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Farstad Supply AS v Enviroco Ltd
Factual and Procedural Background
On 7 July 2002 an oil-rig supply vessel berthed in The City harbour caught fire. The vessel was owned by Plaintiff and was under charter to Company A. Company A had engaged Defendant to clean tanks on board. While the engines were being started on Company A’s instructions, an employee of Defendant accidentally opened a valve, releasing oil that ignited in the engine-room and damaged the vessel.
Plaintiff sued Defendant in negligence. For the appeal it was assumed that Defendant would be liable. Defendant sought a contribution from Company A under section 3(2) of the Law Reform (Miscellaneous Provisions) (Scotland) Act 1940 (the “1940 Act”), alleging concurrent negligence by Company A. The relevant charterparty between Plaintiff and Company A contained clause 33.5, allocating risk for damage to the vessel.
The Lord Ordinary (Judge Hodge) held that no contribution was available (2008 SLT 703). An Extra Division of the Inner House allowed Defendant’s reclaiming motion by majority (2009 SC 489). With the Court of Session evenly divided, Plaintiff appealed to the Supreme Court to restore the Lord Ordinary’s decision.
Legal Issues Presented
- The proper construction of section 3(2) of the 1940 Act.
- Whether a contractual defence in a pre-existing charterparty can be considered when asking if a person “if sued, might also have been held liable” under section 3(2).
- If so, whether clause 33.5 of the charterparty removes any liability of Company A to Plaintiff, thereby defeating Defendant’s claim for contribution.
Arguments of the Parties
Defendant's Arguments
- Company A owed a duty of care concurrent with its contractual obligations; absent the charterparty defence it would be a joint tortfeasor.
- Section 3(2) should ignore contractual defences unknown to Defendant; otherwise the right to contribution could be defeated by private arrangements (“whim”) of the victim.
- Clause 33.5 is at most an indemnity, not an exclusion. Even if an indemnity existed, Scottish principles against circuity should not prevent a decree establishing liability for contribution purposes.
Plaintiff's (and Company A’s) Arguments
- Section 3(2) only operates where the putative contributor would actually be liable to the plaintiff; contractual defences are therefore directly relevant.
- Clause 33.5 expressly obliges Plaintiff to “defend, indemnify and hold harmless” Company A for any damage to the vessel, even if caused by Company A’s negligence; this amounts to an exclusion of liability.
- Alternatively, if clause 33.5 is merely an indemnity, Scots and English doctrines of circuity (or frustra petis quod mox es restiturus) would bar any decree against Company A; hence it could not “be held liable” under section 3(2).
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Comex Houlder Diving Ltd v Colne Fishing Co Ltd (1987 SC (HL) 85) | Explained pre-1940 common-law pro-rata contribution; recognised formal settlement decree sufficing for s.3(2). | Provided historical context for the 1940 Act and scope of “found liable”. |
| Dormer v Melville Dundas & Whitson Ltd (1989 SC 288) | Interpretation of “if sued” – assumes competent and timeous suit. | Cited to show preliminaries to liability must be satisfied. |
| Central SMT Co Ltd v Lanarkshire CC (1949 SC 450) | Same interpretation of “if sued”; contribution not defeated by limitation expiry. | Distinguished; here contractual defence, not procedural bar. |
| Singer v Gray Tool Co (Europe) Ltd (1984 SLT 149) | Pursuer’s abandonment does not affect contribution rights. | Majority below relied on dictum; Supreme Court held it inapplicable to contractual defences. |
| Taft v Clyde Marine Motoring Co Ltd (1990 SLT 170) | Further discussion of “if sued”. | Referenced in background on section 3 interpretation. |
| George Wimpey & Co Ltd v BOAC ([1955] AC 169) | Test date for “could have sued”. | Cited in Lord Hope’s survey of case law. |
| Post Office v Hampshire CC ([1980] QB 124) | Circuity of action in English law. | Used to show that, even if clause 33.5 were an indemnity, any decree would be barred. |
| Workington Harbour and Dock Board v Towerfield (Owners) ([1951] AC 112) | Scottish brocard equivalent to circuity: frustra petis quod mox es restiturus. | Applied as alternative ground defeating contribution. |
| French Marine v Compagnie Napolitaine ([1921] 2 AC 494) | Illustration of brocard in contract context. | Supported argument on futility of judgment where immediate indemnity exists. |
| Nordic Travel Ltd v Scotprint Ltd (1980 SC 1) | Recognition of the brocard in Scots authority. | Cited in Lord Hope’s reasoning on circuity. |
| Travers v Neilson (1967 SC 155) | Earlier comment that pursuer could defeat contribution by “whim”. | Contrast drawn with later authority. |
| Herrick v Leonard & Dingley Ltd ([1975] 2 NZLR 566) | Common-law jurisdictions deny contribution where contract excludes liability. | Shown to align with present decision. |
| Giffels Associates Ltd v Eastern Construction Co Ltd ([1978] 2 SCR 1346) | Canadian authority: contribution denied where plaintiff’s contract bars claim. | Analogous support for court’s construction. |
| Bow Valley Husky (Bermuda) Ltd v Saint John Shipbuilding Ltd ([1997] 3 SCR 1210) | Followed Giffels on same point. | Reinforced comparative approach. |
| Laing Property Corp v All Seasons Display Inc (2000) 190 DLR (4th) 1 | Further Canadian application of same principle. | Referenced by Lord Rodger. |
| Rover International Ltd v Cannon Film Sales Ltd ([1989] 1 WLR 912) | Circuity of action in English contract claims. | Cited to demonstrate that any decree against Company A would be barred. |
Court's Reasoning and Analysis
Interpretation of the 1940 Act. The Court read subsection 3(2) alongside subsection 3(1). Contribution is available only where the third party would actually be liable to the plaintiff if sued; liability must be assessed with all substantive defences in play. Authorities treating limitation and procedural bars as irrelevant do not apply where liability is substantively negated by contract.
Application to the Facts. Whether Company A “might also have been held liable” therefore turns on the charterparty. Clause 33.5 obliges Plaintiff to “defend, indemnify and hold harmless” Company A for any loss or damage to the vessel, “irrespective of the cause … including negligence of the Charterer.” The Court construed these words, in context with the heading “Exceptions/Indemnities” and parallel clauses, as an exclusion of Company A’s liability to Plaintiff, not merely an indemnity against third-party claims.
Alternative Ground. Even if clause 33.5 were only an indemnity, any decree against Company A would be barred by the English doctrine of circuity of action (and its Scottish counterpart). A judgment that one party is liable but immediately entitled to be repaid would be “useless,” so no liability could be found for contribution purposes.
Policy Considerations. The Court rejected the view that giving effect to a contractual allocation of risk was “inequitable” or allowed the plaintiff a “whim.” Parties are free to arrange their liabilities; third-party wrongdoers cannot demand contribution contrary to that allocation.
Holding and Implications
HOLDING: The appeal is allowed; the Inner House’s interlocutor of 1 May 2009 is recalled and the Lord Ordinary’s interlocutor of 23 April 2008 is restored. Defendant is not entitled to contribution from Company A.
Implications: The decision confirms that, under section 3 of the 1940 Act, a third party must be substantively liable to the plaintiff before contribution can be sought; contractual risk-allocation clauses are fully effective in defeating such claims. No new precedent is set beyond clarifying the interaction between statutory contribution rights and contractual exclusions.
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