BP Gas Marketing Ltd v Centrica Storage Ltd [2009] EWHC 732 (TCC)

[2009] EWHC 732 (TCC)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
TECHNOLOGY AND CONSTRUCTION COURT
Venue Royal Courts of Justice, Strand, London, WC2A 2LLDate 07/04/2009
Before
MR. JUSTICE TEARE
Between
BP GAS MARKETING LIMITEDApplicantCENTRICA STORAGE LIMITEDRespondent
Andrew Thompson (instructed by Wragge and Co.) for ApplicantDavid Mildon QC (instructed by Allen and Overy) for RespondentHearing Hearing dates: 1 April 2009
JudgmentMr. Justice Teare :
[1]This is an application by BP Gas Marketing Limited (“BP”) for an order pursuant to CPR 31.16 for pre-action disclosure by Centrica Storage Limited (“Centrica”). The application arises in connection with a potential claim by BP against Centrica arising out of a serious explosion on 26 February 2006 on the Rough 3/B platform offshore gas storage facility in the North Sea.[2]The facility allows gas suppliers to inject gas into an underground storage reservoir when demand is low and withdraw gas subsequently when demand is high. The use of the facility is governed by an undated storage services contract between Centrica and BP. As a result of the explosion the facility was wholly or partly unavailable for use until 20 November 2006. Centrica claimed force majeure and limited its liability to BP in respect of the explosion to £5,768,639 pursuant to the terms of the contract. If the force majeure provisions do not apply BP claims that the sum due to it is at least £25,205,733.[3]BP therefore has a potential claim against Centrica in the sum of about £20m. It seeks an order for pre-action disclosure from Centrica of 15 documents or classes of documents. They are as follows: i) CSL’s internal investigation report relating to the fire on 16 February 2006 which occurred on the Rough 3/B offshore gas platform at the Rough Gas Storage Facility (including all appendices, schedules and attachments and all notes of interviews/statements of relevant personnel). ii) Interim and final forensic reports of Health and Safety Laboratories detailing what caused the failure of the heat exchanger (including all appendices, schedules and attachments and all notes of interviews/statements of relevant personnel), and their terms of reference. iii) Appendices to HSE Investigation Report relating to the fire on 16 February 2006. iv) Letter from HSE to CSL detailing their findings and recommendations following their investigation into the incident. v) Mr Boy’s report of the interviews with operating staff referred to in the HSE Investigation Report (summary of statements). vi) Mr Bankes’ report concerning the process conditions prior to the incident referred to in the HSE Investigation Report. vii) Mr Sharma’s mechanical report referred to in the HSE Investigation Report. viii) Documentation relating to CSL’s position that Mr Sharma’s conclusions that the design of the heat exchanger was not in compliance with best practice are incorrect. ix) The Process and Instrument Diagrams (“P&IDs”) for the “train” of which the heat exchanger was part. x) Original design specification, manufacturer’s recommendations and design review of the heat exchanger which suffered a catastrophic failure resulting in a fire and explosion. xi) Criticality review of pressure systems carried out by ABB in 2004 (including all appendices, schedules and attachments and the terms of reference). xii) Internal CSL documents relating to ABB’s recommendations and actions. xiii) CSL’s written scheme of examination for the periodic examination of installed pressure systems. xiv) The IMS inspection procedure referred to in the HSE Investigation Report. xv) The CSL inspection procedure referred to in the HSE Investigation Report (if different).[4]There is no dispute that, within the meaning of CPR 31.16(3)(a) and (b), Centrica and BP are likely to be party to subsequent proceedings.[5]There is however a dispute as to whether the condition in CPR 31.16(3)(c) is satisfied, namely, whether, if proceedings had started, Centrica’s duty by way of standard disclosure would extend to the documents or classes of documents of which BP seeks disclosure. The determination of the scope of standard disclosure will usually be assisted by clarity as to the issues which would arise once pleadings have been served in the prospective litigation; see Black v Sumitomo Corporation [2002] 1 WLR 1562 at paragraph 76 per Rix LJ.[6]There is also a serious dispute as to whether the condition in CPR 31.16(3)(d) is satisfied, namely, whether, pre-action disclosure is desirable in order to- i) dispose fairly of the anticipated proceedings; ii) assist the dispute to be resolved without proceedings; or iii) save costs.[7]If those two conditions are satisfied then the Court has jurisdiction to make the order sought. But whether or not it makes the order depends on an exercise of discretion by the Court; see Black v Sumitomo Corporation at paragraphs 78, 81-82 per Rix LJ. It is not a sufficient basis for making the order that there is a real prospect of one of the purposes under CPR 31.16(3)(d) being met. Were it so then an order for pre-action disclosure would be made in almost every dispute of any seriousness irrespective of context and detail; see Black v Sumitomo Corporation at paragraph 85 per Rix LJ. The exercise of that discretion will depend on the facts of each case but amongst the important considerations are the nature of the injury and loss, the clarity of the issues raised, the nature of the documents requested, the relevance of any protocol or any pre-action inquiries and the opportunity which the applicant has to make his case without pre-action disclosure; see Black v Sumitomo Corporation at paragraph 88 per Rix LJ. The exercise of the discretion must be considered not only in principle but also in detail; see Black v Sumitomo Corporation at paragraph 81 per Rix LJ.

The likely issues

[8]In order to assess the likely issues it is necessary to have regard to clause 18.1 of the contract between the parties which provides as follows; “For the purposes of this Agreement, subject to Clause 18.2, ‘Force Majeure’ means any event or circumstance, or any combination of events and/or circumstances, the occurrence of which is beyond the reasonable control of, and could not have been avoided by steps which might reasonably be expected to have been taken by, a Party (the “Affected Party”) and which causes or results in the failure of the Affected Party to perform or its delay in performing any of its obligations owed to the other Party (the “Other party”) under this Agreement, including: ……….(iv) explosion, fault or failure or plant, equipment or other installation which the Affected Party could not prevent or overcome by the exercise of the degree of skill, diligence, prudence and foresight which would reasonably and ordinarily be expected from a skilled and experienced operator engaged in the same kind of undertaking under the same or similar circumstances.”[9]In order for BP to contend (without prejudice to the legal burden of proving a force majeure which, it was common ground, lies on Centrica) that the explosion on 26 February 2006 was an event which could have been avoided by steps which might reasonably be expected to have been taken by Centrica it is necessary for BP to know why the explosion occurred and whether, in the light of that failure mechanism, there were steps which might reasonably be expected to have been taken by Centrica to have avoided the explosion.[10]Prior to this application being made Centrica had provided BP with a report by the Health and Safety Executive (“HSE”) into the explosion. In addition BP had obtained from HSE a redacted copy of the report of the Health and Safety Laboratory (“HSL”) which HSL had produced at the request of HSE. On the basis of these documents BP was able to describe the mechanism which, in the opinion of HSE, led to the explosion. In short, the explosion resulted from the failure of a heat exchanger unit which cooled the gas coming out of the storage facility for pumping ashore. The heat exchanger contained a “tube sheet” made of carbon steel to which was bonded a thin titanium plate. The interface between the two metals was exposed to the gas coming out of the facility. The gas contained moisture and acidic constituents, C02 and H2S, which dissolved into the moisture to form an acidic solution. Galvanic corrosion occurred at the interface between the titanium and the carbon steel. That in turn produced hydrogen which diffused along the interface between the two metals and created a titanium hydride layer at the interface. That led to the failure of the bond between the two metals, the release of gas and the ignition of that gas.[11]BP says that it is well known in the gas industry(i) that gas containing substantial amounts of hydrogen sulphide has an enhanced capacity for corrosion,(ii) that when dissolved in the moisture inevitably to be found in natural gas it will give rise to an acidic condensate which is well known as a very significant cause of corrosion,(iii) that the presence of a dissimilar metal interface where corrosion is occurring produces disassociated hydrogen which may diffuse and create titanium hydride.[12]BP therefore suggests that the design of the heat exchanger was unsuitable for the use to which it was put. There is a statement in the HSL report that the use to which the heat exchanger had been changed “in recent years”. This reference has given rise to an alternative suggestion that Centrica ought to have carried out a due diligence or audit exercise which would have revealed the unsuitability of the heat exchanger for the new use to which it was put.[13]The HSE report does not appear to support the underlying suggestion by BP that the explosion in February 2006 could have been avoided by steps which might reasonably be expected to have been taken by Centrica. Thus there is a statement that the design of the cooler did not contravene any design codes and that there was no evidence that Centrica’s maintenance scheme contributed to the failure of the heat exchanger. No prosecution was launched by the HSE and no “prohibition or improvement action” has been taken. Centrica therefore maintains that there was a force majeure.[14]In these circumstances I consider that the 8 factual issues identified by Mr. Wooley of BP at paragraph 56 of his witness statement dated 18 February 2009 are likely to arise, notwithstanding the criticism of that list by counsel for Centrica in his skeleton argument.

CPR 31.16(3)(c) Standard Disclosure

(c) Standard Disclosure

[15]The jurisdictional requirement in CPR 31.16(3)(c) is that the respondent’s duty by way of standard disclosure “would extend” to the documents or classes of documents of which the applicant seeks disclosure. The words “would extend” suggest a very high degree of likelihood that standard disclosure will require their disclosure. Standard disclosure requires each party to disclose the documents on which he relies and the documents which adversely affect his own case or support his opponent’s case; see CPR 31.6.[16]It is common ground that the burden of proving force majeure lies on Centrica. In order to discharge that burden of proof Centrica will have to establish(a) the mechanism of the explosion and(b) that there were no reasonable steps which it could have taken to avoid the explosion. It is very likely that proof of such matters will require Centrica to rely upon many of the documents or classes of documents (though perhaps not all) which are sought on this application. For example Centrica’s own report relating to the accident (item (i)), the full reports of the HSE and HSL (items (ii)-(iv)), the reports of Mr. Boy, Mr. Bankes and Mr. Sharma, who were engaged by HSE (items (v)-(vii)), and the review carried out by ABB in 2004 in so far as it relates to the heat exchanger (item (xi)) are likely to be relied upon by Centrica. I therefore consider that the jurisdictional requirement in CPR 31.16(3)(c) is satisfied at least in relation to some of the documents of which pre-action disclosure is sought.

CPR 31.16(d) Desirability of an order for pre-action disclosure

(d) Desirability of an order for pre-action disclosure

[17]The jurisdictional requirement in CPR 31.16(3)(d) requires pre-action disclosure to be “desirable” in order to achieve at least one of three purposes, to dispose fairly of the anticipated proceedings, to assist the dispute to be resolved without proceedings or to save costs. At the jurisdictional stage it is only necessary that there is a real prospect in principle of an order for pre-action disclosure achieving one of the three purposes; see Black v Sumitomo Corporation at paragraph 81 per Rix LJ.

Disposing fairly of the proceedings

[18]BP say that there is a very marked “asymmetry” in the information available to the parties with Centrica having access to all the information and BP relatively little. For that reason it will assist to dispose of the proceedings fairly if both parties are placed on an equal footing by an order for pre-action disclosure. In response Centrica say that they have voluntarily disclosed the HSE report and BP have also obtained a redacted copy of the HSL report. The result is that BP is now aware of the failure mechanism. So far as evidence concerning the steps which a prudent operator of an offshore gas facility should reasonably have taken to avoid the explosion which occurred in February 2006, BP are as familiar with industry standards as Centrica are. There is therefore no asymmetry or at any rate no significant asymmetry.[19]The jurisdictional question is whether there is a real prospect in principle that an order for pre-action disclosure will enable the proceedings to be disposed of fairly. It is on one sense difficult to give a negative answer to this question because, as observed by Rix LJ in Black v Sumitomo Corporation [2002] 1 WLR 1562 at paragraph 82, “in very many if not most cases it will be possible to make a case for achieving one or other of the three purposes, and secondly, each of the three possibilities is in itself inherently desirable”.[20]Whilst it is true that the HSE and HSL reports have told BP much about the failure mechanism and whilst BP is familiar with industry standards, it must be very likely that Centrica’s knowledge of the failure mechanism, as set out in, for example, its own report on the explosion, is greater than that of BP. Similarly, Centrica’s knowledge about the change of use, the ABB review in 2004 and Centrica’s maintenance regime is not knowledge which BP has. There is therefore some “asymmetry” of information which could be remedied by an order for pre-action disclosure. For these reasons I have concluded that there is a real prospect in principle that an order for pre-action disclosure will enable the proceedings to be disposed of fairly.

Assisting the dispute to be resolved without proceedings

[21]I am far from persuaded that there is a real prospect that anything which might be disclosed by Centrica before action will assist the dispute to be resolved without proceedings. BP has chosen to pursue this application notwithstanding that it knows that the HSE has decided not to prosecute or take any “prohibition or improvement action” and that there is evidence that Centrica has complied with industry codes. That suggests that BP is or will be a determined litigant and is most unlikely to decide not to commence proceedings merely because Centrica disclose further documents which support Centrica’s case on force majeure. Similarly, in circumstances where there is evidence that the HSE has decided not to prosecute or take any “prohibition or improvement action” and where there is evidence that Centrica complied with industry codes it seems to me most improbable that Centrica has a document which, if disclosed now, would cause Centrica to concede that there was no force majeure. That is not to say that this case is bound to be fought by both parties to judgment. On the contrary experience suggests that it will settle. However, I have not been provided with any cogent reason to believe that there is a real prospect that that will happen if disclosure is ordered before action is commenced.

Saving costs

[22]If pre-action disclosure were not ordered it is likely that BP’s Statement of Case would require to be amended after disclosure by Centrica. It follows that there is a real prospect that pre-action disclosure would save the costs of such amendment.

Discretion

[23]I have therefore concluded that the Court has jurisdiction to order disclosure by Centrica before action is commenced. It is therefore necessary to decide whether such disclosure is appropriate in the circumstances of this case. In considering this matter I have had regard to the guidance of Rix LJ in Black v Sumitomo Corporation at paragraph 85:
“It cannot be right to think that, wherever proceedings are likely between the parties to such an application and there is a real prospect of one of the purposes under paragraph (3)(d) being met, an order for disclosure should be made of documents which would in due course fall within standard disclosure. Otherwise an order for pre-action disclosure would be made in almost every dispute of any seriousness, irrespective of its context and detail. Whereas outside obvious examples such as medical records or their equivalent (as indicated by pre-action protocols) in certain other kinds of disputes, by and large the concept of disclosure being ordered at other than the normal time is presented as something differing from the normal, at any rate where the parties at the pre-action stage have been acting reasonably.”
[24]Since this application is brought in the TCC it is also appropriate to have regard to the guidance of Jackson J. in Birse Construction Limited v HLC [2006] EWHC 1258 (TCC) at paragraphs 25 and 29:
“25. ……IT projects and construction projects typically generate extensive documentation. In many TCC cases, disclosure is a labour-intensive exercise and a major head of costs. Therefore, disclosure before the proper time is not something which should be lightly ordered. On the other hand, the court encourages the early and candid exchange of information in the hope that this will promote settlement before excessive costs are incurred. Alternatively, it is hoped that the parties may at least narrow the issues between them. This is part of the philosophy which underlies the Pre-action Protocol for Construction and Engineering Disputes…….. 29. Christopher Clarke J observed in First Gulf Bank that to require pre-action disclosure is an order which, even if not exceptional, is unusual. I agree with that observation. Given the level of co-operation between opposing parties, which is a normal feature of TCC litigation, I would not expect an order for pre-action disclosure to be appropriate in most cases which come before this court.”
[25]In the present case the nature of BP’s alleged injury is clear. If there were no force majeure BP would be entitled, pursuant to its contract with Centrica, to an additional payment of about £20m. The issues which are likely to be raised by BP’s claim centre upon identification of the failure mechanism and whether or not there were steps which ought reasonably to have been taken by Centrica to avoid such failure. The 15 classes of documents of which disclosure has been sought have, save in two cases, been identified with clarity. They appear likely to be relevant to the 8 factual issues identified by Mr. Wooley. Centrica’s duty on standard disclosure would extend to at least some of them.[26]However, whilst pre-action disclosure would enable BP to formulate its case with greater precision and enable it to form a better view of its “value” for settlement purposes there is nothing in the present case which differs from the normal case such that the making of an order for pre-action disclosure is appropriate. Whilst there is some asymmetry of information it is not so marked or extensive as to make such an order appropriate. There will be many cases where in respect of one or more issues only one party has the relevant documents or one party has more of them than the other party. Whilst there is a potential saving of the costs of amendment that is not such as to differentiate this case from the normal case; cf Trouw UK Ltd. v Mitsui [2007] UKCLR 921 at paragraphs 43-44 per Tomlinson J and First Gulf Bank v Wachovia Bank National Association [2005] EWHC 2827 (Comm) at paragraphs 24 and 26 per Christopher Clarke J. The circumstance that this case does not differ significantly from the normal case suggests that it is not an appropriate case in which to make an order for pre-action disclosure; cf Trouw UK Ltd. v Mitsui at paragraph 23 per Tomlinson J.[27]Where the conduct of a party prior to an application for pre-action disclosure has been unreasonable that circumstance might constitute a good reason for making the order sought, notwithstanding that the case does not differ from the normal case; see Black v Sumitomo Corporation [2002] 1 WLR 1562 at paragraph 85 per Rix LJ.[28]BP roundly criticised the conduct of Centrica in refusing to provide a list of documents, similar to that sought in the present application, when asked to do so by letter dated 30 September 2008. It was said that such refusal was not in the spirit of the TCC Protocol. Centrica responded by criticising BP for not raising in correspondence the criticisms it has ventilated in this application regarding the suggested unsuitability of the design of the heat exchanger and the suggested failure to give proper consideration to any change in use of the heat exchanger. It was said that this was not in the spirit of the TCC Protocol.[29]The TCC Protocol encourages the exchange of early and full information about a prospective legal claim. A convenient way of exchanging information or of summarising the facts on which a claim is based or of setting out the basis on which such facts are not accepted (such steps being required by the Protocol) may well be to provide early disclosure of one or more documents which, if action were commenced, would be disclosed on standard disclosure. But the Protocol does not provide for early disclosure in terms (cf the Practice Direction for Protocols which, in cases not covered by a protocol, provides for disclosure of “essential documents”; see paragraph 4.3(e) of the Practice Direction) and paragraph 1.5 of the Protocol expressly states that the Protocol does not impose a requirement to marshal and disclose all the supporting details and evidence that may ultimately be required if the case proceeds to litigation.[30]In the present case BP first raised the declaration of force majeure by letter dated 12 December 2007. BP asked for a copy of Centrica’s final report into the incident; an interim report had been published by Centrica on 24 April 2006. Centrica replied on 21 December 2007 that it had not published a final report and was not obliged by the contract to do so. However, it provided BP with a copy of the report of HSE. By letter dated 4 March 2008 BP asked Centrica to advise why it considered that the force majeure test had been met in the light of certain passages in the HSE report. BP also asked for any investigation report by Centrica. By letter dated 14 May 2008 Centrica replied saying that such passages in the report as were relied upon by BP benefited from hindsight and that the design of the heat exchanger did not contravene any design codes. Centrica said that it had prepared its own investigation report but that it was not prepared to release it because it was confidential and legally privileged. By letter dated 26 June 2008 BP said that Centrica had not yet discharged its obligation to prove force majeure and required Centrica to provide evidence in support of its claim of force majeure. By letter dated 11 July 2008 Centrica replied that the design of the heat exchanger was appropriate having regard to applicable standards, that its inspection regime was appropriate and that there no steps which it might reasonably have been expected to take to avoid the failure of the heat exchanger. That position was said to be consistent with the HSE report and it was claimed that in the circumstances Centrica had demonstrated force majeure. By letter dated 30 September 2008 BP requested Centrica to provide 6 categories of documents which are similar to but not as extensive as those sought in the present application. By letter dated 14 October 2008 Centrica said that it was not necessary to provide any of the documents requested by BP. In May 2006 the HSE had issued a Safety Alert which “provided guidance on actions that should be taken by persons who used equipment of the relevant type.” Centrica commented:
“That the HSE had to take such steps to bring these risks to the attention of the industry indicates that before the incident the risks were not foreseeable by operators.”
By letter dated 31 October 2008 BP’s solicitors again requested the documents and threatened an application for pre-action disclosure pursuant to CPR 31.16. By letter dated 7 November 2008 Centrica’s solicitors replied saying that Centrica did not propose to provide the requested document and added that “there is nothing in this case to take it out of the ordinary so that such an application would be not only premature but also completely inappropriate.”[31]On 8 October 2008 BP requested certain documents from HSE pursuant to the Freedom of Information Act. On 14 November 2008 the HSE provided a redacted copy of the HSL report.[32]On 19 February 2008 BP issued its application for pre-action disclosure pursuant to CPR 31.16. The application was supported by a witness statement of Mr. Wooley of BP. In that statement he explained that the contents of the HSL report indicated that the design of the heat exchanger was fundamentally inappropriate for the use to which it was put by CSL and in a manner that ought to have been recognised by Centrica. He advanced a positive case on the issue of force majeure.[33]I do not regard Centrica as having acted unreasonably in refusing to provide the documents requested on 30 September 2008. Had Centrica refused to tell BP anything about the cause of the explosion that might have been unreasonable but Centrica had provided the HSE report in December 2007. By 30 September 2008 Centrica had made very clear its view that there had been a force majeure and BP had not sought to implement the TCC Protocol.[34]The TCC Protocol was never implemented in terms. It was submitted on behalf of BP that that was because it was plain that no documents would be forthcoming had it been implemented and therefore the only result of implementing the protocol would have been delay in making an application pursuant to CPR 31.16. I agree that that was a possible outcome having regard to the trenchant terms in which Centrica’s solicitors dismissed the threatened application. However, if, as suggested by Mr. Wooley, the HSL report assisted BP to formulate its case it would have been appropriate to formulate that case in the context of the protocol procedure or at any rate by letter. That would at least have given Centrica an opportunity to reply to that positive case before any application under CPR 31.16 was launched. Instead that response has had to be made in response to the application. The failure by BP to formulate its positive case in writing prior to the application being made was not, in my view, in the spirit of the TCC protocol.[35]The relevance of the TCC Protocol to the determination of this application pursuant to CPR 31.16 is that it provides a less formal and less expensive method of exchanging information than the making of such an application. The use of the Protocol should be encouraged especially in circumstances where such an application should only be made in a case which in some significant way differs from the normal. Thus, where the protocol, or anything analogous to it, has not been implemented at all that circumstance will be a factor weighing against the making of an order for pre-action disclosure. However, in the present case, whilst the failure to advance BP’s positive case in correspondence was not in the spirit of the protocol, I do not consider that I should, for that reason, refuse the order for pre-action disclosure. That is because BP did engage in correspondence with Centrica from March to October 2008 on the basis of the HSE report. That correspondence included a request for documents which had been refused. That refusal was heavily underscored by Centrica’s solicitors. In the circumstances it is understandable that BP concluded that further correspondence was unlikely to lead to the production of further documents.[36]However, there remains a cogent reason for not making an order for pre-action disclosure, namely, for the reasons I have already given there is nothing which differentiates this case to any significant extent from the normal case. Furthermore, BP is able to make its case without pre-action disclosure. That is common ground. This weighs against making the requested order notwithstanding that pre-action disclosure is not restricted to cases where a case cannot be made without pre-action disclosure.[37]There are in addition reasons in connection with the particular documents sought which make an order for pre-action disclosure of them inappropriate. Thus, an order for the disclosure of item (i), Centrica’s own report, will give rise to a dispute as to whether it is privileged. Satellite litigation of this type should be avoided in circumstances where no litigation has yet been commenced. Furthermore, there is evidence that Centrica does not have within its possession or its control certain of the documents requested eg items (v)-(vii), the reports of Mr. Boy, Mr. Bankes and Mr. Sharma. Although a disclosure statement provides for a person to say that he does not have a particular document within his possession or control I am not persuaded that a court should make a pre-action order for disclosure in circumstances where it has been told in a witness statement, verified to be true, that the person does not have the requested document within his possession or control. The formal disclosure statement to that effect can surely await its proper place in the action once the action has been commenced. Two requests, items (viii) and (xii), are not for specific documents. The one requires Centrica to locate documents “relating to Centrica’s position that Mr. Sharma’s conclusions that the design of the heat exchanger was not in compliance with best practice are incorrect”. The other requires Centrica to locate documents “relating to ABB’s recommendations and actions”. An order requiring their disclosure pre-action will probably require a significant search and therefore significant expense. That may be inevitable once an action has been commenced but it is not appropriate before an action has commenced. Finally, items (ix) and (x), diagrams and designs, are of a general background nature, which, although they relate to the likely issues and will have to be disclosed in the action, do not focus upon the explosion in question and are not appropriate for pre-action disclosure.

Conclusion

[38]For the reasons which I have endeavoured to express this application must be dismissed.