Enterprise Oil Ltd v Strand Insurance Company Ltd [2006] EWHC 58 (Comm)

[2006] EWHC 58 (Comm)

Case No 2003/868

IN THE HIGH COURT OF JUSTICE

QUEEN'S BENCH DIVISION

COMMERCIAL COURT

Venue Royal Courts of Justice, Strand, London, WC2A 2LL

Date 26/01/2006

Before

MR JUSTICE AIKENS

Between

ENTERPRISE OIL LIMITEDClaimant

STRAND INSURANCE COMPANY LIMITEDDefendant

Mr T Beazley QC and Mr Andrew Hunter (instructed by, Clyde & Co Solicitors, London) for Claimant

Mr Alistair Schaff QC and Mr Simon Kerr (instructed by Barlow Lyde & Gilbert, Solicitors, London) for Defendant

Hearing Hearing dates: 4 th, 5 th, 6 th, 10 th, 11 th and 19 th October 2005

Further Written Submissions – 26 th October, 4 th November and 16 th December 2005

Judgment

Mr Justice Aikens :

I.The Parties and the background to the claim

[1]This action is a claim for an indemnity under a liability policy placed by the Claimant with its captive insurance company, the Defendant. The right to indemnity is said to arise from the Claimant’s liability to pay its proportion of a Settlement Agreement with certain plaintiffs in proceedings brought in Texas, USA. The Settlement Agreement was concluded on 14 March 2002.

[2]Enterprise and the Operating Agreement with Enterprise and others: The Claimant in these proceedings, (“Enterprise”), is an oil company. It is now part of the Shell/Royal Dutch Group of companies. Under an Operating Agreement dated 10 January 1990, between AMOCO (UK) Exploration Company (“Amoco”), Enterprise and Amerada Hess Limited (“Amerada Hess”), those three oil companies agreed to explore and develop certain North Sea oil fields, including the Arbroath field. Enterprise had the largest share in the field (41.03%). The shares in the field of Amoco and Amerada Hess were, respectively, 30.77% and 28.2%. Amoco was the Operator of the field under the Operating Agreement.

[3]The RGV drilling contract between Amoco and BAO: By a Contract dated 26 September 1997, (“the RGV Contract”), Amoco agreed with an English company, British American Offshore Limited, (“BAO”), to hire a Jack-up Drilling Unit known as “Rowan Gorilla V” (“RGV”). Under the RGV Contract the rig was to “drill, test (as required) complete, suspend and/or abandon” one or more wells in the North Sea. The RGV Contract was to continue for a term of at least one year. The Operating Hire Rate for RGV was US$ 175,000 per day. Amoco intended to use the RGV initially for drilling in the Arbroath field, although that field was not particularly stipulated in the RGV Contract.

[4]At the time that the RGV Contract was concluded between Amoco and BAO, BAO was a wholly owned subsidiary of Rowan Companies Inc (“Rowan”), which is a well – known drilling company based in the USA. In September 1997, the RGV was being constructed by a company called Le Tourneau Inc. which is also a subsidiary of Rowan. When completed, RGV was owned by Rowan.

[5]The Relationship between Rowan and BAO; the Service Agreement: Under a Contract dated 1 January 1991, between Rowan and BAO (“the Service Agreement”), Rowan had agreed with BAO that the latter would enter into contracts (to be obtained by Rowan) for the performance of Marine Oil and Gas Drilling Services to be conducted in the UK Sector of the North Sea. BAO and Rowan further agreed in this Service Agreement that once BAO had entered into the drilling contracts, it would then sub-contract the performance of the drilling services to Rowan. Clause 1(a) of the Service Agreement stipulates that Rowan will perform all of the duties and obligations assumed by BAO under drilling contracts it has concluded, including all services, equipment and personnel that BAO had contracted to provide. Clause 2(b) of the Service Agreement provided that, in consideration of Rowan performing the drilling and related services on behalf of BAO, BAO would pay to Rowan “a sum equal to 100% of all day rate billings collected by BAO pursuant to ……” the drilling contracts that BAO had entered into with others.

[6]Delivery of RGV and the disputes that arose between Amoco and BAO: Under the RGV Contract, the RGV was delivered by BAO to Amoco in Rotterdam on 15 December 1998. On 19 January 1999, Amoco purported to terminate the RGV Contract. Amoco claimed that it was entitled to do this because the delivery of the RGV was delayed and the RGV was defective. Amoco asserted that the RGV was unsafe and not fit for the purpose for which it had been contracted. Enterprise, as one of co-venturers in the Arbroath field, agreed to and supported the termination of the RGV Contract by Amoco.

[7]Legal proceedings: These events led to two sets of legal proceedings, one in the Commercial Court in England and the other in Texas, USA. Both proceedings were started on 19 January 1999, the day that Amoco purported to terminate the RGV Contract.

[8]Proceedings in England: The Commercial Court proceedings were between Amoco and BAO and were started by Amoco. Amoco claimed a Declaration that its termination of the RGV Contract was valid. Amoco also claimed damages for wasted costs. BAO counterclaimed for Declarations that the termination by Amoco was invalid. BAO also counterclaimed for payment of the Daily Hire Rate under the RGV Contract for the period from 25 December 1999 to 22October 1999. That was the date when BAO accepted what it regarded as Amoco’s wrongful repudiation of the RGV Contract on 19 January 1999. BAO counterclaimed also for damages at the Daily Hire Rate for the period from 22 October 1999 until 25th December 1999, i.e. for the period from BAO’s acceptance of Amoco’s repudiatory breach of contract until the expiry of the one year term of the RGV Contract. The principal sum counterclaimed by BAO was therefore some US$ 65million. Other sums were also counterclaimed by BAO.

[9]The Commercial Court trial took place before Langley J between January 2001 and October 2001 and lasted 85 days in Court. Langley J handed down his judgment on 16 November 2001. He concluded that Amoco had no right to terminate the RGV Contract, either under its terms or at common law. He awarded hire, damages, and interest against Amoco totalling US$73,367,570.13 and £873,065.84. Langley J awarded the standby daily hire rate until 22 October 1999 and then damages for wrongful repudiation until the end of the one year period of the contract. After a further hearing on costs, Langley J awarded BAO costs on an indemnity basis. These costs totalled £9.7 million.

[10]Enterprise was not a party to this English litigation. However, it was obliged to contribute to the sums awarded against Amoco under the terms of the Operating Agreement with Amoco. Enterprise contributed US$ 17,945,768.16 as to the hire and damages sum and £2,579,439.46 in respect of the costs awarded against Amoco.

[11]The Texas Proceedings: The second set of proceedings following the termination of the RGV Contract took place in Texas (“the Texas Proceedings”). The Claimants in those proceedings were Rowan and various US associated companies. The Defendants in the Texas proceedings were Enterprise, BP Amoco Corporation, BP Amoco Plc and other BP or Amoco companies, together with Amerada Hess. In those proceedings, Rowan alleged against Enterprise that it had committed a variety of torts under Texas law. The pleadings went through various amendments. The final form, the 8th Amended Petition This was served on 27 September 2001, that is before the judgment of Langley J was handed down on 16 November 2001. asserted five causes of action against various defendants, including Enterprise. The most important allegation, for the present, was that Enterprise had tortiously interfered with the Rowan/BAO Service Agreement and had tortiously interfered with prospective contractual and business relationships. The other causes of action alleged were: anti – trust claims; fraud (in the performance of the RGV contract), civil conspiracy and tortious and wrongful conduct. Under each cause of action Rowan claimed recovery of monies which it would have received “but for” the particular tort alleged, such as the tortious interference. Rowan also claimed consequential losses arising out of the termination of the RGV contract and for a loss of cash – flow. Rowan also claimed punitive damages.

[12]The most important of these consequential loss claims feature heavily in the present action. First, Rowan claimed that “but for” the tortious interference, it would have engaged in a programme to buy – back Rowan stock during January – February 1999 and then resold that stock in February 2000, at a profit of some US$52 million. This head of claim was pleaded for the first time in the 8th Amended Petition, served in September 2001. Secondly, Rowan claimed the cost of relocating RGV and five other rigs from the North Sea to the Gulf of Mexico. Thirdly, it claimed loss of profits on the employment of the other rigs which were moved from the North Sea to the Gulf of Mexico.

[13]The judge in the Texas proceedings ordered that there be a mock jury trial before the real trial was due to begin. The mock jury trial took place on 3 December 2001. Each side made presentations for 2 hours and then the judge gave a written direction to the jury. The mock jury found for Rowan on the claim for tortious interference. It also found for Rowan on the claim for “fraud in the performance” of the RGV Contract. The mock jury awarded US$85 million damages. These damages comprised loss of the rig contracts, mobilisation costs and loss of “company value”. But the mock jury awarded nothing for losses relating to the stock buy – back claim. This last head of claim is now said by Enterprise to have formed the main element in the Texas settlement deal between the Enterprise defendants and the Rowan plaintiffs.

[14]Settlement of the Texas proceedings: Discussions to settle the Texas Proceedings were begun shortly after the mock jury trial in December 2001. A Settlement Agreement was signed on 14 March 2002 (“The Settlement Agreement”). The Settlement Agreement was concluded after Langley J’s judgments on liability and costs, but before the trial in Texas had started. Under the Settlement Agreement, the Defendants (including all the BP/Amoco parties and Enterprise) agreed to pay to the Rowan plaintiffs a sum of US$175 million. The Settlement Agreement specifically recorded that the settlement sum of US$175 million included US$73,575,617.45 and £75,553.48 which had already been paid by Amoco to BAO in partial satisfaction of the Langley J judgment. The US$175 million figure also included a sum of £11,200,000 which had previously been paid by Amoco to BAO in full and final settlement of BAO’s costs in the Commercial Court action. The total balance to be paid under the Settlement Agreement was, therefore, US$84,220,025.07. The sum was paid in full and final settlement of the Texas proceedings and on condition that Amoco withdraw its pending appeal against the judgment of Langley J.

[15]The Settlement Agreement provided that the liability of the defendants would be joint and several. The defendants decided between themselves what sums each should pay. However, the Settlement Agreement did not apportion particular sums (within the US$84,220,025,07) to particular causes of action or heads of damages claimed. It simply referred to the fact that Rowan and the other plaintiffs asserted “various tort claims” against the BP/Amoco parties; that the parties wished to settle the action and that it was agreed that it would be settled in the manner I have set out above. Preamble and Clause 1 of the Settlement Agreement: E/TAB 3/page 254. This structure of the Settlement Agreement, or rather the lack of it, potentially gives rise to one of the most difficult legal issues in the case which arise because of the decision of Colman J in Lumbermen’s Mutual Casualty Company v Bovis Lease Lend Limited.

[2005] 1 Lloyd’s Rep 494

. The point is explored below. Both counsel described this as a “very controversial” decision.

[16]Enterprise paid to the Rowan Plaintiffs its share of the outstanding amount of US$84,220,025.07 that was due under the Settlement Agreement. Enterprise’s share constituted US$20,541,757.64. It is this payment This sum is calculated on the basis that Enterprise had a 24.39% share in the Arbroath Field, and the RGV would have been used for 217 days of the 365 days of the RGV Contract: Wilson statement para 57: B/Tab 1/page 14. pursuant to the Settlement Agreement that has led to the current Commercial Court action against the Defendants (ie. Strand). Originally in the current proceedings Enterprise had also claimed indemnity in respect of its share of liability arising out of the judgment of Langley J, together with a portion of the costs. That part of the claim was dropped before the trial began. In the current action Enterprise alleges that it would have been or may have been liable to Rowan in the Texas action for the tort of wrongful interference of the Rowan/BAO Service Agreement. But, importantly, Enterprise accepts that it would not have been liable for any of the other causes of action alleged by the Rowan Plaintiffs in the Texas action.

[17]The Defendant, Strand, and the Liability Policy: Strand is the captive Insurance Company of Enterprise. Strand is wholly owned by the Claimant. Strand concluded a Package Insurance Policy (policy number 551/S622019) with Enterprise and issued a policy dated 1 August 1996 (“the Policy”). The Policy term was extended to include coverage for the policy year starting on 30 June 2000. Section IV(a) of the Policy is entitled “Occurrence Liabilities”. Under this section Strand agreed to indemnify Enterprise: “For all sums which the Insured [i.e. Enterprise] may be obligated to pay by reason of liability imposed on the Insured by law or assumed under Contract or Agreement (written or oral) or otherwise, on account of personal injury and/or bodily injury and/or loss of life and/or loss of and/or damage to tangible property, (including loss of use following physical loss of or damage to property or persons) arising out of an occurrence occurring during the period of this Policy, all in connection with the Offshore/Marine and/or waterborne and/or airborne operations of the Insured wheresoever occurring”.

[18]Enterprise claims that by being party to the Settlement Agreement, it has incurred liability “on account of personal injury” as defined in the Policy and that this entitles it to be indemnified for its share of the sums paid to Rowan, pursuant to the terms of Section IV(a) of the Policy terms.

[19]Reinsurance by Strand: Strand placed reinsurance on the Lloyd’s and UK and Overseas Companies Markets on terms that were effectively “back to back” with the Policy terms. Under the terms of the the reinsurance, the Reinsurers have the right to exercise claims control for Strand concerning the claim brought by Enterprise against Strand. Effectively it is the Reinsurers that are disputing the claim by Enterprise, although they are doing so in the shoes of Strand. Therefore it is the validity of Enterprise’s claims against Strand under the Policy which is in issue in this case.

[20]The Present Trial: The trial before me took place on 4, 5, 6, 10 and 11 October, when I heard opening submissions and oral evidence from Mr Andrew Wilson, the Head of Legal Affairs at Enterprise from 1997 to 2002, and also Thomas S Kilbane, a lawyer with the US firm of Squires, Sanders & Dempsey LLP. Both called on behalf of the Claimants. I read the witness statement of Ian George Craig, who had been the General Manager of Enterprise’s UK and Ireland Business Unit from 1997 to 1999, but he was not required for cross – examination. I heard expert evidence on Texas law from Mr William Robert Pakalka (for Enterprise) and Mr Kent Ewing Westmoreland (for Strand). Both experts were extremely helpful to the court on Texas law issues. The parties prepared written closing submissions and there were short supplementary oral submissions on 19 October 2005, after I had read the written submissions. There were further written submissions on the question of recovery of defence costs under the policy, which I received on 4 November 2005. At my request, in December 2005 the parties made further written submissions on the issue raised by the decision of Colman J in the Lumbermen’s Mutual case.

[2005] 1 Lloyd’s Rep 494

II. The Policy Terms

[21]In clause 1 under the heading “Declarations” in the Policy, Enterprise is identified as the “Principal Named Insured” under the Policy. Clause 4 under the heading “Declarations” deals with Limits of Liability of the Policy under its various sections. In relation to Section IV the limits are defined as follows:

“£100,000,000 (for one hundred per cent interest) each and every accident or occurrence plus legal expenses…”

[22]The Policy contains “General Insuring Conditions” which are applicable to some or all of the sections of the Policy, as indicated in each Condition. Under clause 2, “Interpretation”, the Policy provides: “In the event of any conflict of interpretation between the various clauses and conditions contained in this Policy, the broadest and least restrictive wording to the benefit of the Insured shall always prevail”.

[23]Under clause 3, “Definitions”, clause 3(3) sets out a definition of “occurrence”, in the following terms:

“………… (3) The Term “occurrence”, wherever used herein other than in respect of Sections I and II, shall include an event or a continuous or repeated exposure to conditions which cause injury, damage or destruction. Any number of such injuries, damage or destruction resulting from a common cause, or from exposure to substantially the same condition, or all heavy weather damage to vessels occurring during a single sea passage between two ports, shall be deemed to result from one “occurrence” event though some of the losses making up the “occurrence” may occur after expiration or cancellation of this Policy. The date of occurrence of a loss shall be the date on which the first of the sequence of losses and/or damages comprising one occurrence occurs irrespective of the fact that some of the losses or damages forming part of such one occurrence may have occurred after the expiration of this Policy. If this insurance expires while a sequence of losses and/or damages comprising one occurrence is in progress, the Company shall be liable as if the whole of the loss had occurred during the currency of this Policy. The term “occurrence”, wherever used herein in respect of Sections I and II, means an event or a continuance or repeated exposure to conditions which commence during the term of this Policy and cause physical loss or physical damage to property, or any condition covered elsewhere in Sections I and II that is neither expected nor intended by the Insured, and the limit and excess applicable to such occurrence shall be the limit and excess in effect at the time of the commencement of such event or continuous or repeated exposure to conditions. With respect to any event or exposure to conditions relating to or arising out of such asset or entity, acquired by an Insured, the term of this Policy and coverage under this Policy shall commence no earlier than the time of such acquisition (except that this shall not affect coverage otherwise in effect pursuant to agreement in writing entered into prior to loss and not entered into in connection with such acquisition). ………”

The date of occurrence of a loss shall be the date on which the first of the sequence of losses and/or damages comprising one occurrence occurs irrespective of the fact that some of the losses or damages forming part of such one occurrence may have occurred after the expiration of this Policy. If this insurance expires while a sequence of losses and/or damages comprising one occurrence is in progress, the Company shall be liable as if the whole of the loss had occurred during the currency of this Policy. The term “occurrence”, wherever used herein in respect of Sections I and II, means an event or a continuance or repeated exposure to conditions which commence during the term of this Policy and cause physical loss or physical damage to property, or any condition covered elsewhere in Sections I and II that is neither expected nor intended by the Insured, and the limit and excess applicable to such occurrence shall be the limit and excess in effect at the time of the commencement of such event or continuous or repeated exposure to conditions. With respect to any event or exposure to conditions relating to or arising out of such asset or entity, acquired by an Insured, the term of this Policy and coverage under this Policy shall commence no earlier than the time of such acquisition (except that this shall not affect coverage otherwise in effect pursuant to agreement in writing entered into prior to loss and not entered into in connection with such acquisition). ………”

[24]Clauses 4, 5 and 14 are relied on by Enterprise in relation to its claim to recover its defence costs. They provide:

“4. NOTICE OF LOSS As soon as reasonably practicable, written notice of loss which is likely to involve this Policy shall be given by the Insured to the Company…. 5. ASSISTANCE AND CO-OPERATION The Company shall not be called upon to assume charge of the settlement or defence of any claim made or suit brought or proceeding instituted against the Insured but the Company shall have the right and shall be given the opportunity to associate with the Insured in the defence and control of any claim, suit or proceedings relative to an occurrence where the claim, suit or proceeding involves or appears reasonably likely to involve the Company, in which event the Insured and the Company shall co-operate in all things in the defence of such claim, suit or proceeding. ……. 14. NOTICES OR COMMUNICATIONS Any notices or communications between the Insured and the Company and vice versa as may be required in respect of this insurance shall be made through [Marsh]….”

As soon as reasonably practicable, written notice of loss which is likely to involve this Policy shall be given by the Insured to the Company…. The Company shall not be called upon to assume charge of the settlement or defence of any claim made or suit brought or proceeding instituted against the Insured but the Company shall have the right and shall be given the opportunity to associate with the Insured in the defence and control of any claim, suit or proceedings relative to an occurrence where the claim, suit or proceeding involves or appears reasonably likely to involve the Company, in which event the Insured and the Company shall co-operate in all things in the defence of such claim, suit or proceeding. ……. Any notices or communications between the Insured and the Company and vice versa as may be required in respect of this insurance shall be made through [Marsh]….”

[25]Section IV(a) of the Policy contains the following relevant terms:

“1. INTERESTS COVERED UNDER THIS SECTION IV(a) “a. The Company hereby agrees under this Section IV(a) to indemnify the Insured for all sums which the Insured may be obliged to pay, by reason of liability imposed on the Insured by law or assumed under contract or agreement (written or oral) or otherwise, on account of personal injury and/or bodily injury and/or loss of life and/or loss of and/or damage to tangible property (including loss of use following physical loss of or damage to property or persons) arising out of an occurrence occurring during the period of this Policy, all in connection with the offshore/marine and/or waterborne and/or airborne operations of the Insured wheresoever occurring. ……… The phrase “offshore/marine/ and/or waterborne and/or airborne operations of the Insured”, as used in this Clause, means: i. the ownership, management, operation or chartering by or on behalf of the Insured of marine or inland waterway vessels, craft or units; ……. iv. offshore exploration, drilling or production, including all related construction operations, by or on behalf of the Insured;” ……. The term “personal injury” or “personal injuries”, wherever used herein, shall include, but not by way of limitation, bodily injury (including death at any time resulting therefrom), mental injury, mental anguish, shock, sickness, disease, disability, false arrest, false imprisonment, wrongful eviction, detention, malicious prosecution, discrimination whether on the grounds of sex or sexual orientation, race, ethnic origin, nationality or skin colour, creed, religious or political convictions, disability or appearance or otherwise, humiliation, invasion of rights of privacy, libel, slander, defamation of character, piracy and/or infringement of copyright or of property or contract rights committed or alleged to have been committed in the conduct of the Insured’s operations. ……… 6. COSTS CLAUSE Notwithstanding the limit stated herein the Insurers hereon agree that in addition they will pay their proportion of all costs, charges and expenses in connection with any claim they may require to be contested by the Insured, it being understood and agreed that such costs, charges and expenses shall be apportioned between the Insurers interested in this Insurance and on any other Insurance effected in the same proportions as their respective payments in settlement of the claim.” ……… The phrase “offshore/marine/ and/or waterborne and/or airborne operations of the Insured”, as used in this Clause, means: i. the ownership, management, operation or chartering by or on behalf of the Insured of marine or inland waterway vessels, craft or units; ……. iv. offshore exploration, drilling or production, including all related construction operations, by or on behalf of the Insured;” ……. The term “personal injury” or “personal injuries”, wherever used herein, shall include, but not by way of limitation, bodily injury (including death at any time resulting therefrom), mental injury, mental anguish, shock, sickness, disease, disability, false arrest, false imprisonment, wrongful eviction, detention, malicious prosecution, discrimination whether on the grounds of sex or sexual orientation, race, ethnic origin, nationality or skin colour, creed, religious or political convictions, disability or appearance or otherwise, humiliation, invasion of rights of privacy, libel, slander, defamation of character, piracy and/or infringement of copyright or of property or contract rights committed or alleged to have been committed in the conduct of the Insured’s operations. ……… Notwithstanding the limit stated herein the Insurers hereon agree that in addition they will pay their proportion of all costs, charges and expenses in connection with any claim they may require to be contested by the Insured, it being understood and agreed that such costs, charges and expenses shall be apportioned between the Insurers interested in this Insurance and on any other Insurance effected in the same proportions as their respective payments in settlement of the claim.”

[26]The parties agree that the applicable law of the Policy is English law. III. The Issues and the arguments in outline.

[27]Issue One: The Legal Basis for Enterprise’s Claim under the Policy. The claim on the Policy is in respect of Enterprise’s share of the Settlement Agreement with Rowan. The first principal question is: what does Enterprise have to establish in order to obtain indemnity under the Policy? This issue is governed by English law, because it concerns the correct construction of the Policy wording. Generally speaking when an insured makes a claim under a liability policy it has to demonstrate that it has suffered a loss by virtue of a legal liability which has been ascertained, whether by a judgment being entered against it by a third party, or an arbitration award or a settlement of the third party’s claims. Moreover, if the loss is to be recovered under the policy, the insured must prove that its loss was caused by an insured peril under the policy. Again, generally speaking, in order to claim under a liability policy where the insured has settled the claim of the third party, the insured still has to demonstrate that it was or would have been liable to the third party. It cannot simply rely on the fact of the settlement to demonstrate either liability or that the amount of the settlement was reasonable. In order to show the settlement was reasonable, the insured must show that the amount of damage for which it would have been liable is at least as much as the amount paid under the settlement. See: MDIS Ltd v Swinbank and others

[1999] Lloyd’s Rep 516

, at page 521, para 11 per Clarke LJ; Structural Polymer Systems Ltd v Brown [2000] Lloyd’s Rep IR 64 at 72 per Moore – Bick J. However, in this case Enterprise points out that under Section IV(a) of the Policy, the Insurers agreed to indemnify Enterprise for all sums that Enterprise may be obligated to pay by reason of(i) “liability imposed on the insured by law”; or

(ii) “liability… assumed under contract or agreement”; or

(iii) “otherwise”. In each case the liability must be one “on account of personal injury…committed or alleged to have been committed” in the course of the Insured’s operations. The phrase “personal injury” is defined to include “infringement of contract rights”. It is common ground that the phrase “infringement of contract rights” could embrace tortious interference with contract, although Strand does raise a “coverage” issue on that wording. This is Issue Eight; see below. It is also agreed that if there was an infringement of contractual rights, then it would have been committed in the course of Enterprise’s operations. Enterprise’s primary case is that the combination of the words “liability assumed under contract or agreement” and “committed or alleged to have been committed” mean that to recover an indemnity under the Policy, it only has to prove that: (a) the sum paid under the Settlement Agreement was a reasonable sum; (b) it was paid under an honest and business – like settlement of an arguable liability for a peril that is insured under the policy; (c) in this case, the arguable liability was in respect of the tortious interference with the Service Agreement – loss resulting from liability for tortious interference with contract being an insured peril under the policy.

[28]Strand submits that on the proper construction of Clause 1(a) of Section IV(a) of the Policy, Enterprise is entitled to an indemnity under the Policy only if it proves that it was actually liable to Rowan for the tort of wrongful interference in the Rowan/BAO Service Agreement. Strand also submits that Enterprise must prove, in addition, that it was liable for an amount that is no less than, or in the order of, the sum for which it settled the Texas proceedings.

[29]Issue Two: what is the proper basis on which the English Court should consider the question of whether Enterprise would have been (or would have been arguably) liable to Rowan in the Texas proceedings? It is accepted by both sides that, whatever the correct construction of the Policy, the English Court must decide whether Enterprise would have been or would arguably have been liable to Rowan for tortious interference with the Service Agreement in accordance with Texas law and procedure. That raises the question: on what basis should that exercise be undertaken? Enterprise’s case is that it was being sued in the Texas court, where a trial would have been held with a judge and jury. The English Court must therefore predict what the Texas judge and jury would have decided, lawfully and properly, first, on the issue of liability for tortious interference with the Service Agreement and, secondly, on the issue of quantum of damages, assuming liability was established. To do that, Enterprise submits, the English Court must do two exercises. The first is to determine the principles of Texas law on both the tort of wrongful interference with a contract and also, if liability is established, the principles of Texas law relating to the recovery of damages. The second exercise is, Enterprise submits, to decide (or “predict” as it was put in argument) whether the Texas judge could properly have left the tortious interference claim to the jury; and if so, whether the jury could have lawfully found Enterprise liable for tortious interference on the evidence before it. In that way the English Court will decide whether Enterprise was either arguably liable to Rowan under Texas law; or would have been actually liable to Rowan under Texas law.

[30]If the English Court determined that the Texas jury could lawfully have found Enterprise liable, then (Enterprise submits) it must decide what heads of damage the Texas judge could properly have left to the Texas jury and the range of sums the jury could properly have awarded. The English Court must then determine (or “predict”) what sum the jury would be likely to have awarded within the lawful range. That should then be compared with the total of the Settlement Agreement. Thus the English court will be able to determine whether the Settlement Agreement was reasonable.

[31]Strand accepts that the English Court must determine the principles of Texas law applicable to both the alleged tort and also the damages recoverable if the tort is established. It also accepts that, if necessary, the English Court must take account of Texas procedural law, eg. on what matters are decided by a judge and what by the jury. However, Strand submits that the English Court must decide what the judge and jury in Texas should have decided on liability and damages, according to law, as opposed to what the judge and jury in Texas could legitimately have decided, such that it could not have been overturned by the Court of Appeal in Texas.

[32]Issue Three: On the principles of Texas law and the facts, was there any actionable tortious interference with the Service Agreement between BAO and Rowan by Enterprise? It is accepted by both parties that, under Texas law, liability for tortious interference with contract is governed by Section 766 of the Restatement (Second) of Torts. That provides: “Intentional Interference with Performance of Contract by Third Person. One who intentionally and improperly interferes with the performance of a contract…between another and a third person by inducing or otherwise causing the third person not to perform the contract is subject to liability to the other for the pecuniary loss resulting to the other from the failure of the third person to perform the contract”.

[33]Enterprise’s case in the present proceedings reflects the case made by Rowan against Enterprise in the Texas Proceedings. First of all, Enterprise, like Rowan, says that the relevant contract is the Service Agreement between BAO and Rowan. Secondly, Enterprise alleges that, by agreeing to and/or encouraging Amoco to terminate the RGV Contract with Rowan, Enterprise wilfully and intentionally interfered with the performance of the Service Agreement, because those acts caused BAO not to perform that contract. Thirdly, that wrongful interference by Enterprise caused pecuniary loss to Rowan because of BAO’s failure to perform the Service Agreement.

[34]The principal head of pecuniary loss that Rowan claimed it suffered as a result of the tortious interference by Enterprise is in the form of consequential damage. It was argued in the Texas proceedings that because Rowan was not paid the daily billing rate for the RGV by BAO (pursuant to the Service Agreement), this meant that Rowan could not carry on with a programme to repurchase a total of 8 million shares of its stock. It is said that “but for” the wrongful interference by Enterprise in the Service Agreement, Rowan would have repurchased some 3,698,000 shares. Some 4,301,400 shares had been repurchased at the time that the RGV Contract was terminated on 19 January 1999. Rowan was authorised by its shareholders to repurchase a total of 8 million shares. It is said that Rowan would then have re-sold the repurchased shares in February 2000, making a profit of US$ 52.2 million. Enterprise submits that this head of claim forms the major part of the Settlement Agreement. It was referred to in the Texas proceedings and in the trial before me as “the buy – back loss” claim.

[35]Enterprise also says that there are three other heads of loss that Rowan claimed it had suffered as a result of the wrongful interference with the Service Agreement by Enterprise. These heads of loss were claimed in the Texas proceedings. These are:(i) the expenses in moving the RGV rig from the North Sea to Canada in October 1999 after BAO accepted Amoco’s repudiatory breach of the RGV Contract;

(ii) the expense of moving five other Rowan rigs from the North Sea to the Gulf of Mexico; and

(iii) lost profits because revenues available in the latter site were lower than those that had been available on North Sea sites.

[36]Enterprise submits that the Settlement Agreement constituted a reasonable, business – like settlement of its alleged liability to Rowan for all these pecuniary losses that Rowan alleged it had suffered as a result of Enterprise’s wrongful interference with the Service Agreement.

[37]Strand’s first response is that, under Texas law, there was no interference with the Service Agreement at all by Enterprise. It submits that BAO’s only express obligation under the Service Agreement was to:

“…pay to Rowan a sum equal to 100% of all day rate billings collected by BAO pursuant to such drilling contracts [that BAO had entered into with third parties], including any reimbursable charges and mobilisation fees”

. Clause 1(b) of the Service Agreement. That task was purely ministerial, because the Service Agreement was no more than an internal arrangement between Rowan and its UK marketing arm and subsidiary, BAO. The Agreement formalised the real position, which was that the effective contracting party to the RGV contract and other drilling contracts nominally concluded with BAO, was Rowan. Strand submits that Enterprise’s part in the termination of the RGV contract between BAO and Amoco did not and could not “interfere” with BAO’s performance of its obligations to Rowan under the Service Agreement.

[38]Strand submits that Enterprise cannot suggest that BAO ever breached the obligation to pass on day rate billings to Rowan. So Enterprise’s part in the termination of the RGV Contract could not induce or cause BAO not to perform the Service Agreement with Rowan. The termination of the RGV Contract only meant that there was nothing for BAO to perform (by way of remitting day rate billings) in relation to that particular drilling contract. Interference with performance by BAO should not be confused with interference with Rowan’s expected benefit under the Service Agreement in relation to the RGV Contract.

[39]Strand’s second submission on this issue is based on the agreement of the experts in Texas law that it is an essential ingredient of the cause of action that the interference with the relevant contract is both “wilful and intentional”. Joint Memorandum of the Experts: paras 8 and 9. Strand submits that Enterprise has not proved that, if Enterprise did interfere with the Service Agreement, then the interference was “wilful and intentional”. Strand submits that, on the facts, it is not proved that Enterprise had actual knowledge of the Service Agreement before the termination of the RGV Contract. Nor (it is submitted) did Enterprise have knowledge (before the termination) of facts and circumstances which would have led a reasonable person to believe in the existence of the contract and Rowan’s interest in it. Further, it is submitted, there is no evidence to support the proposition that Enterprise knew or believed that its conduct would or was substantially certain to result in an interference with BAO’s performance of the Service Agreement.

[40]The last submission of Strand on this issue is that it is possible to derive from the decision of the US Supreme Court in Copperweld Corp v Independence Tube Corp, (1984) 104 S. Ct 2731 various decisions of the US Court of Appeals, the Texas Supreme Court and the Texas Court of Appeals, a principle which means that Enterprise cannot be found guilty of tortious interference with the Service Agreement on the facts of this case. The principle that Strand says can be derived from the cases is a development of the so - called “unity of interest” principle. The “unity of interest” principle, as stated by the US Supreme Court in the Copperweld case, concerns anti – trust law. The principle is that a parent company and its wholly – owned subsidiary have but one corporate consciousness and therefore one corporate interest – a “unity of interest”. Thus joint actions by the parent and subsidiary on eg. prices, cannot constitute a combination or conspiracy for the purposes of section 1 of the Sherman Anti – Trust Act. Strand says that the cases support the proposition that a parent company(a) (A) cannot be held liable in tort for interfering with a contract between (A)’s subsidiary

(b) (B) and a third party

(c) (C) because of the “unity of interest” between (A) and (B). Strand argues that the principle extends to prevent a third party (C – ie. Enterprise in this case) from being held liable for tortiously interfering with a contract between (A – ie. Rowan) and its subsidiary (B – ie. BAO), because of the “unity of interest” of (A) and (B). Strand accepts that there are no US cases where the “unity of interest” principle has provided a third party (in this case Enterprise) with a defence to an allegation that it tortiously interfered with a contract between a parent (Rowan) and its wholly – owned subsidiary (BAO). But Strand submits that the rationale of the “unity of interest” principle must apply to this situation and so would provide Enterprise with a defence to this claim for tortious interference with the Service Agreement.

[41]I should note here that at the start of the trial before me Strand proposed to argue that Enterprise would not have been liable to Rowan in the Texas proceedings because it would have been able to rely on the affirmative defence of “Justification”. In Texas law the “Justification” defence can be relied on by a defendant to a claim for tortious interference with contract if the defendant establishes that the actions it took constituted the exercise of:(i) its own legal rights; or

(ii) a claim, made in good faith, to a “colorable” legal right. Experts’ Joint Memorandum para 10. However, in its closing submissions Strand accepted that a “Justification” defence by Enterprise would have failed in the Texas proceedings. See para 70 of Strand’s Closing Submissions. But, Strand uses this concession to advance a further case, based on the Policy: see Issue Eight below.

[42]Issue Four: Was Enterprise liable for the “stock buy – back” losses alleged to have been suffered by Rowan in the Texas proceedings? In the Texas proceedings Rowan claimed for the profits that would have been made on the resale of stock that would have been bought back from shareholders “but for” the tortious interference of the Service Agreement by Enterprise. That claim was supported by an expert report of Mr JA Compton, who is an accountant. Supplemental Report by JA Compton & Co dated 6 March 2002: G10/Tab 70/oage 144: in particular paras 6 – 17. In the trial before me, Enterprise submitted that it would have been liable to Rowan for these “stock buy – back” losses. Enterprise argued that, as a matter of Texas law, this loss constituted consequential damages which were the natural, probable and reasonably foreseeable consequence of the tortious conduct of Enterprise; and those losses were “proximately caused” by the tortious interference of Enterprise in the performance of the Service Agreement.

[43]Strand submitted that, as a matter of Texas law and on the facts, Rowan would not have recovered this head of damages because: first, its decision to discontinue to buy back stock was not proximately caused by the alleged interference of Enterprise in the performance of the Service Agreement. Secondly, because the loss alleged, ie. loss of profits on the resale of the stock that would have been bought back, is too remote to be recoverable.

[44]Issue Five: Was Enterprise liable for the costs of relocation of the RGV rig from the North Sea to Canada? Rowan paid for the cost of moving the RGV rig from the North Sea to Canada in October 1999. The move cost US$ 2.8 million. Enterprise says that it would have been liable to Rowan for these costs as a head of damages in the Texas proceedings and so they must be taken into account in deciding whether the settlement was reasonable.

[45]Strand submits that this cost is not attributable to any wrongful interference with BAO’s performance of the Service Agreement. It argues that the evidence strongly suggests that the rig would have been moved away from the North Sea, probably to Canada, in any event.

[46]Issue Six: Was Enterprise liable for the cost of relocation of other North Sea rigs and lost profits arising from lower revenues available compared with the North Sea? The next head of damage which is said to have been caused by Enterprise’s tortious interference with the Service Agreement comprises two aspects. First, the expense of moving five other Rowan rigs from the North Sea to the Gulf of Mexico. That claim is for US$15,091,522. Secondly, the profits said to have been lost because the revenues rigs could obtain in the Gulf of Mexico were less than those to be obtained in the North Sea. This claim is for approximately US$5 million. Both aspects were supported in the Texas proceedings by the Supplementary report of Mr Compton and his deposition.

[47]Strand’s answer to this is that there is no causative link between the tortious interference with the Service Agreement and the alleged loss of North Sea business by Rowan. In fact, North Sea business was declining anyway and that is the real reason for the movement of the five rigs.

[48]Issue Seven: Was the Settlement Agreement a reasonable settlement for the purposes of Section (IV)(a) of the Policy? This issue only arises if :(i) on the correct construction of the Policy, Enterprise needs only to prove that it is (or would have been) arguably liable for wrongful interference with the Service Agreement; or

(ii) Enterprise has to prove that it was actually liable and it does so, but only for a lesser sum than was paid under the Settlement Agreement. If Enterprise has to prove actual liability for tortious interference with the Service Agreement, then it accepts that the settlement will only be reasonable if its liability for damages would have been at least the settlement figure agreed. Strand submits that the level of the Settlement Agreement (ie. US $175 million, of which some US$91 million was in “partial satisfaction” of the Commercial Court judgment), was not calculated by reference to the risks of losing the tortious interference claim. It submits that the motivation of Enterprise for concluding the Settlement Agreement had three elements. First, it was to avoid the risk of punitive damages, which were not covered by the Policy. Secondly, it was to avoid the certainty of unrecoverable legal costs (including the cost of providing a bond if the case went on appeal). Thirdly, it was to avoid any further damage to the reputation of the defendants, but particularly that of BP Amoco. If so, then the Settlement Agreement was not an objectively reasonable settlement of the insured liabilities of Enterprise, ie. arguable liability for tortious interference with the Service Agreement.

[49]Enterprise submits that the maximum lawful amount of damages that could have been awarded against it (and co – defendants) in the Texas proceedings was US$80,135,464, plus pre – judgment interest. If irrecoverable costs are added, the total potential exposure of the Texas defendants was over US$100 million. Therefore the actual Settlement figure of US$ 84.22 million was substantially less than the maximum exposure and so was reasonable.

[50]Issue Eight: Assuming that (on the correct construction of the Policy) Enterprise has to prove that it was (or would have been) liable to Rowan for tortious interference with the Service Agreement, then, on the facts of this case, was that liability one “on account of the infringement of contract rights” within the definition of “personal injury” in the Policy? This issue arises if:(i) Enterprise has to prove that it was or would have been liable to Rowan for the tortious interference with the Service Agreement, As opposed to having to prove simply that it is arguable that Enterprise was liable.

(ii) some at least of the damages claimed by Rowan were recoverable from Enterprise. In those circumstances, Strand submits that under Texas law there could only be a tortious interference with the Service Agreement if that interference was both intentional, wilful and without “Justification”. See para 35 above. Therefore, Enterprise’s “infringement of contractual rights” of Rowan must have been as a result of either an intentional or reckless act of Enterprise. On general principles of insurance law and the correct construction of the insuring clause of Section IV(a) of the Policy, there is no cover where the infringement of contract rights which gives rise to a liability on the Insured (and thus loss) is caused by the intentional or reckless acts of the insured.

[51]Enterprise submits that, in the context of liability insurance, cover against liability for infringement of contractual rights must include liability for voluntary acts by the insured. Enterprise argues that the cases relied upon by Strand, such as Charlton v Fisher,

[2002] QB 578

at 597 per Rix LJ and Ikerigi Compania Naviera SA v Palmer (“The Wondrous”)

[1991] 1 Lloyd’s Rep 400

have no application in the context of the wording of this liability policy. Any requirement that the loss be a fortuity is met by the uncertainty of any loss to a third party resulting from the acts of the insured at the time the relevant act was performed.

[52]Issue Nine: as a matter of English law, is Enterprise entitled to recover any, alternatively a proportion of the settlement figure of US$ 84.225 million? That is the additional sum of US$ 84.225 million paid, having taken account of the sum paid as a result of the Commercial Court judgment. This issue was argued upon the basis that:(i) on the correct construction of the Policy, Enterprise has to establish that it was (or would have been) liable to Rowan for tortious interference with the Service Agreement; and

(ii) Enterprise was or would have been liable to Rowan for tortious interference, but for a sum which, though significant, is less than the settlement figure. Counsel agreed that the issue could arise also if the policy covered loss caused by arguable liability, but the settlement figure of US$84 million would only have been reasonable if the maximum arguable liability was considerably greater than it was. This aspect was not particularly elaborated in argument. The question that then posed is: if, in fact, the settlement figure was agreed, without any allocation of figures, in order to compromise both insured liabilities of Enterprise (wrongful interference with the Service Contract) and uninsured liabilities of Enterprise (punitive damages and irrecoverable costs), what is the consequence?

[53]Strand submits that in this circumstance there are two answers. Its primary submission is that the court should follow the decision of Colman J in Lumbermen’s Mutual Casualty Co v Bovis Lend Lease Ltd

[2005] 1 Lloyd’s Rep 494

. . In that case Colman J was dealing with a claim on a liability policy based on a comprehensive settlement agreement with a third party, covering both claims and counterclaims. He held that if a settlement agreement is made in respect of liability to the third party for several heads of loss, only one (or some) of which are insured perils under the liability policy and the settlement agreement does not specifically identify that part of the settlement sum that represents a loss by an insured peril under the policy, then the insured loss has not been “ascertained” for the purposes of recovery under the policy. He held that this lack of “ascertainment” would be fatal to a claim under the liability policy by the insured, because a vital part of the cause of action for an indemnity under the liability policy would be missing. Moreover, “no amount of extrinsic evidence” at a trial as to the what part of the settlement constituted a loss (to the insured) by an insured peril under the policy could create a cause of action on the policy. Therefore, if there is a failure to indicate in a settlement agreement to identify “the loss suffered [by the insured] specifically by reference to the insured liability”, then a claim by the insured under the liability policy would fail in total. See in particular: paras37 to 47 of the judgment:

[2005] 1 Lloyd’s Rep 494

at 502 to 504.

[54]Mr Schaff, although acknowledging that this decision is “very controversial”, submits that it is correct. He submits that in this case there was no specific identification in the Settlement Agreement of the cost to Enterprise of discharging the one and only liability insured under the policy, ie. the cost to Enterprise of settling the claim for tortious interference with the Service Agreement. Therefore, Mr Schaff submits, Enterprise cannot recover anything under the policy at all. He accepted that, logically, the same consequence must follow even if Enterprise could, by extrinsic evidence, show that it would in fact have been liable, for tortious interference with the Service Agreement, to the extent of the Settlement Agreement.

[55]Mr Beazley submits first, that the Lumbermen’s case is distinguishable on its facts from this case. In that case the settlement agreement did not identify any loss at all. Secondly, he submits, if necessary, that the decision is wrong and should not be followed. He emphasised the significant and widespread commercial difficulties that would be encountered if, in order to recover under a liability policy, an insured had to identify and quantify those parts of a settlement that should be treated as losses by insured perils under the liability policy.

[56]Strand’s alternative submission is that the court should apply the principles of average, by analogy with the approach to claims for “sue and labour” expenses under a “sue and labour” clause in a marine policy where the ship or cargo is under – insured. In such cases the insured is entitled to recover sue and labour expenses only in the proportion that the insured value bears to actual value. Cunard Steamship Co Ltd v Marten

[1902] 2 KB 624

; Royal Boskalis Westminster NV v Mountain

[1999] QB 674

at 738, per Phillips LJ.

[57]Enterprise submits that, on the assumption that the Lumbermen’s case does not apply, then the court should award such precise amount as it determines would have been awarded by the jury in Texas.

[58]Issue Ten: Can Enterprise recover its defence costs under the terms of the policy? Enterprise submits that it is entitled to recover its defence costs of the Texas proceedings under three alternative bases under the policy. These are:(i) on a proper construction of clauses 6 of Section IV(a) read together with clauses 4 and 5 of the General Conditions;

(ii) alternatively under clause 6 alone, because the insurers required Enterprise to defend the Texas proceedings;

(iii) if Enterprise was under an actual liability Rowan, then under clause 1(a) of Section IV(a), ready with the Policy Declaration to Section IV, because the costs of defending the claim fall within the ambit of the Insuring Clause 1 (a).

[59]Strand submits that at no time did the insurers require the Texas proceedings to be contested. Clause 6 of Section IV(a) of the policy. (It is emphasised that this is a claim against Strand, not the reinsurers). Moreover, the insurers were never given “the opportunity to associate with the Insured in the defence and control” General Conditions Clause 5. of the claim. In any event the defence costs that the insured has apportioned to the tortious interference claim appear to be excessive and not properly related to the time involved in dealing with that head of claim. Nor is the apportionment consistent with the “average” analogy referred to above.

IV. Issue One: The legal basis for Enterprise’s claim under the policy

[60]The issue of whether Enterprise is covered in respect of actual liability or alleged liability depends on the construction of Section IV(a) of the policy, in particular clause 1(a). The policy is governed by English law. The principles of construction or interpretation of commercial documents that are governed by English law have been recently restated, particularly by Lord Hoffmann in Investors Compensation Scheme Limited v West Bromwich Building Society,

[1998] 1 WLR 896

at 912 - 3 and The Bank of Credit and Commerce International SA v Ali

[2002] 1 AC 251

at 269. and also by Lord Steyn in Sirius General Insurance Co v FAI General Insurance Ltd.

[2004] 1 WLR 3251

at 3257 para 19. In G Absalom v TCRU Ltd I attempted to summarise the key principles. This summary was endorsed by Longmore LJ on appeal.

[2005] EWCA Civ 1586

at para 7 of the judgment. May and Jacobs LJJ agreed with the judgment of Longmore LJ. The summary is as follows:(i) the aim of the exercise is to ascertain the meaning of the relevant contractual language in the context of the document and against the background to the document. The object of the enquiry is not necessarily to probe the “real” intention of the parties, but to ascertain what the language they used in the document would signify to a properly informed observer.

(ii) The interpretive exercise must not be done in a vacuum, but in the milieu of the admissible background material. That comprises anything that a reasonable man would have regarded as relevant in order to comprehend how the document should be understood, provided that the material was reasonably available to both parties at the time (ie. up to the time of the creation of the document).

(iii) However, evidence of negotiations and subjective intent are not admissible for the purposes of this exercise.

(iv) A commercial document must be interpreted so as to make business common sense in its context. But if a “detailed semantic and syntactical analysis of a word in a commercial contract is going to lead to a conclusion that flouts business common sense, it must be made to yield to business common sense”. Antaios Compania Naviera SA v Salen Rederierna AB

[1985] AC 191

at 201 per Lord Diplock.

[61]Mr Beazley submitted that the words “assumed under contract or agreement” are additional words that do not generally feature in conventional liability policies. He said that the same applies to the words “alleged to have been committed” that feature in the definition of the words “personal injury” later on in clause 1(a), when listing which acts or omissions fall within the scope of the words “personal injury”. Mr Beazley accepted that without the addition of the two phrases “assumed under contract or agreement” and “alleged to have been committed”, it would be necessary for Enterprise to prove that it had actually been liable to Rowan in the Texas proceedings before it could recover under the policy. However, he said that the addition of those phrases made all the difference.

[62]Mr Beazley submitted that the words “assumed under contract or agreement” must include settlement agreements. Those agreements, by their very nature, provide for the payment of money in respect of torts (or other actionable wrongs) which are “alleged to have been committed”. Mr Beazley says that this construction is consistent with the intention of the parties to create a commercially effective cover that will take account of the fact that Enterprise (and other insureds) will be engaging in activities outside the UK and could be subject to claims in foreign jurisdictions. To establish (for the purposes of recovery under the policy) that there is actual liability under the laws of the relevant court abroad may be difficult or speculative; hence the broader wording. Mr Beazley also relies on General Condition 2 which states that “…the broadest and least restrictive wording to the benefit of the Insured shall always prevail”. He submits that this, taken with the words “or otherwise” in clause 1 of Section IV(a) demonstrates the width of the cover to be provided.

[63]Mr Schaff submits that the words “…liability….assumed under contract or agreement” cannot extend to a liability which is only assumed under a settlement agreement that is concluded in respect of antecedent liabilities or alleged liabilities. He says that these words are there to cover liabilities that are not directly “imposed on the Insured by law”, but have only been “assumed” under contracts or agreements which precede the loss which gives rise to the liability “assumed under contract”, in respect of which a claim can be made under the policy. Mr Schaff points out that pre – existing indemnity and “hold harmless” provisions are commonplace in oil and drilling contracts and that is what the parties had in mind in using this phrase. In this connection Mr Schaff relied on a decision of the Manitoba Court of Appeal in Acklands Ltd v Canadian Indemnity Company [1985] WWR 71, in which it held that the phrase “assumed under contract or agreement for damages because of personal injury” provided cover for tortious liability imposed on a third party for which the insured assumed responsibility under contract: see pages 73 – 4.

[64]I have concluded that Mr Schaff’s submissions are correct. This is for several reasons. First, in my view the arguments of Mr Beazley do not recognise sufficiently the importance of the words “on account of personal injury” in clause 1(a) of Section IV(a). By clause 1 the insurer agrees to indemnify the insured for all sums that the insured may be obligated to pay “on account of personal injury”, as that is subsequently defined. So the insured’s obligation to pay must be referable to “personal injury”, not alleged personal injury.

[65]Secondly, it must be noted that the right to indemnity arises in two circumstances that are defined in the clause. The first of these is if the insured is obligated to pay sums by law “on account of personal injury”. As Mr Beazley accepts, an insured can only be obligated to pay sums by law if there is an actual liability to do so. One cannot be obligated by law to pay sums if there is only an alleged liability.

[66]The second circumstance in which a right to indemnity arises is when the insured is obligated to pay sums by reason of “liability….assumed under contract or agreement….on account of personal injury…”. In my view, when a party enters into a settlement agreement, it does not thereby “assume liability” on account of personal injury. I agree with Mr Schaff’s analysis, which is that a settlement agreement is a compromise of the question of whether or not there is in fact any liability on account of personal injury. I also agree that the phrase “assumed under contract or agreement” is intended to refer to liability that is undertaken by contract “on account of personal injury”, such as when one party agrees to indemnify another for the personal injuries of a third party. But the phrase was not intended by the parties to convert an arguable liability, which cannot be imposed by law, into an actual liability simply by virtue of a compromise embodied in a settlement agreement.

[67]Thirdly, I think that my conclusion is supported by the reasoning of Mance J (as he then was) and the Court of Appeal in McDonnell Information Systems Ltd v Swinbank and others.

[1999] Lloyd’s Rep 98

at 102 – 103 per Mance J (as he then was) ; in the CA, same vol. page 516 at paras 18 – 25 per Clarke LJ (as he then was). In that case the court had to deal with a preliminary issue of construction of a liability policy on which the claimant computer consultants claimed. They had settled a claim made by clients. In the proceedings against the liability underwriters the insured said that the claim arose out of professional conduct of the insured and the claim of the third party had alleged neglect, error or omission and/or breaches of contract. The underwriters responded by alleging that the claim against the insured arose out of the dishonest, fraudulent or malicious acts of one of the insured’s employees and the insured ought to have discovered or been aware of those acts. Therefore the underwriters were under no liability, because in those circumstances they could rely on an exception to cover in the policy.

[68]The liability policy in that case provided that:

“the Underwriters will indemnify the Assured to the extent and in the manner detailed herein against any claim for which the Assured may become legally liable, first made against the Assured and notified to the Underwriters during the period of this certificate arising out of the professional conduct of the Assured’s business as stated in the Schedule alleging: (a) Neglect Error or Omission any neglect error or omission including breach of contract occasioned by same. (b) Dishonesty of Employees any dishonest, fraudulent, criminal or malicious act(s) or omission(s) of any person employed at any time by the Assured. The Assured will not be indemnified against any claim or loss, resulting from the dishonest, fraudulent, criminal or malicious act(s) or omission(s) perpetrated after the Assured could reasonably have discovered or suspected the improper conduct of the employee(s)…” (a) Neglect Error or Omission any neglect error or omission including breach of contract occasioned by same. (b) Dishonesty of Employees any dishonest, fraudulent, criminal or malicious act(s) or omission(s) of any person employed at any time by the Assured.

(s) …”

[69]The argument of the insured was that there had been a settlement between the insured and the third party in relation to allegations made by the third party as to neglect, error or omission of the insured. The insured said that was enough to recover under the policy, because of the use of the word “alleging” at the end of the operative clause and before the identification of the particular types of allegation in the following paragraphs. Therefore the parties had used the word “alleging” because they had agreed to grant indemnity by reference to the third party’s allegations against the insured. The underwriters submitted that was wrong and that, in order to recover under the liability policy, it was necessary for the insured to establish that the real cause of the liability to the third party was one that came within the terms of the policy cover, rather than an exception.

[70]The judge rejected the submission that the word “alleging” turned the policy from one which paid on the basis of an established liability of the insured to the third party (falling within the insured perils of the policy), into a policy which paid on the basis of whether the third party had alleged something that fell within the insured perils of the policy. See: page 103 of the report. Mance J said that the single word “alleging” could not have the effect of changing the nature of the policy as the insured submitted.

[71]In the Court of Appeal the judgment of Mance J was upheld, although the reasoning of Peter Gibson LJ differed from that of the majority of Clarke and Judge LJJ. The latter both concluded that, upon the proper interpretation of the policy wording, the parties had intended that the insured’s right to recovery under the liability policy depended upon the true nature of the proximate cause of the loss of the insured caused by liability to a third party. If, in truth, the insured was liable to the third party because of dishonesty of an employee which the insured should have discovered, then the parties had not intended that the insured could recover under the policy by virtue of the fact that the third party had simply alleged negligence against the insured. As Judge LJ put it, to decide otherwise would lead to the result that:

“…the contractual entitlement of the underwriters to seek exemption from liability would depend on decisions, possibly ill – informed, possibly motivated by tactical considerations, by others to which they were not parties, and which, as between the underwriters and the assured, might well be entirely fortuitous”

. See: page 525 of the report.

[72]The importance of the decision of Mance J and the Court of Appeal in the MDIS case lies in the approach they took to the nature of the liability policy. All, including Peter Gibson LJ, started from the proposition that, in the absence of express wording to the contrary, an insured under a liability policy can only recover against his insurer if it was actually under a liability to a third party, upon a proper analysis of the law and the facts. If the insured had settled the claim, then the settlement amount also has to be reasonable. In this case it is clear from the wording of the opening of clause 1(a) of Section IV(a) of the Policy, that the same rule applies. In my view, the words “alleged to have been committed” at the end of the wording that defines “personal injury” refer to the time the acts which come within “personal injury” were committed “or alleged to have been committed”. Given the reasoning of the Court of Appeal in the MDIS case, I doubt that an insured could recover if a third party simply “alleged” that the “infringement of contract rights” was committed (if at all) “in the conduct of the Insured’s operations”, if, on the true facts, it was not so committed. But that issue does not arise in this case.

[73]Therefore, I conclude that Enterprise can only recover under the policy if it can demonstrate that it was or would have been actually liable to Rowan in the Texas proceedings in respect of the alleged tortious interference. That conclusion does not prevent Enterprise recovering because it had entered into the Settlement Agreement in respect of an actual liability. Strand accepts, subject to the Lumbermen’s point on “ascertainment”, that if the amount of the liability (in respect of tortious interference) for which Enterprise would have been held liable to Rowan had the matter been determined in Texas is the same or greater than the settlement figure, then Enterprise is entitled to recover under the policy. But if the amount of the actual liability in respect of tortious interference would have been less than the amount of the settlement, then that raises the “apportionment” issues: see Issue Nine. V. Issue Two: What is the proper basis on which the English Court should consider the question of whether Enterprise was or would have been liable to Rowan in the Texas proceedings?

[74]Both sides agree that the court must decide on the principles of Texas law that are applicable first, to whether there has been a tortious interference with the Service Contract, and secondly, to determine damages if the tort is established. It is also agreed that the court must, if necessary, take account of Texas procedural law. But the issue between the parties is whether, as Strand submits, the court must decide what the judge and jury in the Texas court should properly have decided on liability and damages using Texas law principles and procedure; or, as Enterprise submits, the court should determine what the judge and jury in the Texas court could legitimately have decided, such that those decisions could not have been overturned on appeal.

[75]Mr Beazley emphasises the fact that Enterprise was being sued by Rowan in the Texas courts and was subject to Texas law and procedure. He notes particularly that the jury would be the fact finder and the body that assessed expert evidence and applied the law as given by the judge. Mr Beazley submits that because the exercise involves predicting the outcome of the deliberations of judge and jury, therefore it is permissible for the court to consider expert evidence as to what matters the judge could leave to the jury (on liability and quantum) and what the jury could have concluded (lawfully and properly) on liability and quantum. The English court should decide what the jury could have concluded on liability and quantum and that should be the finding as to the actual liability of Enterprise to Rowan for the purposes of a claim under the present policy.

[76]On this aspect of the case both parties referred me to the decision of the Court of Appeal in Commercial Union Assurance Co PLC v NRG Victory Reinsurance Ltd.

[1998] 2 Lloyd’s Rep 600

. There were, in fact, two actions, but I need not complicate matters by referring also to the second action. That case was one of many that arose out of the Exxon Valdez disaster. The owners of the oil cargo on board the ship, Exxon Corporation, (“Exxon”) had to pay for “clean – up” costs following the oil spillage. Exxon sued Commercial Union Co PLC (“CU”) in a Texas court, under a Global Corporate Excess (“GCE”) policy, which provided cover under two sections. Section One covered (amongst many things) the cost of the removal of debris. Section Three covered all liabilities in respect of the Assured’s (ie. Exxon’s) worldwide operations. Exxon claimed “clean – up” costs under Section One and liability for future damages to third parties under Section Three. The claims under Section One were settled. There was a trial in relation to the Section Three claim and the jury found for Exxon.

[77]CU then claimed under its excess of loss reinsurance with NRG and sought summary judgment. NRG contended that it had an arguable defence that CU was under no liability to Exxon under Section One of the underlying GCE policy. The judge had evidence, on affidavit, from the Texas lawyer acting for CU in the Texas proceedings, Mr Reasoner. That evidence noted that if the Section One claim had gone to trial in Texas, the case would have been determined by a jury, as directed by “a non – specialist judge”. page 605 of the report. Mr Reasoner’s affidavit evidence, which was uncontradicted, was that, overall, if the Section One claim had been fought before the jury, then CU would have lost to Exxon. Clarke J (as he then was) held:(i) that it did not matter what the applicable law of the GCE policy was, nor whether, assuming it was English law, CU would have had arguable defences to Exxon’s claim. This was because

(ii) he was satisfied that, on Mr Reasoner’s evidence as to the likely outcome of a jury trial, CU would have been held liable by a jury in the Texas court if the case had gone to trial. That was enough to prove liability under the GCE policy and, thereby, CU’s entitlement under the excess of loss reinsurance. The reinsurance provided (in Cl 1.3) that it was a condition precedent to liability under the reinsurance that any settlement by the reinsured was in accordance with the terms of the original insurance. The reinsurance also provided that all loss settlements of the reinsured would be binding on the reinsurers, “providing that such settlements are within the terms and conditions of the original policies and/or contracts…”: see page 604 of the report.

[78]In the Court of Appeal, Potter LJ He gave the only substantial judgment. Lord Woolf MR and May LJ agreed. held, first, that it did not matter whether the GCE policy was governed by English or New York law. Secondly, he held that an English court that is determining whether a reinsurer is liable to a reinsured should treat a judgment of a foreign court as to the reinsured’s original liability as decisive and binding, “save within the most circumscribed limits”. See page 610 of the judgment. Thirdly, on the key question of how the English court should decide whether there was an arguable defence on the reinsurance claim by showing that the reinsured (CU) was not liable to the original insured, Potter LJ decided that the approach of the judge had been wrong. Potter LJ held that, as there was no evidence that English law and New York law differed, then the judge should have decided, as a matter of English law, whether CU had an arguable defence to Exxon’s claim under Section 1 of the original insurance. Therefore, the judge was wrong to treat Mr Reasoner’s opinion as to the outcome of the trial as the proper guide to whether, as a matter of law, CU had arguable defences to the claim of Exxon under Section 1 of the GCE policy. That was because Mr Reasoner did not purport to predict the jury’s verdict by reference to the answers which a proper application of the law and appropriate rules of construction would produce. Instead, his prediction was based more on his forecast of the visceral reaction of jurors who, he said, “were often unfavourable to insurers and biased against them when insurers are arguing for a limitation of cover.” See pages 611 and 612 of the judgment.

[79]Potter LJ held that there was evidence on the documents alone that obliged him to assume (as he did) that, under English law, CU would have had a defence against Exxon, so that NRG (the reinsurers) had an arguable defence on the reinsurance claim. He then stated:

“I do not think that there was good reason for [the judge] to accept Mr Reasoner’s assessment that the jury, properly directed, would not decide the matter in favour of Exxon. There should be an instinctive reluctance in any Court required to make predictions about a decision in another court to conclude that such decision, whether in the form of a Judge’s ruling or a jury’s verdict, will not be arrived at according to law”

. See page 612 of the judgment.

[80]In my view this case is very much to the point on the issue of how I must approach the question of deciding on whether Enterprise was liable to Rowan for tortious interference with the Service Agreement. I accept, of course, that the NRG case concerned a reinsurance claim, not one on a liability policy. But it seems to me that, on this point, the applicable principles are the same. These are:(i) when an English court has to consider whether one party is liable to another under a contract and that matter has been decided by a foreign court, then the English court should accept the decision of a foreign court as to relevant liability, (which in this case would be that of Enterprise to Rowan), subject to exceptions which are not relevant to this case.

(ii) In cases where the foreign court has not actually determined the matter, then the English court has to decide what the foreign court’s decision would have been, following the applicable law and any relevant rules of construction.

(iii) It is for the English court to determine, by evidence, the applicable law.

(iv) The presumption of the English court should be that a foreign court would arrive at a decision according to law, whether the decision is by a judge’s ruling or a jury’s verdict.

(v) Extraneous reasons for saying that a jury would arrive at a particular verdict are irrelevant, at least when such a verdict would be contrary to the applicable law.

[81]Mr Beazley argued that the NRG case can be distinguished because the English court was concerned with what the foreign court would have decided as a matter of English law, not some other law. In my view that does not create a valid distinction. If Mr Beazley’s point had been a good one, then in the NRG case the Court of Appeal would have had to determine whether English law or New York law applied to the original insurance. This is because, on his argument, if the original insurance had been governed by New York law, then the court would have held that it need only decide what a jury was likely to decide or could have decided. But the court held that the identity of the applicable law to the original insurance was irrelevant in view of the principles it applied.

[82]It follows from this conclusion that I will consider the evidence of Mr Pakalka and Mr Westmoreland on the substantive and procedural law of Texas, but I will not consider any of their evidence on what a jury would be likely to find or could have found on particular topics. I have to decide what the outcome of the case would have been, applying Texas law and procedure to the facts as I find them and acting as both judge and jury. VI. Issue Three: On the principles of Texas law and the facts, was there any actionable tortious interference with the Service Agreement between BAO and Rowan by Enterprise?

[83]Having decided that, on the true construction of the policy, the insured can only recover if it establishes that it was legally liable to the third party, the next question is how this is to be done when the insured has settled the liability to the third party. The insured cannot simply rely the settlement to establish that it was liable to the third party. See: eg. MDIS Ltd v Swinbank and others [1999] Lloyd’s IR Rep 516. So, in this case, where the liability of Enterprise to Rowan is said to arise under Texas law, the next step in the investigation is to consider whether there was, or would have been, any liability of Enterprise to Rowan under Texas law.

[84]As I have already noted, although in the Texas pleadings the Rowan plaintiffs raised a number of causes of action against Enterprise, for the purposes of this action Mr Beazley accepted that only one, tortious interference with contract, is relevant. Mr Beazley submits that Enterprise was or would have been held liable to Rowan for the Texas law tort of wrongful interference in the Service Agreement between BAO and Rowan.

[85]I have already stated that the parties’ experts on Texas law agree that the relevant cause of action is based on Section 766 of the Restatement. I have set that out above. Mr Schaff usefully transposed the wording of Section 766 into the context of the present case, as follows: “One [Enterprise] who intentionally and improperly interferes with the performance of [the Service Agreement] between another [Rowan] and a third person [BAO] by inducing or otherwise causing the third person [BAO] not to perform the contract is subject to liability to the other [Rowan] for the pecuniary loss resulting to the other [Rowan] from the failure of the third person [BAO] to perform the contract”.

[86]As I have already noted, there are three live sub - issues which arise under this question. They are:(i) was there any interference with the Service Agreement at all by Enterprise;

(ii) if there was interference, was it “wilful and intentional”;

(iii) could Enterprise have advanced a defence based on the “unity of interest” principle to avoid liability for tortious interference with the Service Agreement? As I have already noted, the fourth defence that had been canvassed, that of “Justification”, is no longer live, at least at this stage in the analysis. See para 34 above.

[87]Was there interference at all with the Service Agreement by Enterprise? Under clause 1(b) of the Service Agreement, Set out at para 37 above. BAO’s one obligation to Rowan is to pay a sum equal to 100% of the all day rate billing collected by BAO pursuant to drilling contracts that BAO concludes with third parties. Mr Pakalka accepted in cross – examination that BAO was not in breach of this obligation to Rowan at any time as a result of Amoco terminating the RGV contract. Day 4/page 36 lines 6 – 11. The Service Agreement is expressly governed by Texas law: see clause 7. However, Mr Westmoreland had accepted in his Report Para 17: C1/Tab 2/page 70 that “it is sufficient that the tortious conduct induced or otherwise caused the third party not to perform the contract”. If so then there will be “interference” within Section 766. See experts’ Joint Memorandum para 3(a) and (b): C1/TAB 3/page 90. In the Eighth Amended Petition in the Texas proceedings it is alleged that the acts of Enterprise, by approving and encouraging Amoco in the termination of the RGV Contract and because of the subsequent failure of Amoco to pay hire due under the RGV Contract, constituted interference with the Service Agreement. Paragraph 76 of the Eighth Amended Petition alleges that “because of the interference with the BAO/Rowan contractual relationship, Rowan suffered loss of money it would have received in full but for the interference”. G2/Tab 44/page 353.

[88]Mr Beazley submits that it is clear on the evidence of Mr Wilson that Enterprise both knew of Amoco’s intention to terminate the RGV Contract and agreed with it. I am prepared to accept that this was so. Mr Beazley then submits that, “but for” those acts of Enterprise (in approving and encouraging Amoco to terminate – wrongfully - the RGV Contract with BAO and not pay hire etc thereafter), BAO would have been able to perform its obligation to Rowan under the Service Agreement in a completely different manner from the way it actually did. It would have remitted 100% of the daily hire that BAO would have earned under the RGV Contract. Therefore Enterprise interfered with BAO’s performance of its obligations to Rowan under the Service Agreement.

[89]In my opinion there is a distinction between two situations: the first is whether the acts of Enterprise in approving and encouraging Amoco’s wrongful termination of the RGV Contract resulted in Rowan obtaining fewer benefits than it expected to get from BAO under the Service Agreement. The second is whether the acts of Enterprise in approving or encouraging Amoco’s wrongful termination of the RGV Contract amounts to interference with the performance of BAO’s contractual obligations under the Service Agreement. The first does not found a cause of action under Section 766. The second will do so.

[90]Mr Pakalka, Enterprise’s expert in Texas law, expressly agreed with Mr Schaff that there had been no interference with BAO’s obligation to remit hire under Clause 1(b) of the Service Agreement. Day 4/page 36 lines 12 – 25; page 37 line 13 – page 38 line 3. However, Mr Pakalka’s evidence was that there was another obligation of BAO under the Service Agreement that had been interfered with by the activities of Enterprise. He characterised that obligation as one of “good faith and fair dealing”. Day 4/pages 38 – 39. But Mr Pakalka was unable to explain satisfactorily how any act of Enterprise interfered with BAO’s performance of this obligation of good faith and fair dealing.

[91]In the end, Mr Pakalka’s evidence was that:

“It is the performance of the contract that otherwise would have occurred that was interfered with and I think that is all that is needed for that element of this Texas tort”

. Day 4/page 48/ lines 16 – 19.

[92]When Mr Westmoreland was questioned on the effect of Enterprise’s acts of approving and encouraging Amoco’s termination of the RGV Contract, so far as BAO’s performance of the Service Agreement was concerned, he agreed that the consequence was that BAO’s performance was “different”. Day 5/page 47/lines 22 – 24. But he insisted that Enterprise’s part in the termination of the RGV Contract did not amount to interference with the performance by BAO of the Service Agreement for the purposes of the tort of wrongful interference. Day 5/page 46/line 17 – page 47 line 15.

[93]In the case of ACS Investors Inc v Thomas McLaughlin, 943 SW 2d 426 (1997) Tex.LEXIS 26 the Supreme Court of Texas stated that when there is an allegation of tortious interference with a contract, the court must properly analyse the contract said to have been subjected to interference. The question is whether the actions of the defendant accused of interfering actually prevented performance of the contractual obligation said to have been the subject of interference. Page 5 of the report. In that case the Supreme Court held that there had been no tortious interference with the relevant contract because the defendant’s act was only to induce the contracting party to do what it was entitled to do. Therefore it could not be actionable interference. Pages 4 and 5 of the report. The Supreme Court therefore reversed the decision of the jury and trial judge and the Court of Appeal.

[94]In my view the analysis in that case supports the opinion of Mr Westmoreland and the arguments of Strand. I find that, as a matter of Texas law, a party alleging tortious interference with contract has to demonstrate that the acts of the defendant prevented a contractual obligor, in this case BAO, from performing a contractual obligation. The proper enquiry is not to see what benefits the other contracting party, in this case Rowan, would have obtained “but for” the acts of the defendant.

[95]In this case on the facts, Enterprise cannot possibly show that the acts of Enterprise (in agreeing with and encouraging the termination of the RGV Contract), prevented BAO from carrying out its one and only obligation under the Service Agreement, ie. to remit to Rowan such hire as it obtained under drilling contracts it (BAO) had concluded with third parties. Indeed, Mr Beazley did not really try to demonstrate this, because he did not put his case on that basis.

[96]In evidence in chief, Mr Pakalka mentioned section 766A of the Restatement. Day 4/page 13. Section 766A provides: One who intentionally and improperly interferes with the performance of a contract…between another and a third person, by preventing the other from performing the contract or causing his performance to be more expensive or burdensome, is subject to liability to the other for the pecuniary loss resulting to him”. C9/Tab 33. It differs from section 766 in that it concentrates on the action of the tortfeasor “preventing the other from performing the contract or causing his performance to be more burdensome”. Put into the context of the facts of this case, the allegation would be that Enterprise had wrongfully interfered with the Service Agreement by preventing Rowan from performing the Service Agreement or making it more difficult for Rowan to perform it. This would be in contrast to the position under section 766, where the allegation focuses on the acts of Enterprise affecting BAO’s performance of the Service Agreement. In their reports, neither expert had analysed Rowan’s claim against Enterprise in the Texas proceedings in terms of section 766A. It is not mentioned in the Joint Memorandum. However, in his evidence in chief, Mr Pakalka said he was inclined to the view that Enterprise’s actions came within section 766A. Day 4/page 13. In cross – examination he accepted that he had not referred to section 766A in his report and that “766 fits more precisely”. Day 4/page 33. Mr Westmoreland was not cross – examined on this point at all.

[97]In Enterprise’s closing written submissions (para 85) it is accepted that the relevant paragraph of the Eighth Amended Petition in the Texas proceedings, paragraph 76, focuses on alleged interference of BAO’s performance of the Service Agreement. At paragraph 87 it is suggested that there “may be a dispute” as to whether Rowan’s claim against Enterprise for tortious interference would fall under section 766 or section 766A. Paragraph 88 then states: “this dispute is of no consequence” and gives reasons based on the facts.

[98]However, in his closing oral submissions, Mr Beazley developed, for the first time, an argument based on section 766A. This was to the effect that Enterprise, by permitting, acquiescing or encouraging Amoco to terminate the RGV Contract, prevented Rowan from performing its obligations under the Service Agreement. Those obligations were, he said, to carry out work with the RGV rig and crew to fulfil drilling services that BAO had contracted with others to provide, as set out in Clause 1(a) of the Service Agreement.

[99]Even if Enterprise were entitled to raise the point at that very late stage, which I doubt, I cannot accept this argument. Enterprise’s acts in permitting, acquiescing in or encouraging Amoco’s termination of the RGV Contract did not, in an ordinary use of language, “prevent” Rowan from performing its obligations under the Service Agreement. Under clause 1(a) of the Service Agreement Rowan undertakes to perform the duties and obligations that BAO agrees with others that it will perform under drilling contracts. If, for whatever reason, BAO no longer has to perform those duties, then there is no obligation that Rowan has to fulfil under the Service Agreement. It has not been “prevented” from performing those duties by the acts of Enterprise; those obligations are simply no longer relevant, because they are only relevant in circumstances where BAO is obliged to perform duties under a drilling contract with another party.

[100]So I conclude that, on the facts and as a matter of Texas law, Enterprise have not proved that there was any interference with the Service Agreement. That is sufficient to defeat Enterprise’s claim altogether, but I shall go on to make findings on the other important points, because they were all argued fully.

[101]If there was interference with the Service Agreement, was it wilful and intentional? In the Joint Memorandum of the Texas law the experts’ agreed principles of Texas law on what constitutes “wilful and intentional” interference with a contract are set out at paragraphs 8 and 9, as follows: “A defendant can only be held liable for tortious interference with a contract if it is found that the defendant either(a) had actual knowledge of the contract and the plaintiff’s interest in it; or

(b) had knowledge of such facts and circumstances that would lead a reasonable person to believe in the existence of the contract and the plaintiff’s interest in it”. [Para 8]. “A defendant can only be held liable for tortious interference with a contract if it is found that the defendant acted “wilfully and intentionally” which means that the defendant either (a) knew that its conduct would interfere with the performance of the contract, or (b) believed that the consequences were “substantially certain to result”. [Para 9].

[102]Both sides agree that, on this aspect of the case, the dispute is as to fact, not Texas law. Mr Beazley accepts that “a jury might have found” that Enterprise did not have actual knowledge of the Service Agreement. Closing Submission: para 96. There is no evidence at all to suggest that Enterprise knew of the Service Agreement. Mr Wilson’s evidence on this point, which I accept, was that Enterprise did not know anything about the Service Agreement. XX: Day 2/page 173, lines 3 – 12.

[103]Did Enterprise have knowledge of “such facts and circumstances that would lead a reasonable person to believe in the existence of the contract and [Rowan’s] interest in it”? Mr Schaff accepted that Enterprise must have known that:(i) Rowan owned the rig;

(ii) BAO was the other contracting party to the RGV Contract with Amoco; and

(iii) BAO was a subsidiary of Rowan, although Enterprise regarded Rowan and BAO as one commercial entity for practical purposes. On (iii): evidence of Mr Wilson in XX: Day 2/page 176/lines 21 – 25. In my view those facts would lead a reasonable person to believe that there must have been some contract between BAO, which was contracting with Amoco to provide the rig for drilling purposes, and Rowan, as the owner and ultimate provider of the rig. Those facts would also lead a reasonable person to believe that Rowan must have an interest in that BAO/Rowan contract. Mr Wilson accepted that had Enterprise thought about the issue, then it would have been reasonable to have assumed that such a contract existed. Day 2/page 174/lines 13 – 16.

[104]If so, then the next questions are:(i) did Enterprise know that its conduct in agreeing to the termination by Amoco and encouraging Amoco to terminate the RGV Contract would interfere with the performance of the Service Contract; or

(ii) did Enterprise believe that “the consequences were “substantially certain” to result”. I take the last phrase to mean, in the context of this case, did Enterprise actually, subjectively, believe, that interference with the Service Agreement was “substantially certain” to result from its acts of agreeing to Amoco’s termination of the RGV Contract and Enterprise’s encouragement of Amoco to do so. Mr Pakalka agreed with this formulation in XX: Day 4/page 61/lines 10 – 17.

[105]On the question of whether Enterprise knew that its conduct would interfere with the Service Contract, the evidence of Mr Wilson, which I accept on this point, was clear. Mr Schaff asked him in cross - examination:

“Q. No idea, did you, that by terminating the RGV Contract, you might be interfering with a separate contact between BAO and Rowan, did you? A. No”

. Day 2/page 173/lines 13 – 16. …… “Q. It did not cross your mind that, by terminating the contact you might be exposed to a claim that you had thereby interfered in an internal contract between BAO and Rowan? A. It did not cross my mind, certainly. Q. Did it cross any one else’s mind within Enterprise, so far as you were aware? A. I doubt it”. Day 2/page 176/lines 9 – 16.

[106]I conclude on this clear evidence that Enterprise did not know that its actions would interfere with the performance of the Service Agreement. So the last question on this point is: did Enterprise believe that interference with the Service Agreement was “substantially certain” to result from its acts of agreeing to Amoco’s termination of the RGV Contract and Enterprise’s encouragement of Amoco to do so?

[107]On the evidence the answer to this question must be “No”. The evidence establishes that Enterprise did not actually know of the Service Agreement or its terms. Wilson XX: Day 2/page 173/lines 7 – 12. Neither Mr Wilson, nor, on his evidence, anyone else in Enterprise, thought that by agreeing to the termination of the RGV Contract by Amoco, Enterprise would be interfering with a contract between BAO and Rowan. Wilson XX: Day 2/page 176/lines 9 – 16. This may well be because Enterprise treated BAO and Rowan as one commercial entity. Wilson XX: Day 2/page 176/lines 17 – 25.

[108]There was a suggestion by Enterprise that, for the purposes of establishing knowledge of the Service Agreement, it could rely on matters after the termination of the RGV Contract on 19 January 1999. In my view this does not assist Enterprise. First, the Texas proceedings were begun on 19 January 1999, so the cause of action must have accrued by then. Mr Pakalka’s evidence was that “the date that the tortious interference bore fruit” was the date of termination of the RGV Contract. XX: Day 4/page 179/lines 7 – 17. Secondly, there must be some doubt as to when Enterprise became aware of the Service Contract. It was only referred to in the Third Amended Petition which was filed on 26 March 1999. Thirdly, any alleged interference after January 1999 cannot have caused the consequential losses claimed by Rowan, for which Enterprise says that it was liable. The “stock buy – back” programme was stopped in January 1999 because, so Rowan alleged, of the termination of the RGV Contract. Rowan did not allege that it would have used the monthly cash – flow of the hire from the RGV Contract to make the buy – back. It was the fact of termination and the once and for all loss of expectation of future cash – flow which Rowan claimed was the cause of its loss. If so, then any further interference in relation to individual month’s hire payments was not causative of the principal alleged consequential loss of Rowan.

[109]Accordingly, I conclude on the facts that Enterprise did not wilfully and intentionally interfere with the Service Agreement between BAO and Rowan.

[110]Can Enterprise rely on the “unity of interest” principle to avoid liability for tortious interference with the Service Agreement? Much time was spent with the expert witnesses exploring this matter. In the light of my findings so far, I will not deal with the point in so much detail in this judgment.

[111]I accept that the “unity of interest” principle has not been confined to anti – trust cases by the Texas Court of Appeals. Indeed, it has applied it in the context of a claim for tortious interference with prospective business relations; see, for example: Baker v Welch. 735 SW 2d 548 (1987). In that case the defendant, Baker, (the alleged tortfeasor), was held to have a unity of interest with HHI, and so Baker could not be held liable for the tortious interference with the plaintiff, Welch’s, prospective business relations with HHI. The unity of interest existed because Baker was the founder, sole shareholder and President of HHI. Mr Pakalka accepted that the decision in Baker v Welch supported the proposition that a parent company cannot be held liable in tort for interfering with a contract between its subsidiary and a third party; nor could a subsidiary be held liable for tortiously interfering with a contract between its parent and a third party. XX: Day 4/pages 85 line 15 to page 88 line 4. There are at least two reasons for such a rule. First, if the parent and subsidiary are commercially identical, then without the rule it would give a plaintiff two rights of action where in common sense there should only be one. Secondly, where there is a unity of interest between the parent and the subsidiary and one or other is in contract with the plaintiff third party, then to allow the third party to sue in tort would be an easy way to get round any limitations or exceptions that there are in the contract. The same reasoning was applied by the Supreme Court of Texas in Holloway v Skinner 898 S.W. 2d 793 (1995); and the US Court of Appeals of the Fifth Circuit in Deauville Corp v Federated Department Stores 756 F.2d 1183 (1985).

[112]That is as far as the cases go. However, Mr Schaff argues that if the Texas courts had to decide the point, they would hold that it is a principle of Texas law that a parent company cannot sue a third party for tortious interference with the performance by a subsidiary in its contract with the plaintiff parent company, because there is a “unity of interest” between the subsidiary and the parent. He accepts that neither expert has been able to identify any US case in which a defendant third party has been able to rely on the “unity of interest” principle to defeat a claim where it, the third party, is accused of tortiously interfering with a contract between a company and its subsidiary.

[113]But Mr Schaff submitted that he gains some assistance from Prudential Insurance Co v Financial Review Services Inc., 29 S.W 3d 74 (2000). a decision of the Supreme Court of Texas. The Court held, in fact, that Financial Reserve Services (“FRS”) was not precluded from suing a third party, Prudential, for tortious interference with FRS’s business and contractual relationships with various hospitals, by virtue of FRS’s agency status with those hospitals. The court held that FRS’s agency status did not create a “unity of interest” with those hospitals so as to prevent it from suing the third party, Prudential.

[114]In my view that decision does not support the general principle for which Mr Schaff contends. It does not state it expressly and it cannot be implied from the language or reasoning of the judges. In these circumstances it is clear, on English conflicts of laws rules, that I have to decide, on the evidence available, what the highest court in Texas (ie. its Supreme Court), would state the law to be were the point to be before that court for decision: see: In re Duke of Wellington.

[1947] Ch 506

at 515e – f, per Wynn – Parry J.

[115]I am not satisfied that the Supreme Court of Texas would propound the law in accordance with the submission put forward by Mr Schaff. It has to be assumed that a parent company could otherwise prove that a third party had, by wilful and intentional actions, interfered with the performance by a subsidiary company of its genuine contract with its parent and that the third party could not raise the defence of “justification”. It must also be assumed that the parent has suffered genuine losses as a result of the third party’s tort. I do not see any policy reason why, in those circumstances, a third party should be able to avoid liability simply because the parent and the subsidiary have the same directing mind.

[116]Therefore I would have held, if necessary, that the “unity of interest” defence would have failed. VII. Issue Four: Would Enterprise have been liable for the “stock buy – back” losses alleged to have been suffered by Rowan?

[117]Mr Pakalka agreed that if tortious interference with a contract is established under Texas law, then the principal head of damages recoverable is the revenue that would have been earned under the contract if the tort had not occurred. Mr Pakalka described these damages as the “direct damages”. XX: Day 4/page 150 to page 151 line 5. It is agreed that the claim for “stock buy – back” losses is not a claim for direct damages; it is a claim for “consequential loss”. In their Joint Memorandum, the two Texas law experts agreed the following propositions of law as regards further, or consequential, damages for tortious interference with contract: i) “A plaintiff who establishes tortious interference may recover consequential damages that were the natural probable and reasonably foreseeable consequences of the tortious conduct, including harm to reputation”. Joint Memo para 14: C1/Tab 3/page 92 ii) “The test for loss or damage is “proximate causation” which is….that cause which, in a natural and continuous sequence, produces an event, and without which cause such event would not have occurred. In order to be a proximate cause, the act or omission complained of must be such that a person using the degree of care required of him would have foreseen that the event, or some similar event might reasonably result therefrom. There may be more than one approximate cause of an event”. Joint Memo para 16. iii) “Claims for lost profits as consequential damages need not be susceptible to exact calculation but the amount of the loss must be shown by competent evidence with “reasonable certainty”. Joint Memo para 15.

[118]At the trial there was discussion with the expert witnesses about the role of the judge and the jury on the questions of causation, remoteness and whether a particular head of loss claimed had been proved by “reasonably certain evidence”. This discussion arose at my instigation: see transcript Day 5/pages 128 – 144. In the light of my conclusion about the correct approach to determining how I should decide issues of liability and quantum (according to Texas law), I think it is unnecessary for me to make findings on the respective roles of judge and jury as a matter of Texas law and procedure. I am in the position of being both judge and jury so far as Texas law and the evidence is concerned. I think that the position is analogous to that of an English judge who tries a defamation action without a jury. I must deal both with the points of law which a judge would determine and the findings of fact that must be made on the evidence, which would normally be the jury’s job.

[119]The facts concerning the share “buy – back” programme The facts set out below are taken from the Supplementary report of JA Compton, G10/Tab 70/page 147 at paras 6 to 17. the expert witness instructed by the Rowan plaintiffs in the Texas proceedings. The report is dated 6 March 2002, that is after the mock jury trial had taken place and just before the Settlement Agreement was signed on 14 March 2002.

[120]On 15 June 1998, the Executive Committee of the Board of Directors of Rowan Companies Inc authorised a repurchase of up to 5% of the outstanding common stock of the company. That constituted a total of 4,350,000 shares. On 22 October 1998 the Board raised the number of shares eligible for repurchase by the company to 8,000,000 shares. By 29 January 1999, Rowan had repurchased 4,301,400 of the 8 million shares. Therefore a further 3,698,600 could be repurchased. On 29 January 1999, Rowan ceased repurchasing shares. Mr Ed Thiele, Rowan’s Vice – President of Finance and Administration, gave evidence on deposition in the Texas proceedings Deposition taken on 27 October 2000, that is about one year before the “stock buy – back” loss claim was advanced in the Amended 8th Petition of the Rowan plaintiffs. that the buy – back of the shares was financed from Rowan’s cash reserves, which drew upon a revolving credit facility of US$ 153 million provided by a syndicate of banks. But when Amoco gave notice to terminate the RGV contract, Rowan decided that its cash position did not allow it to continue the buy – back programme and so it was stopped. Mr Thiele also gave evidence on deposition that if the RGV contract had not been terminated Rowan would probably have continued the stock buy – back programme, because the price was low at that time and Rowan would have had the cash to do it. G6/page 130 The repurchase would have been completed during February 1999, at an average price of US$ 9.04 per share. The total cost of repurchasing the remaining 3,698,600 shares would therefore have been US$ 33,421,231. Mr Thiele’s evidence was that the shares thus repurchased would have been sold in February 2000. Mr Crompton remarks in his report:

“We assume this statement is true”

. The average closing price of Rowan stock in February 2000 was US$ 23.16, so that the total sale price of the 3,698,600 shares would have been US$ 85,645,706 had they been sold then. The difference between the notional purchase and sale prices is US$ 52,224,475.

[121]Mr Compton’s conclusion on these facts, in paragraph 17 of his supplementary report, is: “Assuming Rowan would have purchased the remaining shares at the average closing price during February 1999 and sold them at the average closing price during February 2000, Rowan would have realized an additional gain of $52,224,475. By not achieving such gain, Rowan lost such profits”.

[122]Mr Beazley emphasised that, in Texas procedure concerning damages, experts are routinely called to give evidence as to the damage suffered by a Plaintiff. It is by this means that damages are frequently “proved” before the jury. Texas juries are entitled to rely on that expert evidence alone, provided it is based on objective data. These general principles were not contested by Mr Westmoreland: Westmoreland 1: para 41: C1/Tab 2/page 76. Mr Beazley submitted that in this case it would have been for the jury to decide, on the basis of the evidence of Mr Crompton, whether the buy – back loss alleged was recoverable according to Texas law principles.

[123]In Mr Beazley’s submission, the key evidence is that of Mr Thiele in his first deposition. First, he said that when Amoco announced the cancellation of the RGV Contract, then Rowan stopped the repurchase of its shares. G 6/Tab 57/pages 128; 143 – 4. Secondly, Mr Thiele said that Rowan would, or probably would, have continued with some or all of the stock repurchase had the RGV Contract not been cancelled. G6/Tab 57/page 130. See also pages: 149; 157 – 8; 223 – 4; 243 – 4. Thirdly, Mr Thiele said:

“Anyway, that [ie. the cancellation of the RGV Contract] kept us from doing that [ie. repurchasing the shares]”

. G6/Tab 57/page 130. Lastly, Mr Theile said that if Rowan had bought the additional shares then they would have sold them in February 2000. G6/Tab 57/pages 224 - 6

[124]Mr Schaff’s submission is that this alleged head of damage cannot reasonably be characterised as “the natural, probable and reasonably foreseeable consequence” of the (assumed) tortious interference with the Service Agreement. He emphasises that under Texas law, the consequences of the tortious action must be reasonably foreseeable at the time the tort is committed, not some later time. CJ Doe v Boys Club of Greater Dallas Inc (Texas Supreme Court): 907 SW 2d 472 (1995) at page 3 of the report: per Gonzalez J, who delivered the opinion of the majority. Although this was a negligence case, both sides’ experts accepted that the principles set out in the case concerning causation and remoteness of damage applied also in a tortious interference case. Therefore he submits that the key question must be whether, at the time of the tortious interference, Enterprise should have anticipated the danger of loss of this “general character”. Ibid. Mr Schaff submits that the loss of profit on a resale of repurchased shares at some time in the future is not something that was the reasonably foreseeable consequence of Enterprise’s tortious interference with the BAO/Rowan Service Agreement.

[125]It is not suggested that Enterprise had actual knowledge of Rowan’s share buy – back programme, let alone any plans to resell the stock at some future time. Mr Beazley argued that Enterprise would have been “fixed” with the knowledge of Rowan’s board resolutions authorising the share buy – back programme; or it must have appreciated that such programmes are commonly carried out by companies. I cannot accept either of those arguments. Mr Beazley did not explain the legal basis on which Enterprise would be “fixed” with knowledge of the board resolutions. It is not obvious in either English or Texas law. Even if buy – back programmes are common, the resolutions do not indicate the purpose of the intended buy – back nor do they indicate a time – scale for the purchases. There is no hint in the resolutions that the repurchases are to be made in the hope of reselling at a profit at some later time. Indeed, the board resolution of 22 October 1998 states that the board was of the opinion that the repurchase would be in the best interests of the company and beneficial to the “remaining shareholders”, which suggests that a resale to the general public at a future time was not contemplated. G11/Tab 72/page 5. Mr Thiele’s evidence was that the primary reason for starting the repurchases was to keep the stock price high. G6/Tab 57/page 150. Furthermore, Mr Thiele gave evidence in his first deposition that, as at 19 January 1999, Rowan did not have any plans at all to sell the 5.7 million Rowan shares that had been bought back “either at that time or at any time in the foreseeable future”. G6/Tab 57/page 166.

[126]There is also no evidence that Enterprise actually knew what funds would be used by Rowan to make the repurchases authorised by the board resolutions. Mr Thiele’s evidence on deposition was that the cancellation of the RGV Contract led Rowan to conclude that the balance of its cash was down and Rowan would not have had additional cash from the RGV Contract (via BAO’s remittances under the Service Agreement) to replenish Rowan’s cash balance so as to make it safe to continue the repurchase programme. Therefore the repurchase programme was not continued. G6/Tab 57/page 143. Mr Thiele’s evidence was that the additional 3.7 million shares would probably have been bought “in a couple of months or a month and a half or something, end of February [1999]”. G6/Tab 57/page 223; see also p 224. At that time the share price was low (US$ 8.50 to $10).

[127]Given all this evidence, I have concluded that, as a matter of Texas law, Enterprise, (or its directors) as a reasonably intelligent body, could not be expected to have anticipated that there was a danger that, as a result of the (assumed) tortious interference with the Service Agreement, Rowan would suffer loss of the kind claimed, ie. from not repurchasing a large amount of stock which Rowan could subsequently have resold at a profit at a later date. I have used the language of the judgment in the Doe v Boys Clubs case, supra. The Boys Club case states that the question of foreseeability “involves a practical inquiry based on common experience applied to human conduct”. The court (which includes a jury if one is involved, of course) must ask: whether this type of injury “might reasonably have been contemplated as a result of the defendant’s conduct”. In my view Enterprise could not have been expected to anticipate that its tortious interference with the Service Agreement would have led to a decision by Rowan to discontinue with a stock repurchase programme Enterprise knew nothing about. Even assuming Enterprise should have anticipated that companies such as Rowan engaged generally in stock purchases, Enterprise could not reasonably have anticipated that its tortious interference with the Service Agreement, which provided Rowan with revenue of approximately US$5 million per month, would lead Rowan to discontinue a programme of buying 3.7 million shares over a period of two months in January and February 1999 at a total price of some US$ 33 million. There is, on the evidence, no basis on which Enterprise could reasonably have anticipated that the Rowan stock was, or might be, resold in February 2000 at a profit to Rowan.

[128]Mr Schaff further submitted that Enterprise had also failed to demonstrate that the assumed tortious interference proximately caused the alleged loss. He says that the evidence does not support the proposition that “but for” the assumed tortious interference, the 3.7 million shares that Rowan claims would have been bought in January – February 1999 would have been resold by Rowan at a profit in February 2000.

[129]The evidence is as follows: as I have already noted, Mr Thiele accepted in his evidence that, at the time of the stock repurchases, Rowan had no intention of reselling the shares for a profit at a future date. He also gave evidence that Rowan had a three year revolving credit facility, which it had used (amongst other things) to make the stock repurchases before January 1999. The revolving credit was due for repayment in October 2000. Thiele: G6/Tab 57/page 175. But, in June 1999, Rowan realised that by September 1999 it would be in default on the revolving credit agreement. Rowan obtained two “waivers” from its bank, in September and December 1999. Rowan also decided that it would offer stock to purchasers as a means of paying off the revolving credit. Originally this offer was going to be made in December 1999, but it was delayed until February 2000. By then the price of Rowan shares had increased and so the stock was sold at US$24.50 per share. G6/Tab 57/pages 128 – 130. The stock offering consisted of 9 million shares. 5.7 million of those shares comprised the shares that Rowan had repurchased before 19 January 1999. There was a new issue of a further 3 million shares. All were sold at the same price, enabling Rowan to pay off the US$110 million revolving credit. Thiele: G6/Tab 57/pages 168 – 170.

[130]Mr Thiele’s evidence was that if the RGV Contract had not been cancelled and if Rowan had obtained all the remittances under the Service Agreement with BAO, then Rowan would have used the US$ 65 million so received to pay back the US$110 million revolving credit. G6/Tab 57/page 175. He also stated that if Amoco had paid under the RGV Contract then Rowan “probably would not have” needed to do the stock sale in February 2000. G6/Tab 57/page 230.

[131]There are two consequences to these facts. First, if there had been no tortious interference with the Service Agreement, then even if it is assumed that Rowan would have continued the stock repurchase, there would have been no resale in February 2000. There would have been no need for it, because Rowan would have had the money to repay the revolving loan. But, secondly, even if Rowan had repurchased the 3.7 million stock in January – February 1999 and it had decided that it needed to resell that stock in February 2000 (for whatever reason), then it would have resold the stock at the same price for the same gain as it did, in fact, obtain with the newly created stock. The evidence appears to be that it did not make any difference to the sale price of the stock offered in February 2000 that some three million new shares had been created and put up for sale. Because there was no fall in the sale price of the shares once the creation of the additional 3 million had been announced.

[132]Accordingly, quite apart from my conclusion that the kind of loss claimed was not reasonably foreseeable to Enterprise, I have also concluded that, on a proper analysis, the (assumed) tortious interference did not proximately cause any loss of this kind at all. Therefore, as a matter of Texas law, on the facts, Rowan would not have recovered under this head of loss.

[133]Mr Beazley made alternative submissions to the effect that even if Enterprise would not have been held liable for the full sum of US$52 million claimed by Rowan, it would have recovered a lesser sum. This submission was based on evidence from Mr Westmoreland that the jury would have awarded at least some sum above zero. I do not need to discuss this aspect further in the light of my earlier conclusion that it is not my task to second guess what a Texas jury might have awarded. It is my task to apply Texas law to the facts and reach my own conclusion on whether or not, on Texas law principles, this head of loss is recoverable. I have concluded that it is not. VIII: Issue Five: Was Enterprise liable for the cost of relocation of the RGV rig from the North Sea to Canada?

[134]As I understand it, Enterprise argues that Rowan would have recovered the cost of moving the RGV rig from the North Sea to Canada (about US$ 2.8 million) as a head of damages for Enterprise’s tortious interference with the Service Agreement. On the facts and as a matter of Texas law I find Rowan would not have been entitled to recover that cost. The RGV Contract provides that once the rig has completed operations under the Contract, then no remuneration is payable to BAO, the Contractor. RGV Contract: Clauses 2.2 and 5.7.2: E/Tab 3/pages 148 and 151. In other words, if the RGV Contract had been performed, either BAO or Rowan would have had to pay for the cost of getting the rig from the North Sea to Canada. There is no connection between Enterprise’s (assumed) tortious interference with the Service Agreement and Rowan being liable for this expense.

[135]Mr Schaff did accept that this head of damages might be recoverable by Rowan in the Texas proceedings as damages for “fraud in the performance of the agreement”, (ie. the RGV Contract). But that does not assist Enterprise. In order to recover under the policy, Enterprise has to show that this head of damage was proximately caused by Enterprise’s tortious interference with the Service Agreement. It cannot do so. IX. Issue Six: Was Enterprise liable for the cost of relocation of other Rowan North Sea rigs and lost profits arising from lower revenues compared with the North Sea?

[136]On the first point, even if it is assumed that Enterprise tortiously interfered with the Service Agreement between BAO and Rowan, there can no causative link between interference with that contract and the cost of relocation of other North Sea rigs of Rowan. The (assumed) interference has nothing to do with the other rigs at all. Indeed it seems that it is clear from the filings that Rowan made to the SEC that Rowan decided to move the rigs from the North Sea for better market conditions and better day rates in the Gulf of Mexico. This is referred to in an email from Ed Murphy, of Beirne, Maynard & Parsons LLP, attorneys to Enterprise, to Enterprise, its co - Operators and their London lawyers, dated 8 March 2002: H5/page 2228. The SEC filings were not, themselves, disclosed by either side in the action before me. Extracts were quoted, without objection, at para 112 of Strand’s written Closing Submissions.

[137]The second part of this head of claim suffers from the same problem. There is no causative link between Enterprise’s assumed tortious interference with the Service Agreement and the allegedly lower revenues that were obtained by other Rowan rigs in the Gulf of Mexico. X. Issue Seven: Was the Settlement Agreement a reasonable settlement for the purposes of Section IV(a) of the policy.

[138]As I have held that Enterprise has to prove that it was or would have been actually liable to Rowan for tortious interference with the Service Agreement and that, as a matter of Texas law, it was not so liable, this issue does not arise. The issue would only arise if, upon the proper construction of the policy, there is a right to indemnity if there is a settlement by the insured of an arguable claim against it by a third party. In that case it is accepted by Enterprise that Strand would be entitled to investigate whether the sum actually paid in settlement of Rowan’s claims reasonably reflected the arguable liability of Enterprise. But, in the context of the liability policy, the settlement is only reasonable in relation to a liability that is covered by an insured peril. Enterprise accepts that the only potential liability to Rowan that is covered by the insured perils of the policy would be the liability for tortious interference with the Service Agreement. Therefore, in order to recover fully under the policy, Enterprise would have to show that a settlement of US$84,220,025.07 That is the balance to be paid after deduction from the total settlement figure of US$175 million of the sums paid under Langley J’s judgment. reasonably reflected its arguable liability to Rowan in respect of the allegation of tortious interference with the Service Agreement.

[139]On Enterprise’s own case the maximum claims for the relevant alleged losses were:(i) the stock buy – back losses of US$52.2 million;

(ii) the expenses in moving the RGV rig from the North Sea to the Gulf of Mexico: US$ 2.8 million;

(iii) the cost of moving other Rowan rigs from the North Sea to the Gulf of Mexico: US$15,091,552;

(iv) the loss of profits because of lower revenues on those rigs: US$5 million; and

(v) pre – judgment interest at 10% from February 2000, in the case of the stock buy – back claim, totalling about US$25 million. Ultimately the pre – judgment rate of interest was agreed between the experts: Westmoreland XX: Day 4/page 180. Together those claims total approximately US$85 to 90 million, although it is difficult to be precise. But, on those figures, a settlement payment of US$84 million does not exhibit much of a discount.

[140]Mr Schaff argued that even if Enterprise was reasonable in settling the total claims that were being made by Rowan, the settlement was not an objectively reasonable settlement of the insured liabilities. He submits that the amount agreed in the settlement reflected concerns by Enterprise about the risk of being held liable by a jury for punitive damages; the large irrecoverable costs and the risk of damage to the reputations of Enterprise and BP Amoco. That view is reflected in what Mr Wilson told the Audit Committee of the board of Enterprise on 29 January 2002. H5/pages 1948 – 9. Mr Thomas Kilbane, of Squire, Sanders & Dempsey, who was engaged to consider the merits of the Texas case after Langley J’s judgment in the Commercial Court, was inconsistent in his evidence on the merits of Rowan’s case against Enterprise. His witness statement indicates that he believed, shortly before the settlement, that the only serious claim was the “stock buy – back” loss, which he quantified at US$20 – 25 million. Witness statement paras 19 and 22; B/TAB 2/page 108 – 9. In oral evidence in chief, he expressed the view that Rowan had a “probability of success” for the whole US$52 million claim for the “stock buy – back” loss. Kilbane X: Day 3/pages 111 – 2; 116. I found this unconvincing. Moreover, in his witness statement he refers to a meeting in New York with Mr Eddy Whitehead, who would represent BP in any negotiations with Rowan. This took place on 27 December 2001. Mr Kilbane’s evidence is that he told Mr Whitehead that he (Mr Kilbane) would be “comfortable”with a settlement figure of US$50 million “because of all the uncertainties and risks”. Statement para 21. This must be a reference to the uncertainties and risks of all the claims, including that for punitive damages and the risk of irrecoverable costs.

[141]In the light of this evidence, my finding is that Enterprise had not concluded that there was a serious risk of being liable, as a result of tortious interference, for the “buy – back loss” in the full sum claimed by Rowan. Enterprise and its co – defendants agreed the figure of US$84 million to avoid the risk of being held liable for punitive damages; Mr Kilbane thought this a substantial risk: statement para 23 at page 111; XX at Day 3/page 158 – 9. having to pay for irrecoverable costs and damage to the reputation to BP Amoco.

[142]The assumption I am making on this issue is that the policy indemnifies Enterprise for loss it has suffered in paying on settlement on the basis of arguable liability for one of the insured perils. For this purpose it is accepted by Mr Beazley that the only relevant insured peril is tortious interference with contract and that the settlement in respect of that insured peril must be reasonable. Given my findings above, the settlement was not reasonable in respect of the insured peril of tortious interference with contract.

[143]That conclusion raises the next question, which is, if Enterprise would not have been actually liable for damages caused by tortious interference with contract in the sum of at least US$84 million and if that settlement figure does not reasonably reflect arguable liability for such damages, then is there any other basis on which Enterprise can recover under the policy. In particular can Enterprise recover by some means of “apportionment”; this is dealt with under Issue Nine below. XI. Issue Eight: Assuming (on the correct construction of the policy) that Enterprise has to prove that it was (or would have been) liable to Rowan for tortious interference with the Service Agreement, then, on the facts of this case, was that liability one “on account of the infringement of contract rights” within the definition of “personal injury” in the policy?

[144]On the conclusions that I have reached so far, this issue also does not arise. However, it raises a point of construction of an English law policy, so I will deal with the point briefly. This point assumes that, as a matter of Texas law, Enterprise had tortiously interfered with the Service Agreement, ie. it had interfered with it intentionally, wilfully and without “Justification”. See para 35 above. Mr Schaff invites me to make a finding that Enterprise commissioned or encouraged Amoco UK’s commission of the termination of the RGV Contract knowing that such a termination was of doubtful validity; furthermore, that Enterprise deliberately ran the risk that the termination would be unlawful because, having weighed the risks, it considered they were worth running.

[145]It is clear that, by 15 January 1999, there had been an internal discussion within Enterprise and it was almost certain that it would agree to a termination of the RGV Contract by Amoco. See attendance note of 15.1.99, by Herbert Smith, lawyers for Amoco, recording what Mr Wilson of Enterprise had said to Mr Greeno of Herbert Smith: H1/403. By 19 January 1999, when the decision to terminate was made by Amoco and its co – venturers, the lawyers were less sanguine about Amoco’s right to terminate the RGV Contract than they had been before. Herbert Smith attendance note of 19.1.99 concerning a telecom between Herbert Smith and BP Amoco: H5/2000. As the lawyers had previously thought that the right to terminate “could be put at about 50 – 50”, Herbert Smith attendance note of 15.1.99. it must follow that the lawyers now thought that the chances of proving that they had the right to terminate were less than evens. Leading Counsel’s opinion on the right to terminate had been taken on 14 January 1999, Herbert Smith attendance note dated 15.1.99: H1/page 405. but not retaken after Enterprise’s and Amoco’s view of the merits had become more gloomy between 15 and 19 January 1999.

[146]I am prepared, therefore, to find that Enterprise acquiesced in Amoco UK’s commission of the termination of the RGV Contract knowing that such a termination was of doubtful validity and running the risk that it would be unlawful. However, I am not sure how much that advances the argument, given the assumption I must make at this stage that Enterprise was guilty of the intentional and wilful interference of the Service Agreement without “Justification” and is or would be liable to Rowan as a result.

[147]The short point is: assuming those facts, then is Enterprise covered for losses it has suffered by having to pay Rowan damages caused by that tortious act? That depends on the scope of the words “infringement of contract rights” in Section IV(a).1(a) of the policy, because cover is granted to the Insured for all sums that it has to pay “by reason of liability imposed by law or assumed under contract…on account of personal injury… [which term] shall include…infringement of…contract rights…”. Does cover embrace circumstances where the liability arises because the insured has intentionally and wilfully interfered with contract rights and has done so without “Justification” as a matter of Texas law?

[148]Mr Schaff relies upon a general statement of principle by Rix LJ in Charlton v Fisher

[2002] QB 578

at 597, paras 51 – 2. that “it is a basic rule of insurance law that a contract of insurance does not cover an assured against his deliberate or wilful infliction of loss, at any rate in the absence of express stipulation or necessary implication. That is a matter of construction, quite apart from public policy….” I must, of course, accept that is the general principle, but the principle must be considered in the particular context being examined, the type of peril insured and the express policy terms. In this case the policy covers loss resulting from legal liability of the insured. The legal liability is one that must arise out of “personal injury and/or bodily injury and/or loss of life [etc]…” as set out in the policy. “Personal injury” is stated to include many situations, including infringement of contract rights. The policy is also intended to cover losses resulting from legal liability of the insured which has been imposed under any system of law within the world. In common law countries, at least, it is generally accepted that there can be a tortious liability for the intentional and wilful interference with contracts without lawful excuse. The damage that will result from such unlawful interference will almost invariably be economic damage to the claimant. In my view if the parties to this policy were asked: was it the intention of the parties to restrict the cover so as to exclude from cover loss resulting from a finding of legal liability for tortious interference with contract, I think the answer would have been “No, it was not”. To limit the cover so as to exclude loss to the insured because it is liable for tortious interference with contract would, I think, limit too much the scope of the cover given by the words “infringement of contract rights”. Therefore, even if the consequence of this construction is to provide cover to the insured against deliberate or wilful infliction of loss on a third party, in the context of this liability policy, I think that the cover afforded by “infringement of contract rights” must be construed to include loss caused by liability for tortious interference with contract.

[149]Mr Schaff accepted in argument that the extent of the cover depends on the construction of the policy terms. He submitted that the cover for “infringement of contractual rights” must, on its proper construction, be limited so as not to cover infringements which result from either deliberate or reckless acts of the insured entity (as opposed to those of employees or agents). But, for the reasons that I have set out above, in my view the extent of the cover in respect of “infringement of contractual rights” is wide enough to cover tortious interference with contracts. XII. Issue Nine: as a matter of English law, is Enterprise entitled to recover any, alternatively a proportion of the settlement figure of US$84.225 million?

[150]In view of my conclusions on the questions of liability and quantum, this issue also does not arise for decision. The circumstances in which this point might arise are set out at paragraph 46 above. I am going to give my views on the issue, principally because of the conclusion that Colman J reached in the Lumbermen’s case, which both counsel described as “very controversial”. Colman J held that an insured cannot recover anything at all under a liability policy if the claim under the policy is founded on a settlement agreement with a third party which has not specifically identified an amount that refers to a liability to the third party that is covered by an insured peril under the policy terms. Enterprise accepts that the Settlement Agreement in this case did not specifically identify the liability in respect of which the sum of US$84 million odd was to be paid by Enterprise and others to Rowan. The Settlement Agreement states that the Texas litigation asserted various tort claims, including, in particular, tortious interference. It also states that the settlement sum of US$175 million is paid to discharge each of the BP Amoco Affiliated parties (including Enterprise) from, amongst other things, “all claims which have been or which could have been asserted in the Litigation.” The Settlement Agreement states that the US$175 million specifically includes the sums for which Amoco was held liable by Langley J, together with costs. Otherwise no specific sum is linked to any particular claim or liability, whether by reference to the causes of action pleaded in the Texas action or the liability policy terms.

[151]Colman J’s decision therefore raises the stark issue of whether Enterprise could recover anything at all in this action, even if it proved that(i) it was or would have been under a liability to Rowan for tortious interference with the Service Agreement; and

(ii) the amount of that liability would have been at least US$84 million, ie. the settlement figure. During the hearing in October 2005, Mr Schaff supported the Lumbermen’s decision. But I did not understand him specifically to argue that because there was a global settlement figure which did not identify what sums were attributable to what heads of claim, therefore the consequence of the Lumbermen’s case was that Enterprise’s claim must fail at the outset. Whilst preparing this judgment it seemed to me that, if the Lumbermen’s decision was correct, that must be the logical consequence if it applied to this case. Therefore, I decided I must ask Mr Schaff to confirm whether he advanced that argument; and if he did, whether he wished to put in any further written submissions in support of it. He did so and Mr Beazley made further written submissions also, for which I am most grateful. Submissions of 8 and 16 December 2005 respectively.

[152]The Lumbermen’s case arose out of a building contract between Braehead as employer and Bovis as contractor. Bovis started proceedings in the Technology and Construction Court (“TCC”) for a balance said to be due under the building contract, totalling some £37 million. Braehead put in a defence and counterclaim which totalled some £103 million, alternatively some £75 million. That counterclaim was based on:(a) alleged mismanagement of the project by Bovis, leading to additional expenses; and also

(b) on defective and non – compliant work. Bovis and Braehead settled their claims and counterclaims. Under the settlement Braehead agreed to pay Bovis £15 million in full and final settlement of all disputes under the building contract. The method of calculating that sum was not indicated in the settlement agreement. There was no indication of which part of either Bovis’ or Braehead’s claims had been regarded as valid.

[153]Bovis (ie. the contractor) had two liability policies for primary and excess layers. Each policy agreed to indemnify Bovis for:

“…any sum which the insured may become legally liable to pay arising from any claim or claims first made against the insured….as a result of 1. any neglect error or omission…in the conduct of the insured… 2. breach of warranty or guarantee of the fitness or suitability for purpose or the reasonable fitness or suitability of any work or materials which are the subject of the contract…entered into by the insured…”

[154]Bovis made a formal claim under the policies for £19,222,722.40. This figure was based on a report by its solicitors (made at the time of the settlement) that Bovis was entitled to recover some £32 million from Braehead (taking into account sums already paid by Braehead), but the latter had a valid counterclaim for £19,463,221. There was no evidence before the judge that this analysis had been agreed by Braehead.

[155]The insurers issued proceedings in which they claimed a Declaration that they were under no liability to Bovis. Colman J ordered a trial of preliminary issues. The essence of the chief preliminary issue was whether, on the facts, Bovis was entitled to recover anything under the policies. Colman J held that it was not entitled.

[156]Colman J analysed the principles of an insured’s right to recover under a liability policy. The steps in his reasoning are as follows: first, he stated that in order for an insurer to be liable to an insured under a liability policy, three things must be established. These are:(i) that there has been “an eventuality” which has rendered the insured liable to a third party and that liability has been “ascertained” by judgment, arbitration award or settlement between the insured and the third party;

(ii) that the eventuality and the consequent liability must be within the scope of the cover provided by the policy; and

(iii) that the liability “has caused loss to the insured of an amount within the scope of the contractual indemnity”. He said that each of these constituents has to be established “before it can be said that there is a cause of action” against the insurer. Para 31 of the judgment. With respect, the analysis so far must be correct. See: West Wake Price & Co v Ching

[1957] 1 WLR 45

; Post Office v Norwich Union Fire Insurance Society

[1967] 2 QB 363

; Bradley v Eagle Star Insurance Co Ltd

[1989] 1 AC 957

[157]Secondly, he held that the “ascertainment” of the insured’s liability to the third party by reason of a judgment, or arbitration award or a settlement agreement, “provides the essential link between the insured eventuality which has created the insured liability on the one hand and the actual loss sustained by the insured”. Therefore, in the case where liability is established by a settlement agreement, “that which must be distinctly ascertained is thus the cost of the insured liability”. Para 39 of the judgment.

[158]Thirdly, as there is generally no express term in a liability policy that the insured’s liability to the third party must be ascertained before recovery can be made under the policy, but cases Such as Commercial Union Assurance Co v NRG Victory Reinsurannce

[1998] 2 Lloyd’s Rep 600

, referred to in another context above. have proceeded on the basis that this is a precondition to recovery under the policy, there must be an implied term in such policies. This is to the effect that “it is an essential element of the assured’s cause of action that his loss has been specifically ascertained by means of a judgment, arbitration award or settlement agreement”. See paras 40 – 42 of the judgment.

[159]Fourthly, the fact that the liability of the insured to the third party has been “ascertained” by judgment, award or settlement provides evidence of the liability of the insured to the third party. In the case of a settlement between them, it is not conclusive evidence of either the fact of liability or of its quantum. Both can be challenged by underwriters if there is a claim under the liability policy. See paras 43 – 45 of the judgment: also: MDIS Ltd v Swinbank (supra). Therefore, “as a matter of law an assured who relies on a settlement as a means of ascertainment has to prove by extrinsic evidence that he was in truth under a liability insured by the policy and secondly that what he has paid by way of settlement of that liability was reasonable having regard to the amount of damages that he would have to pay if the matter had gone to trial”. Para 44.

[160]Fifthly, however, “…there appears to be no authority to suggest that if a settlement agreement has been entered into but it does not specifically identify the cost to the assured of discharging the insured liability, extrinsic evidence can be adduced to supply an ascertainment of that cost and therefore of the relevant loss”. Para 47. Colman J stated that this is hardly surprising as this would be inconsistent with the “contractual requirement for ascertainment of loss”, which he said was confirmed in the Bradley case. He continued:

“Consequentially, on the basis of this analysis, the fact that a court could go behind the terms of the settlement agreement to investigate whether there was in truth liability to the third party and, if so, for what amount of damages the assured would be liable does not lead to the conclusion that the court can cure the deficiency in the validity of the ascertainment of loss by hearing evidence which goes behind that which is expressed by the settlement agreement”

. Para 47.

[161]Colman J concluded that, upon this analysis, a global settlement such as that between Bovis and Braehead did not:

“…satisfy the requirement of ascertainment of loss under these liability insurance policies. It does not impose on the assured any identifiable loss in respect of any identifiable insured eventuality. It merely identifies the overall price paid by the assured as consideration for the contract which conferred on the assured various different benefits including the dropping by Braehead of all claims in respect of the project”

. Therefore Bovis could not recover under the policies.

[162]In my view it is clear that Colman J intended that his analysis should state a general principle, rather than be just applicable to the particular facts of the Lumbermen’s case. Therefore, if his analysis is correct it is equally applicable to cases where two parties (A) and (B) have settled a number of claims by A against B involving different types of legal liability, but they have agreed on a global settlement figure without identifying in the settlement agreement itself specific amounts for particular claims which are associated with particular legal liabilities. In those circumstances, on Colman J’s analysis, if B has liability cover against one or more, but not all of the legal liabilities asserted by A against B, then B can recover nothing under the policy. That is because, as he puts it at paragraph 58 of the Lumbermen’s case, the settlement agreement “does not specifically identify the cost to the assured of discharge of the claim or claims said to be within the scope of the cover” and “the ascertainment of the relevant loss to the assured cannot be supplied by extrinsic evidence, whether of objective or subjective evaluation”.

[163]I regret that, with great respect, I cannot agree with the fifth stage of Colman J’s analysis or his conclusion from it. I will limit my comments to liability insurance. Colman J drew some analogies with reinsurance cases and placed some reliance on them. But care must be used here, because there is a long – running and as yet unresolved dispute as to whether a contract of reinsurance can ever be an insurance of the reinsured’s liability under the underlying policy. See: eg: Toomey v Eagle Star Insurance Co Ltd

[1994] 1 Lloyd’s Rep 516

at 522 per Hobhouse LJ; Charter Reinsurance Co Ltd v Fagan

[1997] AC 313

at 385 per Lord Mustill.

[164]It is very well – established that a contract insuring against the legal liability of the insured is a contract of indemnity. Therefore the right to indemnity arises only when the insured has suffered a loss that is covered by one of the perils insured. The question is: what does the insured have to establish to prove that loss and so be indemnified under the policy and how can he do it?

[165]The cases on which Colman J particularly relied, ie. Post Office and Bradley,

[1967] 2 QB 363

;

[1989] AC 957

respectively. were cases concerned with the right of a claimant to use the Third Parties (Rights against Insurers) Act 1930 to bring a claim against the liability insurers of companies against which the claimants asserted that they had valid claims. In both cases the claimant had not obtained a judgment or arbitration award or settlement agreement against the company concerned. The question was, in each case: could the claimant utilise the 1930 Act in those circumstances to bring a claim against the liability insurers of the company concerned. Section 1(1) of the 1930 Act provides:

“Where under any contract of insurance a person…is insured against liabilities to third parties which he may incur, then [if the insured becomes bankrupt or insolvent etc], if, either before or after [such an event] any such liability as aforesaid is incurred by the insured, his rights against the insurer under the contract in respect of the liability shall…be transferred to and vest in the third party to whom the liability was so incurred”

. I emphasise those words deliberately, because the court was not concerned with whether the claim against the liability insurers, utilising the 1930 Act, would have succeeded. The answer in both cases was that the claimants could not use the 1930 Act because the Act only transferred and vested in third parties rights against the liability insurer when liability to a third party has been incurred by the insured. The right of insured to “sue for an indemnity” The words of Lord Brandon in Bradley at page 966. against a liability insurer only arise once it can demonstrate loss. But an insured cannot demonstrate loss if it cannot show the existence and amount of liability to the third party by judgment, award or settlement. That is the first step to showing it has “so sustained a loss”, as Devlin J put it in the West Wake Price case.

[1957] 1 WLR 45

. Approved by Lord Denning MR in the Post Office case. But neither the Post Office case nor Bradley’s case were concerned with two matters. First, the precise link between the liability to the third party that has been “ascertained” by a judgment, arbitration award or settlement between the parties and the right to claim under the liability policy.Secondly, whether, and if so in what circumstances, the liability insurer could challenge the assertion that the insured has suffered a loss (by virtue of the liability to a third party) that the insured claims is recoverable under the liability policy.

[166]Therefore, contrary to the view expressed by Colman J at paragraph 47 of his judgment in Lumbermen’s, in my view those cases do not establish that it is a pre-condition for recovery under a liability policy that the insured has “ascertained”, by virtue of the wording of a judgment, or award or settlement agreement itself, the “specific cost to the insured of discharging its insured liability”. In other words, in my view an insured does not have to show an amount of its loss to be claimed under an insured peril covered by the liability policy has been “specifically ascertained” in the wording of a judgment, award or settlement. I say this for two particular reasons, quite apart from the fact that neither case uses such language.

[167]The most important, if obvious, point is that an insurer always has the right to challenge whether the insured’s right to indemnity under the policy has been established. Therefore it has the right to challenge whether the insured was, in fact and law, liable to the third party. It has the right to challenge the quantum of the liability. And it must also have the right to challenge whether, on the facts of the case, the insured’s liability to the third party is a loss within the scope of the liability policy, whatever is stated in a judgment, award or settlement. Apart from anything else, the insurer will not be a party to the judgment, award or settlement, unless specifically involved. I accept that in the case of judgments and awards, the conclusion of a competent tribunal on the merits as to liability and quantum is unlikely to be upset in an action on the liability policy. But I cannot see why, in principle, it should not be challenged. In the case of settlements, Colman J himself specifically accepted that an insurer is not bound by a settlement agreement between the insured and the third party as to liability, or quantum. See: para 45 of the judgment in Lumbermen’s.

[168]However, Colman J draws a distinction between two functions of “ascertainment” by judgment, award or settlement. He describes one function as a “source of evidence” as to liability and quantum of the insured to the third party. See: para 43 of the judgment. He says that cases affirming an insurer’s right to challenge issues of liability and quantum in a settlement agreement are concerned only with that function of “ascertainment”.

[169]But he states that the primary function of “ascertainment” is to identify and “thereby represent the assured’s loss attributable to the relevant liability”. I cannot find that function identified in any of the cases to which Colman J refers. Moreover, it seems to me wrong in principle for the reason that I have already given, ie. that a judgment, award or settlement between an insured and a third party is not concerned to “ascertain” the loss of the insured under a liability policy; it is irrelevant to those parties.

[170]I accept that if the insured has negotiated a settlement which identifies certain heads of claim as being referable to certain causes of action that are within the perils insured under the insured’s liability policy, then that will be evidence that the insured has suffered a loss that is covered by the policy. But, as the case of MDIS Ltd v Swinbank

[1999] Lloyd’s Rep 516

. shows, that can be challenged by underwriters. If it is challenged, then the question of whether there has been a loss covered by the policy terms will be decided on evidence that is extrinsic to the settlement agreement itself. If that exercise is permissible, which it must be, then I cannot see the basis for saying that an insured has no cause of action against a liability insurer unless it can demonstrate that there was a pre-existing determination, in the settlement agreement itself, of the precise amount of its liability to a third party that is attributable to a peril insured under the liability policy.

[171]Therefore, on principle, I think that it is open to an insured to assert and prove, by extrinsic evidence, that it is liable to a third party for a particular sum under a settlement that has been made and that the particular sum represents a loss covered by an insured peril under the liability policy. Equally, if an insured had made a settlement which purported to identify a particular sum as representing the quantum of liability for a particular type of loss that equated to an insured peril under the liability policy, the insurer would be free to challenge the insured’s liability to the third party, the quantum of the liability and whether the particular liability identified in the settlement did, in fact, constitute a loss covered by an insured peril under the policy.

[172]My second reason for not following Colman J’s conclusion is that, if it were right, it would lead to great commercial inconvenience and to artificial statements in judgments, awards and settlement agreements. Commercial law tries to avoid forcing parties to engage in commercially inconvenient and artificial practices. As I have already pointed out, if the principle is correct, then it must apply to judgments and awards as well as settlements. But judgments and awards are not concerned with potential liability under liability policies and they should not be forced to be involved. And parties to settlements may, for very good commercial reasons, not wish to identify the particular sums that are attributable to particular heads of claim or alleged types of loss. To insist that they do so by saying that it is a pre – condition of an insured recovering under its liability policy is likely to discourage the settlement of disputes and create more litigation, to no advantage. It should not be required unless, upon analysis, the law requires it to enable the insured to have a cause of action against the liability insurer. In my view it does not do so.

[173]Therefore I have concluded that Strand would not have won on this point had it been relevant.

[174]The second argument raised by Strand on “apportionment” is that if Enterprise has established that it would have been liable to Rowan, but not for the full amount of the settlement, then the court should apply principles of average, so that Enterprise should only be permitted to recover a proportion of the settlement figure. The basis for this would be that only a proportion of the settlement figure was attributable to a potential liability for a claim for tortious interference with the Service Agreement. Other elements of the settlement figure were:(a) the risk of suffering punitive damages and

(b) the fact that costs would be irrecoverable, even if Enterprise won the case.

[175]As this situation does not arise and as neither side produced any cases that are directly in point, I am reluctant to make any hypothetical findings on the point. I am also not going to comment on the even more hypothetical case of what the court’s approach should be if Enterprise has to prove only arguable liability in order to recover under the policy. In that case if the settlement agreement is not reasonable by comparison with the maximum arguable liability, then the question of whether the insured can recover anything under the policy is, as Mr Schaff put it “sailing into uncharted waters”. I propose to keep out of them.

X1. Issue Ten: Can Enterprise recover its defence costs under the terms of the policy?

[176]Enterprise submits that its costs of defending the claim by Rowan in the Texas proceedings are recoverable under the policy on three alternative bases. First, Enterprise submits that, on the proper construction of Clause 6 of Section IV(a), when read with clauses 4 and 5 of the General Conditions, These provide: Clause 4:

“..as soon as reasonably practicable, written notice of loss which is likely to involve this Policy shall be given by the Insured to [the Insurers]”

. Clause 5:

“The Company shall not be called upon to assume charge of the settlement or defence of any claim made or suit brought or proceedings instituted against the Insured but the Company shall have ht e right and shall be given the opportunity to associate with the Insured in the defence and control of any claim…”. the insurers are liable to pay costs where the insurers are given, as Enterprise puts it: “the opportunity to associate with the Insured in the defence and control of the claim, but decline to do so”

. Enterprise submits that Strand was given this opportunity and that it did decline to associate with the defence.

[177]Secondly, Enterprise submits that under Clause 6 of Section IV(a), the insurers are obliged to pay their proportion of all costs, charges and expenses in connection with any claim that the insurers may require to be contested. Enterprise submits that the correspondence shows that the insurers, Strand, through the brokers, Marsh, (who must be regarded as agents of the insurers for this purpose under Clause 14 of the General Conditions), This clause states that: “Any notices or communications between the Insured and the Company and vice versa as may be required in respect of this insurance shall be made through Sedgwick Energy and Marine”, which became Marsh. did require Enterprise to defend the proceedings.

[178]Thirdly, in any event, the insurers are required to pay the costs of defending the claim where there is an actual liability, because it falls within the ambit of the Insuring Clause (ie. Section IV(a), clause 1(a)), when it is read with the Policy Declarations under Section IV.

[179]Strand submits that Enterprise cannot recover costs under any of these three means.

[180]First basis: Clause 6 of Section IV(a), read with General Conditions clause 4 and 5. Mr Beazley submits that when these clauses are read together, then the scheme is as follows:(i) the insured is obliged to give the insurer written notice of a loss which is likely to involve the Policy as soon as is reasonably practicable;

(ii) notice must be given to the insurers through Marsh;

(iii) when the insurer has received notice of the loss, it must be given the opportunity and it has the right to associate itself with the defence and control of any claim that is made against the insured;

(iv) if the insurer declines to associate itself with or take control of the defence of such a claim, then that necessarily means that the insured must conduct its defence on its own;

(v) that therefore triggers the “Costs Clause”, ie. clause 6 of Section IV(a), because in these circumstances the insurer is effectively requiring the insured to contest the claim.

[181]Mr Beazley submits that, on this construction, Enterprise is entitled to recover its defence costs if it demonstrates that it notified Strand of a claim (through Marsh), offered Strand the opportunity to associate in the defence of the claim, but Strand declined to be associated with it.

[182]The facts are as follows. On 15 April 1999 Enterprise sent to Marsh a Memo. The Memo stated:

“This is to formally advise you that Enterprise Oil have been joined in an action with Amoco (UK) Exploration Co [and others]. This action has been brought by Rowan Companies Inc and [BAO], as a result of Amoco’s allegedly wrongful termination of a rig contract last year…The total claim, made up of various tort actions and including exemplary damages adds up to excess of US$750 million. Please as a precaution advise insurers…We believe it will ultimately go away”

[183]Marsh passed on this Memo to “insurers subscribing to policy S622021”. That is not the Policy with Strand, but Strand’s reinsurance. Marsh told the reinsurers that it had asked Enterprise for copies of the suit papers and to advise on who had been instructed to defend the suit. Costs Bundle, page 1. The Memo was circulated amongst the subscribing London market reinsurers. The reinsurers comprised Lloyd’s syndicates and companies from markets in London and the USA. The lead reinsurer was the Catlin syndicate. The London market Reinsurers scratched the Memo, noting the position and asking to be kept informed. Costs bundle page 4. On 26 April 1999 Enterprise wrote to Marsh stating that Beirne, Maynard & Parsons had been appointed to defend the claim in the US and Herbert Smith had been appointed in London. Enterprise commented: “There is no reserve or evaluation envisaged at this point” and promised to keep Marsh informed of developments. Costs Bundle page 6.

[184]Strand itself was not specifically notified of the proceedings at this stage. It was notified in June 2001. This appears from an email from Sarah McManus of Shell to Mr Wilson dated 12 September 2002: Costs bundle page 199.

[185]Mr Beazley submits that by sending the Memo to Marsh, Enterprise had informed Strand of full details of the claim and also the appointment of BMP to defend it. The reinsurers had been informed also. Therefore both Strand and the reinsurers had been given the opportunity to associate in the defence of the claim against Enterprise. But they both declined to do so, whilst reserving their rights. Thus both Strand and the reinsurers required Enterprise to conduct the defence of the claim on its own, thereby triggering Strand’s liability to pay Enterprise’s defence costs under clause 6 of Section IV(a).

[186]This basis cannot succeed on either the correct construction of the policy wording or on the facts of this case. Clause 6 of Section IV(a) only operates to make the insurer liable to pay defence costs if the insurers “require” the insured to contest the claim. The fact that the insurer does not wish to associate with a defence does not mean that it is requiring the insured to contest the claim. It is leaving the insured to make up its own mind, as a prudent uninsured, to do what is sensible.

[187]In my view, the obligation of Strand to pay for defence costs under Clause 6 is not triggered unless the insurer made some positive statement to Enterprise which required, ie. ordered the insured to contest the claim. On the facts relied on by Enterprise there is nothing to suggest that Strand required Enterprise to contest Rowan’s claim. There was no communication from Strand at all. Although notices to Marsh are to be regarded as good notices to Strand, it cannot be said that all notices emanating from Marsh to Enterprise constitute communications from Strand. The truth is that Strand did not know of this claim until June 2001 and Strand did not make any requirement of Enterprise, either through Marsh or otherwise.

[188]Therefore I reject this basis of the claim for defence costs.

[189]The second basis: does the requirement to defend have to be express? This basis is putting the same point in a slightly different way. Mr Beazley has not pointed to any correspondence to show that Enterprise invited either Strand or some or all of the reinsurers to be associated with the defence of Rowan’s claim in the Texas proceedings. I accept Mr Schaff’s characterisation of the correspondence between Enterprise, its lawyers and the reinsurers via Marsh as being reactive. The Reinsurers (through Marsh) were told something of what was going on but they were never asked to comment in advance on Enterprise’s pleadings, the depositions or any motions before the Texas courts. Strand may have been informed via Marsh, but Mr Beazley has not suggested that Strand itself responded at all. I cannot therefore accept Mr Beazley’s submission on the facts that, “any reasonable person in Enterprise’s position would have understood that Insurers and Reinsurers were requiring Enterprise to continue with its defence”.

[190]In any event, as I have already stated, I do not accept that upon the correct construction of clause 6, the liability of Strand to pay defence costs is triggered by the insurer not committing itself either way. There has to be a positive requirement by the insurer, ie. Strand in this case.

[191]Third basis of cover: the construction of the words “plus legal expenses” in clause 1(a) of Section IV(a). The Limits of Liability set out in Policy Declaration states that for Section IV the limit of cover is “£100,000,000…each and every accident or occurrence plus legal expenses”.

(a) are:

“Notwithstanding the limit stated herein, the Insurers agree that in addition….”

I have added the emphasis. Mr Beazley submits that the reference to “legal expenses” in the statement of the Limits of Liability for Section IV in the Policy Declarations refers to the third party’s legal costs where there is an actual liability of the insured. That is because, he says, the wording of the Declaration as to Limits of Liability means there is an obligation to pay legal expenses under clause 1(a) “in addition to” the cover of £100 million “each and every accident or occurrence”. Therefore, given the opening wording of clause 6 of Section IV(a), it must have been the intention of the parties that when there is, in fact, no liability, but the insured incurs costs defending a claim against it, then clause 6 provides cover for those defence costs.

[192]After the conclusion of the argument, Mr Beazley drew my attention to two first instance authorities which he said supported his submissions: Pictorial Machinery Ltd v Nicholls; (1950) 67 Ll L Rep 524: Humphreys J and Forney v Dominion Insurance Co Ltd.

[1969] 3 All ER 831

: Donaldson J

[193]I cannot accept Mr Beazley’s analysis. By clause 1(a) of Section IV(a) of the Policy the insurer agrees to indemnify the insured against all sums that the insured may be obligated to pay “by reason of liability imposed on the Insured by law”. As I understand it, Mr Beazley accepts that those words do not include defence costs. Even if he does not, in my view it is clear that the reference to “plus legal expenses” in the Declaration of Limits for Section IV(a) must be read with the wording at the start of clause 1(a). That grants indemnity for all sums that the insured may be obliged to pay “by reason of liability imposed on the insured by law or assumed under contract”. Defence costs are not sums that an insured is obliged to pay because of a liability imposed on him by law. It is imposed because of his contract with his lawyers. Nor is liability for defence costs covered by the words “assumed by contract”, given the interpretation of that phrase that I have adopted. The wording of Clause 6 therefore has to be read against that background. Clause 6 was not intended to grant cover for defence costs except in the limited circumstances there set out. They do not apply to the facts of this case.

[194]In my view neither of the cases referred to by Mr Beazley help his case. In each the insured’s cover was expressed in wider terms. In Pictorial Machinery the cover was “against all sums which the assured shall become legally liable to pay in respect of claims”. That enabled Humphreys J to hold that defence costs incurred in reasonably contesting a claim were sums which the assured shall be legally liable to pay. In Forney Donaldson J stated that the cover was in “wide words”, which were apt to cover the insured’s own defence costs because “such costs are part of his loss arising from the claim”. At page 835 of the report. In the present policy defence costs are not covered by the principal insuring clause, for the reasons that I have set out. They are not covered by clause 6 on the facts of this case.

XII. Summary of Conclusions

[195]In summary, my conclusions are as follows:(1) Issue One: On the correct construction of clause 1(a) of Section IV(a) of the policy, Enterprise is covered for loss resulting from actual liability to third parties, not arguable liability. Thus in this case, Enterprise must establish that it would have been under an actual liability to Rowan in respect of tortious interference with the Service Agreement between Rowan and BAO, to at least the actual amount of the Settlement Agreement.

(2) Issue Two: the proper basis on which the English court should consider the question of whether Enterprise was or would have been liable to Rowan in the Texas proceedings is by deciding what, according to Texas law and the facts, the judge and jury should have concluded on liability and quantum in relation to the claim for tortious interference of the Service Agreement.

(3) Issue Three: on principles of Texas law and the facts there was no actionable tortious interference by Enterprise of the Service Agreement between BAO and Rowan.

(4) Issue Four: on principles of Texas law Enterprise would not have been liable for the “stock buy – back” losses alleged to have been suffered by Rowan. Such alleged losses were both too remote and not caused by the (assumed) tortious interference with the Service Agreement.

(5) Issue Five: Enterprise would not have been liable for the cost of the relocation of the RGV rig from the North Sea to Canada as a head of damages for the (assumed) tortious interference with the Service Agreement between BAO and Rowan.

(6) Issue Six: Enterprise would not have been liable for the cost of relocation of other North Sea rigs or lost profits arising from lower revenues compared with the North Sea.

(7) Issue Seven: assuming that, on the correct construction of the policy, it provided cover for the settlement of arguable claims, in this case the amount of the settlement was not reasonable in respect of the claim for tortious interference with the Service Agreement.

(8) Issue Eight: on the facts of this case, if Enterprise would have been liable for the tortious interference with the Service Agreement between BAO and Rowan, that would have fallen within the scope of the cover granted for “infringement of contract rights” within the definition of “personal injury” in the policy.

(9) Issue Nine: If the point had arisen, I would not have followed the decision of Colman J in the Lumbermen’s case, so that if Enterprise had otherwise proved its loss, the fact that the Settlement Agreement did not specifically identify an amount as being for tortious interference with the Service Agreement would not have prevented Enterprise from recovering under the policy. I decline to make any further conclusions on “apportionment” issues, as they do not arise.

(10) Issue Ten: on the facts of this case, Enterprise is not entitled to recover its defence costs under either Clause 6 or Clause 1(a) of Section IV(a) of the policy.

[196]Accordingly, the action must be dismissed.

Enterprise Oil Ltd v Strand Insurance Company Ltd [2006] EWHC 58 (Comm)

II. The Policy Terms

IV. Issue One: The legal basis for Enterprise’s claim under the policy

(s) …”

X1. Issue Ten: Can Enterprise recover its defence costs under the terms of the policy?

(a) are:

XII. Summary of Conclusions

Cited in 3 later judgments