#6778 - Dsnd Subsea V. Pgs - Restitution of Unjust Enrichment BCL

DSND Subsea v. PGS

Facts

On 3 June 1997, DSND Subsea Ltd (“DSND”) entered into a contract (“the Contract”) with PGS Offshore Technology AS (“PGS”) for the subsea work. The contract was subsequently varied by Heads of Agreement (“HOA”) made between the parties on 2 April 1998. Further relevant agreements were concluded between them on 25 September and 9 October 1998. These were the Memorandum of Understanding (“MOU”) and Memorandum of Agreement (“MOA”) respectively. It is PGS' case that it was induced to enter into the MOU by a misrepresentation made by DSND, and that it entered into this agreement under economic duress.

Variations to the main contract through the MOU and MOA:

The background to this agreement, concluded on 25 September 1998, was the realisation by both parties by the summer that post-installation was preferable to pre-installation. Between July and September, they negotiated over the modification of the Contract Price to reflect the cost of post-installation of the risers. A second feature of the discussions was DSND's concern about the installability of the RTIAs: this led to negotiations to vary the indemnify and insurance provisions of the Contract. It will be necessary to examine the course of the negotiations in some detail in relation to the economic duress issue.

Holding

Statement of the Law Applicable

The ingredients of actionable duress are that there must be pressure, (a) whose practical effect is that there is compulsion on, or a lack of practical choice for, the victim, (b) which is illegitimate, and (c) which is a significant cause inducing the claimant to enter into the contract: see Universal Tanking of Monrovia v ITWF [1983] AC 336, 400B–E, and The Evia Luck [1992] 2 AC 152, 165G. In determining whether there has been illegitimate pressure, the court takes into account a range of factors. These include whether there has been an actual or threatened breach of contract; whether the person allegedly exerting the pressure has acted in good or bad faith; whether the victim had any realistic practical alternative but to submit to the pressure; whether the victim protested at the time; and whether he affirmed and sought to rely on the contract. These are all relevant factors. Illegitimate pressure must be distinguished from the rough and tumble of the pressures of normal commercial bargaining.

Application to facts

Was the duress illegitimate?

The position at the start of the meeting of 24 September was that there were two principal problems facing the parties: the question of insurance/indemnity, and the issue of compensation for the riser installation. DSND were in my view entirely justified in being reluctant to go offshore without at least a reliable assurance that, if there were a problem with the RTIAs, PGS' all risks policy would cover it. The RTIA saga had been running for a long time, and still had not been resolved. PGS understood the reasons for DSND's anxiety, and believed their concerns to be genuine. I accept the evidence of Mr Hirsti that by the time of the meeting on 24 September, DSND were very concerned about their potential liability in relation to the RTIAs.

I find that DSND still had no final metrology, were not yet in a position to verify the installability of the RTIAs, and had a reasonable and legitimate fear that they might become stuck in the I-tubes. If that were to happen, the consequences might well be disastrous for DSND, unless that contingency was adequately covered by insurance/indemnity arrangements. That is why there were negotiations during the meetings of 24 and 25 September in relation to liability for the RTIAs, and amendments to the insurance and indemnity provisions of the Contract.

The Contract did not contain a provision which entitled DSND to suspend work. The Contract simply did not make provision for a situation such as occurred. If it were necessary so to hold, I would say that the suspension of work on the RTIAs pending resolution of the insurance/indemnity question, even if it was a breach of contract, and even if it amounted to pressure, did not amount to illegitimate pressure. It was reasonable behaviour by a contractor acting bona fide in a very difficult situation.

The question of compensation had been the subject of negotiations since late July. Work on the riser installation was about to begin. It was clearly in the interests of both parties that this matter be resolved as soon as possible. I do not accept that DSND told PGS at the meeting of 24th or 25th that they would not resume work on the RTIAs until the compensation issue was resolved. That would clearly have been a flagrant breach of contract, and, if pressure, it would in my view have been illegitimate pressure. Mr Hirsti said that he knew that DSND had no right to suspend work for such a reason. It is significant that the...