London Market - August 2010

Pure Economic Loss, Beneficial (Not Legal) Owner

Colour Quest Ltd v Total Downstream UK Plc [2010] EWCA Civ 180

On 11 December 2005, there was a huge explosion at the Buncefield Oil Storage Terminal caused by the negligent overfilling of a fuel storage tank which led to the creation of a hydrocarbon vapour cloud which ignited.

Part of the Buncefield site was occupied by Hertfordshire Oil Storage Limited (“HOSL”), a joint venture company owned 60% by Total Downstream UK Plc (“Total”) and 40% by Chevron Ltd (“Chevron”).

Substantial claims by a number of claimants, including Shell UK Limited (“Shell”), were brought against HOSL and Total. Total, in turn, brought Part 20 proceedings against Chevron.  

In October 2008, there was a trial of preliminary issues in the Commercial Court, the main focus of which was the dispute between Total and Chevron as to who was the relevant defendant liable for the negligence and the division between the two companies under the Part 20 proceedings. Justice David Steel held, amongst other things, that:

1. Total and not HOSL was vicariously liable for the negligence.
   
2. Total was not entitled to a contractual indemnity against HOSL or Chevron as the relevant agreements did not provide for Total to be indemnified in respect of its own negligence.
   
3. Chevron was precluded from claiming for property damage and consequential economic loss against Total under the terms of the agreements between the two.          
   
4. Shell, who had suffered damage to neighbouring tanks and pipelines as a result of the explosion, could not claim damages for consequential economic loss. This was because Shell was deemed not to have the necessary legal ownership or right of possession of the pipeline, which was held, for its benefit, on trust in a vehicle company.

An appeal was brought by Total, Chevron and Shell in relation to the following issues.

1. Total appealed on the applicability of the indemnity provisions arguing that it did have a right to be indemnified even where the loss was caused by its own negligence.
2. Chevron cross-appealed on Total’s role arguing that at the time of the explosion Total was not a “participant” within the meaning of the relevant agreements and therefore Chevron was not precluded from making a claim against Total and Total was excluded from relying on any indemnity between the parties.
3. Shell appealed on the ground that while the right to sue for negligent damage to property was confined to the person who had legal ownership or a possessory title to the property, this did not exclude the equitable owner if they joined the legal owner in the proceedings as Shell had.

Held:

Lord Justice Walker, Lord Justice Longmore and Lord Justice Richards in the Court of Appeal held that Total  was not entitled to an indemnity under any of the provisions on which it sought to rely, therefore Total’s appeal failed.

Total was a “participant” within the meaning of the relevant agreements and therefore Chevron’s appeal also failed.

However, Shell’s appeal was successful as it was held that a duty of care was owed to the beneficial owner just as much as it was owed to the legal owner. In joining the legal owner in the proceedings Shell could recover as beneficial owner for economic losses regardless of whether it was in possession of the property.