Kellogg Brown & Root Inc v Concordia Maritime Ag

A commercial party does not ordinarily assume tortious responsibility for pre-contractual statements where the parties negotiate a detailed written contract allocating the relevant risks and the recipient can make further inquiries or secure contractual safeguards.

Whether a duty for negligent misstatement exists is assessed objectively, by reference to assumption of responsibility, reliance or dependence, proximity, and fairness, justice and reasonableness. These approaches are mutually supportive.

A pre-contractual statement has contractual effect only where the parties objectively intended it to do so. In construing technical contractual specifications, the court gives effect to the language, context and commercial purpose. Here, “original plate thickness” meant the as-built thickness. The guarantee covered 1,200 tonnes of reasonably required renewal steel, at the contractual rate of US$3,054 per tonne.

Kellogg Brown & Root Inc purchased the Stena Continent for conversion from a tanker into an FPSO vessel. It claimed against Concordia Maritime AG under a guarantee concerning the cost of steel renewal required by Petrobras specifications. It also claimed against other defendants for negligent misstatement and collateral warranty arising from pre-contractual statements about the vessels’ condition and suitability.

The principal issues were whether the defendants owed a duty of care, whether the statements had contractual effect, how the Petrobras specification should be construed, whether KBR acted unreasonably in proceeding with inspections and renewals, and the amount and rate of recoverable steel renewal costs.

1. Negligent misstatement. The pleaded statements were made on behalf of the relevant seller company. Objectively, none of the defendants assumed responsibility towards KBR. The transaction was a substantial negotiated commercial transaction. KBR had access to the vessel records and the opportunity to obtain independent advice. The amended Norwegian Sale Form and the guarantee allocated the relevant risks and were inconsistent with imposing an additional tortious duty. The misstatement claim therefore failed.
2. Collateral warranty. Applying the objective test, the parties did not intend the pre-contractual statements to have contractual effect. The detailed written agreements were intended to contain the binding terms, and a collateral warranty would be inconsistent with the contractual structure. That claim also failed.
3. Construction of the Petrobras specification. “Original plate thickness” in section 9.2 of Petrobras Specification 202 Revision G meant the as-built thickness. Sections 9.1 and 9.2 addressed different forms of corrosion and used separately defined thicknesses. The generic specification adopted a conservative approach to pitting, and its wording contemplated inspection followed by painting or renewal without an intervening reassessment approval.
4. The May Technical Query corrected typographical errors and did not change the reference thickness. The Present Thickness criteria were agreed and applied before inspection. KBR was not unreasonable, unfair or negligent in failing to obtain criteria similar to TQ 1028 earlier, or in proceeding with DD1 and DD2 in the commercial circumstances then prevailing.
5. To recover under the guarantee for renewals resulting from the ABS inserts criteria, KBR had to prove that the amalgamation of inserts was a reasonable application of those criteria, having regard particularly to normal industry practice. The exercise was practical and involved contemporaneous judgment rather than merely a later theoretical desktop exercise. The recoverable quantity was 1,200 tonnes.
6. Renewal thicknesses were recoverable at 35mm for DD1 and 30mm for DD2 and DD3, subject to the allowance for reasonable use of 35mm plate procured before 25 September 2001. D1’s liability extended to reasonable costs included in the contractual unit prices, but the applicable rate was US$3,054 per tonne.
7. No implied term arose from the Heathrow meeting. The alleged term was neither necessary to give the contract business efficacy nor an obvious inference from it. The claim for substituted inspection and welding costs therefore failed.

First-instance judgment. No prior appellate decision is stated in the judgment.