Transocean Offshore International Ventures Limited v Burgundy Global Exploration Corporation

• Court: High Court (Singapore)
• Judge: Tay Yong Kwang J
• Judgment Date: 21 June 2013
• Neutral Citation: [2013] SGHC 117
• Citation: [2013] SGHC 117
• Docket Number: Suit No 87 of 2009 (Registrar’s Appeal No 158 of 2012)
• Hearing Date: 26 March 2013,12 July 2012
• Plaintiff Counsel: Toh Kian Sing S.C., Ian Teo and Ting Yong Hong (Rajah & Tann LLP)
• Defendant Counsel: Rakesh Vasu and Winnifred Gomez (Gomez & Vasu LLC)
• Subject Matter: Contract,Contractual Terms,Exclusion Clauses,Remedies,Remoteness of Damage
• Published date: 26 June 2014

Tay Yong Kwang J:

This was an appeal against the assessment of damages by an Assistant Registrar (“the AR”) awarding the plaintiff, Transocean Offshore International Ventures Limited (“Transocean”), damages in the sum of US$105,536,922 plus interest for breach of contract by the defendant, Burgundy Global Exploration Corporation (“Burgundy”), in a transaction involving the hire of a semi-submersible drilling rig. I upheld the AR’s quantification of damages on the basis of net loss of profits flowing from a related contract but varied the award on one particular element – the “cold-stacking” expenses for maintaining the drilling rig after Burgundy’s repudiatory breach of contract.

Burgundy has appealed in Civil Appeal No 48 of 2013 (“CA 48/2013”) against my decision. I now set out the reasons for my decision.

Background facts

Transocean is a company listed on the New York Stock Exchange and is the world’s largest offshore drilling contractor. It supplies mobile offshore drilling units and provides drilling services for oil and natural gas reserves. Burgundy is a company incorporated in the Republic of the Philippines (“the Philippines”) and is engaged in the business of exploration and development of oil and gas resources in the Philippines.

The Drilling Contract and the Escrow Agreement

On 29 September 2008, Burgundy entered into a contract with one Triton Industries Inc (“Triton”) for the provision of a semi-submersible drilling unit and related drilling services. Transocean, Burgundy and Triton subsequently entered into an agreement dated 30 October 2008 whereby Triton assigned all its rights and obligations under the contract to Transocean, substituting Transocean for Triton and substituting the drilling unit to be supplied to C KIRK RHEIN, JR (“the Drilling Rig”). Transocean and Burgundy further agreed to extend the term of the contract to a minimum-maximum period of 238-305 days and for the contract Operating Rate (ie, the hire rate) to be US$550,000 per day for the first 140 calendar days and US$525,000 per day thereafter. This amended contract is hereafter referred to as the “Drilling Contract”. Article 11 of the Drilling Contract provided that:

...[i]t shall be condition precedent that prior to Commencement Date under this Contract, [Burgundy] and [Transocean] shall enter into an Escrow Agreement in the manner approved by [Transocean].

Transocean and Burgundy entered into an escrow agreement on 31 October 2008 (“the Escrow Agreement”). The material terms of the Escrow Agreement were as follows:

2. Acknowledgement Subject to Burgundy depositing the Escrow Amount into the Escrow Account in accordance with clause 3.2, Transocean acknowledges that the requirements of Article XI of the Drilling Contract are satisfied by the execution of this Agreement by Burgundy and Transocean.

Notwithstanding any other provision of this Agreement or the Drilling Contract, in the event that Burgundy fails to deposit the Escrow Amount into the Escrow Account in accordance with clause 3.2, Transocean shall have the right to suspend the work while simultaneously accruing the Standby rate under the Drilling Contract and/or terminate the Drilling Contract.

...

3.2 Escrow Amount Burgundy will cause to be deposited into the Escrow Account the following amounts:

(a) 30 days prior to the planned Commencement Date or by December 15, 2008 whichever is earlier, Burgundy shall deposit the sum of US$16,500,000 (calculated as the Operating Rate multiplied by thirty (30) days) into the Escrow Account; and on the Commencement Date, Burgundy shall again deposit the same amount into the Escrow Account; and

(b) thereafter, on each day which is a multiple of thirty (30) days from the date of the second deposit in accordance with clause 3.2 (a) above or from the Commencement Date, until the total amount deposited by Burgundy in accordance with this clause 3.2 is equal to the amount that is the Operating Rate multiplied by the entire anticipated maximum duration of the relevant Term, Burgundy shall further deposit into the Escrow Account the amount that is the Operating Rate multiplied by lesser of: (i) thirty (30) days (of the Term); or (ii) the number of days remaining in the Term if such number is less than 30 days,

(Escrow Amount) and provide documentary evidence of such deposit to Transocean.

....

Burgundy failed to make the initial deposit of US$16,500,000 (“the Escrow Amount”) into an escrow account by 15 December 2008. By a letter dated 22 December 2008, Transocean informed Burgundy that: it was exercising its right under cl 2 of the Escrow Agreement to terminate the Drilling Contract with immediate effect; and, the failure to deposit the Escrow Amount constituted a repudiatory breach of the Escrow Agreement and that it accepted the repudiation as terminating the Escrow Agreement with immediate effect. Burgundy replied by way of letter on 23 December 2008, expressing that it respected Transocean’s decision but that it believed it would be in the interests of the parties to “cooperate and find a suitably workable solution”. The parties did not reach any agreement.

Procedural history

On 29 January 2009, Transocean issued a writ of summons in this action claiming for damages as a result of Burgundy’s breach or repudiation of the Escrow Agreement. The Statement of Claim (Amendment No 2) claimed for loss of net profits in the sum of US$105,937,952.00, or, in the alternative, wasted costs and expenses amounting to US$55,001.46.

Burgundy filed Summons No 3009 of 2009 seeking a stay of the proceedings in favour of arbitration pursuant to Art 25.1 of the Drilling Contract, which provided:

25.1 Arbitration The following Dispute Resolution provision shall apply to this Contract.

(a) Any dispute, controversy or claim arising out of or in relation to or in connection with this Contract, including without limitation any dispute as to the construction, validity, interpretation, enforceability, performance, expiry, termination or breach of this Contract whether based on contract, tort or equity, shall be exclusively and finally settled by arbitration in accordance with this Article XXV...

The stay application was granted at first instance but the appeal against the order was allowed by Andrew Ang J (see Transocean Offshore International Ventures Ltd v Burgundy Global Exploration Corp [2010] 2 SLR 821 (“Transocean (Arbitration)”), who held that Art 25.1 of the Drilling Contract did not apply to claims arising from Burgundy’s failure to pay the Escrow Amount into the escrow account in accordance with the terms of the Escrow Agreement. Ang J’s decision was affirmed by the Court of Appeal.

After Burgundy filed its Defence, Transocean filed Summons No 3511 of 2010 seeking summary judgment pursuant to O 14 of the Rules of Court (Cap 322, R 5, 2006 Rev Ed) (“ROC”). Assistant Registrar Teo Guan Siew (“AR Teo”) granted summary judgment with damages to be assessed on the basis that Burgundy had failed to raise any triable issue and rejected Burgundy’s argument that it had a defence on the basis of an indemnity clause in Art 19.1 of the Drilling Contract. Quentin Loh J dismissed the appeal against AR Teo’s decision.

The parties then went before the AR for the assessment of damages. Burgundy applied for a vacation of the hearing dates (vide Summons No 1850 of 2012). The application was dismissed by the AR following Burgundy’s failure to furnish security for costs in the sum of $324,000 by 3.00pm on 24 April 2012. Burgundy’s solicitors for the abovementioned application, Mr Rakesh Vasu (“Mr Vasu”) and Ms Winnifred Gomez (“Ms Gomez”) then applied to discharge themselves. This application was granted by the AR. The evidence that Transocean adduced during the substantive hearing was thus uncontroverted as Burgundy was not represented by solicitors. Only a representative of Burgundy, Mr Richer S. Andaya, was present as an observer during the hearing. I note that Mr Vasu and Ms Gomez subsequently represented Burgundy at this appeal before me and are also on record as Burgundy’s solicitors for CA 48/2013.

The AR’s decision

The AR held that the loss of profits under the Drilling Contract was within the reasonable contemplation of the parties as the Escrow Agreement was a condition precedent for the performance of the Drilling Contract and entered into for the purpose of facilitating the financial arrangements to be put in place for Transocean to perform its obligations under the Drilling Contract. The AR also considered that due to market conditions in the industry at that time, there was no viable alternative transaction that Transocean could have entered into.

The AR accepted Transocean’s evidence that: the total revenue that it would have earned under the Drilling Contract was US$126,292,500; it would have incurred expenses of US$24,494,185.53 to perform the Drilling Contract; and it had incurred actual costs of US$3,738,607 for reasonable mitigation of its losses. Transocean’s loss of profits was therefore quantified at US$105,536,922, ie, (a) – (b) + (c).

The parties’ submissions on appeal

Burgundy submitted that the damages that the AR had awarded for loss of profits were “losses under the Drilling Contract and not the Escrow Agreement”.¹ As these heads of claim fell squarely under the Drilling Contract, these were disputes that were subject to arbitration pursuant to Art 25.1 of the Drilling Contract. Burgundy also relied on Art 19.1 of the Drilling Contract, which provided that Transocean would “save, indemnify, release, defend and hold harmless [Burgundy] from [Transocean’s] own Consequential Loss” and submitted that the loss of profits under the Drilling Contract constituted “Consequential Loss” that Transocean was precluded from claiming under Art 19.1.

Transocean submitted that the loss of profits suffered by Transocean under the Drilling Contract as a...