Global Process Systems v. Syarikat Takaful Malaysia Berhad ( UK SC, 2011)

Petroleum exploration is a technology-intensive activity. One of the chief equipments used in petroleum operations are drilling rigs. While, rigs built for drilling on land (onshore) are less complex, offshore (in the sea/ ocean) rigs are much more complex and expensive.

The rig in dispute in this case was a self elevating mat supported jack up rig. Jack up rigs are rigs which are self-elevating. These form one of the most popular offshore rigs used throughout the world. Essentially, a jack up rig floats in the water and the legs are jacked up. Once the destination (the drilling site) is reached, the legs of the rig go underwater into the sea bed and elevate the jack up rig floor to a certain height depending upon the depth of the sea water and the length of the legs of the rig. The figure here shows a jack-up rig that is jacked up.

When the drilling operations in a particular location is complete and the rig needs to move to a different location, the rigs are jacked down and are moved to different locations by the use of tugs. Where the next location is too far, the rig is taken on a barge. The below figure shows a jacked down rig on a barge.

Jack up rigs can be either mat type or independent leg type. In case of independent leg type, the tip of the legs consist of spud-cans. Spud-cans cylindrical steel shoes with pointed edges. These penetrate into the sea-bed and make the legs stable.

Jack-up rigs can also have mats instead of spud-cans. Mats consist of a flat surface which is laid on the sea bed and are attached to the edge of the legs.

The legs of the mat supported jack-up rig is cylindrical and is made of steel. Below is an example of how mat type jack up rigs look from the sea bed

In the present case, the legs were of 312 feet in length each and weighted about 312 tonnes. The rig was transported to convert it into a Mobile Offshore Production Unit. The rig was transported on a barge. Usually Production Platforms are fixed structures on the sea. However, it might be advantageous to use a movable platform from cost, convenience and re-use perspectives. Such a movable platform is known as a Mobile Offshore Production Unit.

While the legs were being transported on the barge with the legs extending in the air (see the second figure of the post. The legs are independent leg type. However in our case, the legs were of the mat type rig.

During the voyage, all the three legs broke of and fell into the sea. Syaikit Takaful Malaysia Berhad (STMB) who owned the rig made a claim with its insurers for the loss caused to STMB. Insurers rejected the claim. STMB sued the insurers before the commercial court. The insurers argued that the insurer was not liable for the loss because the loss was caused due to inherent vice. The insurers contended that since the loss not caused by any an unexpected accident or casualty, therefore the loss was proximately caused by inherent vice. This ground of inherent vice was relied upon by the insurers as it was an exception to insurer liability under the contract. Section 55(2)(c) of the English Marine Insurance Act, 1906 also provided:

“Unless the policy otherwise provides, the insurer is not liable for ordinary wear and tear, ordinary leakage and breakage, inherent vice or nature of the subject matter insured, or for any loss proximately caused by rats or vermin, or for any injury to machinery not proximately caused by maritime perils.”

The central argument of the insurers was that the loss was proximately caused by inherent vice in the rig. The court had to consider the validity of this argument. 

The judgement can be downloaded from here. The decision of the court will be analysed in a subsequent post.

(all images from Rigzone- http://www.rigzone.com/training/insight.asp?insight_id=339&c_id=24)