Seadrill Management Services Ltd & Anor v OAO Gazprom

A contractual risk-allocation clause does not exclude liability for negligent performance unless clear and unequivocal words do so. An indemnity for unsuitable drilling conditions is engaged only where an objective assessment shows an obstruction, faulty bottom conditions, or seabed conditions unsuitable to support or moor the drilling unit. It does not apply where normal soil conditions were made dangerous solely by negligent operation.

A clause requiring payment of hire during the contract does not prevent the operator recovering hire paid after a breach as damages, absent clear words. A breach is repudiatory only where its consequences deprive the innocent party of substantially the whole contractual benefit. Equivocal preparations for a subsequent contract do not amount to renunciation.

Seadrill supplied a jack-up drilling rig to Gazprom under an International Daywork Drilling Contract. During preloading at the drilling site, the rig became dangerously inclined after the Master continued ballasting instead of dumping ballast and levelling the rig. The parties accepted that this negligence caused the incident and damage.

Gazprom terminated the contract, alleging repudiatory breach. Seadrill treated that termination as wrongful and claimed unpaid hire and other losses. Gazprom counterclaimed damages and relied on contractual risk-allocation, indemnity and payment provisions. The issues included the effect of paragraphs 501, 502, 606, 701, 802, 910 and 911, whether the breach was repudiatory, and whether Seadrill had renounced the contract by arranging subsequent work with Premier Oil.

1. Construction and negligence. Paragraphs 501 and 911 did not clearly and unequivocally exclude liability for breach of the obligation to operate the rig with reasonable skill and care. The obligation to operate the rig carried that legally necessary standard. The admitted negligence therefore gave rise to potential contractual damages.
2. Paragraph 606. The provision was a sound-location clause. The contractor first had to establish objectively that there was an obstruction, faulty bottom condition, or seabed condition unsuitable to support or moor the rig. Paragraph 910(a) then prevented the operator relying on the contractor’s concurrent negligence. It did not remove the requirement to establish that gateway. Normal soil conditions, where the incident resulted solely from negligent ballasting, did not engage the indemnity.
3. Hire. Paragraph 701 required payment during the contractual term but did not exclude recovery of hire paid after a breach as wasted-cost damages. Seadrill’s claim for post-incident hire therefore failed for circuity of action, while hire remained recoverable up to the incident. Under paragraph 705(a), standby hire began when the rig was available but delayed by Gazprom’s failure to provide the carrying vessel, subject to deduction for any period attributable to lack of certification.
4. Repudiation and renunciation. The negligence was not repudiatory. The contract had no cancelling date, fixed commencement date, specified duration, or term requiring completion by May 2006. Delay until after the monsoon did not deprive Gazprom of substantially the whole benefit of the contract. Seadrill’s statements and preparations concerning Premier Oil remained equivocal and did not show a clear and absolute intention not to perform. The Boston Deep Sea Fishing v Ansell principle could not supply the essential element of communicated or known renunciation.
5. Gazprom’s termination was wrongful and amounted to a repudiation accepted by Seadrill. Seadrill was entitled to the mobilisation and demobilisation payments and to pre-incident hire. Its uninsured repair-cost claim failed because paragraph 606 did not apply. Gazprom could recover genuinely wasted costs caused by the non-repudiatory breach, but not costs of the GALAXY DRILLER that would have been incurred for the second well in any event.