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In Re the Buncefield Incident – Joint Ventures and Indemnities for Negligence
London & Bermuda Newsletter
In a judgment dated 20 March 2009, Mr Justice Steel decided the largest piece of litigation of 2008: Who is liable for the biggest peace time explosion in UK history as well as determining principles to apply when dealing with indemnity clauses in joint venture agreements.
Background facts
At about 0600 on Sunday 11 December 2005, a cloud of petrol fumes exploded at the Buncefield oil storage tank farm. The costs of the explosion to parties in the vicinity were estimated in excess of £1 billion. The cause of the explosion was traced back to the overfilling of a petrol storage tank and subsequent escape of a petrol “mist cloud” covering an estimated 100,000 square metre area.
The tank was owned by Hertfordshire Oil Storage Limited (HOSL). HOSL was a joint venture owned by Total as to 60 percent and Chevron as to 40 percent.
Summary judgment was given against Total and HOSL for the various claimants who suffered property damage in the explosion. Either one was to be held liable for seven negligent acts which caused the explosion.
The dispute between Total, HOSL and Chevron was that to the extent Total was liable for any of the amounts in the claim, Chevron had indemnified Total in the joint venture agreement and associated management contracts.
Contractual indemnity
Steel J reiterated and applied the test of Lord Morton in Canada Steamship Lines Ltd v R [1952] AC 192. Where a party wishes to rely on a clause for a “purported” indemnity for their own negligence, the court will consider the clause in three stages:
1. If the clause expressly covers the negligent acts of the party or their agents, then the court will give effect to that clause.
2. If the clause does not expressly cover negligence, then the court will consider if the words used are wide enough to cover the negligent acts. Any doubt in the interpretation must be considered “contra preferens”, that is, against the party attempting to rely on the clause.
3. If the wording of the clause is wide enough to cover the negligence, then the court will consider it if the wording is actually intended to cover another head of damage that may be based on some other ground than that of negligence.
The bottom line
Based on the upholding of previous judgments on this matter, parties to a contract should be clear as to the exact perils they wish to provide an indemnity for. Equally, where an indemnity appears to cover negligent acts, careful consideration should be given as to whether the clause does in fact extend to the acts in question.
Re the Buncefield Incident [2009] EWHC 540 (Comm) (20 March 2009).
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