Armada Balnaves Pte Ltd v Woodside Energy Julimar Pty Ltd [No 2]
[2020] WASC 14
•24 JANUARY 2020
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CIVIL
CITATION: ARMADA BALNAVES PTE LTD -v- WOODSIDE ENERGY JULIMAR PTY LTD [No 2] [2020] WASC 14
CORAM: KENNETH MARTIN J
HEARD: 18-21, 25-28 FEBRUARY & 26-27 MARCH 2019
DELIVERED : 24 JANUARY 2020
FILE NO/S: CIV 1408 of 2016
BETWEEN: ARMADA BALNAVES PTE LTD
Plaintiff
AND
WOODSIDE ENERGY JULIMAR PTY LTD
Defendant
Catchwords:
Contract - Breach of contract claim - Service Agreement between parties - Express term Termination of Services Agreement for cause - Contractor asserted Company's right to terminate lost by election by conduct to affirm Services Agreement - Alleged abandonment of right to terminate for cause - Contractor asserts attempted termination for cause was a repudiation of Services Agreement amounting to wrongful renunciation or repudiation by Company - Consideration of election and affirmation legal principles - Distinction between present case and more typical election and affirmation cases - Issues of confrontation, delay and communication - Analysis of alleged acts of election and affirmation - Whether election to affirm Services Agreement proven by communicated inconsistent acts
Damages - Measure of damages - Claim for loss of bargain damages for repudiation - Alternative hypothetical rival scenario assuming Services Agreement had not been terminated and had continued to be performed - Preferred damages claim based on loss of opportunity to receive a fixed sum express 'break fee' - Alternative hypothetical damages based on the assumed performance of the first term of the Services Agreement performed to completion with assumed revenue payments made to Contractor
Damages - Assessment of damages - Consideration as to whether Contractor ready, willing and able to perform - Whether right to terminate at specific time - Assessment of alternate counter factual damages scenarios as more likely
Legislation:
Nil
Result:
Plaintiff's action dismissed
Category: A
Representation:
Counsel:
| Plaintiff | : | Mr B Walker SC & Mr N Kirby |
| Defendant | : | Mr D Ryan SC & Mr K de Kerloy |
Solicitors:
| Plaintiff | : | Clayton Utz |
| Defendant | : | Herbert Smith Freehills |
Case(s) referred to in decision(s):
Agricultural and Rural Finance Pty Ltd v Gardiner [2008] HCA 57; (2008) 238 CLR 570
Almond Investors v Kualitree Nursery Pty Ltd [2011] NSWCA 198
Carr v JA Berriman Pty Ltd [1953] HCA 31; (1953) 89 CLR 327
Donau Pty Ltd v ASC AWD Shipbuilder Pty Ltd [2018] NSWSC 1273
DTC No 1 Pty Ltd v Matthew [2009] NSWSC 1485
Galafassi v Kelly [2014] NSWCA 190; (2014) NSWLR 119
Highmist Pty Ltd v Tricave Ltd [2005] QCA 357
Hongkong Fir Shipping Co Ltd v Kawasaki Kishen Kiasha Ltd [1962] 2 QB 26
Immer No. 145 Pty Ltd v Uniting Church in Australia Property Trust (NSW) [1933] HCA 27; (1993) 182 CLR 26
Inlon Pty Ltd v Celli SpA [2017] NSWSC 569
Khoury v Government Insurance Office (NSW) [1984] HCA 55; (1984) 164 CLR 622
Koompahtoo Local Aboriginal Land Council v Sanine Pty Ltd [2007] HCA 61; (2007) 233 CLR 115
Lindsay Petroleum Co v Hurd (1874) LR 5 PC 221
Mandurah Enterprises Pty Ltd v Western Australian Planning Commission [2008] WASCA 211; (2008) 38 WAR 276
Mann v Paterson Constructions Pty Ltd [2019] HCA 32
McDonald v Dennys Lascelles Ltd (1933) 48 CLR 457
Nichimen Corp v Gatoil Overseas Inc [1987] 2 Lloyd's Rep 46
O'Connor v S P Bray Ltd (1936) 36 SR (NSW) 248
Patersons Securities Ltd v Financial Ombudsman Service Ltd [2015] WASC 321
Peyman v Lanjani [1985] Ch 457
Regional Power Corporation v Pacific Hydro Group Two Pty Ltd [2013] WASC 46
Sargent v ASL Developments Ltd [1974] HCA 40; (1974) 131 CLR 634
Shepherd v Felt Textiles of Australia Ltd [1931] HCA 21; (1931) 45 CLR 359
Strezelecki Holdings Pty Ltd v Jorgensen [2016] WASCA 177
Tropical Traders Ltd v Goonan [1964] HCA 20; (1964) 111 CLR 41
Wallace Smith v Thiess Infraco (Swanstone) Pty Ltd [2005] FCAFC 49; (2005) 218 ALR 1
Wiltrading (WA) Pty Ltd v Lumley General Insurance Co [2005] WASCA 106; (2005) WAR 290
Table of Contents
INTRODUCTION
The evidence in this trial
The trial book
Pleadings and submissions
The structure of these reasons
PART I
Essential dates and events
30 September 2011 - the SA
4 April 2014 - Completion of dockyard work
9 August 2014 - Certificate of RFFO
9 February 2015 - six months after RFFO
16 April 2015 - Novation Agreement
15 August 2014 - initial period of the SA expires
6 September 2015 - Earliest practical opportunity to perform the Operational Endurance Test (OET)
25 September 2015 - the Notice of Entitlement
26 - 29 November 2015 - Further attempts to perform the OET
22 January 2016 - Moratorium Agreement
4 March 2016 - the WEJ Notice of Termination
11 March 2016 - the AB Notice of Termination
3 April 2016 - 30 days post the WEJ Notice of Termination
14 March 2016 - writ of summons issued
The two key clauses of the Services Agreement
Article 4.11 and its surrounds
The OET
Obligation to perform the OET at the earliest practical opportunity
Breach of Article 4.11
Article 10.3(xiii) and its surrounds
PART II
AB's damages case in overview
AB's favoured damages case - the lost break fee
AB's alternate damages argument - lost future profits
Sundries
WEJ's opposition stance in overview
The key issue at trial: the asserted election of WEJ to affirm the SA by its and Apache's conduct post 9 February 2015
Background
AB's election argument
AB's election to affirm by conduct trial pleadings
The preliminary tasks in assessing AB's election to affirm case
(a) The acts of affirmation
(b) Significance of Practical Completion under the SA
(c) Amendments to AB's pleaded case at trial
(d) The Letter of Quiet Enjoyment (the LQE)
Application of the 120 day 'standstill' period to the present facts
The significance of the agreed affirmation conduct assessed against the performance regime of the SA as a whole
Election: the underlying legal principles
The significant election to affirm contract cases
The 14 legal principles of election
Arguments concerning the contended election affirmation conduct by Apache and by WEJ
AB's case
Unravelling AB's election to affirm contention
What AB's case is not about
What AB must establish
Matters of contextual significance - Practical Completion
Ongoing requirement to achieve Practical Completion
Subsea oil extraction, storing and offloading
Distinction between the present case and typical election to affirm conduct cases
The confrontation issue
Conclusion - confrontation issue
The delay issue
What was happening on the ground
(a) Seven (7) months allowed for AB to get to a position of being able to present the FPSO Facility
(b) A reasonable period for WEJ to receive and evaluate data
(c) The LQE 120 day standstill period
(d) The Moratorium period
Conclusion - delay issue
The communication issue
Evaluation of the conduct said to constitute a communication of an election to affirm
What AB could have done
Post Notice of Entitlement period
Conclusion - communication issue
Conclusions on the key issues
PART III
Chronology of factual findings
Phase A: 30 September 2011 to 9 February 2015
Observations at the end of Phase A
Phase B: 16 February 2015 to 21 May 2015
Observations at the end of Phase B
Phase C: 3 June 2015 to 4 September 2015
Observations at the end of Phase C
Phase D: The events of September 2015
Observations at the end of Phase D of Chronology
Phase E: October 2015 to 15 August 2016
PART IV
Secondary issues
Was AB ready, willing and able to peform the SA in March or April 2016?
Did WEJ hold a common law right to terminate the SA on 4 March 2016?
Article 4.11 is an essential term of the SA
Repudiation of the SA by AB
Summary of secondary issues to this point
AB's non-expert trial witnesses - Messrs Priest and Gomes
Mr Raymond Leslie Priest
Mr Malcolm Gomes
Relevance of Mr Gomes' evidence
AB's readiness, willingness and ability to perform the SA
WEJ's non‑expert trial witnesses - Messrs Kalms, Lonnie and Mata
Mr Daniel Stuart Kalms
Mr Breyden Lockyer Lonnie
Evidence regarding the WEL/WEJ hierarchy
Evidence regarding the FPSO Facility
Mr Rodolfo Alejandro Mata
Mr Mata's second witness statement
Mr Mata's first witness statement
Cross-examination of Mr Mata
AB's expert trial witness - Mr Tate
Materials before the court
Background
WEJ's rival expert evidence: Mr Bruce Somers
Gas compression plant - background
T1 and T2
T4
T5 and T6
Question Q1.8(b)
T3
Other key issues
Alarms
'Hot swap' and 'handshake' arrangements
Final conclusions - Mr Tate's evidence
Was AB ready, willing and able to perform the SA in March or April 2016?
Did WEJ also hold a deployable common law right to terminate the SA at 4 March 2016?
(a) Breach of Article 4.11 as an essential term
Time was of the essence under the SA and always remained so
Materiality of Article 4.11
(b) Repudiation of the SA by AB
(c) More time under the LQE
Loss of bargain damages hypothetical: AB shows repudiation of the SA by WEJ
(a) AB's first preferred damages scenario - the lost SA promised break fee on a termination for convenience
(b) AB's less preferred damages scenario - lost future profits
Article 33.8 of the SA
The more likely damages scenario
Asssessment of AB's less preferred damages scenario
PART V
The Milestone Claims
Milestone B11
Milestone K4
The Milestone K4 payment: competing interpretations
Interpretation of Milestone K4 requirements
B11 and K4 Milestone Claims conclusions
Further sundry mutual claims
Overview
Crew Insurance Policy Renewals
Redundancy Costs
Logistics backcharges and MDO fuel
Conclusions as regards sundries claims
CONCLUSION AS REGARDS FINAL ORDERS
KENNETH MARTIN J:
INTRODUCTION
The early 21st Century high tech, high cost pursuit of remote, offshore Australian sub‑sea fossil fuels as a precious energy source, provides the canvas to this breach of contract and common law damages litigation.
By this alleged breach action the plaintiff, Armada Balnaves Pte Ltd ('AB'), a Singaporean corporation, seeks damages against the defendant, Woodside Energy Julimar Pty Ltd ('WEJ').
The relevant contract at issue is a wholly written Services Agreement of 30 September 2011, perfected originally as between AB and Apache Energy Ltd ('Apache'). WEJ was novated to be a party to the Services Agreement on 21 May 2015, but effective as from 16 April 2015. In these reasons I refer to the contracting parties' as novated Services Agreement as 'the SA'.
The SA's terms addressed, broadly speaking, the agreed provision by AB to Apache for remuneration of offshore oil extraction services by use of a converted floating production, storage and offload vessel ('FPSO Vessel') utilising a single point disconnectible turret mooring system and its components ('DTM') - over a minimum services term of four years. The relevant vessel was originally a ship known as 'the Griffin Venture' before being refitted, converted and renamed as the 'Armada Claire'. Operated in conjunction, the as converted FPSO Vessel with its attached DTM were to provide, once operational at sea, an offshore floating production storage and offloading vessel arrangement (termed 'FPSO Facility') but navigable at sea beween exploration locations in ship mode.
Very briefly described, AB's breach of contract action stems from the fact that it received a written notice of termination from WEJ on 4 March 2016, advising then that the SA was being terminated by WEJ 'for cause', under Article 10.3(xiii) of the SA ('the WEJ Notice of Termination'). That WEJ Notice of Termination was expressed to take effect 30 days thereafter, ie, effective on 3 April 2016.
AB says that WEJ's attempted termination of the SA for cause was wholly unjustified contractually and wrongful. AB then countermoved to advise WEJ it would 'accept' what it termed as WEJ's wrongful repudiation of the SA, on 11 March 2016.
AB pursues WEJ in this action, claiming loss of bargain damages by reason of WEJ's alleged repudiatory breach of the SA.
That, very broadly, is the breach of contract litigation landscape as it presents.
The evidence in this trial
The trial book
This was an electronic trial. The documents were very numerous, albeit there were no real disagreements between the parties about the content of the agreed trial book between the parties in the end.
The documents that comprised the trial book were all provided in electronic form. Throughout the trial, documents were referred to by reference numbers either commencing with 'ARM' or 'WDB' depending on their origin. In these reasons, where necessary, I will incorporate such a number to identify a document or to pinpoint the location of a document referred to.
Ultimately, the trial book became exhibit 1 at the trial. An amended index to the trial book (as finalised by both AB and WEJ's lawyers upon the conclusion of the trial) describes over 3,000 documentary items tendered and relied upon. The agreed index became exhibit 11. Various other documents were tendered ad hoc throughout the trial. They were not part of the electronic trial book.
At the outset, I will make reference to several key electronic documents which played a central part to this trial. Some have already been referred to. Some will be referred to in subsequent parts of this judgment. I mention now:
(a)the SA dated 30 September 2011 - [ARM.001.006.0953];
(b)the Letter of Quiet Enjoyment dated 9 April 2014 - [WDB.504.005.0132];
(c)the Novation Agreement dated 21 May 2015 - [ARM.05.001.0001];
(d)the Notice of Entitlement dated 25 September 2015 - [ARM.001.014.0493];
(e)the WEJ Notice of Termination dated 4 March 2016 - [ARM.001.014.0582]; and
(f)AB's Notice of Termination dated 11 March 2016 - [ARM.001.014.0475].
Pleadings and submissions
As I will come to explain, the final iterations of the parties' trial pleadings ultimately consisted of:
(a)AB's Fourth Further Amended Statement of Claim dated 22 March 2019 ('4FASOC');
(b)WEJ's Fourth Further Re-Amended Defence and Counterclaim dated 27 November 2018 ('4FRADAC');
(c)AB's reply to the Fourth Further Re-Amended Defence and Defence to Counterclaim dated 25 March 2019 ('AB's Reply').
The parties also each filed rival chronologies of contended relevant facts and events - which had been exchanged prior to the trial. So seen, a large measure of commonly agreed underlying trial facts can be found across:
(a) AB's Chronology dated 14 December 2018 - [ARM.999.001.1033]; and
(b)WEJ's Responsive Chronology dated 11 January 2019 - [WDB.999.500.0001].
In addition, the parties both helpfully provided very comprehensive written opening and closing submissions. I refer to:
(a)AB's Written Outline of Opening Submissions dated 21 December 2019 - [ARM.999.001.0950];
(b)WEJ's Written Outline of Closing Submissions dated 11 January 2019 - [ARM.999.500.0002];
(c)AB's Written Outline of Closing Submissions dated 2 April 2019 - [ARM.999.004.0006]; and
(d)WEJ's Written Closing Submissions dated 18 March 2019 - [WDB.999.500.0003].
The structure of these reasons
For the purposes of convenience and, hopefully, easier digestion, I have essentially organised and divided these reasons into five sections. Part I provides a brief overview of key events and documents necessary to understand the many trial issues.
Part II deals with the key issue - namely, AB's primary case contention that WEJ elected by its conduct to affirm the SA and so held no contractual right to terminate the SA for cause under Article 10.3(iii), when WEJ attempted to do just that on 4 March 2016. That is essentially a self‑contained area and where there was no factual disagreement at all as between the parties over the conduct which is said to constitute WEJ's election to affirm (the 'affirmation conduct'). Their disagreement is over the legal characterisation of all that conduct. The alleged 'affirmation conduct' is outlined in detail at [143] - [156] of these reasons.
In Part III of the reasons, I have by way of my formal trial fact findings assembled a chronology of the underlying found facts stretching across five time periods. Most of these facts were uncontroversially agreed under the parties' as exchanged pre-trial chronologies, or have been taken by me as convenient extracts from out of some of the agreed trial documents.
If AB's election to affirm case is made good, it then becomes necessary to consider multiple secondary issues, including AB's readiness, willingness and ability to perform the SA as from March and April 2016 and, of course, to evaluate AB's two counterfactual damages cases and as well WEJ's numerous further defences. Consequently, Part IV of these reasons deals with secondary issues and evidentiary findings, for differently assumed circumstances which arise if it is ultimately concluded that AB's election to affirm by conduct case is made out.
Within the fourth part of the reasons, I deal at some length with the trial evidence of the parties' non-expert and expert witnesses. For AB, this includes the evidence of the Commissioning Manager for the FPSO Facility, Mr Raymond Priest, AB's former Operations Manager (Asset Manager & Operations), Mr Malcolm Gomes, and AB's marine engineering expert, Mr William Tate. For WEJ, this evidence includes the evidence of WEJ's Senior Vice President (Australian Business Unit), Mr Daniel Kalms, WEJ's Asset Manager and Company Representative for the FPSO Facility, Mr Breyden Lonnie, and WEJ's Consultant Process Engineer, Mr Rodolfo Mata.
Finally, in Part V of these reasons, I deal with some minor sundry SA money claims arising on both sides.
PART I
Essential dates and events
For early orientation purposes, the dates of the following 14 proven events may be usefully noted to acquire some early temporal insights towards many of the later presenting issues.
30 September 2011 - the SA
First, what is a wholly written SA, was entered as between Apache and AB, on 30 September 2011. The SA itself is a very long document, containing 11 very technically detailed annexures containing numerous elaborately detailed and negotiated provisions. The SA sets down in particular the as then contracting parties' agreed upon 'milestones', within what was to be a commercial offshore oil purrsuit extraction, capture and storage services relationship. The annexures to the SA mark the successive stages of contractual performance progress to be achieved and to be met by AB as regards its FPSO Facility the Armada Claire and the correlative rewards payable by Apache to AB, once met (see Annexure D which outlines the compensation to AB for providing FPSO Services).
Broadly, the commissioning process for an FPSO began on land, with conversion work to be performed on a former tanker ship (the Griffin Venture) into an FPSO commissioning in dry dock at the Keppel Shipyard, Singapore.
Conversion work at the Keppel Shipyard would enable the vessel to operate in future as an FPSO (the Armada Claire), that is, as a detachable floating sea barge, capable of receiving, processing and storing captured subsea pumped well fluids (ie, the captured oil extracted from an Australian offshore permit reservoir resource below the sea bed).
Upon completion of dry dock conversion work, the FPSO Vessel would be sailed from the Keppel Shipyard to an offshore oil resource permit location within Australian territorial waters (the 'Balnaves Field'). At the time the Australian subsea exploration permit was held by Apache (before being later acquired by WEJ).
Once positioned at the Balnaves offshore field, the FPSO Vessel was to have attached at its bow a DTM - with connections down to the sea bed (wells). So attached, the FPSO Vessel and DTM could all function together, as the FPSO Facility.
Whilst moored at site, the FPSO Facility would then be under the operational command of an Offshore Installation Manager (OIM), who was appointed by the SA's principal (ie, by Apache and later WEJ). If the FPSO Vessel was detached from the DTM to self‑navigate between other offshore drilling locations, or back to port as a ship, then the FPSO Vessel would be under the sea command of its captain (Master), who was appointed by AB.
Once the FPSO Facility had achieved the SA milestone of Ready For First Oil ('RFFO'), it became necessary under the SA for the FPSO Facility next to pass certain Acceptance Tests - in order for it to then achieve 'Practical Completion' (also referred to as the FPSO Facility's 'full commissioning'). I will address the SA's specifics for these Acceptance Tests shortly. However, it should be noted at an early point that the Acceptance Tests were a key stage of the FPSO Facility's required milestones, and necessary to pass towards the FPSO attaining Practical Completion. This requirement is a source of great contest in this trial.
The applicable governing law for the SA was expressly chosen to be the laws of Western Australia (see Article 37.1). Courts of Western Australia were also given exclusive jurisdiction to settle any disputes as between the contracting parties (see Article 37.1).
4 April 2014 - Completion of dockyard work
Second, on 4 April 2014, after its dockyard conversion work was done (explained without objection in AB's written closing submissions to be at a cost of in the order of $US380 million), the Armada Claire finally sailed off from the Keppel Shipyard, Singapore and towards Australian territorial waters.[1] Its destination was the Balnaves Field within the Northern Carnarvon Basin off Western Australia, within offshore Australian territorial waters. At this location very extensive at site performance testing was now by the SA required to be undertaken by the FPSO.
9 August 2014 - Certificate of RFFO
[1] [ARM.028.001.0038].
Third, on 9 August 2014, Apache issued to AB a certificate of RFFO. RFFO is a defined term under Article 1.1 of the SA. Essentially, RFFO is the stage achieved when the FPSO Facility becomes operational - at a level of it being able to receive first well fluids (ie, oil) extracted out of a subsea reservoir. The FPSO Facility can then proceed to commence in situ intensive performance commissioning at this offshore location.
'Commissioning' is an event also defined under Article 1.1 of the SA as:
Those activities following Ready For First Oil, carried out while Well Fluids are being admitted into the FPSO Facility and bringing the FPSO Facility to a point where the Acceptance Tests can be successfully passed.
9 February 2015 - six months after RFFO
Fourth, as already mentioned, it is accepted by the parties that the date that was six months after RFFO (calculated for the purposes of a six months period as is specified under Article 10.3(xiii) of the SA) was 9 February 2015 (see par 14 of the 4FASOC and par 14(a)(i) of the 4FRADAC).
16 April 2015 - Novation Agreement
Fifth, AB, Apache and WEJ had together all entered a written Novation Agreement dated 31 May 2015, albeit specified to be effective as from 16 April 2015 (the 'Novation Agreement'). As regards the event of novation of the SA, it is pleaded by AB by par 5 of the 4FASOC (and admitted by WEJ, under par 5 of the 4FRADAC), that:
As a consequence of the Novation Agreement, the Apache Services Agreement was discharged and a new agreement in the same form as the Apache Services Agreement was made between the plaintiff and the defendant (the Services Agreement).
The as admitted legal consequence of this novation of the SA as effected is that WEJ became bound by all the terms of the SA, as if WEJ had been a party to the SA as from its commencement (see par 6 of the 4FASOC and cl 2.2(a)(iii) and cl 2.2(c) of the Novation Agreement).
15 August 2014 - initial period of the SA expires
Sixth, the term of agreed performance of the SA by AB was to be for an initial period of four years. The term of the SA is to be measured from the date of a certificate of Production Test (again defined in the SA), but with four more options afforded to Apache (and so then to WEJ) to potentially extend the duration of the SA on a year by year basis, after that initial services period of four years (see Articles 7.1 and 7.2 of the SA). It is admitted by the parties that this Production Test was completed by AB on 21 August 2014, with an effective date of 15 August 2014 (see par 8 of the 4FASOC and par 8 of the 4FRADAC). Hence, the initial term of the SA was to run for four years, from 15 August 2014 until 15 August 2018. Again, there was no dispute about that at all at the trial.
6 September 2015 - Earliest practical opportunity to perform the Operational Endurance Test (OET)
Seventh, a most significant date within the trial is 6 September 2015. This is the date AB accepts was the 'earliest practical opportunity' it could have had its FPSO Facility present for, and to attempt then to perform the Operational Endurance Test (OET) (see par 16(c) and par 40A of the 4FRADAC, admitted by AB in par 6 and par 7 of AB's Reply respectively).
The OET is one of four Acceptance Tests (as defined in the SA), all of which tasks were required to be satisfactorily completed by the FPSO Facility. Satisfactory performance of all the Acceptance Tests was required by the SA to demonstrate that the FPSO Facility could perform the services required under the SA (see Article 4.11).
The FPSO Facility's capability to satisfactorily complete the OET Acceptance Test loomed as a cornerstone disputed issue at the trial. However, for reasons I discuss in greater detail in Part II of the reasons, that potential litigious front never really manifested as it might have.
That is because it came eventually to be expressly admitted during the trial by AB by amendments made then by leave to AB's then third further amended statement of claim (see par 41 and par 41A of the 4FASOC), that the OET was not successfully performed by AB at what was the earliest practical opportunity to perform the OET, namely, at 6 September 2015. Nor was the OET successfully performed after that date, in further OET attempts by AB on 9 September 2015, 11 September 2015, and 13 - 16 September 2015. At the end, AB no longer pleaded that its FPSO Facility had successfully completed the OET at some later time, notwithstanding making even further attempts.
Chronologically then, as a matter of established fact at this trial, the earliest practical opportunity at which AB could have had its FPSO Facility to present for and to perform the OET was 6 September 2015, then almost 13 months after the earlier RFFO milestone (ie, 9 August 2014 to 6 September 2015).
25 September 2015 - the Notice of Entitlement
Eighth, on 25 September 2015, WEJ issued to Sumitomo Mitsui Banking Corporation ('Sumitomo'), a Singaporean entity who effectively was the lead lender or financier to AB, and to AB's Malaysian corporate parent entity Bumi Armada Berhad (but generally just referred to as 'Bumi'), a document entitled 'Notice of Entitlement to Issue Notice of Termination', which was also copied as well then to AB (the 'Notice of Entitlement').
The Notice of Entitlement now advised Sumitomo, in effect, that AB was at risk of a termination of the SA under Article 10.3(xiii) by WEJ, by reason of AB's failure to satisfactorily complete the OET by then. I return to Article 10.3(xiii) in greater detail later in these reasons. For now it is sufficient to note that Article 10.3 dealt with a termination of the SA by WEJ for a specified reason (ie, cause), including for AB's default.
The Notice of Entitlement as then issued by WEJ was issued to meet the requirements of another agreement, called the 'Letter of Quiet Enjoyment', which I will refer to as the 'LQE'. The LQE had been entered earlier, as between Sumitomo as security agent/lender, by AB as the relevant borrower, and by Apache on 9 April 2014. The LQE agreed obligations of Apache would later become binding upon WEJ, under the effects of the Novation Agreement.
By an express term of the LQE, Apache/WEJ had promised to Sumitomo (but relevantly, had not promised to AB) that Apache/WEJ would give Sumitomo notice of any prospective termination by it of the SA. Further, the same LQE term required that Apache/WEJ would, in effect, 'stay its hand' against taking the step of actually terminating the SA - for a period of 120 days after the giving of such a notice. By the LQE Apache/WEJ had promised Sumitomo, in effect, to engage in good faith negotiations with Sumitomo during a 120 day 'standstill' period, with a view to curing an issue(s) that had occasioned the as notified prospective termination of the SA by Apache/WEJ.
It will be seen shortly that, by the express terminology of the SA, if a notice of termination for cause ever came to be issued under Article 10.3 of the SA, that there was no period of grace or opportunity for AB to thereafter address or to remedy the underlying SA circumstances then giving rise to that given notice of termination for cause once issued by Apache/WEJ. So, once issued, a notice of termination if given under Article 10.3 would take effect to automatically end the future performance of the SA at a time 30 days after that notice was given (absent, of course, some fully consensual variation agreement made to the contrary, possibly reached between AB and WEJ, to avoid such a termination outcome).
Hence, in what was otherwise a 'sudden death' termination environment under the terms of Article 10.3 of the SA, the clear commercial importance of an LQE aligned 120 day 'standstill' period is that by the LQE some extra potentially curative opportunity might viably be provided for (beyond what was in the SA) in a period immediately before Apache/WEJ finally came to issue a notice of termination for cause under Article 10.3 of the SA.
Here then, from 25 September 2015, when WEJ's Notice of Entitlement had issued to Sumitomo, a 120 day LQE 'standstill' period had then run, essentially, lasting until 22 January 2016.
26 - 29 November 2015 - Further attempts to perform the OET
Ninth, there had followed after September 2015 more, but still wholly unsuccessful, attempts by AB at getting its FPSO Facility, the Armada Claire, to pass the OET. Another unsuccessful attempt at passing the OET was made over the period between 26 - 29 November 2015.
22 January 2016 - Moratorium Agreement
Tenth, WEJ and AB now entered, after the LQE's 120 days had effectively run, a 'moratorium agreement' of 22 January 2016 (the 'Moratorium Agreement'[2]). AB agreed, in effect, not to seek to perform, or to execute, any further Acceptance Tests (as defined in the SA) over a period of further negotiations, which then extended from 22 January 2016 until 5 February 2016. The initial moratorium period had ended on 5 February 2016, but was then consensually extended further, until 12 February 2016 (see the parties' Statement of Agreed Facts).[3]
[2] [ARM.100.120.5189].
[3] [ARM.999.002.0001].
After 12 February 2016, by their conduct the parties continued to observe the same moratorium until 26 February 2016. The parties' Statement of Agreed Facts says further at par 2:
By their conduct, the parties continued to abide by the terms of the Moratorium Agreement until 26 February 2016.
4 March 2016 - the WEJ Notice of Termination
Eleventh, on 4 March 2016, with the LQE 120 day 'standstill' period fully run and an the extended moratorium period of 22 January to 26 February 2016 also run, but with the OET Acceptance Test still not performed and passed by the FPSO Facility, WEJ then issued to AB the 'WEJ Notice of Termination', which was expressed to take effect 30 days later, on 3 April 2016. The WEJ Notice of Termination for cause said:
A Termination Event under the [SA] has occurred in that [AB] has failed to satisfactorily complete within six (6) months of Ready For First Oil the tests to be performed by [AB] in accordance with Annexure B - Scope of Work of the [SA] ...
11 March 2016 - the AB Notice of Termination
Twelfth, by a written response, of 11 March 2016, AB now advised WEJ it was then 'accepting' the WEJ Notice of Termination as a repudiation of the SA by WEJ (the 'AB Notice of Termination'). AB advised WEJ it would treat any future performance of the SA as being terminated from that time.
3 April 2016 - 30 days post the WEJ Notice of Termination
Thirteenth, on 3 April 2016, the 30 day period as was specified under the WEJ Notice of Termination was now expired. WEJ says that from that time on, both parties' future obligations of performance under the SA were at a complete end.
14 March 2016 - writ of summons issued
Fourteenth, on 14 March 2016, AB issued a writ of summons commencing the present action, CIV 1408 of 2016, against WEJ and seeking loss of bargain damages for alleged breach of the SA.
The two key clauses of the Services Agreement
I next set out two key clauses of the SA, namely, Articles 4.11 and 10.3(xiii), and the relevant textual context bearing upon an understanding of those two clauses. I also discuss a few key concepts embedded within the clauses. Assessed together, the two clauses can be seen to deal with related, but different, subject matters.
Article 4.11 and its surrounds
Article 4.11 of the SA presents under the heading, 'Acceptance Test'. It reads:
The Contractor [ie, AB] shall at the earliest practical opportunity present the FPSO Facility for performance of the Acceptance Tests. The Contractor [ie, AB] shall perform the Acceptance Tests as detailed in Annexure B - Scope of Work. Upon satisfactory concurrent completion of all constituent trials comprising the Acceptance Tests, the Company [ie, WEJ, post novation] will issue the certificate of Practical Completion. (my emphasis in bold)
The term 'Acceptance Tests' (sometimes confusingly referred to within the SA in the singular, as the Acceptance Test - but in fact bring four different tests or trials) is found defined by Article 1.1 of the SA as being:
Tests to be performed by the Contractor [ie, AB] in accordance with Annexure B - Scope of Work to demonstrate that the FPSO Facility is capable of performing the Services in accordance with the provisions of the [SA].
Achieving the Practical Completion milestone would also entitle AB to a $US2 million payment, under Annexure D, item B12 of the SA.
The term 'Practical Completion' seen used above within Article 4.11, is expressly defined by Article 1.1 of the SA as:
The successful completion of the Acceptance Tests as evidenced by issuance of a certificate of Practical Completion by the Company Representative. (my emphasis in bold)
See also an earlier mentioned definition of 'Commissioning' under Article 1.1 of the SA, reading:
Those activities following Ready For First Oil, carried out while Well Fluids are being admitted into the FPSO Facility and bringing the FPSO Facility to a point where the Acceptance Tests can be successfully passed. (my emphasis in bold)
Article 4.11 is seen to expressly refer to Annexure B of the SA -headed 'Scope of Work'. From within that Annexure B, I mention generally cl 10 therein and, in particular, its various subcomponent clauses, including 'Offshore Pre-Commissioning' (cl 10.2), 'Preparation for Start‑up' (cl 10.3), and 'Start-up and Production Test' (cl 10.4). Note also from within Annexure B especially cl 10.5, 'Preparation for Acceptance Test and Commissioning'. Such obligations precede those found next under cl 10.6 of Annexure B.
Clause 10.6 of Annexure B, under the heading, 'Preparation for Acceptance Test and Commissioning of Annexure B', identifies the Acceptance Test as comprising:
(a)Process Trials;
(b)OET;
(c)Operational Trial of Offloading System; and
(d)Cargo System Acceptance.
The OET
Clause 10.6 of Annexure B to the SA concludes as regards the Acceptance Test:
All Acceptance Test trials will be witnessed by the Company [ie, WEJ] and the Validation Body representative. The Contractor [ie, AB] shall prepare test reports for each constituent trial of the Acceptance Test and shall submit these to the Company [ie, WEJ] for Approval no later than five (5) days after completion of that trial.
As will be seen later in these reasons, here it was only ever an achieving of a satisfactory performance of the OET which was the problematic issue for AB.
The OET itself is described under cl 10.6(b) as follows:
Upon completion of the process trials referenced above, the Company [ie, WEJ] will continuously flow Well Fluids at the maximum available production rate for a period of seventy-two (72) hours, with all safety systems fully operational and on‑line. The Contractor [ie, AB] shall demonstrate that the process plant is able to operate continuously with all equipment and machinery operating within their manufacturer's design parameters. At a minimum, the Contractor [ie, AB] shall record the following parameters on an hourly basis during the trial:
•Production rate, density, BS&W, RVP, temperatures, pressures.
•Produced water rate and quality.
•Produced gas rate, pressure and composition.
•Utility system performance parameters (flow rates, fluid consumptions, temperatures, pressures, etc) …
Because the OET requires continuous production for a period of 72 hours, it is sometimes also colloquially referred to as the '72 hour test'.
Meeting the OET also required AB to concurrently demonstrate over the same 72 hour period that:
(a)the FPSO power generation system was able to operate continuously on fuel gas with all equipment and machinery operating within their manufacturer's design parameters;
(b)the injection water system and produced water system were able to operate continuously with all equipment and machinery operating within their manufacturer's design parameteres; and
(c)the gas compression plant was able to operate satisfactorily and continuously with all equipment and machinery operating within their manufacturer's design parameters.
Hence, the OET was, under the SA's terms, a rigorous three day trial for the FPSO Facility to perform satisfactorily. Emphasising the rigour of the test, cl 10.6(b) conclude:
In the event of any failure or off‑performance operation for either the process plant or the power generation system or the injection water/produced water system or the gas compression system during the 72 hour endurance trial, the entire trial shall be deemed to have failed. The Contractor [ie, AB] shall rectify the problem and then a new 72 hour trial shall be carried out, in full accordance with the above requirements.
I interpolate from the cited paragraph above that the express specification of a need to 'repeat' the whole OET in a 'new' trial, in the event of failure, objectively assessed, conceptually envisages that the OET might be repeated, if not satisfactorily completed at first attempt. That view bears on a related question of construction to be discussed later, concerning the obligations as imposed by SA Article 4.11, if that Article is viewed on a stand alone basis.
Obligation to perform the OET at the earliest practical opportunity
It will be remembered Article 4.11 of the SA provided:
The Contractor shall at the earliest pracitcal opportunity present the FPSO Facility for performance of the Acceptance Tests. The Contractor [ie, AB] shall perform the Acceptance Tests as detailed in Annexure B - Scope of Work. Upon satisfactory concurrent completion of all constitute trials comprising the Acceptance Tests, the Company [ie, WEJ] will issue the certificate of Practice Completion.
Article 4.11 carries, via sentence 1, a promise by AB to 'present' - ie, to present the FPSO Facility (AB's promise to present). The promise to present is seen to be governed by a temporal obligation - ie, to present the FPSO Facility at the earliest practical opportunity. Then, in contrast, sentence 2 displays a further promise by AB to 'perform' - ie, to perform the Acceptance Tests, as they are detailed in Annexure B of the SA (AB's promise to perform).
One issue of construction that arises in the trial is whether or not AB's further promise to perform is also governed by the same temporal obligation seen as earlier attaching to its first sentence promise to present. In other words, there is a disputed issue of SA construction arising as to whether AB's further 'promise' was also to perform the Acceptance Tests at the earliest practical opportunity.
AB says not. AB's construction argument is that once its FPSO Facility was presented to perform the Acceptance Tests at the earliest practical opportunity, that sentence two of Article 4.11 only required AB to perform the Acceptance Tests within a reasonable time after that, and not at that earliest practical opportunity.
WEJ's opposing constructional contention is that a proper textual, logical and commercial construction of Article 4.11 necessarily requires that the same temporal obligation attaching to the promise to present must also extend to the further promise to perform.
At the end, taking account of text, content and the objective purpose of the SA, I prefer WEJ's construction that there is an obligation to perform the Acceptance Tests at the earliest practical opportunity. AB's argument that the FPSO Facility could be presented for performance of the Acceptance Tests, but that its Armada Claire was only required by the SA to perform them at some reasonable time, after a first presentation is, for me, a grating, inconsistent and uncommercial interpretation of dual performance promises as made by AB under Article 4.11 of the SA. That conclusion does not, of course, convey that all the Acceptance Tests necessarily needed to be satisfactorily completed (ie, performed) at the earliest practical opportunity. Whether or not that would be the case would be a factual assessment to me made weighing up all relevant presenting circumstances at the applicable time.
Breach of Article 4.11
A related question then arises over whether or not the FPSO's failure(s) to perform the Acceptance Tests (relevantly, in this case, only the OET) constitutes a 'breach' of Article 4.11 (ie, a breach of AB's promise to perform via sentence 2). My answer to that question is 'yes'. But the seriousness of any such an SA breach must then be contextually assessed, when each breach happened.
Seriousness would depend in part, in my view, on when the FPSO Facility was presented. If, for instance, and wholly hypothetically, the FPSO Facility had been presented in, say, late August 2014 (ie, well before an expiry of the six month period as allowed under Article 10.3(xiii)) then a failure then to satisfactorily perform the OET at that time might not be assessed as a serious breach.
But if, for instance, by contrast, and again wholly hypothetically, the FPSO Facility had been first presented only in late January 2015 (ie, closer to an expiry of the six month period as was allowed under Article 10.3(xiii)), then a failure then to satisfactorily perform the OET at that later time might then present, prima facie, as potentially a much more significant event from a serious breach of the SA assessment perspective.
So, correlatively then, where within the allowed six month period, as specified under Article 10.3(xiii), the later in time that an OET is first attempted but is not then passed, the more significant the failure at that time might be viewed from a serious SA breach perspective.
For the present circumstances, where AB was still then attempting (with WEJ's concurrence) for its FPSO Facility to satisfactorily perform at the OET and at a time which was well after an expiry of the six month period as was allowed under Article 10.3(xiii), then a breach of the promise to perform under sentence two of Article 4.11 at that time could correlatively present as manifesting, prima facie, as increasingly a more serious breach of the SA.
And similarly, the subsequent failures to satisfactorily perform the OET by AB's FPSO Facility at even later occasions, extending out to November 2015, when viewed against the earlier failures at September 2015, would on the face of it then suggest more serious SA breach consequences, as regards Article 4.11 - when that promise is viewed on a stand‑alone basis, as a long-standing broken commitment by AB -even ignoring the elapsed six-month period as was allowed by Article 10.3(xiii).
At this trial, the asserted breach repercussions by the ongoing non‑performance of the OET by AB's FPSO Facility, the Armada Claire, present as a central issue of dispute, after 6 September 2015.
Practical completion
Finally as regards Article 4.11 of the SA, I note cl 10.7 of Annexure B, under the heading 'Practical Completion'. It reads:
The Company will issue the certificate of Practical Completion upon completion of the following:
1.Approval of the Acceptance Test trial reports;
2.Completion of outstanding action items and punch list items from the pre Start-up Audit;
3.Completion of outstanding action items and punch list items arising from offshore Commissioning.
The Company [ie, WEJ], at its sole discretion, may permit some minor punch list and action items to remain incomplete, subject to the Contractor [ie, AB] providing a firm commitment to rectify these within a duration acceptable to the Company. In this case, the remaining items will be recorded as outstanding obligations on the certificate with the required completion date noted. ... (my emphasis in bold)
Clause 10.7 of Annexure B is seen to be linked to Article 4.11, so as to prescribe that a successful completion of the Acceptance Tests will mark the end of the FPSO Facility's full commissioning phase. The Acceptance Tests, in effect, provide the designated gateway to the necessary event of the FPSO Facility achieving Practical Completion under the SA.
Article 10.3(xiii) and its surrounds
The other key clause from the SA most relevant to the parties' arguments in this trial is, of course, Article 10.3 of the SA. This clause affords to the Company (ie, first to Apache and then subsequently to WEJ) the right to terminate the SA, for cause.
Later, by some contrast, I mention the content of SA Article 10.1, which affords to the Company what is a very distinct right to terminate the SA, for convenience. Article 10.4 further addresses situations of a possible contractual termination by AB. Following clauses (Articles 10.6 to 10.8) deal with termination for 'Extended Force Majeure', or termination upon occasions of loss or damage if sustained to the FPSO Facility.
Presently, I am only concerned to introduce what is the SA parties' as agreed termination for cause arrangement, via Article 10.3(xiii) of the SA.
So seen, Article 10.3(xiii) sets down a timeline of six months for satisfactory completion of the Acceptance Tests. It also expressly addresses potential termination consequences, where that did not happen. Within Article 10.3 with its plenary preface and global (to all of Article 10.3) concluding proviso, Article 10.3(xiii) reads:
Termination by Company for Default
If:
...
(xiii)if the Acceptance Tests, as defined in Article 4.12 [sic - 4.11, as the parties uncontroversially accepted at the trial] and as detailed in Annexure B - Scope of Work, is not satisfactorily completed within six (6) months from the date of Ready For First Oil, then
Company [ie, WEJ] shall have the right to terminate [the SA] by giving Contractor [ie, AB] 30 days written notice to such effect. All payments set forth in Annexure D - Compensation (including, but not limited to, the Termination Payment) shall cease to accrue from the date of termination, as specified in the notice, and Contractor shall demobilise the FPSO Facility in accordance with Article 9. Once a termination notice is issued by Company and a termination date has been specified, any action by Contractor subsequent to such notice shall not impact the validity of such notice and Company's right to terminate this Contract. Company's termination rights shall be in addition to any rights conferred upon Company by law or in equity or by virtue of any other provision of [the SA]. (my emphasis in bold)
Article 10.3(xiii) obviously needs to be read and interpreted within the SA as a whole and particularly in conjunction with the clearly related Article 4.11. I note first what is an obvious typographical error in Article 10.3(xiii), where it refers to an 'Article 4.12' - when clearly, the intended reference there was to Article 4.11. No controversy arose during the trial about recognising that obvious numerical error and with Article 10.3(xiii) being read correctly as carrying an intended reference directly back to Article 4.11 of the SA.[4]
[4] ts 195 and 886.
Next, having now seen the text of Article 10.3(xiii), read with the Article 10.3 plenary concluding proviso, it may be better appreciated that WEJ's Notice of Termination sought to engage to its advantage a contractual right to terminate the SA for cause, as specified by that provision. As seen, that right to terminate for cause was invoked by the giving of a written notice, following the temporal failure of the Contractor (ie, AB) to achieve satisfactory completion of the Acceptance Tests within the nominated six‑month time period (which, as seen, was accepted at the trial as having run, relevantly to present circumstances, at 9 February 2015).
Although the subheading to Article 10.3 uses the word 'default', the expressly conferred rights to terminate for cause as given under Article 10.3(xiii) of the SA, say nothing at all, of course, about any underlying breach of the SA. By Article 10.3(xiii) the 'Company' (as defined) is afforded in all the as nominated circumstance, a right if invoked to terminate the SA for cause by notice - once the allowed six-month period had run, as from the date of RFFO. But the Company, if holding that termination right, was not then textually obligated by Article 10.3(xiii) to immediately act, by invoking that right, even though the six‑month period had passed without all Acceptance Tests then being successfully completed. Nor was it required to act at all. But the express right to terminate for cause as given under Article 10.3(xiii) was event driven. It was afforded once time ran, irrespective of WEJ showing any underlying or associated contractual breach of the SA.
Here, at the day the six‑month period had run (namely, at 9 February 2015), Apache was still then the relevant pre‑novation contracting principal (the Company) under the SA with AB (as Contractor).
As now seen, it was at 4 March 2016 that WEJ, almost 13 months post a running of the Article 10.3(xiii) six-month expiry period (ending at 9 February 2015), sought then to deploy the Article 10.3(xiii) contractual right to terminate the SA for cause - by reason of the ongoing failure of the FPSO Facility to pass the OET within the time allowed, which OET Acceptance Test was still not completed at 4 March 2016.
However, as also now seen, almost seven months (of those 13 months) ran between 9 February and 6 September 2015. Within that seven‑month period, AB had not yet even reached the position of being able to present its FPSO Facility to make a first attempt at the OET. There then followed in September 2015 a three-day attempt at the FPSO Facility performing the OET, at between 13 to 16 September 2015. But without success. There then followed what was a 120 day (roughly four months) 'standstill' period between 25 September 2015 to late 22 January 2016, observed under the terms of the LQE. There followed an agreed moratorium period between 22 January to 26 February 2016 (almost five weeks). Those three periods (7 + 4 + 1 months) can be seen in aggregate to account for over twelve (12) of the thirteen (13) months running from 9 February 2015 to 4 March 2016.
At the trial, AB accepts the earliest practical opportunity for the Armada Claire to perform the OET was at 6 September 2015. As now seen, Article 4.11 expressly required the FPSO Facility to be presented to perform the Acceptance Tests at the 'earliest practical opportunity'. Although a six-month period as was allowed under Article 10.3(xiii) had fully run by 9 February 2015, delivering from then the exposure of AB to a potential termination of the SA for cause under Article 10.3(xiii), that period of delay until a first presentation of the FPSO Facility, of itself, is not suggested to be a breach of the SA. There was no suggested breach against AB of its promise to first present (under sentence 1 of Article 4.11), merely by reason of the FPSO Facility only being ready, in effect, to make a first attempt at the OET at 6 September 2015.
Then, on 6 September 2015 AB both first presented and then first sought to have its FPSO Facility perform the OET. That failed. Further and more sustained attempts at performing the OET followed in September 2015. An attempt was made across the period between 13 -16 September 2015. But again it was without success. Following a mid-trial change of position and amendments, AB ceased to contend as it earlier pleaded that the OET had been passed in September 2015. AB's last pleading at the trial (the 4FASOC) does not contend at all that the OET Acceptance Test was ever successfully performed by it, at or before 4 March 2016.
As already related, at 25 September 2015, WEJ that day had issued to Sumitomo (and copied to AB) the Notice of Entitlement under the LQE. By doing so, WEJ was providing notification then, in effect, that it then held a right to terminate the SA for cause and that its deployment against AB and the SA was in serious prospect. Of course, Apache might have given such an LQE limited notice after 9 February 2015, had it ever been seriously minded to terminate for cause. WEJ might have done that earlier as well post novation of the SA, were WEJ seriously minded to then terminate for cause. However, neither Apache nor WEJ was obliged to terminate for cause by the terms of the SA, or by the LQE. As a matter of commercial sense, it was only if a termination of the SA for cause had become seriously in prospect that the LQE then required notice of that prospect to be given to Sumitomo. That termination for cause prospect by WEJ had only matured and eventuated after AB's first unsuccessful presentation of the Armada Claire to perform the OET in September 2015 and then the ensuing September 2015 OET failures.
Having now broadly outlined some significant events, dates and documents at this trial, I can now proceed to examine more closely AB's claim for loss of bargain breach damages against WEJ, for the suggested repudiatory breach of the SA.
PART II
AB's damages case in overview
AB's breach of contract case contends, in effect, that the WEJ Notice of Termination (expressed to be given for cause under Article 10.3(xiii) of the SA) was given, without any proper underlying contractual justification at the time it issued. As now discussed, Article 10.3(xiii) of the SA says that if the Acceptance Tests were not successfully completed within six months of the FPSO Facility reaching the RFFO milestone, the Company (WEJ) would hold a right to terminate the SA for cause, by giving the Contractor (AB) 30 days' written notice to this effect. There is no factual dispute that AB's FPSO Facility reached the RFFO milestone at 9 August 2014.
As seen, WEJ's attempted termination for cause given on 4 March 2016 is alleged by AB to have been ineffective, wrongful, and a repudiatory breach by WEJ of the SA.
Hence, AB contends, in effect, that this March 2016 conduct by WEJ constituted a renunciation, or a repudiatory breach by WEJ of its obligations under the SA. AB further says that such wrongful conduct by WEJ then conferred on it (as the so‑called 'innocent' contractual party) the right to elect, which AB contends it eventually did, to accept WEJ's repudiatory conduct and so, to put at an end from then all ongoing future performance of the SA. AB gave WEJ its own Notice of Termination on 11 March 2016 and, on AB's arguments, it thereby ended the SA's contractual performance relationship as from then.
Thus it is now fully accepted by both WEJ and AB that the future performance of obligations on all sides under the SA came to an end either at 11 March 2016 (as AB contends), or at 3 April 2016 (as WEJ contends).
Consequently, AB pursues a loss of bargain breach damages claim against WEJ by reason of the premature end to the performance of the SA - which AB says was wrongful by WEJ and has caused AB financial losses.
Much of the evidence adduced at the trial was directed towards establishing AB's contended loss of bargain damages claim. The damages claim was advanced, in effect, on two alternate, hypothetical future SA performance scenarios. Of course, as a matter of fact, neither SA performance scenario ever actually happened following the parties' respective SA termination communications of March and April 2016.
AB's favoured damages case - the lost break fee
AB's favoured hypothetical damages argument contends that, but for WEJ's (wrongful) attempted termination for cause occurring in March 2016, it is the more likely prospect on the balance of probabilities, that WEJ, under the hypothetically continued SA contractual relationship, would, nevertheless, have soon been compelled by numerous surrounding and then prevailing adverse commercial circumstances then being encountered by WEJ for the Balnaves Field at around March 2016, to terminate the SA - but for convenience, via a deployment of Article 10.1 of the SA. However, for WEJ to terminate the SA purely as a matter of its own convenience, WEJ would, on this hypothesis, then have had to pay the prescribed level of 'break fee' to AB (being 'the Services Agreement Termination Payment', also described as 'Compensation', under Annexure D of the SA (at item G.2.ii)). The lost commercial opportunity to receive that break fee payment from WEJ under the continuing SA is what AB claims as its preferred financial loss hypothesis, calculated by AB to be in the amount of $US275,813,698.63. On those damages it, of course, seeks interest until judgment.
AB's alternate damages argument - lost future profits
AB's alternate, albeit less preferred, hypothetical damages argument seeks loss of bargain breach damages from WEJ on another hypothetically assumed counterfactual basis. This hypothesis, namely, is that the SA would then have been faithfully and profitably performed by AB on an ongoing basis for another two and a half years or so, post March 2016. For providing such ongoing assumed offshore services to WEJ, AB projects that it would have duly received ongoing SA based remuneration from WEJ, on a basis of AB profitably providing the ongoing FPSO Facility services to WEJ right up to the end of the first term of the SA - ie, to 15 August 2018.
In terms of evidence, the lost SA future profits hypothesis case was supported by calculations to be found in expert reports provided at trial from AB's expert forensic accountant at trial, Mr Matthew Ashby. Mr Ashby's mid‑range damages case for AB calculates AB's hypothesised loss of revenue and ultimately of lost profit, across a two and a half year assumed SA ongoing performance period, of (approximately) $US172.3 million, as loss of bargain profits as AB's damages.[5]
[5] ts 842.
Consequently, AB's claimed loss of future profits, under its alternate damages argument, generates a damages award at some US$100 million less than AB's preferred lost break fee damages hypothesis arguments.
Sundries
AB also makes a further (contextually) minor claim for outstanding liquidated amounts argued as being due to it under the SA by WEJ for unpaid fees for services and for approved variations under Article 26.6(i) of the SA, in an amount of $US6,422,967.36 plus interest (see par 583 of AB's written closing submissions and par 537 of WEJ's written closing submissions). I deal with all those smaller money claims on each side under Part V of the reasons.
WEJ's opposition stance in overview
WEJ actively refutes and resists all of AB's loss of bargain damages arguments.
Fundamentally, WEJ contends that it was legitimately permitted by Article 10.3(xiii) of the SA to invoke the express contractual right it held and that it never lost that right to terminate the SA for cause, which it accepted by giving AB the notice of termination for cause it did on 4 March 2016, and taking effect 30 days later. WEJ says there is no break fee payable on a termination of cause validly given under the SA (as distinct from the scenario of an SA termination of convenience for which such a fee is paid). Once the SA was validly terminated for cause, there is no breach by WEJ of the SA to sustain AB's loss of bargain damages arguments.
WEJ's basal defence factually presented is that AB's FPSO Facility, the Armada Claire, did not and could not ever pass the OET under the SA within the allowed time. Satisfactory performance of the OET was an express requirement, under Article 4.11 of the SA, as a part of the broad suite of four (4) Acceptance Tests, all of which were required to be satisfactorily completed.
WEJ says that despite numerous OET attempts by AB from early September 2015 onwards at attempting to get its FPSO Facility to satisfactorily perform the OET, that this vital SA Acceptance Test was never passed. WEJ says this key performance test (the OET) had remained unmet by the FPSO Facility at all material times, and relevantly still so, at 4 March 2016, when WEJ's Notice of Termination invoking Article 10.3(xiii) formally was issued to AB.
Thus WEJ contends fundamentally that it was fully entitled under the SA to exercise the contractual right of termination for cause it then held (and Apache before it had held) as from February 2015. WEJ says it did not ever lose this Article 10.3(xiii) SA contractual right to terminate the SA for cause at any time before giving the WEJ Notice of Termination in March 2016.
In any event, WEJ puts forward multiple further arguments, all fulsomely resisting liability and, as well, both of AB's loss of bargain damages scenarios.
WEJ also refutes AB's sundry money claims and itself counterclaims money said to be owed to it by AB.
The key issue at trial: the asserted election of WEJ to affirm the SA by its and Apache's conduct post 9 February 2015
Background
Although the Novation Agreement was executed in May 2015, the pragmatic position offshore at the Balnaves Field from an operational perspective, was that WEJ could not functionally replace Apache in the operating of the FPSO Facility until WEJ's own 'safety case' had been approved by the relevant Commonwealth offshore resource oversight authoritird. That had happened only in early August 2015.
Significantly at this trial, it is unequivocally accepted by AB (indeed, pleaded) that as at 9 February 2015 Apache had then held (but, of course, was not required by the SA to exercise) the contractual right to terminate the SA for cause then by events that had engaged Article 10.3(xiii), by giving 30 days notice to AB.
AB's frank acknowledgement of Apache's then acquired right to terminate the SA's future performance for cause on and from 9 February 2015 against it appears to be grounded on the accepted basis that:
(a)the 9 February 2015 date was six months after the issuance by Apache to AB of a certificate of RFFO under the SA (on 9 August 2014); and
(b)at that time, the OET Acceptance Test had not to then yet been presented for by AB's attempted FPSO, let alone satisfactorily completed by its FPSO Facility.
AB's election argument
Uniquely then, AB's loss of bargain damages arguments against WEJ commence from a starting premise of its then vulnerability and its own non‑performance - namely, that at 9 February 2015, AB was then fully exposed to a contractual potentiality of Apache terminating the SA for cause, by invoking Article 10.3(xiii) of the SA against it. That contractual termination potentiality, of course, would only seriously present if Apache had been minded then to give AB written notice to bring about such a termination for cause. As I have also explained, Apache was not obliged by the terms of the SA to take that termination for cause step, either within a nominated timeframe, or at all.
But AB contends that at some later time(s) post 9 February 2015, the once held contractual right to terminate the SA for cause under Article 10.3(xiii) hen came to be lost. AB argues that a legal loss of the right to terminate for cause arose by reason of acts of subsequent conduct by one, or other, or by both of Apache and WEJ, amounting to their election by conduct at law to affirm the SA, effective at some unspecified time, but clearly it is to be inferred at after 9 February 2015, and before 4 March 2016.
So, AB argues that when WEJ did ultimately come to attempt for the first time to deploy its asserted right to terminate the SA for cause under Article 10.3(xiii) by issuing the WEJ Notice of Termination of 4 March 2016, that it was by then simply too late. AB says this election to affirm the contractual performance of the SA by conduct took effect by law - and so as to ultimately render WEJ's attempted termination to be wholly unjustified and then viewed by law as a wrongful repudiation and breach of the SA. AB says it then duly accepted WEJ's wrongful repudiation of the SA. All of that entitles AB, correlatively it says, to loss of bargain breach damages as against WEJ.
If AB is ultimately assessed as being wrong about WEJ's loss (by reason of elective conduct) of the Article 10.3(xiii) right to terminate the SA for cause, so that, instead, this termination for cause right is assessed as being viably held by WEJ at 4 March 2016, then AB accepts its breach damages case is wholly lost at that point - as WEJ would then have viably deployed its contractual right to validly terminate the future ongoing performance of the SA for cause at that time, via WEJ's effective engagement of Article 10.3(xiii).
AB's election to affirm by conduct trial pleadings
AB's contended election to affirm the SA's ongoing future performance by conduct pleas directed cumulatively and successively, first at the conduct of Apache post 9 February 2015 and then temporally at the subsequent conduct of WEJ post the novation to it of the SA, from 16 April 2015.
The key pleas by AB regarding Apache's election to affirm conduct are seen directed towards highlighting a continued day to day performance of the SA offshore - evincing, it is put, the alleged election to affirm by conduct that AB contends for. These pleas against Apache are found commencing at par 16 of the 4FASOC (by reference to facts found under pars 17 - 20 of the 4FASOC).
AB also pleads for a discrete, stand‑alone further act of affirmation of the SA merely arising by reason of the event of a novation alone of the SA from Apache to WEJ: see par 4 and also par 23 of the 4FASOC.
Beyond the event of the novation of the SA to WEJ, AB then further invokes as election to affirm conduct multiple pleaded acts or omissions by WEJ. All such conduct characterisation pleas made towards WEJ are found introduced in the following terms (at par 24 of the 4FASOC):
Further and in the alternative to paragraph 23, even in the case that the defendant [ie, WEJ] had the right to terminate the [SA] (which is denied), by the conduct pleaded in paragraphs 4 above [ie, the Novation Agreement], 25 to 39C and 41A below, the defendant [ie, WEJ] elected to affirm the [SA]. (my emphasis added)
AB's election to affirm by conduct pleas, put against Apache, and then against WEJ, are advanced as something of a chronologically accumulating and alternative assembly of many contended SA related conduct events. All these election to affirm by conduct pleas are ultimately contended to deliver, either alone or together, an end legal consequence that WEJ's attempt to terminate the SA for cause at 4 March 2016 was not then open to it, and so was wrongful SA breach conduct. See to that end par 40 of the 4FASOC, culminating:
Accordingly, by the defendant's [ie, WEJ's] election to affirm the [SA], on 4 March 2016 the defendant [ie, WEJ] had no right to terminate the [SA] for breach of Article 10.3(xiii). (my emphasis added)
A litigiously unique feature manifesting at this trial is that all the variously contended conduct facts as pleaded out by AB, in order to be characterised by AB as Apache's or WEJ's acts of affirmation of the SA and relied on cumulatively by AB against both Apache and then WEJ, are all factually admitted here by WEJ under its defence pleading, the 4FRADAC. Given a uniquely pleaded admission of all contended facts said by AB to be acts of affirmation of the SA by conduct by WEJ, there is no dispute at all to be resolved at this trial over the existence, or of the disputed proof of any of the multiple alleged conduct facts said by AB to be affirmation conduct. The only real dispute at the trial as a result is over the correct legal evaluation of these admitted conduct facts - namely, by the contended legal characterisation of these fully admitted multiple acts of conduct - to decide whether any or all of that admitted fact conduct does amount at law to an election to affirm the continued performance of the SA, or not.
Hence, AB's election to affirm the SA by conduct case stands to be evaluated against WEJ's fundamental defence contention at the trial. That contention is that all the uncontroversially accepted acts of affirmation conduct as are raised and relied upon by AB against either Apache or WEJ, when properly viewed and evaluated either alone, or taken cumulatively in aggregate, do not amount to anything close to meeting at law the true character of a communicated election to AB to affirm the continued performance of the SA post February 2015. WEJ submits that as a matter of law, all the assembled acts of contended affirmation conduct go absolutely nowhere towards sustaining a valid case for AB to the effect that by 4 March 2016, WEJ had by then lost the as held (by Apache and post novation by WEJ) contractual right under Article 10.3(xiii) to terminate the SA for cause. No anterior election by conduct to affirm the SA's ongoing performance may properly be found as a matter of law, says WEJ.
Hence, evaluating as a matter of the legal consequence the election to affirm by conduct issue presents in this trial as the determinative and pivotal first battle in this trial. Showing the alleged election to affirm the SA by post February 2015 conduct wholly founds WEJ's asserted ultimate exposure to AB for loss of bargain breach damages.
If WEJ's arguments are accepted and it did viably hold, at 4 March 2016, the contractual right under Article 10.3(xiii) of the SA to give written notice to AB to end then the future performance of the SA for cause some 30 days later, AB's loss of bargain damages case fails and is at a complete end.
On the other hand, if AB can make good its election to affirm by conduct arguments put against the conduct of Apache and/or WEJ, the trial enquiry essentially then shifts its consequential focus onwards to a consequential horizon of the many secondary issues arising, including a necessary exploration of AB's readiness, willingness and ability to properly perform the SA at and beyond March 2016 and, as well, an evaluation of AB's two alternate hypothetical loss of bargain damages damages scenarios as mentioned earlier.
Given that looming horizon, it is first necessary to review AB's election to affirm by conduct arguments at some greater depth, since, as now seen, they are the necessary and foundational cornerstone of AB's loss of bargain damages case erected thereon and towards WEJ's contended damages exposure.
The preliminary tasks in assessing AB's election to affirm case
Before that evaluative exercise, however, I must divert briefly to address a few more preliminary tasks.
There are four necessary and preliminary tasks for me:
(a)to assemble in one early place all the pleaded acts of contended affirmation conduct from out of the 4FASOC, as they are there raised and relied upon by AB and put against Apache and later, against WEJ - but always remembering that uniquely in this trial, all AB's pleaded acts of conduct are uncontroversially admitted factually by WEJ under the 4FRADAC and are thereby factually proved. As mentioned, the only real trial controversy is a following legal question over the proper legal characterisation of these facts as communicated elective conduct to affirm the SA, or otherwise. That question may then be confronted on the proven platform of all these uncontroversially admitted conduct facts at the trial;
(b)to say something more about the significance of the SA's concept of AB's FPSO Facility needing to be commissioned at its offshore location and for it to reach 'Practical Completion', assessed within the stipulated overall operational performance regime of the SA;
(c)to record what were some key changes in the pleadings of AB as they occurred during the running of the trial. Essentially, after both senior counsel's respective openings, senior counsel for AB had then flagged the likelihood of amendments to its then Third Further Amended Statement of Claim filed 16 November 2018 ('the 3FASOC'), to clarify AB's case. Up to that point AB seemed to be contending under its 3FASOC that it had satisfactorily completed the OET (and consequently, satisfactorily performed all the Acceptance Tests including the pivotal OET) during September 2015. But that once asserted position was then expressly withdrawn by senior counsel for AB at trial, as I will explain, so as then to unequivocally accept for AB that the FPSO Facility had never satisfactorily completed the OET. That mid‑trial change by AB carried with it some significant narrowing evidenciary repercussions truncating thereby the scope of the relevant expert and non‑expert evidence admissible during trial. What was in context a seismic change of position by AB needs to be properly understood as regards its trial ramifications; and
(d)to explain some more terms of the previously mentioned LQE. This agreement carried repercussions towards how much notice and opportunity Apache or WEJ needed to afford to AB's lenders, should Apache or WEJ ever seriously contemplate taking steps to terminate the SA for cause.
I turn to address those four tasks.
(a) The acts of affirmation
I move to collect together the various acts of affirmation conduct which are relied on by AB to provide it with the factual platform by which it contends that at law, there was an election, either by Apache (but binding on WEJ), or later by WEJ, to affirm by their conduct a continued performance of the SA and, thereby, to lose the right to terminate the SA for cause at some time after 9 February 2015. The facts so contended as acts of affirmation conduct, as I have already noted, are all uncontroversially admitted facts by WEJ under the 4FRADAC in this trial.
The acts of conduct can be separated into three categories - the novation, the acts of Apache and then the acts of WEJ.
The novation of the SA - par 4 and par 16 of the 4FASOC
I deal first with par 4 and par 16 of the 4FASOC. Together, this is a stand‑alone plea made by AB, directed at showing that Apache's election to affirm the SA by conduct arose merely by reason of the event of the novation of the SA to WEJ, in May 2015.
Under par 4 of 4FASOC, AB pleads:
On 21 May 2015 the plaintiff [ie, AB] Apache and the defendant [ie, WEJ] entered into an agreement whereby the Apache Services Agreement was novated to the defendant, with an effective date of 16 April 2015 (the Novation Agreement).
Particulars
The plaintiff [ie, AB] relies upon:
(a)Novation Agreement dated 21 May 2015.
(b)Letter from Apache dated 21 May 2015.
I can say at this point that I am not at all persuaded by this bare plea -which is confidently made, but which I assess is unsupported by any specific case authority on point. In my view, a novation of the SA only poses a question of whether there was an earlier election to affirm the SA by conduct of Apache. The event of a novation alone of the SA does not answer that question.
In my view, all a novation of the SA did was to substitute WEJ as a party for Apache into the SA contractual relationship as if WEJ had been the party to the SA (ie, as the Company) as from the commencement of the SA. So, to the extent that Apache did or did not at then (ie, at the time of the SA's novation) hold or not hold a right to terminate the SA for cause under Article 10.3(xiii) against AB, then WEJ was, by the novation, and immediately post the novation being effective, delivered contractually to the very same position as Apache had been under the SA.
If Apache is assessed by reason of its pre-novation date conduct to have elected to affirm the SA by Apache's own conduct after 9 February 2015, then that like position should flow through, so as to then bind WEJ at the novation of the SA. But if not, then that negative result would also be the position for WEJ.
As I have mentioned, no case authority directly on point supporting AB's submission as to an election to affirm the SA arising merely by reason of a novation event alone was cited at the trial. I am not surprised by that.
Thus, I assess that the novation of the SA from Apache to WEJ is a neutral event towards the election to affirm by conduct evaluation that is required. By itself, I assess it as being immaterial to the merits or demerits of AB's wider election to affirm by conduct arguments.
The contended acts of affirmation by Apache - pars 17 - 20 of the 4FASOC
Next, I will collect pars 17 - 20 of the 4FASOC, which plead further conduct of Apache that is argued by AB to amount, either alone or cumulatively, to Apache's election to affirm the continued performance of the SA post February 2015 (ultimately binding on WEJ). As pleaded, AB says:
17.Apache continued to provide the plaintiff with the Balnaves Field production targets.
Particulars
The plaintiff relies upon:
(a) Section E.2 of Annexure D of the Apache Services Agreement.
(b) Section 5 of Annexure F of the Apache Services Agreement.
(c) On 27 March 2015, Apache provided the plaintiff with the Balnaves Field production target for the months of April, May and June 2015.
(d) On 31 May 2015, Apache provided the plaintiff with the Balnaves Field production target for the months of June, July and August 2015.
(e) On 30 June 2015, Apache provided the plaintiff with the Balnaves Field production target for the months of July, August and September 2015.
(f) On 31 July 2015, Apache provided the plaintiff with the Balnaves Field production target for the months of August, September and October 2015.
18.Between 9 February 2015 and 30 July 2015 the plaintiff issued and Apache paid invoices.
Particulars
The plaintiff relies upon:
(a) Articles 14 and 15 of the Apache Services Agreement.
(b) Invoice dated 9 February 2015 and numbered 9100007232 in the amount of USD$4,177,530.40 for work related to Section D1 of Annexure D (D1) for January 2015.
(c) Invoice dated 9 February 2015 and numbered 9100007233 in the amount of USD$1,433,979.01 for work related to Sections L1, L2 and L3 (O&M catering rates)(L1, L3, L3), N1 and N8 (Inspection maintenance and repair) (N1, N8) and M1 and M9 (Operating rates) (M1, M9) of Annexure D for January 2015.
(d) Invoice dated 5 March 2015 and numbered 9100007299 in the amount of USD$5,098,714.16 for work related to D1 for February 2015.
(e) Invoice dated 5 March 2015 and numbered 9100007300 in the amount of USD$1,451,868.07 for work related to L1, L2, L3, N1, N8, M1 and M9 for February 2015.
(f) Invoice dated 9 April 2015 and numbered 9100007439 in the amount of USD$3,245,587.99 for work related to D1 for March 2015.
(g) Invoice dated 9 April 2015 and numbered 9100007440 in the amount of USD$929,476.36 for work related to L1, L2, L3, N1, N8, M1 and M9 for March 2015.
(h) Invoice dated 7 May 2015 and numbered 9100007471 in the amount of USD$6,431,016.45 for work related to D1 for April 2015.
(i) Invoice dated 7 May 2015 and numbered 9100007472 in the amount of USD$1,867,038.49 for work related to L1, L2, L3, N1, N8, M1 and M9 for April 2015.
(j) Invoice dated 9 June 2015 and numbered 9100007514 in the amount of USD$4,674,868.43 for work related to D1 for May 2015.
(k) Invoice dated 9 June 2015 and numbered 9100007515 in the amount of USD$1,639,796.40 for work related to L1, L2, L3, N1, N8, M1 and M9 for May 2015.
(l) Invoice dated 6 July 2015 and numbered 9100007549 in the amount of USD$4,397,029.02 for work related to D1 for June 2015.
(m) Invoice dated 6 July 2015 and numbered 9100007550 in the amount of USD$1,714,993.16 for work related to L1, L2, L3, N1, N8, M1 and M9 for June 2015.
18A.For the period from 9 February until 16 April 2015 (being the effective date of the Novation Agreement), the defendant and/or Apache received the commercial benefit of:
(a)896,003.43 Gross Loaded Barrels of oil, and 895,627.79 Nett Loaded Barrels of oil over 3 separate offtakes of oil.
Particulars
The plaintiff relies upon:
(a) "Apache Loading Report Gross / Net Volumes & Mass Report" dated 11 February 2015, Cargo Number BAL008.
(b) "Apache Loading Report Gross / Net Volumes & Mass Report" dated 24 February 2015, Cargo Number BAL009.
(c)"Apache Loading Report Gross / Net Volumes & Mass Report" dated 30 March 2015, Cargo Number BAL010
(d) The defendant's ASX Announcement on 2 April 2015: “The closing adjustment represents reimbursement of Apache's net expenditures in the Wheatstone LNG project, changes in working capital and net receipts from the Balnaves oil project between the effective date, 1 July 2014, and closing.”
19.Between March 2015 and May 2015 Apache signed documents entitled "Management of Engineering Change (MOEC) Forms" regarding further work to the Integrated Control and Safety System.
Particulars
The plaintiff relies upon:
(a) MOEC number 1407 signed by Mark Robertson of Apache on 25 March 2015.
(b) MOEC number 1411 signed by Mark Robertson of Apache on 11 May 2015.
(c) MOEC number 1426 signed by Mark Robertson of Apache on 11 May 2015.
(d) MOEC number 1501 signed by Mark Robertson of Apache on 4 May 2015.
(e) MOEC number 1508 signed by Mark Robertson of Apache on 29 April 2015.
(f) MOEC number 1518 signed by Luke Miocevich of Apache on 25 February 2015.
20.Between 16 February 2015 and 16 May 2015 Apache required the plaintiff to carry out work regarding a flange management campaign.
Particulars
The plaintiff relies upon:
(a) OHS improvement notice dated 16 February 2015.
(b) Letter from Apache to the plaintiff dated 3 March 2015.
(c) Email from Mark Robertson of Apache sent at 1.48pm on 8 April 2015 entitled 'NOPSEMA'.
The Milestone K4 payment - competing interpretations
The parties advance competing interpretations within their written closing submissions concerning this liquidated claim.
WEJ
Essentially, WEJ submits - towards interpreting the milestone K4 regime - that AB was required to:
(1)complete commissioning of the FPSO Facility to the extent that the Acceptance Test could be successfully performed;
(2)submit the relevant documentation as seen referenced under cl 10.5 and cl 10.6 of Annexure B for approval and to receive that approval from WEJ; and
(3)advise WEJ that it considered that the FPSO Facility was commissioned and ready for the Acceptance Test.
Because AB upon the trial facts as now found had never brought its FPSO Facility to a point where the OET was or could be successfully performed, WEJ submits in consequence that AB did not satisfy the milestone K4 criteria required for a payment under that milestone.
Further, approval of the relevant Acceptance Test documentation was never actually granted.
AB
On the other hand, AB submits that WEJ's interpretation towards milestone K4 requires too much. It blurs a key distinction as between the preparation for the Acceptance Test and the completion of the Acceptance Test.
However, AB does not then articulate what it submits was specifically required of it by 'preparation'. It merely asserts confidently that what it had done was 'indisputably' sufficient to satisfy the milestone K4 requirements.[127]
Interpretation of Milestone K4 requirements
[127] See AB's written closing submissions at par 881.
The requirement under milestone K4 for engagement might have been laid down far more clearly (indeed, AB's written closing submissions lean into those interpretative difficulties). However, there is - at the least - a ceiling on the milestone K4 requirements found in the SA.
Annexure C
As now seen, Annexure C sets out work schedules and key events. The following test is noteworthy from within the introduction to Annexure C:
1.Introduction
...
Table 2 details the O&M milestones and is to be cross referenced with Items K.1 to K.4 in Annexure D (Compensation).
... [T]he following notes apply:
1)Completion of the designated event is to be documented by issue of a completion certificate signed by the Company representative, by issue of the formal report of the activity, or by proof that an event has occurred (eg photographs, inspection reports).
2)Documentation is not deemed to be approved for the purposes of the milestone unless it is either 'Approved' or 'Approved with Comments' by the Company.
Invoices for each milestone shall be submitted with suitable supporting information to establish that the milestone has been achieved.
The documentation of a completed milestone is required by Annexure C. Whether 'completion' can be achieved without approval of the appropriate documentation is a matter of overall interpretation, out of this jumbled regime. Overall, I would assess, essentially by implication, that an approval of documentation is a step that is separate from and so, something subsequent to the completion of the specified event. Otherwise (1) the Introduction to Annexure A may have been framed along the lines of 'the designated event is not completed until the issue of a completion certificate signed by the Company representative'.
The alternate reading (as adopted by WEJ) is that a formally documented approval is a prerequisite to completion for the purposes of milestones. Here, it does not appear that WEJ (or its predecessor, Apache) ever issued such an approval as regards the milestone K4 event.
Nor is table 2 especially helpful, beyond defining the required event as 'Successful completion of preparation activities for Acceptance tests' and then directing attention to Scope of Works Part A 10.6 (in Annexure B).
Milestone No
Planned Date
Event Note (1)
Documentation Note (2)
K.4
On Successful completion of preparation activities for Acceptance tests as set out in part A of SoW 10.6
SoW Part A 10.6
I would emphasise that this specified threshold did not require the satisfaction of cl 10.6, but merely the completion of preparation activities for the tests in cl 10.6.
Assessment of milestone K4 requirements
The key constructional issue is whether it can be said that AB had completed 'preparation activities for Acceptance tests'. The requirements of 'preparation activities' seem to chronologically precede any subsequent satisfaction of the Acceptance Test. To interpret the SA otherwise, effectively, is to seek to rewrite 'preparation activities for Acceptance' as 'completion of Acceptance Tests'.
Hence, I am of the end view that WEJ's advocated construction of the milestone K4 requirements demands too much of preparatory works. It fails to sufficiently engage with the required textual distinction as between the preparation and the completion. The WEJ advocated interpretation which requires AB bring the FPSO Facility to the point where it could, with certainty, complete the 72 hour OET, is not realistic. Preparation for an attempt at the OET and a satisfactory completion of that test are entirely different things - as the underlying facts at the present trial now illustrate only too graphically.
Here, AB had ultimately performed three of the four nominated Acceptance Tests. But it could never pass the remaining OET, despite making multiple attempts as from September 2015. It is clear then that AB did not ever reach a completion of the Acceptance Tests. However, AB's preparatory work for the OETs, I would alternately assess, was sufficient to support a conclusion that AB satisfied what was a lesser and anterior requirement of it reaching the culmination of 'preparation activities' for the Acceptance Tests.
Therefore, I conclude, in the end, that AB did become entitled as at 13 September 2015 to receive from WEJ a payment tied its satisfaction of milestone K4 and with interest accruing from that date - which was the first occasion that the FPSO Facility was able to run for a full required 72 hour OET test period, upon that (ultimately unsuccessful) sustained attempt to satisfactorily complete the OET. The fact AB did not satisfactorily perform the OET then or ever does not detract from the achievement by it of its preparedness to attempt the last of the Acceptance Tests, at 13 September 2015.
B11 and K4 Milestone Claims conclusions
Accordingly, I conclude at the end that WEJ is liable to pay AB, first in relation to Milestone B11, the sum of $US50 plus GST and, second, for Milestone K4, the sum of $US2 million plus GST.
Further sundry mutual claims
Overview
AB and WEJ also advance as against each other a variety of miscellaneous fiscally minor (relatively speaking) claims and cross claims, which must also be addressed.
Again, as was the case in relation to the Milestone Claims, all these issues were addressed only by written submissions, without being canvassed verbally by counsel at trial.
These further claims include asserted claimed repayments, or for refunds of various amounts including redundancy costs, logistics payments and insurance policy refunds.
AB pleads out its claims in relation to its allegedly unpaid invoices by WEJ under pars 54A - 54E of the 4FASOC. Those paragraphs relate:
Unpaid FPSO Facilities Services Fee Invoices
54A.From the date of issuing the Certificate of Production Test the defendant was obliged to pay the plaintiff the Performance Adjusted FPSO Facilities Services Fee within 30 days from the receipt of a valid invoice.
54B.On 9 June 2016 the plaintiff issued an invoice in the amount of $US721,878.97 (including GST) (being an equivalent of $AUD967,977.59 (including GST)) for work related to in relation to D1. Facilities Services for April 2016.
54C.The Company has not paid the $US721,878.97, by the due date or at all.
54D.On 15 June 2016 the plaintiff issued a Credit Note in favour of the defendant in the amount of $AUD626,812.30 (including GST) in relation to services provided in April 2016 and purchase of fuel.
54E.As a result of the matters pleaded in paragraphs 54A to 54D above, the defendant is liable to pay the plaintiff $AUD341,165.29, being the $AUD967,977.59 invoiced less the $AUD626,812.00 credited. (particulars excluded)
WEJ in its pleaded response acknowledged that it owed AB a monetary amount for these claims, but then contended that any such sum should be set off against the other amounts WEJ contended were owed to it by AB.
Relevantly, the 4FRADAC of WEJ expressly admitted pars 54A - 54D above. But then, by pars 54E - 54G it was further contended by WEJ, as follows:
54E.The defendant denies paragraph 54E of the Statement of Claim and says that by reason of the matters set out below, the defendant is not liable to pay any amounts to the plaintiff:
(a)on 29 January 2016, the plaintiff issued an invoice in the amount of AUD$1,915,133.45 (excluding GST) which included amounts totalling AUD$389,098.96 (excluding GST) for various crew insurance policy renewals for the period 31 December 2015 to 31 December 2016;
(b)on 24 February 2016, the defendant paid the full amount of the invoice described in paragraph 54C(a) above;
(c)on 8 June 2016, the plaintiff issued an invoice in the amount of AUD$3,120,013.98 (excluding GST) which included amounts for redundancy costs in the sum of AUD$1,348,384.00 (excluding GST) being an amount which the plaintiff had no entitlement to invoice and which the defendant was not obliged to pay;
(d)on 15 June 2016, the plaintiff issued the credit note referred to in paragraph 54D of the Statement of Claim, which included estimates of logistics back charges and MDO fuel on board;
(e)on 29 June 2016, the defendant paid the full amount of the invoice described in paragraph 54C(a) above in error;
(f)by reason of the termination of the Services Agreement on 4 March 2016, the defendant was entitled to a refund from the plaintiff of an amount of AUD$291,824.20 (excluding GST) for the portion of pre-paid crew insurance policy renewals from 1 April 2016 to 31 December 2016; and
(g)on 24 October 2016, the defendant wrote to the plaintiff:
(i)demanding a refund of the amount of AUD$1,348,384.00 (excluding GST) incorrectly paid in respect of redundancy costs to be paid within 21 days; and
(ii)requesting a credit in the amount of AUD$291,824.20 (excluding GST) for the unused portion of crew insurance paid by the defendant as described in paragraph 54C(b) above to be credited within 21 days;
(h)despite the demand pleaded in (g) above, the plaintiff has not repaid the amounts pleaded above totalling AUD$1,640,208.20.
(i)separately on 24 October 2016, the defendant issued invoice 18000021031036 and 18000021021036 which provided the actual charges in respect of the logistics back charges and MOO fuel on board pleaded in (d) above.
(j)the defendant is entitled to AUD$11,519.12 (excluding GST) being the difference between the estimated amount in the credit note pleaded in (d) above and the actual amount invoiced pleaded in (i) above.
54F.By reason of the matters pleaded in paragraph 54E above, the plaintiff is liable to pay the defendant the amount of AUD$1,651,727.32 (excluding GST).
54G.The defendant will seek to set off so much of the sum of AUD$1,651,727.32 (excluding GST) as may be necessary in satisfactions or extinction of the plaintiff's claims herein. (particulars excluded)
Responding to these issues, WEJ's written closing submissions, at pars 693 - 696, said this:
11.UNPAID INVOICES CLAIM
693All amounts in this section are set out in Australian dollars, excluding GST, unless otherwise stated.
694[AB] claims $341,156.29 from [WEJ], which represents the balance of an invoice issued by [AB] on 9 June 2016 [ARM.028.001.5788] after applying a credit note issued by [AB] on 15 June 2016 [ARM.028.001.5790].
695[WEJ] admits that it owes [AB] that amount, but contends that it should be set off against other amounts owed to [WEJ] by [AB].
696The other amounts owed to [WEJ] by [AB] are:
(a)$291,824.20 for pre-paid crew insurance policy renewals;
(b)$1,348,384.00 for incorrectly paid redundancy costs; and
(c)$11,519.12 for the difference between estimated and actual amounts payable for logistics backcharges and MDO fuel on board.
Accordingly, it must now be also determined which of the above amounts, if any, as mentioned by the 4FRADAC and WEJ's written closing submissions were actually owed or otherwise by AB.
Crew Insurance Policy Renewals
The parties are agreed that, on 29 January 2016, AB issued to WEJ an invoice in the amount of $AUD1,915,133.45, and also that WEJ subsequently paid that amount to AB. Included within this invoice is $AUD389,089.96 - a sum allocated for various crew insurance policy renewals over the period of 31 December 2015 to 31 December 2016.
WEJ claims back from AB a partial refund of 75% of this insurance payment, on the basis the SA was terminated and so, during most of that insurance period (ie, from 3 April 2016).
WEJ argues it should not be required to reimburse AB for a crew insurance premium beyond the termination date of the performance of the SA. Therefore, WEJ claims a reimbursement sum for three-quarters of that 12-month payment amount period of $AUD291,824.20 (ie, between April 2016 and December 2016).
By par 701 of its written closing submissions, WEJ says towards this issue:
701The credit note dated 15 July 2016 shows that the Seafarers Workers Compensation Policy was effectively cancelled on 22 April 2016, nearly a month after the FPSO Facility was demobilised from the Balnaves Field, and 49 days after the Services Agreement was terminated. The latest credit note is dated a full year after the Services Agreement was terminated.
AB then accepts that WEJ is due a partial refund on the crew insurance premium. But it disputes the quantum of that partial refund.
AB instead submits that WEJ is only entitled to the amount actually refunded to it by its insurer, namely, an amount of $AUD207,399.08.
AB further submits by par 887 of its closing submissions:
887[AB] rejects [WEJ's] assertion that it delayed in cancelling the Seafarers Workers Compensation Policy. In fact, the Armada Claire only demobilised from the Balnaves field on 2 April 2016 [ARM.076.001.0011] and arrived at the Galang Anchorage in Batam, Indonesia on 19 April 2016. The insurance was required throughout this period of time because there were still workers aboard the Armada Clare [sic]. There was therefore no delay in cancelling the insurance policy. In any event, there is no evidence to suggest that there is a discrepancy in the amounts [AB] was refunded due to any supposed delay.
As seen earlier, I have now concluded that by reason of the WEJ Notice of Termination given to AB of 4 March 2016, that taking effect 30 days thereafter at 3 April 2016, the future performance of the SA from that time was then ended. There is certainly then a basis for there to be a refund of the 12 month period insurance premium paid by AB for unused crew insurance over a full calendar year to the end of 2016. Equally clearly, AB would be unjustly enriched as against WEJ, if it were left to retain the benefit of the full reimbursement amount of the refund it received of that crew insurance premium it actually received back from the insurer. Nevertheless, AB should not have to refund to WEJ any more than that refund amount that it got back from its insurer and then held, on my assessment, to its benefit.
Accordingly, I assess that AB's lesser amount position regarding the crew insurance policy renewals is to be preferred.
I find that AB owes WEJ $AUD207,399.08 in respect of the crew insurance policy premium refund received back from the insurer, from the time that refund amount was received by AB from the crew insurer.
Redundancy Costs
AB and WEJ each agree that WEJ was issued with an invoice by AB in the amount of $AUD3,120,013.98, on 8 June 2016. This claim included redundancy costs in the amount of $AUD1,348,384.00. The parties also agree that the invoice was subsequently paid by WEJ. The parties are in dispute over whether WEJ is entitled to anything back from AB in relation to the claimed and paid redundancy costs amount as received by AB.
By par 16 of AB's reply, AB pleads:
16.With respect to paragraph 54E of the Further Amended Defence, the plaintiff:
...
(c)admits that on 8 June 2016 the plaintiff issued an invoice in the amount of AUD$3,120,013.98 (excluding GST) which included amounts for redundancy costs in the sum of AUD$1,348,384.00 (excluding GST) but denies each and every other allegation in sub-paragraph (c) and says further that, by reason of the defendant's repudiation of the Services Agreement as pleaded by the Plaintiff's statement of claim, the defendant was obliged to pay the full amount of the invoice in accordance with clause J1 of Annexure D of the Services Agreement and is not entitled to a refund; (my emphasis added)
Further, by its written closing submissions, AB contends:
883[AB] submits that if it [is] successful in establishing that [WEJ] repudiated the Services Agreement by way of its purported termination on 4 March 2016, [WEJ] was obliged to pay the full amount of the invoice ...
884... [AB] submits that a repudiation by [WEJ] constitutes termination for 'Company default' and accordingly, if [AB] is successful in establishing that [WEJ] repudiated the Services Agreement, it follows that [WEJ] is not entitled to a refund for redundancy costs. (my emphasis added)
By response, WEJ's written closing submissions at par 697 said:
697[AB] admits that:
...
(c)[WEJ] paid $1,348,384.00 in redundancy costs, and that [AB] will be obliged to refund that sum if the Court finds that [WEJ] lawfully terminated the Services Agreement.
As is now earlier resolved by these reasons, in the end, I do not find that WEJ had repudiated the SA. Rather, I concluded to the contrary -namely, WEJ had lawfully terminated the future performance of the SA, effective at 3 April 2016.
WEJ submits AB (by implication) has admitted that it would be liable to repay WEJ the redundancy costs amount which WEJ paid over to it meeting AB's invoice of 8 June 2016. Albeit not expressly conceded, that outcome looks to me to logically follow from the failed trial premise of AB as to its holding of this amount as was paid to it by WEJ.
AB has not directly addressed the prevailing circumstances - namely, its liability to repay the redundancy costs amount, for the circumstance where I have now found that WEJ did not repudiate the SA.
It is worthwhile, at least briefly, to consider the merits of AB's entitlement to receive a reimbursement of redundancy costs from WEJ.
Annexure D of the SA presents towards this issue:
DESCRIPTION
INFO
UNIT
COST (A$ or US$)
J
PERMANENT OFFSHORE PERSONNEL SALARY AND DIRECT BENEFIT COSTS
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J.1
PERMANENT OFFSHORE PERSONNEL SALARY & DIRECT BENEFITS COSTS
At Cost
The [WEJ] shall reimburse [AB] the direct costs to employ the [AB's] Core Crew as approved by [WEJ]. Direct per person costs shall include employment taxes, workman's compensation, superannuation, bonus or other direct benefits as approved by company, and redundancy costs at the end of the Service Term due to termination by the [WEJ] for convenience or for [WEJ] default.Payments to [AB] shall be net of any overheads, margins or profits. (my emphasis in bold)
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Given that the SA criteria for a redundancy payment under J.1 are not engaged by AB, and in the absence of any contrary submission from AB, I conclude that WEJ had only an obligation to reimburse redundancy costs in the circumstances as outlined, namely, where there had been a 'termination by [WEJ] for convenience or for [WEJ's] default'. On the trial facts as now found, there was neither such event.
As now seen, the SA defines the circumstances under which the SA may be terminated by the 'Company' for convenience, or by AB in response to a default (see Articles 10.1 and 10.4 respectively).
Neither of those circumstances has ultimately been engaged with by AB at the end of this trial. There was, therefore, no corresponding legal obligation upon WEJ to make redundancy payments to AB. A payment by WEJ of that redundancy amount as was invoiced to it would be a case of moneys paid to AB, under a mistake of fact or of law. Accordingly, I conclude that WEJ is entitled by restitution to repayment by AB of the redundancy costs amount which it mistakenly had paid over to AB on the invoice of $AUD1,348,384.00.
Logistics backcharges and MDO fuel
A final, again relatively minor, claim that still must be dealt with relates to a purported difference over logistics back charges and Marine Diesel Oil (MDO) fuel. Relevantly, the 4FRADAC at par 54E for this issue pleads:
54E.The defendant denies paragraph 54E of the Statement of Claim and says that by reason of the matters set out below, the defendant is not liable to pay any amounts to the plaintiff:
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(d)on 15 June 2016, the plaintiff issued the credit note referred to in paragraph 54D of the Statement of Claim, which included estimates of logistics back charges and MDO fuel on board.
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(i)separately on 24 October 2016, the defendant issued invoice 18000021031036 and 18000021021036 which provided the actual charges in respect of the logistics back charges and MDO fuel on board pleaded in (d) above.
(j)the defendant is entitled to AUD$11,519.12 (excluding GST) being the difference between the estimated amount in the credit note pleaded in (d) above and the actual amount invoiced pleaded in (i) above. (particulars excluded)
Responding to those pleas, AB's Reply had said this, at par 16:
16.With respect to paragraph 54E of the Further Amended Defence, the plaintiff:
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(d)admits sub-paragraph (d);
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(i)admits sub-paragraph (i); and
(j)admits sub-paragraph (j) but says that any amounts owing to the defendant ought to be set off against so much of the sum claimed by the plaintiff in its statement of claim as may be necessary in satisfaction or extinction of the defendant's claim.
Given all the above, I conclude AB also owes WEJ $AUD11,519.12, being the difference as between the estimated and actual amounts payable for logistics backcharges and MDO fuel on board.
That amount, as with the other amounts now discussed above in this Part, can then be set off against the monetary amount otherwise payable to AB by WEJ for AB's satisfaction of milestone K4.
Conclusions as regards sundries claims
In the end, with issues of interest set aside, to be resolved later if necessary after the publication of these reasons, I assess as regards these various amounts as claimed, set off or cross claimed, that:
(a)for the Milestone Claims, WEJ owes AB $US2,000,050.00;
(b)for the further mutual claims determined under Part V:
(i)WEJ owes AB $AUD341,165.29 (for unpaid invoices see par 54E of the 4FASOC which was not disputed);
(ii)AB owes WEJ $AUD207,399.08 (for reimbursement of crew insurance policy renewals);
(iii)AB owes WEJ $AUD1,348,384.00 (for incorrectly paid redundancy costs) and;
(iv)AB owes WEJ $AUD11,519.12 (for essentially admitted logistics backcharges and MDO fuel adjustment amounts).
CONCLUSION AS REGARDS FINAL ORDERS
The parties will now be provided with these reasons before any final orders are made. They should confer within a seven (7) day period after their receipt and (hopefully) provide an agreed minute of orders giving effect to these orders. Absent agreement, the parties are to provide their rival minutes to my Associate within 48 hours of that seven-day period and the matter can be listed for the making of final orders.
I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
DW
Associate to the Honourable Justice Martin
24 JANUARY 2020
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