Presentation given to the International Marine Contractors Association Conference in Amsterdam 28 & 29 November 2012 . Iin the current economic climate Clyde & Co suggest that claims handling issues of the kind Graeme will discuss are likely to be increasingly relevant and topical as far as the IMCA’s members are concerned. Contractors are being pressured by operators to accept more risk on projects and insurers are increasing their deductibles which means contractors are bearing increasingly large exposures to uninsured losses. Claims which would once have fallen to the operator or to project insurers are increasingly becoming the responsibility of contractors. Further, it is clear from the number of recent high-profile incidents that offshore operations are themselves becoming inherently riskier as projects move to more extreme environments and more unstable jurisdictions. Unlike operators, many contrators may not have an in-house legal function or may not have one with claims handling experience. Graeme discusses basic legal concepts which contractors may face. Graeme’s presentation mainly discusses claims handling issues but is equally relevant to those who are involved in contract drafting, on the basis that prevention is better than cure.

1. By Graeme Baird, Clyde & Co LLP, London.
Claims Handling Issues for
Contractors
The International Marine Contractors Association Conference
in Amsterdam 28 & 29 November 2012

2. What to expect in the event of a loss
Main kinds of losses:
(1) Involving death or personal injury
(2) Involving pollution
(3) Involving insured property or insured liabilities
(4) Involving uninsured property or uninsured liabilities (including
liability for delay)
2

3. What to expect in the event of a loss
Major Losses (i.e. categories 1 and 2)
• Licence holder (e.g. oil company) will usually implement their own
disaster plan.
• Regulators may intervene in rescue, pollution control and/or wreck
removal. [In England this will be the MCA and/or the SOSREP]
• Prosecuting Authorities may interview personnel and seize
documents or computers. [In England this will be the Police and/or the
HSE]
• Contracting Parties and their lawyers will assess exposures to civil
liabilities, and indeed any criminal liability, on an urgent basis.
• Insurers and their lawyers will also want to assess their exposures.
3

4. Evidence
3 x main categories of evidence:
• Documents
• Witness statements
• Experts’ reports
Documents win (or lose) commercial cases.
4

5. Evidence – Regulatory Environment
Health & Safety at Corporate Manslaughter and
Work Act 1974 Corporate Homicide Act
Offshore Installations
Safety Case
Regulations 2005
Offshore Installations &
Offshore Installations Wells (Design &
& Pipeline Works Offshore Installations Construction, etc)
(Management & (Prevention of Fire & Regulations 1995
Administration) Explosion and
Regulations 1995 Emergency Response)
Regulations 1995
Provision & Use of
Management of Health Work Equipment
& Safety at Work Pipeline Safety Regulations 1998
Regulations 1999 Regulations 1996
5

6. Evidence
Examples of key documents:
1. Oil company’s pre-approved emergency plan [In England this is an OPEP]. Was this
followed correctly?
2. Compliance with regulator’s operational requirements [ In England a detailed “safety
case” must have been agreed and approved by HSE highlighting potential dangers,
consequences and methods of control]. Was this agreed operating procedure
implemented correctly? Named individuals may have personal responsibility in the
event of default [ In England the Safety Case Duty Holder or the Offshore Installation
Manager].
3. Audit trail of regular testing and/or inspection of key safety equipment. [e.g. pursuant to
the Design and Construction Regulations].
4. ISM and Classification Society records
5. Logs and/or daily reports
6. Original engineering certification of components
7. Drawings or charts supplied by one party to another and relied upon
8. Minutes of meetings, especially safety briefings and toolbox talks prior to the loss
9. Photographs or videos
10. Correspondence, especially emails.
6

7. Evidence – how much of it do you control?
(1) Pre-existing audit trail of regulatory compliance (or non compliance) could
be published in the event of a casualty.
(2) Witnesses – Police interviews under caution.
Separate legal representation required for individuals who are being “blamed”
for the accident.
Refusal to answer questions can infer guilt in some countries (e.g. yes in
England but not in Scotland).
(1) Access to the physical evidence (by surveyors/adjusters etc) may be delayed
or denied by Regulators.
(2) Documents, logs etc relating to the casualty are subject to seizure by the
Police or other prosecuting authorities.
(3) Media involvement – leaks or investigative journalism.
(4) Witness interviews – yes, conventional interviews but all in the context of the
above.
(5) Whistleblowers – legal protection now for whistleblowers in many countries
but not really part of offshore culture.
7

8. Evidence
Rules about disclosure vary from jurisdiction to jurisdiction.
But legal advice is ubiquitously privileged from disclosure.
E.g. the 2 x main English law categories of privilege from disclosure:
(1) Legal advice privilege – communications to/from a lawyer
(2) Litigation privilege – to/from a third party for the dominant
purpose of preparing for legal proceedings
Practical solution: lawyers are often used as “postbox” to establish
privilege in communications going forward.
8

9. Civil Claims
Contractual claims
and/or
Tort claims (e.g. maritime collisions, product liability and defective design)
[also: insurance claims and possible waivers of subrogation].
9

10. Contractual issues
(1) Identify the relevant contracts
(2) Contractual interpretation
(3) Choice of applicable law clause
(4) Jurisdiction clause
(5) Arbitration clause
(6) Exclusion clauses
(7) Key contractual terms
10

11. Contractual issues (continued)
(1) Identify the relevant contracts
Signed contracts are usual in the offshore industry but there may be
commercial pressure to start work before a written agreement is finalised.
There can be an enforceable contract before this stage – just need sufficient
consensus on key terms – but this usually leads to uncertainty in the event
of a claim (e.g. are your exclusion clauses incorporated or not)
Use of purchase orders or contracts agreed in correspondence: problem if
purchaser and supplier both have written standard terms, unless it is made
sufficiently clear which prevails.
Course of dealing – an established pattern of trading on given terms.
11

12. Contractual issues (continued)
(2) Contractual interpretation
The concept in most jurisdictions is to give effect to the intention of
the parties at the time they entered into the contract.
BUT:
(a) Witness evidence from the parties after a loss about what they
actually meant is almost always inadmissible.
(b) The presumed intention of the parties is derived from the words
they have actually used and from the circumstances (factual matrix)
in which the contract was formed.
12

13. Contractual issues (continued)
(3) Choice of applicable law clause: [NB will have been chosen prior to any loss/claim].
Law and jurisdiction need not be the same (e.g. can have New York law and London arbitration)
The applicable law will usually determine:
(a) whether there is a contract
(b) whether the contract has been breached
(c) rights to terminate the contract
(d) what categories of loss can be claimed
(e) amount of damages
The applicable law will not usually cover:
(f) evidence/procedure
(g) time limits
These will usually be determined by the law of the forum
Desire of contracting parties to use their own national law can lead to uncertainty on (a) to (e) above if
that country’s legal rules are not sufficiently developed.
13

14. Contractual issues (continued)
(4) Jurisdiction clause [NB will already have been chosen prior to any
loss/claim].
Factors as to choice of jurisdiction include:
(a) expertise of Judges?
(b) impartiality
(c) cost
(d) convenience (accessibility/time zones)
(e) language issues
(f) procedure/evidence
(g) availability of lawyers or experts with relevant experience
(h) speed/appeals
(i) enforceability of judgments
14

15. Contractual issues (continued)
(5) Arbitration clause
[usually will have been agreed prior to claim/loss but can also be agreed
afterwards]
Factors relevant to arbitration:
(a) confidentiality
(b) speed
(c) cost
(d) flexible procedure but not suited to (i) multiple party situations or (ii)
non-contract claims
(e) wider enforceability: 1958 New York Convention
15

16. Contractual issues (continued)
(6) Exclusion clauses
Very important and often very useful BUT:
(a) Many systems of law apply contra proferentem rule – exclusion
clauses to be construed narrowly or against the person relying on
them
(b) Need to be incorporated into the contract when it was formed –
printed on the reverse of an invoice may be too late.
(c) The proper law of the contract may not allow complete freedom of
contract in all situations [eg Unfair Contract Terms Act 1977 – can’t
exclude liability for negligence giving rise to death or personal injury]
16

17. Contractual issues (continued)
(7) Key contractual terms
“knock for knock” liability regimes
Advantage: simple and everyone knows where they stand.
Disadvantage: may lead to “unfair” outcomes.
Subject to possible carve outs in relation to:
Negligence
Gross negligence
Recklessness
Wilful misconduct
17

18. Tort claims - jurisdiction
For a tort claim there may well be choice of 2 or more possible jurisdictions.
Choice of Jurisdiction may be the key to important matters such as:
(1) Possible Juridical advantages
(2) Limitation of liability (low limit vs high limit or no limit)
(3) Enforcement against assets
(4) Applicable interest rates pre and post judgment
(5) Speed or delay in resolving claims
(6) Moral hazard of “home” advantage for 1 of the parties
Looking for a favourable jurisdiction is called “Forum Shopping”
Generally best to issue proceedings in your preferred jurisdiction ASAP.
18

19. Tort claims – applicable law
The law applicable to a tort claim will be determined by complex conflict of law rules
which vary from country to country.
This issue is determined after the loss/claim has arisen.
Generally it will be the law with the closest and most obvious connection to the
incident, often the place where the damage occurs.
The applicable law will usually determine:
(a) the basis of the tort liability (i.e. what needs to be proved to establish liability)
(b) what categories of loss can be claimed
(c) amount of damages and/or rules of causation or remoteness
The applicable law will not usually cover:
(d) evidence/procedure
(e) time limits
These will usually be determined by the law of the forum
19

20. Limitation of liability
(a) One ship company or “SPV” – de facto limitation of liability unless
the corporate veil can be pierced.
(b) “Seagoing ships” can invoke Tonnage Limitation:
1957 Convention – low limits but easily broken
Or
1976 Convention – higher limits but difficult to break
20

21. Limitation of Liability (continued)
Article 4 of the 1976 Convention:
“4. Conduct barring limitation
A person liable shall not be entitled to limit his liability if it is proved that the
loss resulted from his personal act or omission, committed with intent to
cause such loss, or recklessly and with knowledge that such loss would
probably result.”
Issue: Is a jack up rig or a MODU or an FPSO entitled to limit?
- Open question under English law.
21

22. Security/Enforcement
Security
(a) Arrest available for maritime claims – generally get a P&I Club letter of
guarantee but the ultimate remedy is Judicial sale of the vessel
(b) Freezing injunctions – all claims – ease or difficulty varies from jurisdiction
to jurisdiction. May also be available in jurisdictions other than where the
substantive claim is being litigated. Don’t usually get priority over other
creditors.
Enforcement
OK, you get your judgment in court in country “A”.
But where are the defendant’s assets?
If assets are in country “B”, will the courts of country “B” recognize and give
effect to the judgment from country “A”?
A judgment from the courts of any EU member is enforceable throughout the
EU. But can be very difficult elsewhere. Usually need a reciprocal enforcement
treaty and there are fewer of them than is widely known.
22

23. Other ancillary orders
Preservation orders.
Orders to impose survey/inspection or to take samples.
Delivery up of assets.
General injunctions:
prohibition
mandatory or specific performance [hard to get]
23

24. Guarantees and bonds
Claims or losses or delays may trigger additional liabilities, for example under guarantees or
performance bonds.
There has been lots of recent litigation in England on this subject. The terms “performance
guarantee”, “completion bonds” and/or “on demand guarantee” are sometimes used interchangeably.
There are fundamentally 2 different types of “guarantee”:
(1) A true guarantee, where the guarantor “G” guarantees the performance by “A” of his obligations to “B”.
The guarantor’s liability to B is dependent on whether A is liable to B. If A is not liable to B then G is also
not liable to B. G may rely on any defences A could have advanced as against B.
(2) An on demand bond where G undertakes to pay B on the happening of a specific event, which may be
nothing more than the demand by B for payment. Even though this type of bond will typically be issued
in consideration for B agreeing to do something for A’s benefit, the obligation of G is entirely
independent of the liabilities as between A and B. Arguments that A may not be liable to B are irrelevant
to G’s liability. These instruments are akin to letters of credit.
Recent cases in England analyzing these categories include: Meritz Fire and Marine Ins Co vs Jan de
Nul [2010] EWHC 3362 and [2011] EWCA 827; WS Tankships vs Kwangju Bank [2011] EWHC 3103;
Wuhan vs Emporiki Bank [2012] 1715
24

25. Mediation
Features of mediation:
(a) Voluntary
(b) Confidential
(c) Usually non-evaluating mediator
Key factors for successful mediation:
(i) right mediator – especially if industry knowledge is relevant
(ii) all parties must approach it with open mind
(iii) timing:
too early – facts unclear
too late – costs already incurred; parties entrenched
(iv) having the principals present
(v) preparation
25

26. General tips for effective dispute resolution
(a) Identify the legal basis of your claim(s) as early as possible.
(b) Keep notes of important meetings.
(c) Confirm all agreements in writing.
(d) Photographs or videos can be very important.
(e) Interview witnesses early – especially if they are not your
employees.
(f) Educate you opponents as well as attacking them.
(g) Protect yourself on costs where possible.
(h) Efficient document retention policy – including electronic media.
(i) Control the creation of internal documents following an incident.
(j) If there is doubt about the correct jurisdiction, be proactive and get
in first.
26

27. FAQs
(1) Q: What happens if my contract terms do not fully deal with the claim that has arisen; will the parties be able to say what
was their intention when the contract was drafted? A: No they will not. The intention of the parties will be derived
exclusively from the words they have actually used in the contract and the circumstances prevailing when the contract was
formed.
(2) Q: If we get into a dispute, will the judge end up reading all my emails? A: yes that could happen. Emails written after the
loss should be controlled as far as possible. Routing all internal and external claim correspondence through a lawyer may
enable disclosure to be resisted on grounds of privilege.
(3) Q: I know we are in the right in this case; how do I go about preserving the evidence which proves our case? A: Be sure
the legal basis for your claim is identified as early as possible, that process will tell you what facts you need to prove in
order to win your claim. The most valuable evidence in commercial cases is usually contemporaneous documents.
(4) Q: The people on my side who saw the incident are sub-contractors who will be demobilizing and working for someone
else on another project as soon as the job is finished. Going forward, can I make them co-operate with me until the claim is
resolved? A: For witnesses who are not under your control, the best approach is to get signed witness statements from
them voluntarily as early as possible, which “locks” them into 1 x version of the events. Whether their employer will
formally co-operate with you in future is likely to depend whether or not that company has any exposure to the claim/loss.
If not, then a claims co-operation agreement could be needed and you are likely to have to pay for lost wages and travel etc
for time they spend helping you. It is possible to subpoena witnesses but very difficult to do so if they are outside the
jurisdiction and in reality they are much less likely to give helpful evidence if they are hostile to the process.
(5) Q: The contract provides for disputes to be resolved in the courts of Timbuktu; although we are in dispute with the other
side, one thing we both agree is that Timbuktu is unsuitable. Is there anything we can do about this? A: yes, you can jointly
agree post loss to refer the dispute to arbitration or you can enter into a jurisdiction agreement in favour of another
country.
(6) Q: Good news: we have won our claim before the Tumbuktu courts. But can we actually enforce a Timbuktu judgment
against the defendant’s assets? When is the right time to start thinking about this? A: It depends whether a Timbuktu
judgment will be recognized by the courts of the country where the Defendant’s assets are situated. The right time to think
about this in the case of a tort claim is prior to commencing proceedings in Timbuktu in case there may have been other
jurisdictions available. In the case of a contract claim, the right time was before agreeing Timbuktu jurisdiction in the
contract.
27

28. Gross negligence?
There is 300 years of authority in England on the meanings of “negligence”, “recklessness” and “wilful
misconduct”
negligence: failure to take reasonable precautions
(objective standard = reasonable man test but variable according to the context)
recklessness: do not intend harm but perceive the risk & go ahead anyway
(subjective standard = what did this individual think)
wilful misconduct: dishonesty and/or conduct equivalent to criminal intent or recklessness;
(NB the misconduct not just the conduct must be wilful)
But there is no established meaning of “gross negligence” under English law.
28

29. Gross negligence under English law?
Criminal Civil
Intent
Wilful misconduct
Recklessness
Negligence Negligence
Innocence Innocence
29

30. Gross negligence
Bus crash:
judged objectively this was certain to end badly; but viewed subjectively from the point of
view of the bus driver (which is how the English law test for recklessness works) it was a
totally inadvertent accident.
= NEGLIGENT
Golf shot:
no intention to cause harm but full appreciation of the risks – that’s why they were so
euphoric – but they went ahead and took the risk anyway.
This is gambling with other people’s safety.
= RECKLESS
30

31. Gross negligence
Orthodox view under English law:
Gross Negligence just means very negligent – which is still negligence.
If negligence is equivalent to inadvertence; very inadvertent has no extra meaning.
See judicial comments in the following cases:-
Wilson v. Brett (1843) 11MFW 13.
Per Lord Cranworth: "Gross negligence is ordinary negligence with a vituperative epithet".
Tradigrain S.A. v. Intertek Testing Services [2007] GWCA civ 154.
Per Moore-Bick LJ: "The term gross negligence, although often found in commercial documents, has never been accepted by English Civil
law as a concept distinct from civil negligence…".
Sucden Financial v. Fluxocane [2010] EWHC 2133.
Per Blair J: "I cannot see myself that the addition of the word "gross" to negligence adds much, if anything".
Spread Trustee Co Limited v. Sarah Ann Hutcheson [2011] UKPC 13 dated 15 June 2011.
Very complicated decision.
Privy Council split 3:2.
Whatever gross negligence means, it is something less than wilful misconduct.
31

32. Gross negligence
Possible alternative views:
Maybe it means objective recklessness: a risk not in fact appreciated by the individual concerned but it was so obvious or potentially
dangerous that he should have realised.
See for example this recent line of authorities:
Red Sea Tankers v. Papachristidis ("The Ardent"). [1997] 2 Lloyd’s Rep 547
Per Mance J: "…as a matter of ordinary language and general impression, the concept of gross negligence seems to be capable of
embracing not only conduct undertaken with actual appreciation of the risks involved [subjective recklessness], but also serious
disregard of or indifference to an obvious risk [objective recklessness]".
Camarata Property Inc v. Credit Suisse Securities (Europe) Ltd [2011] EWHC 479 (Comm) 9 March 2011.
Per Andrew Smith J: "The relevant question … is not whether generally gross negligence is a familiar concept in English civil law, but
the meaning of the expression in [the exclusion clause in question]. I cannot accept that the parties intended it to connote mere
negligence: in paragraph 1.2 and also in paragraph 1.3 both the expression "gross negligence" and the expression "negligence" were
used, and some distinction between them was clearly intended". [He then goes on to quote with approval Mance J's comments in
"The Ardent" as quoted above but N.B. this part of his decision was obiter dicta].
Winnetka Trading Corporation v. Julius Baer International Limited [2011] EWHC 2030 (CH) dated 29 July 2011.
Per Roth J: "Since the investment mandate uses both the expressions "negligence" and, separately, "gross negligence", I consider
that the two cannot be intended to have the same meaning; and I think the language in the banking mandate should be construed
consistently with the investment mandate. In that regard, I respectfully agree with the approach of Andrew Smith J in Camarata
Property Inc v. Credit Suisse. As he there observed, the distinction between gross negligence and mere negligence is one of degree
and not of kind, and therefore not easy to describe with precision. [He goes on to quote Mance J in "The Ardent"] However, it seems
to me that "gross negligence" is not the same as subjective recklessness, although it may come close to it. [This part of the decision
was obiter dicta as ultimately no negligence, still less gross negligence was in fact established in that case.
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33. Further Information
For further information please contact:-
By email: graeme.baird@clydeco.com
By mobile: +44 77 1161 4705
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