Conocophillips Petroleum Company UK Ltd v v Snamprogetti Ltd & Anor

A professional-services contract may impose a standard higher than ordinary competence where its terms require work by a first-class contractor. A contractor remains responsible for its contractual design duties; reliance on specialist vendor advice does not necessarily discharge that responsibility.

A contractual exclusion of consequential loss may exclude losses of production or revenue and the costs incurred to mitigate them. Damages are confined to additional loss caused by breach. Costs that would have been incurred in any event are not recoverable, and overheads require proof of increased cost or opportunity cost.

The claimant, operator of an offshore gas field, sued an engineering contractor and its guarantor for breach of an engineering-services contract concerning compression facilities on an existing North Sea platform.

The claim concerned alleged design, procurement, commissioning and safety defects, consequential losses, wasted expenditure and the cost of remedial works. The defendants disputed breach, causation and quantum, and counterclaimed contractual sums and additional design costs.

The court determined which alleged defects constituted breaches, which losses were legally recoverable, the appropriate measure of remedial damages, and the defendants’ counterclaim.

1. Contractual standard. The relevant services were professional services, but clauses 3.5 and 3.6 required competence of the limited number of firms undertaking work of that kind. The contractual standard therefore exceeded ordinary professional competence in the respects material to the claim.
2. Excluded consequential loss. The claimed loss arising from gas shortfall penalties constituted loss of production or revenue within clause 29.8. The costs of hiring the Seafox to mitigate that loss were consequently not recoverable.
3. Design responsibility. A design contractor’s reliance on specialist vendor advice does not, without more, discharge its contractual responsibility. Several design errors were established, including defects in the HIPS design, shutdown and start-up sequences, vent-header design, the metering-skid blowdown arrangement, the drainage design, and failure to check the recycle-valve calculation.
4. Causation and quantum. Damages had to reflect the additional loss caused by the breaches, compared with the position if the contract had been performed. Expenditure that would have been incurred in any event was not recoverable. Management costs were recoverable only to the extent they represented additional agency expenditure. The court rejected recovery of the wider Seafox costs and most claimed wasted expenditure.
5. Managerial time. The dictum in Tate & Lyle Food and Distribution Ltd v GLC concerning managerial time was treated as obiter and not followed.
6. The claimant established loss of £97,052. After applying the relevant co-venturer discount, judgment on the claim was £70,510. The first defendant succeeded on its counterclaim in the sum of £250,455. Judgment was therefore entered for the first defendant for the balance of £179,945. The claim against the guarantor was dismissed.