, subject only to a qualification in relation to the slamming loads on the buoyancy modules, and possibly also a qualification as regards safety. Mr Furst submits that I should prefer the evidence of the PGS witnesses to that of the DSND witnesses. He relies on various references in the documents in support of his submission. He contends that I should find that the representation of 17 July was repeated and/or confirmed on a number of subsequent occasions as pleaded in the Additional Information served by PGS.
96. I am satisfied that on 17 July Mr Cameron did say words to the effect that he would expect the Fennica to be capable of operating in sea states of 3M Hs. It is in my view immaterial whether he said "3M Hs". It was accepted by Mr Wilson and Mr Borseth (and I find) that Mr Cameron entered a qualification in relation to the sections of the risers containing buoyancy modules, and also in relation to the issue of safety. By "the issue of safety", I mean that it was made clear that the requirements of safety and comfort for the men abroad the Fennica might make it impossible to operate in 3M Hs.
97. The figure of 3M Hs mentioned by Mr Cameron would have been understood by the technically skilled PGS persons present as being approximate, and based on his experience, and not on any calculations. The presence of Mr Borset at the meeting was of particular significance. He was a very experienced naval architect. In his evidence about the meeting of 17 July, he said that, while he was able to make some general use of the ROAs of the Fennica, he was surprised that DSND was unable to produce a full analysis as to the capabilities of the vessel. He added:
In particular, unless one knew the procedure and the assumed sea state applicable to the RAOs and the spectrum of the wave, it was impossible to reach any meaningful conclusion as to the vessel's suitability for the work.
98. I am satisfied, therefore, that, whatever the precise words used by Mr Cameron to describe the capability of the Fennica to operate in a given sea state, these were understood by PGS as being uncertain and unreliable, until confirmed by further work, which included finalising the installation procedures, and a study of the stern motions. On 18 July, PGS wrote to DSND confirming, inter alia, what needed to be done following the meeting. This included: "Determine maximum speed of Fennica transom resulting from combined heave and pitch relative to Banff sea conditions". The speed of the transom (or stern) of the vessel was of importance not only to slamming forces on the buoyancy modules, but also to the entire operation, including motions and accelerations, and their effect on the safety and comfort of the men working on the vessel.
99. I accept the submission of Mr Taverner QC that, if a clear and certain statement had been made by DSND which PGS had understood to be capable of being relied on by them, then one would have expected PGS to have recorded the statement in writing. The fax dated 18 July, which contains a good deal of material arising from the meeting, makes no reference to sea state. There is no contemporaneous record of a representation whose importance is now said to have been so great that PGS assert that it was relied on to enter into the MOU. Notwithstanding that it is said that its falsity had consequences so grievous that PGS were obliged to enter into the MOA in order to mitigate them, PGS did not suggest that what was said at the meeting of 17 July was of any significance until March/April 1999. Moreover, it was not alleged by PGS that anything said at the meeting had been repeated until the Amended Further Information served on 31 March 2000.
100. I conclude, therefore, that Mr Cameron did say that he would expect the Fennica to be capable of operating in 3M Hs, but his statement was qualified by reference to the buoyancy sections and the question of the safety and comfort of the men. Moreover, it would have been obvious to technically qualified persons, such as the PGS representatives who attended, that such a statement was inherently imprecise and unreliable. It was not based on calculations. As Mr Legerstee (the single joint expert) said, there were no rules or regulations governing acceptable limits for motions or accelerations in relation to the safety or comfort of persons working on the Fennica. The so-called "safety issue", therefore, engaged subjective considerations, and questions of judgment. I do not find it surprising that PGS did not confirm the alleged representation to DSND in writing. There was nothing sufficiently precise, final or reliable on which to base such confirmation. In my judgment, the statement made by Mr Cameron is not to be regarded as a representation. The circumstances in which it was made, and the qualification to which it was subject, were such that it would have been unreasonable of PGS to rely on it: see the discussion at paragraph 6-010 of Chitty on Contracts, 28th Edition.
101. I think that it is fair to say that the main thrust of PGS' case on misrepresentation is based on what was said at the meeting of 17 July. The alleged written confirmations and/or representations were a late afterthought. Nevertheless, it is said that the representation was repeated on a number of occasions during the weeks following the 17 July meeting. PGS rely on the fact that, on various occasions during the discussions and negotiations, DSND gave anticipated periods for WOW. For example, at the meeting of 23 July, Mr Cameron put forward a period of 8 days for WOW for the entire operation. It is said that this was consistent with the installation work being carried out in September in 3M Hs weather windows.
102. PGS particularly rely on what Mr Cameron said at the meeting of 28 July. It will be recalled that this was one of the meetings at which there were negotiations about compensation for the post-installation. Mr Cameron suggested that PGS should take the risk of waiting on weather on the basis of £53k per day, with a cap of £780k. Mr Wilson's diary records "Def on WOW - 2M Hs." It was put to Mr Cameron in cross-examination that he told Mr Wilson that WOW was time lost in not working because there was no weather window of suitable duration at 3 metre Hs to allow work to continue. Mr Cameron said that he did not think that he would have said that, because that is not the kind of thing he would say. I am satisfied that he did mention the 3M figure, adjust as he had done at the meeting of 17 July. I do not, however, accept that what he said could have been understood as a statement that there would be no WOW at or below 3M. After all, there were the qualifications to which I have earlier referred. Moreover, Mr Cameron's statement was made in the course of negotiations about money. No doubt, if the principle of a shared risk of WOW were to be accepted, then the parties might have wished to define WOW with some precision. But that is not the direction that the negotiations took.
103. Since I have already held that no representation was made at meeting of 17 July, it is tempting simply to say that a mere repetition of something that is not a representation cannot be a representation either. But one change that had occurred since 17 July was that by about 27 July, DSND had submitted their procedures document 054 identifying the maximum sea state for the buoyancy sections as 2M Hs. To that extent, therefore, the situation was somewhat more certain that it was on 17 July. Nevertheless, uncertainty remained. PGS cannot point to any clear express statement between 17 July and the signing of the MOU to the effect that the Fennica was capable of operating in 3M Hs, subject only to the stated qualifications. In my judgment, the communications relied on as "repetitions cannot make good the deficiencies in PGS' original case that was based on what was said at the meeting of 17 July.
104. PGS' case is that they relied on the alleged representation(s), and were induced thereby to enter into the MOU on 25 September. But the purpose of the meeting of 17 July was to decide whether to change over to post-installation, and not to decide the level of compensation that DSND was to receive if post-installation were adopted. If I had found that Mr Cameron had made an actionable representation on 17 July, I accept that it might have been possible for PGS to mount a case on the basis that they relied don it in order to decide to change over to post-installations. But that is not the case that PGS advance. It is, therefore, unnecessary for me to explain why such a case could not have succeeded. Nor is it PGS' case that they relied on the representation to decide to opt for post-installation using the Fennica. One possible option would have been to decide on post-installation, but change to another vessel. But that is not how PGS put their case either.
105. Their case is that they relied on the alleged representation to enter into the MOU. My reasons for concluding that PGS did not enter into the MOU in reliance on what Mr Cameron said at the meeting of 17 July are as follows. First, I am not satisfied that PGS relied on anything said by Mr Cameron about the capability of the Fennica at the 17 July meeting. I have already explained why his statement was uncertain, imprecise and unreliable. Mr Borseth well understood this. He had asked for the RAOs of the Fennica in order to consider her motions. Mr Wilson accepted that this was in order that Mr Borseth could assess the Fennica's capabilities. I have earlier referred to the evidence of Mr Borseth as to the impossibility of reaching a "meaningful conclusion" as to the suitability of the Fennica in the absence of certain important information. Mr Hanssen said that Mr Borseth would want to satisfy himself by evidence as to the capability of the vessel.
106. Secondly, even if PGS did rely on what Mr Cameron said, by the date on which they signed the MOU they understood that the 3M Hs statement was subject to three important qualifications. First, as we have seen by about 27 July, PGS had received DSND's procedures document 054, which recommended that the installation of the buoyancy sections should not take place in sea states greater than 2M. PGS believed that the buoyancy sections would take between 10 and 16 hours of a 36 hour operation (see Mr Irving's letter to Dr Kelly dated 21 May 1998). In other words, the qualification in relation to the buoyancy sections affected a substantial part of the entire operation of riser installation. Secondly, in addition to the limitation in relation to the buoyancy sections, PGS also knew that DSND were planning to do the pull-in with two wires, and that, if two wires were used, the sea state could not exceed 2M Hs for this part of the operation. Mr Wilson accepted that he knew of this further limitation. The pull-in part of the process was estimated to take about 12hours. Thirdly, there was the safety issue to which I have already referred.
107. Take the buoyancy sections point alone. If the maximum sea state for the buoyancy sections was 2M Hs, and that represented between 10 and 16 out of a 36 hour operation, it is difficult to see what duration of 3M Hs weather window PGS thought that DSND would be looking for. I do not accept that PGS entered into the MOU thinking about any particular sea state capability for the Fennica. If the capability had been a material matter relied on in entering into the MOU, I would have expected PGS at least to have attempted to insert an appropriate clause into the agreement. As we have seen, the MOU went through a number of drafts, and the negotiations were conducted over two days. The issue of the capability of the Fennicas was not raised. The issues that dominated those negotiations were the question of compensation for the riser installations, and the insurance/indemnity problem.
108. I am satisfied that by 25 September PGS were well aware that a substantial part of the riser installation would require a sea state of no more than 2M Hs. I have already mentioned DSND's procedures document 054. On 7 August, Mr Wilson recorded the view of Mr Mann (DSND Project Manager) that 2M Hs was required for the entire operation. Mr Wilson did not take this up with DSND. Mr Wilson said that he ignored this remark because Mr Mann was "generally pessimistic", and Mr Meenaghan would be in charge of the operations. Mr Wilson struck me as an intelligent and careful man. I consider that the most likely reason why he did not take Mr Mann's remark up with DSND was because he did not think it was significant. He knew that a substantial part of the operation would require a sea state not exceeding 2M Hs. In practical terms, it was unlikely to make much difference whether a substantial part of the whole of the operation required no more than 2M. On 27 August, DSND sent procedures document 056, which repeated that the sea state for sections containing buoyancy modules should not exceed 2M.
109. On 23 September, MCS International prepared for PGS an analysis of sensitivity results for various of the risers on the basis that the limiting sea state was 2M Hs. NO analysis was carried out by MCS on the basis of 3M Hs. IN my view, this is a highly significant document, especially as it is so close in time to the MOU. None of the PGS witnesses was able to explain why they were seeking from MCS an analysis based on 2M. Dr Kelly assumed that MCS had also been analysing on the basis of 3M, but there is no evidence of this at all. This MCS document is strong support for the conclusion that PGS were proceeding in the belief that, for practical purposes, the limiting sea state was 2M Hs. I find that, if contrary to my view, PGS entered into the MOU with any belief as to the limiting sea state of the Fennica, it was that the limit was for all practical purposes 2M Hs.
110. Further support for this conclusion is to be found in the note made by Mr Darby on 1 October. It reads:
DSND now consider that single wire installation or risers is now possible and clump weight solution for installation is no longer required. This will reduce the weather window from 50 hours at under 2M Hs to 18 hours at under 2M Hs.
111. What is significant about this note is that it seems that 50 hours represented his view of the estimated duration of the entire operation, and that until about the time that the note was written, (i.e. after the making of the MOU), PGS contemplated that the entire operation would be subject to the 2M Hs limit. Mr Wilson, Mr Darby and Dr Kelly were all asked about this document. None could explain it. It is entirely inconsistent with PGS' case that they entered into the MOU in reliance on a representation that the Fennica could operate in a sea state of 3M Hs, subject to the qualifications to which I have earlier referred.
112. There are also relevant references in Mr Wilson's diary. His entry for 30 September reads: "window start Thursday 48 hrs 2M Hs". He sought to explain this as a reference to what he had been told as to what the wave height would be, but I find this explanation unconvincing. It seems to me that this note, made at about the same time as that recorded in the diary of Mr Darby, is far more likely to be referring to the limiting sea state that was to apply to the operation generally.
113. I conclude, therefore, that whatever representation was made by Mr Cameron on 17 July as to the capability of the Fennica to operate in a sea state of 3M Hs, it was not relied on by PGS to enter into the MOU. For the same reasons, even if there were subsequent repetitions of the alleged representation, they were not relied on by PGS to enter into the MOU either.
114. I heard a great deal of evidence on this. In view of my findings about representation and reliance, I propose to state my findings on this issue relatively briefly. In summary, it is contended on behalf of PGS as follows:
(a) the experience of installing the umbilical riser between 2 and 4 October demonstrated that the Fennica was not capable of operating in 3M Hs. The sea state did not exceed 2.5M, and even at that level, the installation had to be abandoned, in part, at least, because the vessel was unable to maintain station;
(b) the evidence of Mr Legerstee showed that there were three separate reasons why the Fennica was not capable of operating in 3M Hs. These were the effect of motions and accelerations on the comfort of the men, her inability to keep station, and the limitations of the crane.
115. Installation of the umbilical: I shall start with the installation of the umbilical. The vessel's daily record for 4 October recorded significant wave heights not exceeding 2.5Hs. The entry recorded at 12.17 hours, however, reads: "Head assembly in water. Weather increasing, winds gusting 35 knots, seas 3-4 metres". The document was signed by Mr Benstead and Mr Meenaghan. Mr Benstead, who had been on board the Fennica throughout the operation, said that he thought the reference to "3-4 metres" was the maximum, and not the significant, wave height. But on 6 October, he sent to DSND a document entitled "umbilical riser installation--lessons learnt". The report was based on a debriefing that took place on the vessel en route to port. It recorded an Hs figure at the end of the operation of 3M+, stating that "the wind and sea state increased significantly during the second end abandonment". The document also mentioned "significant wave height in metres 1.5-0.8-3". In his evidence, Mr Benstead said that he thought the sea state was "up to about 3M". I took this to be 3M Hs.
116. Mr Honkanen, the Master of the Fennica at the time, gave rather contradictory answers as to whether the figures "3-4 metres" represented maximum or significant wave heights. But he certainly did say that the figures shown in the log were too low, since they ignored swell: the true figure for significant wave height was higher. Mr Meenaghan said that it was he who made the entry of 3-4 metres: he was at deck level (4 metres above sea level) at the time, and not high up on the bridge where it is difficult to assess wave heights. He said that the figures "3-4 metres" were significant wave height figures. Mr Meenaghan is a very experienced mariner, and it would seem that he was best placed to form an assessment. Moreover, Mr Barr, who was Mr Meenaghan's assistant on the Fennica, said that he estimated the significant wave eight to be 3-4M too.
117. The reality is that making assessments of significant wave heights is not a science, and experienced mariners can honestly reach different conclusions. Mr Benstead did not dissent from the proposition that one man's 2.5M Hs is another man's 3M Hs. Mr Meenaghan agreed. Mr Williamsson stated that, when one is dealing with seas between 3 and 4 metres significant wave height, an educated guess should be based on a margin of error of plus or minus one metre. In the light of this evidence, I am not persuaded that the maximum significant wave height to which the Fennica was subjected on 4 October was 2.5M Hs. None of those on board who gave evidence as to the significant wave height at the end of the operation thought that it was below 3M. If it were necessary to do so, I would find that the significant wave height was of the order of 3M at or close to the end of the operation.
118. The next question to consider is the circumstances in which the installation of the umbilical was completed. It is PGS' case that the operation was abandoned in a state of disorder, since the Fennica was not capable of coping with the sea state. It is said by PGS that the Fennica lost position at the end of the operation. Mr Benstead agreed that she did not lose position so as to affect the operation, although he said that she was "struggling", since the DP (dynamic position) alarms were going off. He said that it had been necessary to "abandon" the second end of the umbilical riser from the Fennica in a "controlled way", and get it on to the sea bed as soon as possible. He said that the end of the operation was "hairy". Mr Meenaghan said that he did not consider that the operation was at risk, or that there was a cause for alarm: the umbilical was successfully installed in deteriorating weather conditions. Mr Barr said that the vessel kept station. Mr Honkanen said that only two of the four engines were running during the operation. The bow thrusters (whose function was to maintain heading and position) were using on average 40-55% of their capacity, although at times, and for very short periods, they had to use more than 80% of their capacity in order to maintain heading and position. He said that the vessel was able to keep her position, and that the operation was safe. Towards the end of the operation, the thruster alarms were ringing at fairly frequent intervals.
119. I accept the evidence of Messrs Meenaghan, Barr and Honkanen. It may have seemed "hairy" to Mr Benstead as the alarms were ringing in the deteriorating weather. But the DP system works on the basis that there may be a monetary moving outside the pre-set limits (in this case 3 metres for position and 3 degrees for heading), which, if exceeded, result in the alarms ringing. The alarm continues to ring until the thrusters (if necessary working at 100% capacity) move the vessel back within the limits. On 4 October, the thrusters were able to maintain heading and position, and they were not required to work at 100% capacity. In the result, I am satisfied that if the Fennica did lose position or heading, it was only momentarily, since on each occasion that the alarm rang, the thrusters did their job, and the vessel speedily moved back into position. It would only have been if the warnings had stayed on continuously that it would have to be concluded that the thrusters were not doing their job and were failing to keep the Fennica on station. Mr Honkanen made a point about the pre-set limits for the ringing of the alarm being set at 3 metres and 3 degrees. As he put it: "I could have put there 5 metres and everything should be fine". In that event, the alarms would not have rung at all. It may be that the limits were set at conservative levels. But whether that is right or not, I am not satisfied that, even taking the pre-set limits actually employed as the relevant yardstick, the vessel was unable to maintain station.
120. It is true that, when asked questions by Mr Coulson about the entries in the Fennica logs, Mr Legerstee said that there were some "misfunctions" during the installation. He accepted that the ringing of the alarms showed that she was struggling and sometimes failing to keep on station. But in answering questions put by Mr Taverner QC, he agreed that he had seen nothing to indicate that the pre-setting could not reasonably have been fixed at 4 metres for position instead of 3 metres. He had not, however, done any calculations. He thought that the fact that only two of the four engineers were being used at the time probably made a difference to the ability of the Fennica to stay in position. He also agreed with Mr Taverner that all that the logs indicated was that the DP system, on the setting that had been chosen, was doing its job, and moving the vessel back into position whenever necessary.
121. Accordingly, I reject the case advanced by PGS in so far as it is based on what occurred during the installation of the umbilical. PGS sought, however, also to rely on the expert evidence of Mr Legerstee in other respects in support of its case.
122. Accelerations and motions: In his first report, Mr Legerstee said that he concluded that the operating capacity of the Fennica lay between 2.5 and 3M Hs depending on the adopted criteria. He added: "this does not mean that the limit is lower than 3 metres". His report included tables for the Fennica's heave motions and accelerations. The table for heave motions was based on a limit of acceptable vertical movement of 3M. On that basis, he calculated a maximum Hs figure of 2.2M at the ramp base of the vessel. In his evidence, Mr Legerstee explained that the choice of 3M for acceptable vertical movement was "questionable". He agreed that 3M was a reasonable limit, but the figure of 3 metres for acceptable vertical movement was commonly used as well. He had not done any calculations of a maximum Hs figure on the basis of a limit of 4 metres for acceptable vertical movement. He agreed that, on the basis of the table in his first report, if (as was the case) the correct location for the work on the Fennica was the platform, rather than the ramp base, then his figure of 2.2M Hs should be reduced to 2M Hs.
123. The other relevant tables in Mr Legerstee's first report deal with the Fennica's accelerations. These showed maximum Hs figures at the ramp base of 2.5M on the basis of a limit of maximum accelerations of 0.2g (gravity acceleration), and 3M on the basis of 0.25g. Mr Legerstee accepted that, if the correct location was the platform, rather than the ramp base, then his figures would be reduced to 2.2M and 2.7M Hs respectively. He said, however, that a limitation of 0.3g is not unknown, and that he had seen reference to a figure of 0.28g in the literature. It follows that Mr Legerstee's evidence did not support PGS' case that the Fennica would be subject to unacceptable motions and accelerations when operating in 3M Hs.
124. Inability to keep station: I find that Mr Legerstee's comments on the Fennica logs do not support PGS' case on inability to keep station: if the pre-settings had been less conservative, the alarms might not have rung at all. On the facts of this case, I find the evidence of those who were on board the vessel at the time more persuasive than the commentary by an admittedly distinguished expert on the significance of the logs. There are these two further points in relation to keeping station. First, the ERN rating of the Fennica was 99-99-99. This is the rating given by DNV, the Norwegian Classification Society, and it has not been challenged. It certifies that the vessel is capable of keeping station in 6.1M Hs, and in a wind of 40 knots. Secondly, the DP plots for the Fennica show that she can keep position in 3M Hs. It is contended that the ERN rating and the DP plot are irrelevant, since they do not take into account, for example, the ramp and the reel at the stern of the vessel which are not always there. There may be something in this point, although the figures shown in the ERN rating are strikingly high. As Mr Legerstee said, the ERN rating was such that, if the Fennica were unable to keep station, there must have been damage to the engines or thrusters, or the sea state must have been higher than 3M.
125. The crane: I turn finally to the crane. The manufacturers of the crane (Hydralift) produced a derating table, which states what weights may safely be lifted in various sea states. It is PGS' case that this table shows that the Fennica would not have been able to lift the second end risers P1, P2 and W1 in a sea state of 3M Hs. Mr Legerstee confirmed that this was so if the derating table were applied to the Fennica crane. This allegation surfaced very late in the day in these proceedings. It is obviously not based on observations as to what took place during the installation of the umbilical riser, since it is conceded that it only applies to P1, P2 and W1.
126. Mr Legerstee stated that the derating tables are primarily used in relation to a crane that is lifting weights from one vessel to another at sea, i.e. between two vessels, both of which are subject to vertical motions. They are not used for the purpose of calculating load limits where a crane is used simply to lift weights on the deck of a vessel. Mr Legerstee agreed that it would be "wrong simply to take the derating table and utilise that as a limit on what the crane can do in lifting weights on the deck itself". Since PGS' case in relation to the crane is based exclusively on the derating tables, in the light of Mr Legerstee's evidence, it must be rejected. I should add that DSND have carried out some calculations of their own, which show that the crane can be used to lift the weight of the end fitting over the top of the reel in 3M Hs. PGS has not commented on these calculations. Mr Legerstee has looked at them, but not in depth. He said that he did not criticise the calculations, although he though the dynamic amplification factor of 1.25 that had been used should have been at least 1.3. He accepted, however, that the calculation of the dynamic amplification factor was not an "exact science", and he did not say what effect a different factor would have had on the result. PGS have wholly failed to persuade me that the limitations of the crane were such that in certain circumstances the Fennica was not capable of operating in 3M Hs. In any event, as Mr Taverner points out, even if there were the limitation as suggested, it would have applied only to a very short period in the installation process of three of the six risers. I am quite sure that, if Mr Wilson had been told before signing the MOU that there was this fourth qualification to the expectation that the Fennica could work in 3M Hs, he would not have been deflected from signing the agreement on that account.
127. If (contrary to my view) there was a misrepresentation in relation to the capability of the Fennica to perform in 3M Hs, PGS first became aware of it during the installation of the umbilical riser on 4 October. At about that time, Mr Darby was involved in the project and knew what was going on, and he was in frequent contact with Mr Greville at Watson Farley & Williams, PGS' solicitors Far from rescinding the MOU, they proceeded to enter into the MOA, and subsequently (as we shall see) alleged that DSND were in breach of the MOU, and eventually on 19 November terminated the Contract on the grounds of an alleged breach of the MOU. Mr Taverner submits that in these circumstances, PGS have lost the right to rescind. They affirmed the MOU, and expressly relied on it, after having knowledge of the alleged misrepresentation, and, it must be assumed, their right to rescind. Moreover, it is no longer possible to restore the parties to the status quo ante if for no other reason than that, following the MOA, DSND entered into a subcontract with Rockwater for the supply of the Semi 2, and have incurred and discharged substantial liabilities under that subcontract.
128. I see no answer to these points. The first time that the allegation of misrepresentation was made to DSND was in a letter dated 25 January 1999. It seems that the first time rescission was mentioned was in the letter before action dated 28 April 1999. But in my view, the principal reason why the right to rescind has been lost is not lapse of time. It is that, with full knowledge of the position, PGS chose to affirm and rely on the MOU, and acquiesced in DSND irretrievably altering its position after the alleged right to rescind had arisen. I hold, therefore, that if I had found that the alleged misrepresentations were made, and were relied on by PGS to enter into the MOU, they have lost their right to rescission.
129. I propose to say nothing about the financial consequences that would have resulted if I had found in favour of PGS on the misrepresentation issue.
130. It is PGS' case that the situation in which they found themselves on 5 October, after the installation of the umbilical, left them with no realistic commercial alternative but to investigate the availability of a stable semi-submersible vessel, and ultimately to enter into the MOA. In doing so, it is submitted on their behalf that they were mitigating the loss caused by entering into the MOU in reliance on misrepresentations as to the capability of the Fennica. Since I have rejected PGS' case on misrepresentation, the premise on which their argument in relation to the MOA is based must also be rejected. Mr Furst has advanced detailed reasons for contending that the reason why PGS decided to introduce the Semi 2 to assist in the installation work was that they had discovered (on the basis of the experience of installing the umbilical) that the Fennica could not operate in 3M Hs. Mr Taverner has responded with equally detailed reasons in support of the contention that the real reason why PGS decided to introduce the additional vessel was simply to speed up the process: a matter of particular concern to PGS was the discovery on about 22 September that the Fennica would have to make 6 separate trips. In general terms, I prefer the submissions of Mr Taverner. In view of my decision on the misrepresentation points, and in order to keep the length of this judgment within reasonable bounds, I propose to say no more about this issue.
131. The ingredients of actionable duress are that there must be pressure, (a) whose practical effect is that there is compulsion on, or a lack of practical choice for, the victim, (b) which is illegitimate, and (c) which is a significant cause inducing the claimant to enter into the contract: see Universal Tanking of Monrovia v. ITWF  AC 336, 400B-E, and The Evia Luck  2 AC 152, 165G. In determining whether there has been illegitimate pressure, the court takes into account a range of factors. These include whether there has been an actual or threatened breach of contract; whether the person allegedly exerting the pressure has acted in good or bad faith; whether the victim had any realistic practical alternative but to submit to the pressure; whether the victim protested at the time; and whether he affirmed and sought to rely on the contract. These are all relevant factors. Illegitimate pressure must be distinguished from the rough and tumble of the pressures of normal commercial bargaining.
132. I do not believe that any of the above is controversial.
133. The position at the start of the meeting of 24 September was that there were two principal problems facing the parties: the question of insurance/indemnity, and the issue of compensation for the riser installation. DSND were in my view entirely justified in being reluctant to go offshore without at least a reliable assurance that, if there were a problem with the RTIAs, PGS' all risks policy would cover it. The RTIA saga had been running for a long time, and still had not been resolved. PGS understood the reasons for DSND's anxiety, and believed their concerns to be genuine. I accept the evidence of Mr Hirsti that by the time of the meeting on 24 September, DSND were very concerned about their potential liability in relation to the RTIAs. As he said, the RTIAs were prototypes. They had been delivered without any final design approval and no fully documented metrology. Although there had been full scale tests at Britannia, there had been no sea trials. One particular concern was the possibility that an RTIA would be come stuck in an I-tube in the turret. I find that DSND still had no final metrology, were not yet in a position to verify the installability of the RTIAs, and had a reasonable and legitimate fear that they might become stuck in the I-tubes. If that were to happen, the consequences might well be disastrous for DSND, unless that contingency was adequately covered by insurance/indemnity arrangements. That is why there were negotiations during the meetings of 24 and 25 September in relation to liability for the RTIAs, and amendments to the insurance and indemnity provisions of the Contract.
134. The Contract did not contain a provision which entitled DSND to suspend work. The Contract simply did not make provision for a situation such as occurred. If it were necessary so to hold, I would say that the suspension of work on the RTIAs pending resolution of the insurance/indemnity question, even if it was a breach of contract, and even if it amounted to pressure, did not amount to illegitimate pressure. It was reasonable behaviour by a contractor acting bona fide in a very difficult situation.
135. The question of compensation had been the subject of negotiations since late July. Work on the riser installation was about to begin. It was clearly in the interests of both parties that this matter be resolved as soon as possible. I do not accept that DSND told PGS at the meeting of 24th or 25th that they would not resume work on the RTIAs until the compensation issue was resolved. That would clearly have been a flagrant breach of contract, and, if pressure, it would in my view have been illegitimate pressure. Mr Hirsti said that he knew that DSND had no right to suspend work for such a reason. It is significant that the suspension of work was limited to the RTIA assembly. That is explicable if the reason for it was the concern about going offshore without a resolution of the insurance/indemnity problem. It is not reasonably explicable if the reason for suspension of work was the desire to put pressure on PGS to meet DSND's demands for compensation.
136. I am not persuaded that PGS were subjected to pressure in the sense that they had no realistic practical alternative but to concede DSND's demands. Mr Wilson was the person responsible for negotiating the terms of the MOU. If he had felt under duress, he would have enquired, or caused others to enquire, as to the availability of alternative vessels to complete the work. It was open to PGS to terminate the Contract for breach under Article 16.1, or without cause under Article 16.3. PGS were in contact with their solicitors at this time, so they had ready access to legal advice. Mr Wilson admitted that he took no steps to see whether an alternative vessel would be available. He did not know that Mr Darby had made some inquiries. He said that he considered contacting Coflexip Stena ("CSO"), (who had an office in Oslo), but did not have time to do so. I do not accept this: he could easily have contacted CSO, if he had thought that it was desirable to do so. Mr Wilson is a careful and intelligent person. I believe that, if he had felt that he was being blackmailed, he would at least have explored the possibility of alternative vessels. The fact that he did not do so strongly suggests that did not feel that he was being blackmailed.
137. Mr Wilson also sought to justify the failure to terminate the Contract on the grounds that he was concerned about possible damage to the risers if they were offloaded from the Fennica and then loaded on to another vessel, and about the possibility that DSND would not cooperate following a termination, so that there might be a delay in retrieving them. It was even suggested by Mr Wilson that another factor was the possibility that DSND might deliberately damage the risers. That suggestion, however, was withdrawn by Mr Wilson during his evidence. I find it surprising that it was ever made. As regards possible damage to the risers, unnecessary movement of risers is undesirable, but on 8 October, PGS instructed DSND to offload the P2 riser, and replace it with W1. It was clearly not an important consideration. As for the fear that, following a termination, DSND would refuse to cooperate and would act in breach of the requirements of Article 16, PGS had no grounds for entertaining such a belief. When the Contract was terminated in November, DSND did discharge their obligations under Article 16. In any event, PGS were in receipt of legal advice. They must have been advised that, if necessary, they could obtain a swift injunction.
138. The fact is that, if PGS had truly felt that they were subject to duress, then on their view of the situation (i.e. a serious breach of contract) they would have had no difficulty in terminating under Article 16.1, and claiming the costs resulting from the termination from DSND. PGS had the benefit of a parent company guarantee. It has not been suggested that PGS would not have been able to recover those costs.
139. There are a number of features of the case which are very difficult to explain if Mr Wilson was blackmailed into signing the MOU. First, there is the fact that there was plainly a reasonably amicable atmosphere between the parties. This is most obviously evidenced by the fact that the parties went out to dinner together during their stay in Oslo. Secondly, with one exception there is no entry in any of the voluminous contemporaneous documents which supports the notion that PGS entered into the MOU under duress. There is no protest in any of the many written communications sent at the time by PGS to DSND. Perhaps even more telling, there is no hint of a reference to duress in any of the PGS internal memoranda, or in the diary entries of Messrs Wilson, Krafft or Darby.
140. Mr Krafft made a note of the meeting of 24 September. It refers to a number of the topics that were discussed, including insurance. It also makes reference to the financial implications of the DSND proposal relating to compensation, and states "dayrates have gone up from £65k in August to £94,500 now". His note also mentions DSND's claim to the 21 day familiarisation period from receipt of RTIA documentation and parts until verification, and refers to DSND's undertaking to speed up. There is nothing in this note to suggest that Mr Krafft thought that PGS was being subjected to duress. As Mr Elliott points out, Mr Krafft was the most serious PGS man present at the meetings. He is an experienced business man, and highly respected in the oil and gas industry. I find it difficult to believe that, if he had thought that PGS was being blackmailed at the meeting of 24th, he would not have said so in the note. Even more significant is the fact that he was not called to give evidence. It has not been suggested that Mr Krafft was not available to give evidence. I infer that he would not have supported PGS' case on duress.
141. The first time that PGS objected to MOU on the grounds of duress was in an affidavit sworn in these proceedings in February 1999. Mr Wilson claims that he had a conversation with Mr Bradley on 26 October, in which he said that PGS had had no choice about entering into the MOU. Mr Bradley has no recollection of this being said. There is no documentary support for it. I am not persuaded that it was said.
142. I said that there is one reference to duress in the documentary material. That appears in Mr Darby's diary for 21 October 1999. This records a discussion with Mr Greville of Watson, Farley and Williams, and contains this entry: "discussed the 25th September agreement which was a duress situation as we saw it at the time". This may have been what Mr Darby thought and told Mr Greville on 21 October, but for all the reasons that I have given, I conclude that PGS did not enter into the MOU under duress.
143. This issue only arises if PGS did enter into the MOU under duress. In view of my findings on duress, I shall deal with this shortly. Mr Elliott submits as follows. At no time after 25 September did PGS object to or seek to challenge the MOU until the service of the affidavit in February 1999. Mr Darby raised the duress point with Mr Greville on 21 October, and yet following that discussion with Mr Greville, in a number of letters PGS expressly referred to and relied on the MOU as governing the rights and obligations of the parties. Thus, for example, on 18 November PGS wrote to DSND complaining about:
the cavalier attitude displayed by DSND with respect to its obligations under the terms of the Memorandum of Understanding entered into on 25 September 1998, and in particular to the Schedule attached to, and forming an integral part of that Agreement.
144. They stated in another fax sent on 18 November that DSND were obliged by the schedule attached to the MOU to have a suitable DSV at the Field from 10 November. The letter of termination relied on the failure to have a DSV at the Field from 10 November "as contractually committed" as the breach of contract which justified the termination.
145. As a consequence of the MOU, DSND entered into the MOA, and incurred and discharged a substantial financial obligation to Rockwater, the Semi 2 subcontractor. For all these reasons, Mr Elliott submits that PGS affirmed the MOU and/or it would be inequitable for it now to be avoided.
146. It is not in dispute that a contract entered into under duress is voidable. I take the following statement set out at paragraph 7-063 of Chitty on Contracts 28th edition as an accurate summary of the relevant law:
A transaction entered into as the result of undue influence is voidable and not void. The right to rescind on the ground of undue influence may be lost either by express affirmation of the transaction by the victim, by estoppel or by delay amounting to proof of acquiescence. Although there can normally be no affirmation until the party knows he has the right to rescind, it has been doubted whether this is a hard and fast rule: "the whole of the circumstances must be looked at to see whether it is just that the complaining beneficiary should succeed." Estoppel requires a clear and unequivocal representation that the claimant would not seek to set the agreement aside, intended to be acted on and in fact acted on by the other party to his detriment or in such a way that it would be inequitable to allow the claimant to go back on his representation. In either case, to be of any value, the affirmation must take place after the influence has ceased. "The right to property acquired by such means cannot be confirmed in this court unless there be full knowledge of all the facts, full knowledge of the equitable rights arising out of those facts, and an absolute release from the undue influence by means of which the frauds were practised." Lapse of time in itself does not seem to constitute a bar to relief, but it will provide evidence of acquiescence if the victim fails to take any steps to set aside the transaction within a reasonable time after he is freed from the undue influence. And where he has himself failed to commence proceedings in this way during his lifetime, his personal representatives cannot do so after his death.
147. In my judgment, even if PGS were subjected to illegitimate pressure on 25 September, they were free from it by late October when Mr Darby had his conversation with Mr Greville. By that time, the contract with Rockwater for the Semi 2 was in place. This vessel was capable of doing riser installation work. If PGS had terminated the Contract under Article 16.3, DSND would have been required to assign the benefit of the subcontract to PGS (as they did following the termination on 19 November). Other vessels could have been procured as eventually happened. PGS had time to make alternative arrangements, and, they could have terminated under Article 16.3 once these had been made. PGS did not waive legal professional privilege. It is clear, however, that they were in receipt of legal advice during the period between 25 September and 19 November. I infer that, since Mr Darby raised the issue of duress with Mr Greville on 21 October, PGS must have been aware of their right to avoid the MOU on that ground. Instead of taking that course, they continued to rely on the MOU, and complained that DSND were not observing its terms. Eventually, they decided to terminate the Contract on the grounds that DSND were in breach of the terms of the MOU.
148. Accordingly, if I had held that PGS entered into the MOU under duress, I would have declined to set aside the agreement on the grounds that they affirmed it. Another way of putting it is to say that it would be inequitable to allow PGS to avoid the MOU after they had relied on it in the way that I have mentioned for their own benefit, after (as I have held) they ceased to be subject to any duress.
149. PGS purported to terminate the contract by letter dated 19 November 1998, in which they said:
Resulting from your breach of CONTRACT in not having a suitable Diving Support Vessel at the Banff Field from 10th November 1998 as contractually committed by DSND, and your failure to remedy this serious breach following our notice to you, we have no alternative but to terminate the CONTRACT with immediate effect. You are hereby required to make available to PGS all technical documents and assign all subcontracts to PGS.
150. On 1 December, PGS repeated their position:
By a Memorandum of Understanding dated 25 September 1998 ("the MOU") you undertook to provide a DSV for the period 10 November to 5 December 1998.....In breach of the above obligation, and in spite of our numerous requests from early November onwards for urgent action on our part to supply a DSV on a continuous basis in accordance with your obligations you completely failed to provide an in-house DSV or a third party DSV for the agreed period......In any event, your failure to procure a DSV from 10 November and thereafter is itself an irremediable breach, which entitled us to terminate the contract.
151. It is PGS' case that it validly terminated the contract pursuant to Article 16.1, or alternatively Article 16.3 of the Contract. It is convenient to deal with the Article 16.3 argument first. It is rightly conceded on behalf of PGS that they purported to terminate under Article 16.1. But Mr Coulson submits that "as a matter of construction, there is no reason why it was not under Article 16.3". As I understand his reference to "as a matter of construction", what he means is that the language of Article 16.3 is wide enough to encompass a termination in the events that occurred. That is obviously right, but in my view, it does not meet the real point that is made by Mr Elliott. Article 16 provides two alternative rights of termination. Article 16.1 permits termination by PGS in the event that:
(I) Contractor persistently fails to perform the Work diligently in an efficient, workmanlike, skilful and careful manner, or (ii) Contractor fails to comply with any term of this Contract... then in any such event Owner having given Contractor reasonable opportunity to remedy the situation shall have the right to terminate this Contract by giving written notice thereof to Contractor.
152. Article 16.2 provides for what is to happen if PGS terminates pursuant to Article 16.1. In the event of such termination, DSND is obliged inter alia to make available to PGS all "documents, drawing and data" (Art 16.2.1) and assign to PGS such subcontracts as PGS specifies (Art 16.2.2). Article 16.2.4 provides that PGS is not liable to pay DSND further compensation for the work done until the expiration of the warranty period. At that stage, a net balance is struck taking into account, inter alia, the amount of costs incurred by PGS in completing the work in excess of the costs that would have been incurred if DSND had not defaulted (Article 16.2.4(b)).
153. Termination of the contract by PGS under Article 16.3 is "at its sole discretion and without cause". Article 16.4 provides for the consequences of a termination under Article 16.3. These include provisions analogous to Article 16.2.1 and 16.2.2. But the financial provisions contained in Article 16.4.5 are fundamentally different from those in Article 16.2.4(b). There is an elaborate set of provisions for determining the net amount payable by PGS to DSND. It includes all sums due at the date of termination, and a sum for vessel loss of revenue calculated in accordance with a formula. The net sum due to DSND is payable within 30 days of invoice.
154. It is thus clear that termination under Article 16.1 is very different from termination under Article 16.3. In my judgment, the letter of 19 November 1998 cannot be construed as a termination under Article 16.3. It was plainly under Article 16.1. The breach of contract relied on was very specific. It was the failure to have a suitable DSV at the Banff Field from 10 November. In my view, PGS had an election, i.e. a choice between inconsistent rights. They were inconsistent because the consequences of a termination under the two provisions were fundamentally different. Thus PGS was required to choose one or the other. Having chosen one, it waived its right to choose the other. I therefore reject the argument based on Article 16.3.
155. DSND dispute the validity of the termination under Article 16.1 on the grounds that (a) there was no relevant breach of contract, and/or (b) DSND was not given a reasonable opportunity to remedy the situation.
156. I shall repeat Article 9.1 of the Contract:
The CONTRACTOR shall commence performance of the WORK, continue and complete the WORK in an expeditious and timely manner and in accordance with the PROGRAMME cited in Exhibit C together with the Key Dates and Milestones. CONTRACTOR acknowledges that the timely performance of its obligations hereunder are vital, fundamental and essential for the exploitation of the Field. Consequently time is of the essence of this CONTRACT, as delays in the performance of the WORK would cause most substantial prejudice to OWNER. CONTRACTOR shall be entitled to schedule the performance of the WORK so as to maximise efficiency, providing always that the key dates and milestones are not delayed.
157. It is not necessary to examine the provisions of Exhibit C of the Contract, since they were superseded first by the HOA, and later by the MOU. By the MOU, the DSV activities were divided into three phases. A detailed offshore schedule was incorporated into the agreement. It showed phase 1 (tie-in risers, flexible jumpers and umbilicals) being carried out between 10 and 17 November; phase 2 (mattress installation) between 17 and 24 November; and phase 3 (dewatering and function testing) between 24 November and 5 December. At the foot of each page of the schedule appear the words "all dates and durations indicative". The schedule also shows the installation of the flexible risers and the umbilical riser being done (in 6 trips) between 28 August and 12 November. In other words, the sequence of work shown was DSV activities following on after completion of the installation of the risers. The MOU also provided for daily rates for vessels engaged on DSV activities. These were applicable to DSND's own in-house vessels. But "in the event that DSND does not have an in-house DSV available then DSND shall provide a third party DSV (subject to availability) at cost plus 15%".
158. It is submitted on behalf of DSND that the effect of the MOU was that:
(a) the work operations
would be carried out in the sequence identified in the schedule;
(b) the rates and durations were indicative only, and were not absolute; and
(c) if DSND did not have its own DSV available, it would use a third party DSV if available, and (pursuant to an implied term of the contract) DSND would take reasonable steps to procure such a vessel, whether in-house or from a third party, so as to achieve the indicative dates.
159. On behalf of PGS, Mr Coulson submits that the schedule attached to the MOU had no contractual effect at all, since the dates and durations were stated to be no more than "indicative". Since the schedule had no contractual effect, the only relevant obligation was that stated in Article 91., namely the obligation to complete the work in an "expeditious and timely manner". He also submits that, if the schedule had any contractual effect, then the sequence was not fixed any more than were the dates and durations. Since the dates and durations could be moved, so too could the sequence.
160. I cannot accept Mr Coulson's submissions. It is clear that the schedule was intended to have contractual effect. The previous programme had been overtaken by events. The schedule was attached to the MOU. The terms of the MOU could hardly be clearer:
As a result of variations to the contract workscope and methodology used to install their riser systems and contract schedule, PGS and DSND agree to the below mentioned mechanism for compensation and revised schedule attached hereto (emphasis added).
161. The fact that the dates and durations were said to be indicative does not mean that the schedule was not intended to have contractual effect. It merely meant that the parties agreed that they would work in accordance with that schedule to the best of their ability, but that DSND would not be in breach of contract merely because they failed to achieve the stated dates and durations. I accept that the obligation in Article 9.1 to carry out and complete the work in an expeditious and timely manner was not cancelled by the MOU. In my view, the schedule was evidence of what the parties considered in late September to be expeditious and timely performance. But the parties recognised that the situation was fraught with uncertainty. The weather could cause serious delay to the installation of the risers, and, therefore, the start of the diving work. The availability of DSV vessels was also an unknown factor. DSVs are expensive vessels to have on hire simply biding their time before they can be put to profitable use. It was certainty not in the interests of PGS for DSND to book a vessel well in advance, since the daily rates were high, and would have to be met by PGS. Nor was it in the interests of PGS that a DSV should be booked for, say, 24 hours, when there was only 6 hours' work to do. All of these obvious points were well understood by both parties. That is why the schedule to the MOU gave indicative dates and durations That is also why the MOU provided that, "in the event that DSND does not have an in-house DSV available, then DSND shall provide a third party DSV (subject to availability) at cost plus 15%" (emphasis added). In short, the parties agreed to flexible arrangements tailored to meet the exigencies of the situation.
162. Nor do I accept Mr Coulson's submission that the sequence of DSV work stated in the schedule was not fixed. It does not follow from the fact that the dates and durations of the various phases were indicative that the sequence of the phases of DSV work was also indicative. The significance of this is that the schedule clearly and unambiguously showed the DSV work following on after completion of the installation of the risers. I inclined to the view that DSND could reschedule their work, since Article 9.1 permitted them to schedule the work "so as to maximise efficiency, providing always that the key dates and milestones are not delayed". I am uncertain about this, since I am unsure whether the key dates and Milestones survived the HOA and MOU. I heard no argument on this point. It may be that PGS were entitled to order DSND to change the sequence of work stated in the schedule. Such an order would have been under Article 9.4 or 11.1.
163. There were essentially two elements of diving work: first, that which was associated with the installation of the risers (which included tying in the risers and jumpers to the rest of the subsea system); and secondly, the mattressing, which involved laying protective mattresses around the jumpers between the riser bases and the fixed flowlines. The mattressing was not connected with the installation of the risers.
164. Before I decide whether DSND were in breach of contract so as to justify the termination, I need to examine the facts in some detail. At all material times, DSND owned two DSVs which were suitable to carry out the diving work at the Banff Field. These were the Aquamarine and the Stephaniturm. On 26 August 1998, PGS wrote to DSND stating that they wished to adjust the schedule given by DSND earlier that day "to give completion priority to the Water Injection facilities i.e. Water Injection Risers, Umbilical and Controls to facilitate commencement of Water Injection no later than 1 October 199". PGS acknowledged that this would require "a possible additional mobilisation of the Aquamarine", and this would entitle DSND to a variation order.
165. But long before 1 October, the programme had slipped. Whereas the schedule dated 26 August indicated that all risers would be installed by 27 September, the first riser was not installed by the Fennica until 4 October. The next two risers (P2 and oil expiate) were installed by the Rockwater Semi 2 between 2 and 8 November, and W1 was not installed until about 16 November. The achievement of First Water Date assumed great importance in relation to the contract between PGS and Conoco. Accordingly on 8 October, PGS instructed DSND to prioritise the installation of W1 over P2. Thereupon, the Fennica (which had returned to shore and collected P2 and returned to the field) returned to Leith, substituted W1 for P2 and returned to the field. The weather deteriorated during October, and the Fennica was unable to install W1.
166. Meanwhile, PGS decided to use the Rockwater Semi 2 in addition to the Fennica. Mr Wilson reported on 14 October that the Semi 2 "also has diving facilities that could either significantly reduce the need for a diving support vessel or completely eliminate it". The Fennica had no diving support facilitates. On 26 October, PGS instructed DSND to sail to Leith, remove the W1 riser and take jumpers P1 and P2 on board. PGS complied with this instruction, and the Fennica returned to the field with the jumpers aboard on 30 October. After installing the jumpers, the Fennica was ordered by PGS back to Leith on 5 November and demobilised. PGS had decided that, rather than using the Fennica and the Semi 2 working together to install the risers, DSND should use the Semi 2 alone. The Semi 2 installed P2 on about 2 November, the gas export riser on about 4 November, the oil export riser on about 8 November, W1 on 15/16 November, and P2 on 18/19 November.
167. On 29 October, DSND had recommended that the Fennica and Semi 2 both be used for riser installation, so that the Semi 2 could be used for diving when not installing risers. PGS did not want to do this. Thus it was that, as we have seen, the Fennica was demobilised shortly thereafter. One of the curiosities of this case is that, having ordered that the installation of W1 should take priority, PGS did not adhere to this in the event.
168. On 30 October, DSND made enquiries for vessels to install risers and carry out the diving work. Their own vessels, the Aquamarine and the Stephaniturm, were committed elsewhere. On 2 November, DSND informed PGS of the current position: Rockwater was prepared to extend hire; and the Marianos, which was owned by CSO, was available from the end of November. PGS agreed to a 7 day extension of the hire of the Semi 2 until 20 November.
169. On 6 November, there was a meeting between Mr Parker of PGS and Mr Littlefield of DSND. They discussed the need for additional DSV support. I accept the evidence of Mr Littlefield that a DSV would be required "from the middle of the following week after the risers had been installed". The expectation remained (in accordance with the schedule incorporated in the MOU) that the DSV work would start after the risers had been installed. I also accept the evidence of both Mr Littlefield and Mr Cameron that, after the meeting, Mr Cameron made exhaustive efforts to procure a vessel, by contacting ship owners and the charterers throughout the North Sea area and Europe.
170. On 9 November, Dr Kelly wrote to Mr Cameron and Mr Littlefield expressing concern at the failure of DSND to obtain another DSV. Mr Cameron replied by fax dated 10 November. He confirmed that the charter of the Semi 2 had been extended to 20 November, and pointed out that there was little potential for a second DSV while the Semi 2 was still on location. He proposed, therefore, to maximise the DSV activities of the Semi 2 until 20 November. He confirmed that the Stephaniturm could be made available between 14 and 23 November, and the Aquamarine from 25 November until 7 December, adding that these dates were "indicative" and "subject to weather impacts on the current projects". He said that he was checking the market for a third party DSV, but that the prospects of vessel availability were "very low".
171. On 12 November, a further meeting was held. It was recorded that the installation of W1 was planned for the following day. PGS requested a DSV schedule from DSND. It was agreed that Mr Littlefield would produce such a schedule on 13 November without the names of the vessels, until details of them were notified by Mr Cameron.
172. 13 November was an important day in the sequence of events which culminated in the termination of the Contract. At 14.02 hours, PGS sent a fax (dated 9 November) requiring the water injection system to be leak tested on 16 November. They instructed DSND to mobilise a DSV for witnessing this test, and said that, if no DSV was available, the test was still to be performed from the FPSO. At 15.02 hours, PGS sent DSND a copy of the PGS Offshore Plan which had been issued on 10 November. It showed DSV operations starting on 16 November, and finishing on 9 December, with the first item, "monitor leak testing of W1 Riser System", being carried out on 16 November.
173. At 16.44 hours, PGS sent a further fax to DSND stating that the purpose of the Semi 2 was to execute essential riser installation works, "and not any DSV works unless expressly authorised by OWNER". They added that, unless DSND reverted before midday on 16 November with satisfactory assurances with regard to the provision of DSVs, supported by a detailed schedule, PGS would have no alternative but to secure suitable DSVs directly.
174. At 16.52 hours, DSND responded. They sent a schedule which showed the Aquamarine arriving at 0.00 hours on 17 November and leaving at 8.00 hours on 18 November. Mr Cameron had arranged for the Aquamarine to break its current charter for no more than 32 hours. The plan was for the Aquamarine to monitor the leak test of the water injection system, but noting more at that stage.
175. At 17.30 hours, Mr Cameron sent a copy of an offer received from CSO in respect of the Marianos. The offer stated that the Marianos was available to undertake work from around 29 November. Mr Cameron refused to various other potential sources of a DSV, and said that there were no other vessels available. CSO was the only third party with availability at that time. With regard to DSND's own vessels, Mr Cameron said that they were currently negotiating with their other clients, and that he would report on this separately. Mr Darby said that he considered this CSO offer to be a "sham" at the time. This was a surprising view to hold, all the more so, since the Marianos was eventually engaged by PGS after termination to carry out DSV work on the project. In my judgment, there was no basis for Mr Darby holding this view at the time. I suspect that this led him to form an unreasonably adverse opinion of DSND during the crucial days that culminated in the termination.
176. At 19.35 hours, Mr Cameron sent a further fax to PGS enclosing draft schedules. The DSV schedule showed work starting on 23 November and finishing on 7 December, with the monitoring of the leak test for the W1 system taking place on 25 and 26 November. As Mr Cameron pointed out in his fax, these schedules had now been superseded by subsequent requests to give priority to the W1 system. He also said that DSND did not give three days notice to mobilise the Stephaniturm: she had experienced delays so that her current availability was "around 18 November".
177. At 19.38 hours, Mr Cameron sent yet another fax. He said that the "base case" had always been to carry out all testing in a single phase after completion of all the riser installation works; that was the schedule being followed by DSND until 13 November. It would be very difficult to achieve completion in accordance with PGS' current wishes, but DSND would make every endeavour to do so He enclosed a revised schedule which was limited to the installation and leak testing of the water injection system. The schedule had been produced that afternoon, and it showed an "integration of the Semi 2, FPSO and Aquamarine, to complete leak testing by 17 November". This had only been achieved by withdrawing the Aquamarine from another contract, which could only be done when the other site was left safe.
178. At 19.40 hours on 13 November, Mr Cameron wrote again. He reiterated that the schedule that he had just sent addressed only the stage of leak testing the water injection system. He said that the overall schedule to completion would have to be revised to take account of changes, and this would be forwarded on 16 November in the light of progress at that time.
179. The Aquamarine duly arrived at the field at 5.00 hours on 16 November. DSND had negotiated her release from her current contract for 48 hours (including the steam time between the two sites, which was 6 hours each way). At 12.24 hours on 17 November, Mr Cameron sent another fax to PGS. He said that he hoped that the Aquamarine would be able to complete the W1 leak test before she had to return. He said that the Stephaniturm was currently experiencing further delays on her current works, and would now not be available until about 17 December. The Aquamarine was due to complete her currently contracted works on about 15 December. He said that he had contacted various third parties, but there were only two third party options: (a) the Marianos from about 29 November, and (b) an extension of the hire of the Semi 2 up to 24 November. He proposed that PGS agree to both (a) and (b).
180. Dr Kelly responded by a fax sent at 16.39 on 17 November. He instructed DSND not to demobilise the Aquamarine until the remaining work was complete, or an acceptable DSV was mobilised on a "back to back" basis. He objected to the use of the Semi 2 as a DSV on the grounds of expense. At 17.25 hours, Mr Cameron responded. He said that the Aquamarine would depart at 18.30 hours that evening and return to her previous project. The Stephaniturm would, however, be available at the field at approximately 12.00 hours on 19 November. The Stephaniturm was working off the coast of Holland, and it would take about 24 hours steaming time to reach the Banff field. Dr Kelly said in evidence that he had lost confidence in DSND as a result of the shifting dates of vessel availability that he had been given. The Aquamarine had been unable to complete the monitoring of the leak test, because there was a problem on the FPSO which led to the start of the test being delayed.
181. Once the Aquamarine had left the field, PGS instructed DSND to proceed immediately with the leak test without DSV support. Mr Cameron responded by saying (correctly) that to proceed with a test without DSV support was a departure from the agreed procedures. In his fax of 17 November, he said that to proceed in this way could compromise the integrity of the wells and increase the risk to personnel. He suggested that the Semi 2 be used to monitor the leak test. He also sought PGS' instructions as to whether the Stephaniturm should be booked. At 18.52 hours on the same day, PGS again instructed DSND to carry out the leak test without DSV support, and DSND duly complied.
182. During the morning of 18 November, a further meeting took place. There was discussion about the schedule for the Stephaniturm. There was a problem in that she was now low on fuel, gas and stores. If she were to be chartered, there was a choice. Either she could sail directly to the Banff field, but then she would have to leave on 23 November to refuel etc. Alternatively, she could go to Aberdeen to refuel etc., and then sail to the field: if this course were adopted, she would be able to stay in the field until she was replaced by the Marianos on about 29 November. It was agreed that the latter course should be adopted. There was a good deal of acrimony at the meeting. Mr Darby, in particular, was abusive and extremely critical of DSND. There has been some disagreement as to whether the decision to employ the Stephaniturm and divert her to Aberdeen was a "joint" decision, or a proposal of DSND which was accepted by PGS. I accept Mr Cameron's fax sent at 18.05 hours on the same day as an accurate record of what occurred at the meeting. He wrote that DSND had proposed that (a) the Semi 2 would terminate her charter on 21 November, (b) the Stephaniturm would sail to the field via Aberdeen until relieved, and (c) DSND would charter the Marianos from as early a date as possible (expected around 29 November). He stated that DSND would proceed in accordance with these proposals unless PGS advised by return that they were not acceptable.
183. By fax sent at 10.34 hours on 19 November, Dr Kelly replied that proposals (b) and (c) were totally unacceptable. He wrote:
Because of the uncertainty in providing the DSV(s) created by the many versions of DSV availability, none of which have materialised, PGS has no confidence in the current proposal, being the 5th contradiction since 10th November 1998.
He repeated that PGS were taking all means available to them to mitigate the effects of the "serious breach, including but not limited to sourcing a suitable DSV for our own account".
184. At 14.34 hours, PGS sent the letter purporting to terminate the contract in the terms which I have quoted earlier in this judgment.
185. I can now come to the alleged breaches of contract. It will be recalled that the breach of contract relied on in the notice of termination was very specific: it was the failure to have a suitable DSV at the Field from 10 November. I shall first consider, therefore, whether the failure to have a DSV from 10 November was a breach of contract. During the period between 10 and 19 November, the Semi 2 was available for use, except when it was engaged on riser installation, and the Aquamarine was at the field on the 16th and 17th. Otherwise, there was no DSV at the Field during that period. Did this amount to a breach of contract? Mr Coulson submits that it did for the following 3 reasons. First, he submits that the Semi 2 was not a suitable DSV. Secondly, Article 9.1 did not entitle DSND to wait until all the riser installation work had been completed (it was not in fact completed until about 20 November) before providing a DSV: the obligation to proceed in an expeditious and timely manner required DSND to have a suitable DSV vessel at the Field from 10 November. Thirdly, Mr Coulson argues that DSND were in breach of an implied term that they would procure a suitable DSV so as to meet the indicative dates shown on the MOU schedule. I shall take each of these three points in turn.
186. Suitability of the Semi 2: PGS' case is that the Semi 2 was not suitable, since although it was technically well capable of doing DSV work, it was primarily required for riser installation. It was far too expensive to serve as a mainstream DSV. It should be noted, however, that between 1 and 20 November, the Semi 23 carried out approximately 20% of all the DSV activities that were required under the Contract. Moreover, as we have seen, in a report dated 14 October to senior PGS personnel on the Banff Board, Mr Wilson observed that the Semi 2 had diving facilities "which could either significantly reduce the need for a diving support vessel or completely eliminate it". I am in no doubt that this was a realistic view to take. Indeed, while the Semi 2 was at the field installing risers, there would be little diving work that a separate DSV would be able to do, since only one vessel was allowed to operate within the 500 metre zone surrounding the FPSO. I therefore reject the submission that the Semi 2 was an unsuitable DSV.
187. Article 9.1 and the schedule to the MOU: As I stated earlier, the sequence of the phases of the DSV work was specified in the schedule to the MOU. In my view, Article 9.1 cannot be construed as imposing an obligation on DSND to carry out the work in a different sequence, and in particular to require the DSV work to be started until all the riser installation was complete. That did not occur until about 20 November. Thus, although DSND did a significant amount of diving work before the completion of the installation of the risers, that was not something that it was obliged to do. Since the Semi 2 was on site, it made sense for it to do some diving work as and when it was able to do so, but there was no obligation to do so. Even if the schedule to the MOU did require DSND to start DSV work on 10 November, regardless of whether the riser installation had already been completed, that date was only indicative, and not absolute. This brings me to the question of the whether DSND was in breach of an implied term in relation to the procurement of a DSV.
188. Breach of an implied term in relation to the procurement of a DSV: Mr Coulson submits that DSND were in breach of an implied term that, if they did not have their own DSV available, they would take reasonable steps to procure one "when needed". He contends that such an implied term is admitted by DSND, but he is wrong about that. The implied term admitted by DSND is that it "would not intentionally prevent or preclude itself from providing an available in house DSV to perform when needed and in accordance with the Contract as amended" (emphasis added). I prefer a positive formulation of the term, i.e. that DSND would take reasonable steps to procure a vessel so as to achieve the indicative dates. The implied term suggested by Mr Coulson is vague, and completely ignores the schedule attached to the MOU. What does "when needed" mean? By reference to what criteria was the need to be assessed?
189. I would hold that DSND was not in breach of the implied term to take reasonable steps to procure a DSV so as to achieve the dates stated in the schedule to the MOU. I have set out the facts in some detail, and I heard extensive and detailed argument on the question whether DSND should have undertaken proper planning, and "booked" a vessel well ahead, so that one would be available on 10 November. It is contended by PGS that a DSV should have been booked in early or mid October, at a time when it would have been possible to arrange a booking. It is not suggested that DSND failed to take reasonable steps to procure a DSV once they started trying from about 30 October onwards. The complaint is that DSND did not make enquiries and a booking earlier.
190. I reject this contention. In my view, it was wholly unreasonable to expect DSND to have secured a booking of a vessel weeks before she was required. Dr Kelly, in fact, conceded this point during his cross-examination. He accepted that he did not want a DSV on standby between 8 October (the date when DSND was instructed to install W1 in advance of P2), and 16 November (when diving work associated with W1 could have begun). The DSV standby rate in the MOU was £65k per day, or £65k plus 15% if a third party vessel were required. What Dr Kelly wanted as that DSND procure that a DSV arrive on about 15 November, so that it could start without delay to do the water injection commissioning. But for the reasons mentioned earlier, it is unrealistic to book vessels well ahead of when they may be required. On 8 October, no-one could say with any certainty when the installation of the risers would be complete. And if the instruction of 8 October is to be regarded as a variation instruction, no-one at that time could have known when it would be possible to start the DSV work associated with the W1 riser. Even if DSND had made a booking so far ahead, n doubt it would have been subject to availability. The only way in which a firm booking might have been possible would have been if PGS had been willing to pay for standby time. That would have been commercially absurd, and Dr Kelly made it clear that PGS would not have been willing to take that course. Mr Cameron said in evidence that he would not have made a booking in relation to the schedule to the MOU until he had seen how the installation was going. By the end of October, he told Mr Strokowski at DSND that he would require a vessel some time in November. Mr Strokowski was responsible for the disposition of DSND in-house vessels. I am not persuaded that DSND was in breach of the implied term in relation to procuring a DSV in November. The market was tight at that time. Vessels were held up by bad weather, so that they remained committed to other contracts for longer than had been planned. I reject the submission that DSND was in breach of contract in failing to book a DSV so as to ensure it presence at the field, whether on 10th or 15th November.
191. I have mentioned 15 November although the termination was based on an allegation of failure to have a DSV at the field from the 10 November. This is because an alternative way in which PGS seems to put its case (reflecting the evidence of Dr Kelly to which I have referred) is based on the failure to book a DSV for mid to late November. As I understand this alternative allegation, it is founded on the instruction dated 9 November, but sent on 13th, requiring the water injection to be leak tested on 16th, and instructing DSND to mobilise a DSV to witness the test. I shall assume that this was an instruction that PGS was entitled to give under Article 9 or 11 of the Contract. If PGS was entitled to give an instruction under the Contract varying the sequence of the work, it must have been subject to an implied term that PGS would give reasonable notice to DSND. In my view, three days' notice was not reasonable. In the event, DSND was able to secure the presence of Aquamarine for a short period, but she was unable to witness the test because of problems with the FPSO.
192. For the reasons given, therefore, I do not accept that DSND was in breach of contract in relation go the provision of a DSV in November.
193. PGS have alleged a number of such breaches of contract. I have only referred to two of them, namely the failure to have a DSV present from 10 November, and the failure to have a DSV present to witness the water injection test on 16/17 November. I do not find it necessary to deal with the other allegations, which were subsidiary to the two main complaints, and which were not developed in argument.
194. In my view, since PGS expressly relied on the failure to have a DSV present at the field from 10 November in its letter of termination, that is the only breach on which it can rely in justification of the termination. It does not seem to be disputed that a valid notice of termination under Article 16.1 must identify the "situation" relied on by PGS. The notice cannot simply purport to terminate the contract without stating the ground relied on. That ground may be a breach of contract by DSND, it may be bankruptcy or similar proceedings commenced against DSND (Article 16.1.4), or it may even be "consistent default by DSND with respect to timely payment to subcontractors and others in respect of the Work" (Article 16.1.5). Thus it was that, quite correctly, PGS identified the breach of contract relied on with some precision. It cannot have been intended by the parties that the notice of termination should be expressed to be based on one ground, but that PGS could subsequently assert a quite different ground in justification of its notice.
195. A linked question is what is meant by the words in Article 16.1, "OWNER having given CONTRACTOR reasonable opportunity to remedy the situation". Mr Coulson submits that this means no more than that DSND should not be denied such an opportunity; it does not mean that PGS must expressly identify the breach, and state that unless the situation is remedied, termination will follow. Mr Elliott, on the other hand, submits that an opportunity cannot be given unless the situation is identified by PGS, and, in effect, a notice of intention to terminate is given unless the situation is remedied.
196. I prefer the submission f Mr Elliott. A termination clause, like any forfeiture clause, should be strictly construed. If there is ambiguity or reasonable doubt as to the meaning of the clause, the ambiguity or doubt should be resolved against the party seeking to rely on it. Article 16.1 confers on PGS a very considerable benefit, namely the ability to terminate the contract in circumstances possibly falling a long way short o a repudiation which would entitle it to terminate the contract at common law. Moreover, in the event of a termination under Article 16.1, PGS is released from the obligation to pay any more money under the Contract until the expiry of the warranty period.
197. In my view, the construction suggested by Mr Coulson is draconian and unreasonable. If he is right, PGS can terminate the contract for any breach, without giving prior notice of its intention to do so. Subject presumably to the de minimis principle, this applies even where DSND has committed a relatively minor breach, one perhaps of which the senior management at DSND are not even aware. I would construe Article 16.1 in this way only if the words clearly compelled me to do so. But they do not. At the very least, it is unclear whether the words "giving an opportunity" mean (a) simply that PGS should not deny DSND the opportunity, or (b) that PGS should take steps to ensure that DSND is aware of the opportunity.
198. The next question is whether DSND were given a reasonable opportunity to remedy the situation. Since I have found that there was no relevant breach of contract, this question does not arise. I shall deal with it briefly. The "situation" was the failure to have a DSV available from 10 November. In a sense that failure was irremediable once that date had passed. But I think that a sensible interpretation of Article 16.1 meant that if, contrary to my view, DSND were in breach of contract in failing to have a DSV available from 10 November, then PGS should given them a reasonable opportunity to have a vessel available within a reasonable time thereafter.
199. In my judgment, PGS did not give DSND that opportunity. Mr Coulson contends that all of the complaints from 6 November onwards (many of which I have mentioned) constituted sufficient notice to DSND of their breach of contract. He relies, in particular, on the fax sent at 16.44 hours on 13 November, by which PGS threatened that, unless satisfactory assurances and a detailed schedule were given by midday on 16 November, they would have no alternative but to secure DSVs directly. But the market was tight, and it has not been suggested that from about late October onwards, DSND failed to take any steps which, if they had been taken, would have resulted in a DSV being available earlier than occurred. Moreover, by terminating the Contract, PGS did not achieve any improvement in the dates for the procurement of a DSV over what would have been achieved if there had been no termination. This simply underlines the fact that PGS' real complaint is that DSND did not make a firm booking in early or mid-October for some date in mid-November. For the reasons that I have given, DSND were not in breach of contract in failing to make such a booking, and in any event the failure to make such a booking was not the breach of contract relied on at the time as grounding the right to terminate under Article 16.1.
200. It is rightly conceded by Mr Furst that, if the notice of termination was not validly given, then by their letter of 19 November 1998 PGS repudiated the Contract (as amended), and that DSND were entitled to, and did, accept the repudiation.
201 In the result, my conclusions are as follows:
(a) PGS did not enter into the MOU under duress.
(b) PGS did not enter into the MOU in reliance on any misrepresentation by DSND.
(c) If PGS had entered into the MOU under duress or in reliance on any misrepresentation by DSND, it would not have been entitled to avoid the MOU on either account.
(d) The issues do not arise.
(e) PGS was not entitled to terminate the Contract under Article 16.1, and did not terminate under Article 16.3.