Risk Allocation in FPSO Conversion – Personal Injuries

Focal point of this article - effectiveness of indemnity clause.

Background:

The Plaintiff (an electrical engineering technician) was an employee of U-Hin Manufacturing Pte Ltd, first defendant”). The first defendant supplied workers (including the Plaintiff) to BT Engineering Pte Ltd (“the second defendant”) for work on a vessel conversion project called FPSO Mondo for Keppel Corporation. (“FPSO” see [1] below). On 5 June 2007, the Plaintiff while working (under instruction of the second defendant’s foreman) sustained personal injuries and three fingers of his left hand had to be amputated. The Plaintiff was offered $88,200 as compensation under the Workmen’s Compensation insurance. He rejected this and sued the first and second defendant at common law for negligent and breach of statutory duty, “inter alia in not ensuring that the pipe spool was guarded or shored to prevent it from falling or collapsing due to work being carried out in the vicinity.” Both defendants disputed the Plaintiff’s claim. The second defendant further claims an indemnity and/or contribution against the first defendant for the plaintiff’s claim.

Text of the Letter of Indemnity:

“In consideration for your consent for our sub-contracting work in BT Engineering Pte Ltd, we the undersigned hereby undertake to indemnify and shall keep indemnified BT Engineering Pte Ltd against all claims, costs, actions, suits, loss and other expenses whatsoever for any injury, loss of life or damage to property howsoever caused. We warrant and confirm that we have taken out and maintain the insurances following which shall include but not be limited to Workmen’s Compensation. Common Law and Public Liability. We undertake to indemnify BT Engineering Pte Ltd against any and all claims, costs loss, damage and expense which arise from any breach by us or the Sub-Contractor of the warranties herein contained. We hereby further undertake that in the event of any claims, actions, proceedings or threatened claims, or proceedings against BT Engineering Pte Ltd or any costs, loss or expense suffered or incurred by BT Engineering Pte Ltd as a result of or in connection with the Sub-Contract as aforementioned, we shall promptly lodge and make such claims in respect of such Workmen’s Compensation, Common Law and Public Liability Insurance policies as the case may be, or at your option, allow our name to be used in any action or proceeding to lodge, make and pursue such claimsunder the said policies and shall hold such sums as may be received there from wholly for the benefit of BT Engineering Pte Ltd.”

In respect of the Indemnity, the Court held that:

“51......The wording of the letter of indemnity focussed on the issue of workmen’s compensation. A reader of the document would note therefrom that the first defendant was obliged to indemnify the second defendant against liability for any claims for which the first defendant had taken out and maintained insurance coverage. This would apply to the compensation sum of $88,200 in [4] had the plaintiff accepted the amount assessed by MOM. However, the plaintiff rejected the compensation and opted to make this claim at common law.

52 Accordingly, unless the first defendant had taken out insurance coverage for common law claims (for which there was no evidence), the second defendant cannot look to the first defendant under the letter of indemnity to escape liability for its own negligence.

53 It bears noting too, based on Wong’s testimony ... which the second defendant’s witnesses neither challenged nor refuted, that the PO containing a similar indemnity provision under cl 2 therein was issued and given to the first defendant after 5 June 2007 but backdated by the second defendant to 15 May 2007, in an obvious attempt to escape liability.” Per Lai Siu Chiu J

The Plaintiff’s failed in his claim against the first defendant but succeeded against the second defendant. The second defendant was order to pay damages (to be assessed) and costs. The Plaintiff was ordered to pay the first defendant’s cost. However, such cost was to be recovered from the second defendant under what is known as a “Bullock Order” [2].

Comment:
The ruling on indemnity aspect reminds us once again that accuracy and precision is vital for efficacy of indemnity clause and risk allocation.

End-Note:
[1] FPSO or Floating Production, Storage and Offloading are typically ship-shaped offshore production facility capable of storing and offloading crude oil to shuttle tankers. It can also be used asproduction facilities to develop marginal oil fields or fields in deepwater areas.

[2] Bullock v London General Omnibus Co [1907] 1 KB 264
“In a Bullock order, the plaintiff is liable to pay the costs of the successful defendant but is entitled to recover those costs as well as his own costs from the unsuccessful defendant”

Reference:
http://www.singaporelawwatch.sg/remweb/legal/ln2/rss/judgment/63275.html
Ma HongFei v U-Hin Manufacturing Pte Ltd and Another [2009] SGC 172

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