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You are here: BAILII >> Databases >> Scottish Court of Session Decisions >> Caledonia North Sea Ltd v. Norton (no 2) Ltd Another [2003] ScotCS 105 (4 April 2003) URL: http://www.bailii.org/scot/cases/ScotCS/2003/105.html Cite as: [2003] ScotCS 105

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Caledonia North Sea Ltd v. Norton (no 2) Ltd Another [2003] ScotCS 105 (4 April 2003)

EXTRA DIVISION, INNER HOUSE, COURT OF SESSION
Lord Kirkwood Lord MacLean Lord Drummond Young	A1276/92 OPINION OF THE COURT delivered by LORD KIRKWOOD in RECLAIMING MOTION in the cause CALEDONIA NORTH SEA LIMITED Pursuers and Respondents; Against NORTON (NO. 2) LIMITED (in liquidation) and ANOTHER Defenders: _______

 

Act: McAuley, Q.C., Paull & Williamsons, (for the Pursuers)

Alt: Keen, Q.C., Simpson & Marwick, W.S., (for Chubb Group of Insurance Companies)

(for Defenders and Reclaimers)

4 April 2002

1. This is a reclaiming motion against the interlocutor of the Lord Ordinary dated 24 October 2002 granting summary decree against the defenders for the sum of $3,318,392.61.
2. In the action, which was raised in 1992, the pursuers seek payment from the defenders of (first) the sum of $5,750,000 and (second) the sum of $455,338, together with interest at the rate of 15 per centum per annum on the sum (first) concluded for from 17 May 1989 until payment and on the sum (second) concluded for from the date of citation until payment. The pursuers were formerly known as Occidental Petroleum (Caledonia) Limited and in 1988 they were the owners and operators of the Piper Alpha Oil Production Installation in the North Sea. The pursuers and three other companies (known as "the participants") were joint licensees of the Piper Field. The pursuers operated the oil platform on their own behalf and as agents for the participants. The defenders, formerly called Eastman Christensen Limited, were one of a number of contractors hired to carry out specific tasks on the platform.
3. On 6 July 1988 an explosion occurred in Module C of the Piper Alpha oil platform, and that led to a series of explosions and fires which resulted in the installation being damaged and the deaths of a number of people who were working on it. One of those killed was Carl William Busse, an American citizen, who had been employed on the oil platform by the defenders. One other employee of the defenders, Neil Pyman, was also killed.
4. In terms of the contract between the pursuers and the defenders, the defenders were obliged to indemnify the pursuers against all claims arising out of their operation of the installation in respect of injury to, or the deaths of, persons employed there by the defenders. At the material time the defenders had been covered by what is termed a layered indemnity insurance arrangement. The effect of this arrangement was that, in respect of any claim or claims, the first $1 million was covered by an insurance company called Ace: the Chubb Group of Insurance Companies (hereinafter referred to as "Chubbs") had undertaken the indemnity insurance cover for the next $10 million: and a third company named A.I.G. had undertaken the cover in excess of $11 million.
5. The pursuers raised test actions against seven companies, one of which was the defenders, seeking payment in terms of indemnities for settlement monies paid by or on behalf of the pursuers to claimants following the explosion. Another 139 similar actions were raised, and by agreement sisted, to await the outcome of the test actions. The test actions went to proof before the Lord Ordinary (Caplan) who, on 2 September 1997, assoilzied the defenders in six of the actions. The pursuers reclaimed and on 17 December 1999 the First Division allowed the reclaiming motions. The defenders, including the present defenders, appealed to the House of Lords and the appeals were heard in November 2001. During the hearing of the appeals before the House of Lords all the actions were settled except the appeal by the present defenders, which was dismissed on 7 February 2002. Accordingly, the defenders were found liable to indemnify the pursuers in respect of the claims which had been made against the pursuers by the representatives of Mr. Busse and Mr. Pyman, claims which had been settled and paid by the pursuers many years earlier. The claim by the representatives of the said Neil Pyman had been the subject of the test action against the defenders, and no issue in the present proceedings arises in relation to the settlement of the claim which was made in respect of his death. In his case the settlement was agreed on a "mid-Atlantic" basis, namely at a figure which was higher than the level of damages expected in Scotland but lower than the level expected in the United States. In the case of Carl Busse, an action was raised against the pursuers in Texas and it was eventually settled by them in 1992. The settlement involved the payment of a total principal sum of $5,750,000 and legal expenses of $455,338 which are the sums (first) and (second) concluded for, making a total of $6,205,338. The sum of $3,318,392.61, for which summary decree was granted, is alleged to be the outstanding balance of the interest which is still due.
6. At the hearing before the Lord Ordinary the defenders were not represented. They were in members' voluntary liquidation, and the liquidator had informed the pursuers that he was not in a position to oppose the motion. However, Mr. Keen, Q.C. appeared at the hearing seeking to oppose the motion on behalf of Chubbs, and indicated the nature of his interest in doing so. The claims for which the defenders were responsible, namely those arising from the deaths of Neil Pyman and Carl Busse, were said to be in excess of $11 million. In the circumstances Ace, which was responsible for the first $1 million, had paid out the full amount of their liability. Chubbs were liable for the next $10 million, and they had made payments to the pursuers in respect of the two claims which they maintain have exhausted their indebtedness under their contract with the defenders. However, A.I.G. had refused to respond to calls made on the policy for any sums beyond the $11 million paid out by Ace and Chubbs on the basis that A.I.G. maintained that Chubbs had failed to carry out certain duties incumbent on them under the indemnity insurance policy. The dispute between A.I.G. and Chubbs was to be determined according to the law of New York State and would not be resolved for some time. However, one possible outcome of the dispute was that Chubbs could face further claims for satisfaction under the policy, and accordingly they had an interest to oppose the pursuers' motion for summary decree. Counsel for the pursuers indicated that he had no objection to Mr. Keen appearing to oppose the motion, and the Lord Ordinary allowed him to be heard.
7. In moving the pursuers' motion for summary decree before the Lord Ordinary, counsel submitted that it was clear that the principal sum in the case of the claim by Mr. Busse's representatives had been fixed and paid, and accordingly the total sum due in name of interest was certain. The principal sum in Mr. Busse's case was included in the figure of £82,011,254.48 (exclusive of interest and expenses) which was the value of all the actions dependent on the outcome of the conjoined appeal in the seven test cases. This statement was not challenged and the Lord Ordinary accepted it as being correct. The principal sum in relation to the claim on Mr. Busse's death had been paid by Chubbs, as well as a proportion of the interest. Reference was made to a letter from Chubbs to the pursuers' solicitors dated 23 May 2002 which accompanied a cheque for $7,854,521.04. That sum represented the balance of Chubbs' $10 million limit of liability under the indemnity policy. The outstanding balance of the interest had not been paid because Chubbs believed that their contractual liability had been exhausted. In the circumstances, the pursuers now required a decree for the outstanding amount of the interest due in order to conclude their action against the defenders, there being no dispute as to the amount of the outstanding balance.
8. In reply, Mr. Keen submitted that the claim arising from the death of Mr. Busse was the only claim which had not been handled in Scotland. The other 146 claims had been grouped together under the seven test actions. It had been agreed that these test actions would proceed to final judgment, and that the other actions would be sisted. The seven test actions were selected as representative of all the actions so that the final decision on matters in dispute could be applied to the other actions. All the other actions had been settled on a "mid-Atlantic" basis. However, the claim by the representatives of Mr. Busse had been settled in Texas, and there was an outstanding question as to whether or not the settlement had been a reasonable one. It was a condition of payment of a claim under the present indemnity insurance policy that any settlement reached was reasonable. Until the settlement had been determined to be reasonable, the principal sum properly payable, and the amount of interest due thereon, could not be ascertained. In these circumstances it was necessary that there should be a proof on quantum and the motion for summary decree should not be granted.
9. The Lord Ordinary stated that he had no hesitation in preferring the arguments advanced on behalf of the pursuers. The principal sum which had been agreed with Mr. Busse's representatives in 1992 had been paid and had been included in the overall settlement figure of £82 million referred to in paragraph 4 of the agreed Statement of Facts and Issues which was before the House of Lords (Production 11/5). It was also the figure acknowledged by Chubbs themselves in their letter of 23 May 2002 in which they indicated that their cheque for $7,854,521.04 represented the capital sum and interest up to the limit of their liability of $10 million. On a plain reading of the letter, the cheque was intended to be in full settlement of the principal sum. If the principal sum has been fixed and paid, there could be no defence to the further claim for the interest which was admittedly due on that principal sum, and indeed no issue had been taken as to the calculation of the interest. The Lord Ordinary observed that the question whether the principal sum thus fixed was reasonable or not was no longer an issue in this process. In the circumstances he granted the motion for summary decree for the sum of $3,318,392.61.
10. At the hearing of the reclaiming motion Mr. Keen again appeared on behalf of Chubbs, and counsel for the pursuers stated that he had no objection to Mr. Keen being heard in support of the reclaiming motion. Mr. Keen re-iterated before us the arguments which he had presented to the Lord Ordinary, and submitted that the Lord Ordinary had erred in granting the motion for summary decree. Chubbs had paid out the full limit of what they regarded as their liability under the indemnity insurance, namely $10 million, and the matter had been referred to A.I.G. However, A.I.G. had refused to respond as they claimed that they had not been kept properly advised on the progress of the Busse claim. A.I.G. allege that Chubbs are in breach of their obligations at the lower level of the insurance layer. If A.I.G. are correct, the defenders would be looking to Chubbs to meet the outstanding balance of the pursuers' claim, and Chubbs could be facing a liability in excess of the $10 million which they have already paid. The Busse claim, unlike all the others, had not been settled at a "mid-Atlantic" level. The claim by the representatives of the late Neil Pyman, the only other employee of the defenders who was killed, had been settled at a "mid-Atlantic" level. There was a difference of about $80,000 in the parties' respective calculations of the amount of the outstanding interest. Mr. Keen submitted that it was for the pursuers, as the parties seeking to be indemnified, to satisfy the court that the Busse settlement claim was reasonable, as the indemnity would not cover an unreasonable settlement. There was no problem with the other 146 cases where the "mid-Atlantic" level of damages had been adopted, and the settlements had been accepted as being reasonable. Mr. Keen's submission was that the reasonableness of the Busse settlement had never been established or judicially admitted. As matters stood, Chubbs were concerned that they were going to be left in dispute with A.I.G. with the possibility that they would eventually be liable for more than their total limit of liability of $10 million. Chubbs simply wanted to be satisfied that the Busse settlement figure was reasonable. The test case Minute of Agreement had been founded on by the pursuers, but paragraph 2 thereof had not been applicable as the Busse settlement did not involve a "mid-Atlantic" level of damages. Mr. Keen stated that he was prepared to accept as accurate the assurance of counsel for the pursuers that the Busse principal sum was included in the figure of just over £82 million. While the Busse claim was included in the Schedule to the test cases Minute of Agreement, no-one had applied their mind to the potential value of the claim. In the event, the House of Lords decided only the appeal by the defenders, which involved the claims by the representatives of Mr. Pyman and Mr. Busse. Mr. Keen submitted that there had been no unequivocal admission by Chubbs that the settlement in the Busse case was reasonable. So far as the letter from Chubbs dated 23 May 2002 was concerned, it simply stated the further sum which was being paid to exhaust the total of their contractual liability under the indemnity insurance, and indicated that they wanted nothing more to do with the case. While the Lord Ordinary had said that the principal sum was fixed and paid, counsel submitted that one did not follow from the other. While the pursuers had paid to the Busse representatives the principal settlement figure, they were only entitled to recover under the indemnity insurance if the settlement was shown, or admitted, to have been a reasonable one. The fact of the matter was that the principal settlement figure had not been fixed or paid. The anxiety of Chubbs was that A.I.G. would contend that they should not have paid out the sum which they had. The reclaiming motion should be granted and the interlocutor of 24 October 2002 recalled.
11. Counsel for the pursuers invited us to refuse the reclaiming motion. The principal settlement figure in the Busse case had been paid by Chubbs, as had part of the interest which was due on it, and the figure of $3,318,392.61 was the outstanding balance of the interest. No point had been taken before the Lord Ordinary as to the calculation of the interest still outstanding. There had been seven test cases representing a total of 146 claims, including the Busse claim. The defenders had only been responsible for the claims arising from the deaths of Mr. Pyman and Mr. Busse. The interest on the principal sums had mounted up over the years because of disputes between the insurers. It was the accumulated interest which had taken the pursuers' claim in relation to the Pyman and Busse settlements above $11 million. Indeed, but for the defenders' appeal to the House of Lords, it is likely that the total of the claims under the indemnity insurance would not have exceeded that figure or would have exceeded it by only a relatively small amount. Counsel understood that A.I.G. were arguing that, because Chubbs had taken the appeal to the House of Lords, they were liable, according to United States law, for the additional interest that had thereby accumulated. It was a dispute between the insurers that had caused the delay in final settlement of the indemnity claim, not the quantum of the claim by the representatives of the two deceased. Paragraph 4 of the agreed Statement of Facts and Issues before the House of Lords made it clear that the value of all the actions was just over £82 million exclusive of interest and expenses. In the present action the pursuers sought to recover the principal settlement figure in the Busse case, namely $6,205,338, being the total of the sums (first) and (second) concluded for, and that amount had been included in the overall settlement figure of just over £82 million.
12. The pursuers' claim in relation to the Busse settlement depended on the outcome of the House of Lords appeal, as the appeal by the present defenders was the only one which was insisted in, all the other claims having been settled. The letter from Chubbs dated 23 May 2002 stated that they were paying up to the limit of their liability under the layered indemnity insurance, a total of $10 million. Chubbs had previously paid a total of $2,145,478.96 in respect of the Pyman claim, and it was clear that the figure of $7,854,521.04 related exclusively to the Busse claim. Counsel submitted that that figure must include the whole of the principal settlement figure in the Busse case together with such of the interest as took Chubbs to the upper limit of their contractual liability. That was an inference which it was easy to draw, as the Lord Ordinary had done. With regard to the letter from the defenders' solicitors Simpson & Marwick dated 27 August 2002 (Production 13/2), that letter set out the principal sum and interest, deducted the payment of $7,854,521.04 which Chubbs had made on 23 May 2002, and made it clear that all that was outstanding was the interest that had not already been paid. Accordingly, it was clear that in May 2002 Chubbs had paid in full the sums (first) and (second) concluded for, and part of the accumulated interest. In Simpson & Marwick's letter of 23 August 2002 (Production 13/1) the reference to £14,518.49 was an error as that figure did not feature in the Busse case. It was, it was submitted, perfectly obvious that the principal sum in the Busse settlement had been paid by Chubbs and the only outstanding matter was that of interest. While the calculation of interest in Production 13/2 differed by $80,000 from the interest sought in the motion for summary decree, this point had not been raised before, or considered by, the Lord Ordinary. In fact, the $80,000 related to the period between 23 May 2002 and the date when the cheque was eventually cleared. In the circumstances, the Lord Ordinary has been right to grant summary decree, and the reclaiming motion should be refused.

Decision

13. The principal settlement figure in the Busse case was finally determined in 1992, and it is not disputed that the pursuers paid to the Busse representatives the sums (first) and (second) concluded for, which totalled $6,205,338. The pursuers then sued the defenders for that amount and for the interest due thereon. The question which now arises is whether the Busse settlement figure, which was admittedly not based on a "mid-Atlantic" level of damages, has been accepted and paid by Chubbs, the defenders' second-level indemnity insurers.
14. The claim made by the relatives of Neil Pyman had been settled at a "mid-Atlantic" level by the pursuers and the other participants. It was only in February 2002 that the House of Lords held that the defenders were liable to indemnify the pursuers in relation to the claims made on the deaths of Mr. Pyman and Mr. Busse. Payments had been made to the pursuers under the defenders' indemnity insurance by Ace and Chubbs. Ace paid to the full extent of their $1 million liability and fell out of the picture. Chubbs, the second-layer insurers, initially paid to the defenders the sum of $2,145,478.96 in respect of the Pyman claim. At that stage the only other claim to be dealt with under the indemnity insurance was the claim by the representatives of the late Carl Busse. The Texas settlement had been agreed many years earlier and it amounted (exclusive of interest) to $6,205,338, and that was the sum which the pursuers sought to recover from the defenders. They also sought interest, namely interest on the principal sum from 17 May 1989 and on the sum (second) concluded for from the date of citation. It was in these circumstances that Chubbs sent to the pursuers' solicitors on 23 May 2002 a cheque for $7,854,521.04. The letter which accompanied the cheque was in the following terms:

"On behalf of Eastman Christensen (Eastman), and Great Northern Insurance Company (Great Northern), we enclose our check in the amount of $7,854,521.04. This payment represents Great Northern's share of the amount owed by Eastman pursuant to the judgment and interest awarded in the above matter. Please be advised that this payment, together with Great Northern's previous payment in this matter in the amount of $2,145,478.96 (USD), exhausts the $10,000,000 limit of liability available under the policy issued by Great Northern to Eastman. Therefore, Great Northern, in making this payment, terminates its interest in this matter."

15. The figure of $6,205,338 was included in the total value of all the actions arising from the disaster, which was stated to be £82,011,254.48 exclusive of interest and expenses (paragraph 4 of Production 11/5).
16. In our opinion, in the light of all the circumstances in the case which were not in dispute before us, the Lord Ordinary was entitled to conclude that on a plain reading of Chubbs' letter of 23 May 2002 the cheque was intended to be in full settlement of the principal sum in the Busse settlement, together with such interest thereon as took the pursuers' claim to the limit of Chubbs' contractual liability of $10 million. While it was contended before us by Mr. Keen that the pursuers were only entitled to recover the principal settlement sum if it was shown to be reasonable, it would, as the Lord Ordinary observed, require an odd interpretation of the letter to suggest that it was doing anything else, such as being intended to settle only part of the principal sum as well as part of the interest on the completed and fixed principal sum. The payment plainly did not relate only to interest. Further, the letter from Simpson and Marwick dated 27 August 2002 made it clear that what was still outstanding was part of the interest due on the principal sum. It is clear that, if Chubbs did pay the principal settlement figure, which had been known for years, then there was no material dispute about the calculation of the interest, which became simply a mathematical exercise. In our opinion, the letter of 23 May cannot reasonably be read in any way other than that the cheque was in payment of the principal settlement figure in relation to the Busse claim together with such of the outstanding interest as took Chubbs to the limit of their contractual liability. That being so, the question whether the principal sum was reasonable is, as the Lord Ordinary observed, no longer an issue in this process.
17. For the foregoing reasons we refuse the reclaiming motion.