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	England and Wales High Court (Technology and Construction Court) Decisions
You are here: BAILII >> Databases >> England and Wales High Court (Technology and Construction Court) Decisions >> Aker Oil & Gas Technology UK Plc v Sovereign Corporate Ltd [2002] EWHC 105 (TCC) (15 January 2002) URL: http://www.bailii.org/ew/cases/EWHC/TCC/2002/104.html Cite as: [2002] EWHC 105 (TCC), [2002] CLC 557

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IN THE HIGH COURT OF JUSTICE
QUEENS BENCH DIVISION
TECHNOLOGY AND CONSTRUCTION COURT

		15th January 2002

 

1. This is a claim for a £2 million bonus for completing some shipbuilding work by an agreed deadline.
2. The background is as follows. The Banff sector of the North Sea is located approximately 200 miles east of Aberdeen. Conoco (UK) Ltd. ("Conoco") had a licence to extract oil and gas from the Banff field. Conoco awarded a contract for a substantial part of the development and operation of the field to PGS Floating Production UK Ltd. (which I shall call "PGS"). PGS Offshore Technology AS ("POT") contracted with Conoco to provide and operate a floating production storage and offloading system at the Banff Field. Part of that system was a vessel to be stationed at a point in the Banff Field. POT entered into a sub-contract with the Hyundai Corporation for the construction in Korea of the vessel to the design of POT. The vessel, when Hyundai's work was complete, was removed to the yard of Aker McNulty Ltd. at South Shields for further work to be done on it.
3. The vessel was known as the Floating Production Storage and Offtake Vessel ("FPSO"). It was to have topsides and some sub-sea work done on it at South Shields. When complete, it was to be kept permanently moored on field. It was designed to pump water in the water injection wells, to receive oil and gas from the production wells beneath the sea-bed, to export gas to a sub-sea pipeline which linked to the mainland, and to export oil to tankers which could moor 1.6 km. away.
4. POT entered into a sub-contract with Aker Oil and Gas Technology UK plc ("AOGT"), the claimant, with effect from 1^st March 1997, for work which included the design, procurement and construction of the topsides process facilities on to the vessel, which was described as a Ramform design vessel. The contract was identified as contract no. 97001. It required AOGT to fabricate, instal and mechanically complete, all in accordance with the engineering drawings and the specifications, the process facilities to be located on POT's Ramform vessel.
5. By a novation agreement dated 16^th March 1998 between AOGT, the defendant Sovereign Corporate Limited ("Sovereign") and POT, Sovereign was substituted for POT in relation to the rights and obligations of POT under contract no. 97001. Pursuant to that agreement, POT became the supervisor and agent of Sovereign for the purposes of contract 97001 as novated. The date from which the novation took effect does not appear.
6. Contract number 97001 contained bonus provisions. Those provisions were amended by an agreement made on 7^th August 1998, which itself was amended by an agreement made on 18^th August 1998 ("the amended August agreement"), between AOGT and POT. No point has been taken that the signatories were not authorized to sign the amended August agreement or that the defendant, Sovereign, is not bound by it.
7. The amended August agreement, which is in the form of a letter, reads, so far as material, as follows:

.....following agreement on Friday 14^th August between our [sc., POT's] Mr. T. Wilson, Mr. D. Workman and your [sc., AOGT's] Mr. H. Gulaker in South Shields, this letter establishes the finally agreed provisions for the payment of profit, overhead and bonus relating to work under contract 97001. This letter supersedes all previous agreements on this matter.

.....

(ii) Performance Bonus

.....

1. In the event that the date of Sailaway of the FPSO occurs on or before 31^st August 1998, then [POT] shall pay Aker as a performance bonus an amount of GBP 2,000,000.00 (say two million pounds sterling).

2. In the event that the Sailaway of the FPSO does not occur on or before 31^st August 1998, however Aker have achieved the mechanical completion of the topsides in accordance with the Rev. D plan (attachment 1 to this letter) then Aker shall be entitled to a performance bonus provided:

The construction carry-over work does not exceed 10,000 (say ten thousand) direct man-hours.

Mechanical completion of all sub-systems have been accepted by [POT] on or before the revised dates provided by Aker in the Rev. D plan dated 20^th July 1998,

That the hydrotesting of the nitrogen/helium leak test critical pipework is complete and the PI04 Certificates are presented for these tests to [POT] on or before the Rev. D planned dates.

In the event that Aker can demonstrate attainment of the above milestones then [POT] shall pay to Aker as a performance bonus an amount of GBP 2,000,000.00 (say two million pounds sterling) irrespective of the actual sailaway date of the FPSO.

1. In the event that Sailaway is not achieved on 31^st August and that Aker cannot demonstrate achievement of the above construction milestones then no performance bonus will be paid.

8. In the amended August agreement, references to Aker are references to AOGT. Mr. D. Workman was Mr. David Workman. He had been a director of Atlantic Power Limited and its subsidiary Atlantic Floating Production Limited. He was assigned to POT and appointed Topsides Project Manager for POT in relation to the design, procurement, fabrication and installation of the topsides facilities on the FPSO. He held that position from December 1997 until early September 1998 when the vessel sailed. I am satisfied that he closely monitored the progress of the work on the topsides during that period. He was the nominated representative of POT under contract number 97001.
9. I have to decide some preliminary issues. The first issue that I shall consider is whether the defendant is estopped from denying that the bonus is due.
10. Two certificates were signed by the parties on 31^st August 1998. One was a bonus certificate ("CBC"), certifying that the bonus was due to the claimant. The other was a Provisional Acceptance Certificate ("PAC"). The PAC was provided for by contract 97001. Under article 14.2 of that contract, POT was entitled to issue a provisional acceptance certificate on substantial completion of the scope of work and on receipt of a written undertaking by AOGT to complete any outstanding item of work within a specified period. If AOGT failed to fulfil that undertaking, the PAC should be null and void. Under article 5.1.1, AOGT warranted the quality of its work for a period of 24 months from provisional acceptance. Under article 5.1.6, notwithstanding any other provision, AOGT's liability expired five years after the date of delivery. By an amendment to the contract made by the novation agreement, title to the work or any part thereof and any material equipment or other items supplied by AOGT for the purpose of the work passed from AOGT to Sovereign by physical delivery.....immediately prior to the FPSO leaving AOGT's yard on or in anticipation of the final delivery date. The final delivery date was defined as the actual date of delivery of the work as confirmed in the PAC.
11. The PAC, dated 31^st August 1998, was signed by Mr. Workman on behalf of POT, as Supervisor appointed by Sovereign, and by Mr. Gulaker on behalf of AOGT. Paragraph 1 of the PAC read:

Pursuant to ARTICLE 14.2, [Sovereign] hereby acknowledges and accepts that the SCOPE OF WORK has been substantially completed, namely by [AOGT] achieving completion of Project Milestone 1.5 – Mechanical Completion and Vessel Ready for Sailaway, thereby enabling delivery of the FPSO from [AOGT] to [Sovereign].

The outstanding and incomplete work was summarised, and was stated to be itemised in a separate document entitled "Completion Status at Delivery". An undertaking on the part of AOGT to complete that work by 1^st November 1998 was mentioned.

12. Milestone 1.5 appears in exhibit C to contract number 97001. The same expression, mechanical completion and vessel ready for sailaway, appeared in the bonus provisions contained in exhibit B to the same contract; those bonus provisions were amended by the August agreements. Nevertheless, readiness for sailaway is not defined in contract number 97001. But it was defined elsewhere. As part of the overall arrangement with Conoco there was a tripartite agreement, which was not placed before me, dated 19^th February 1997 between Conoco, PGS and Atlantic Power and Gas Limited. PGS undertook by point 4 of an amendment dated 31^st August 1998 to that agreement not to move the vessel from the Aker McNulty Tyneside fabrication yard until (in the events which happened) PGS evidenced that it had satisfied the sailaway criteria attached to the agreement as exhibit A. The criteria for sailaway, so far as concerned construction work, mentioned in exhibit A were principally

Mechanical completion achieved with only minor punch items;

Less than 10,000 man-hours in total of carry-over work offshore (including punch list items).

13. The outstanding work mentioned in the PAC was not completed by 1^st November 1998. The PAC was not relied on as such. Nevertheless, it plays a significant part in the determination of this issue.
14. By a lease dated 16^th March 1998, Sovereign agreed to lease to PGS Shipping (Isle of Man) Limited the topside equipment, among other things. The PAC, duly executed by AOGT in favour of Sovereign, was a condition precedent to delivery of the equipment to Sovereign and triggered delivery of the equipment to the lessee under the lease.
15. The vessel did not sail away on 31^st August 1998. It was common ground before me that that was through no fault of AOGT. The vessel sailed away on 4^th September 1998. Thus the bonus was not earned under paragraph (ii) 1) of the amended August agreement.
16. The bonus certificate is dated 31^st August 1998. It describes its subject as "Confirmation of performance bonus – Sailaway milestone". It states:

The sailaway of the Ramform Banff FPSO has been postponed until 4 September 1998 due to reasons outside Aker control.

Aker have met and demonstrated the Sailaway Performance Bonus criterias in accordance with letter PGS/AKER/LET/7177, section (ii), item (2).

We, Aker Oil & Gas Technology UK plc, hereby confirm that the Sailaway Performance Bonus criterias according to letter PGS/AKER/LET/7177 have been met.

There follows the witnessed signature of Mr. Gulaker. The certificate continues:

We, PGS Offshore Technology AS, hereby accept that the Sailaway Performance Bonus criterias according to letter PGS/AKER/LET/7177 have been met.

There follows the witnessed signature of Mr. Workman. All the signatures are dated 31^st August 1998.

17. The reference PGS/AKER/LET/7177 is a reference to the letter setting out the amended August agreement.
18. Mr. Terrell Wilson gave evidence about the circumstances in which the bonus certificate came to be signed in two witness statements. In the first, dated 5^th November 1999, he stated that he was the Project Director employed by PGS Offshore Technology AS ("POT") in relation to the engineering and construction of the FPSO. In paragraph 34 and following paragraphs he said this:

The implication from.....Mr. Gulaker's statement is that AOGT had completed all its work, and thus the vessel was "ready to sail"; if this is what he means, it is not true. As is evident from the quantity of man-hours which AOGT expended between 31^st August and 4^th September (over 10,000 man-hours) and from the extent of the carry-over work remaining after that which POT had to have completed offshore, the FPSO was a very long way from "ready" (in the context of meeting the sailaway criteria) on 31^st August.

Notwithstanding this, on 31^st August David Workman signed the "Confirmation" ..... or "Sailaway Certificate". Although Mr. Gulaker quotes an extract from the Sailaway Certificate, he conveniently omits to mention that the acceptance by POT of satisfaction of the sailaway criteria was preceded by an express representation on the part of AOGT.....in the following terms:

"We, Aker Oil and Gas Technology (UK) plc hereby confirm that the Sailaway performance Bonus Criteria.....have been met."

Significantly, POT's confirmation comes after this clear statement which, as is now evident, was false......

AOGT, and specifically Mr. Gulaker, must have known when he signed the Sailaway Certificate that the criteria set out in the second condition of the August agreement had not been met......

On 31^st August 1998, POT had neither sufficient time nor opportunity to enable it to deny, verify or confirm that the work required for mechanical completion and making the vessel ready for sailaway had been achieved.....AOGT alone knew and could have known how much work had been executed and how much remained to be done. AOGT falsely represented in the Sailaway Certificate that it had satisfied the criteria, and in the absence of any other material on which to form a reliable judgment, POT accepted AOGT's statement in good faith.

The reference to POT as having accepted AOGT's statement in good faith must surely be a reference either to Mr. Workman or to Mr. Wilson or to both of them. The witness statement continued:

I am.....advised that.....AOGT cannot rely on certificates which were signed by POT expressly in reliance on AOGT's representations which it subsequently transpired were false.....

I do not understand how AOGT can claim to rely on [the Sailaway Certificate] in circumstances where Mr. Gulaker falsely – whether deliberately or mistakenly – represented in the certificate itself certain facts which, it subsequently transpired, were untrue.

19. In his second witness statement, which is undated but responds to statements dated 19^th September 2001, Mr. Wilson said:

David Workman says in.....his statement that I discussed with him the signing of the Confirmation of Performance Bonus Certificate. This is correct. However, it is absolutely not true that I was happy with this, and David Workman knew I was not. It was obvious to him that quite opposite was the case.

When David Workman first suggested that the confirmation be signed, I objected strongly. I was concerned that POT had no evidence, other than Aker McNulty's own reporting data, to demonstrate that AOGT had achieved the bonus criteria.....I had my concerns about the accuracy of Aker McNulty's information.....Things were moving so fast on the days leading up to 31^st August that I do not believe that any of us had a real idea of the true state of completion of the vessel, which is why I refused to sign the Confirmation of Performance Bonus Certificate.....David Workman told me that AOGT would be difficult about signing other documents if we did not sign the Confirmation. I argued vehemently with David Workman that the Confirmation should not be signed until achievement of the bonus criteria had been properly and accurately verified. The argument was so heated that we had to go into a private room to avoid being overheard by other personnel on the project. At the end of this argument, I refused to sign the confirmation, and instructed him not to sign it. David Workman told me that AOGT had refused to sign the provisional acceptance certificate, which was required as a condition for POT to complete the lease financing of the topsides......In the event, David Workman signed the Confirmation anyway, without my approval.

20. Mr. Wilson's second witness statement is clearly inconsistent with an interpretation of his first witness statement to the effect that it was Mr. Wilson who accepted AOGT's statement in good faith. If it is read as saying that it was Mr. Workman who accepted AOGT's statement in good faith, the first witness statement is in effect saying that Mr. Workman was misled by a false representation. That is a strong assertion about Mr. Workman's state of mind. It gives a picture very different from that painted in the second statement, which says nothing about Mr. Workman's belief and suggests that he may have signed the certificate in order to obtain the signature of AOGT to the Provisional Acceptance Certificate. That is more than a change of emphasis, and in my judgment by making those two witness statements Mr. Wilson has damaged his credit as a witness. The matter was put to him in cross-examination, and I did not find that his answers explained the matter satisfactorily.
21. Counsel put to Mr. Wilson an allegation made in the pleadings [transcript, day 5, p. 58]:

Q. "Nonetheless, by the terms of those documents and statements, AOGT falsely represented to [POT] that all the criteria had been met so as to induce [POT] to sign the said documents and statements, which [POT] duly did in relying on those misrepresentations."

Yes?

A. Yes.

Q. You were aware that that allegation was being made?

A. Yes.

Q. As far as you are aware, Mr Workman was not consulted about that, was he?

A. No, he was not.

Thus, in his first witness statement Mr. Wilson made a statement about Mr. Workman's state of mind about which Mr. Workman had not been consulted.

22. In view of the foregoing, I treat Mr. Wilson's evidence with considerable reserve.
23. Mr. Workman gave the following evidence on the matter. In his witness statement he said:

A copy of the Confirmation Certificate of Performance Bonus (the "Confirmation").....I signed this on 31^st August 1998 on behalf of POT because the criteria under paragraph (ii) 2) of the August Agreement (and the Amended August Agreement) had been achieved and this had been demonstrated to me by AOGT. The terms of the Confirmation reflected this. The Vessel was mechanically complete, and AOGT had, under difficult circumstances, completed their work scope. In signing the Confirmation I expected AOGT to be paid the bonus. I don't sign my name lightly. I had discussed the signing of the Confirmation with Terrell Wilson, and he was happy with this.

In cross-examination, Mr. Workman gave the following evidence [transcript, day 4, p. 220]:

Q. Did you discuss the signing of the certificate with Mr Wilson?

A. Yes, I did. Sorry, which certificate, because we have two?

Q. We are talking about the milestone certificate, rather than the partial [provisional] acceptance certificate.

A. The bonus certificate?

Q. Yes. Did you discuss it with Mr Wilson?

A. Yes, I did.

Q. Mr Wilson's recollection is that he was very unkeen on you signing it. Do you recollect that?

A. No, I do not.

Q. His evidence is that he had a discussion with you and he was against you signing that document.

A. I think that is an outrageous statement and, notwithstanding the fact that we are here in court, I find it staggering that an individual who is a project director on this project would make a comment like that at this stage, bearing in mind that to my knowledge -- and I was only involved in this project for two or three weeks thereafter -- Terry never refuted my signature of that document formally, and that is the first time I have ever heard that Terry said that I could not sign the document.

Q. You said a number of things to his Lordship suggesting that you think that on occasions Mr Wilson misrepresented progress on [the] job. We will have to ask Mr Wilson about that. Are those suggestions you maintain? Mr Wilson --

A. Yes.

Q. You think that he was untruthful at times on the job, do you?

A. I do.

I accept that last piece of evidence as an accurate statement of Mr. Workman's opinion. I am satisfied that whatever private opinion Mr. Terrell Wilson may have entertained on 31^st August, he did not indicate to Mr. Workman that he was unhappy about Mr. Workman signing the bonus certificate.

24. Mr. Wilson appears to have written no letter or memorandum to the effect that he disapproved of Mr. Workman signing the bonus certificate. On 25^th September 1998 he wrote to AOGT stating that the bonus was disputed and putting it on hold. The relevant part of his letter reads as follows:

.....the amount invoiced is considered on "hold" until such time as we have in our possession all appropriate supporting documentation demonstrating that the Sailaway performance bonus milestones/criteria were attained.

Please note that we have no documentation showing that mechanical completion of all sub-systems were achieved, and accepted by [POT], on or before the dates provided in the Rev "D" plan. We acknowledge that a Sailaway Milestone Certificate has been signed by the parties however, this documentation is required for record purposes and completion of our files. In this respect we refer you to PGS letter .....7185.

Thus, on 25^th September 1998 Mr. Terrell Wilson was still not overtly indicating disapproval of the signature of the bonus certificate.

25. The reference to letter 7185 is a reference to a letter dated 14^th September 1998 from Mr. Workman on behalf of POT to Mr. Gulaker on behalf of AOGT. That letter refers to a letter reference 7184 of the same date between the same parties which states:

Pursuant to the requirements of Article 14, we hereby confirm for record purposes that the PROVISIONAL ACCEPTANCE CERTIFICATE was issued and duly executed by the parties on the 31 August 1998, consistent with the Vessel's departure for the Banff field. The Vessel actually sailed away from the Aker McNulty yard on 4 September for reasons outside CONTRACTOR's control.

Letter 7185 said, so far as material:

Further to our letter ....7184, and in accordance with the requirements of item 2 of the recently issued PROVISIONAL ACCEPTANCE CERTIFICATE, please formally issue the "Completion Status at Delivery" document itemising the outstanding and incomplete work at 31 August 1998, together with the undertaking to complete the "outstanding work" within the 1 November 1998.

Thus, Mr. Terrell Wilson was asking for back-up documentation for the bonus certificate as had been asked for in relation to the PAC; though the latter specifically required the document showing completion status at delivery.

26. Reverting to what happened on 31^st August, I mention some evidence given by Mr. Gulaker in his witness statement:

.....It was clear from discussions with POT both on 31^st August and on the preceding days (principally with Dave Workman, but also with Terrell Wilson) that they were satisfied that AOGT had fulfilled its obligations under the Amended August Agreement.

It was however necessary under the terms of the Amended August Agreement for AOGT to "demonstrate attainment". I accordingly had some back-up documentation reflecting the status of completion with me when I met Dave Workman during the morning of 31^st August. Although I cannot now precisely recall, I probably handed this material to him under cover of a manuscript letter I had written that morning......I showed this material to Dave Workman and he confirmed that AOGT had satisfied the criteria. He did however ask that this back-up documentation be sent to him formally for his records. Accordingly, later that day (at 3.52 p.m.) I sent Dave Workman a typed cover letter with the full set of back-up material.....The back-up material comprised 5 attachments.....

The manuscript letter mentioned by Mr. Gulaker was put before me. It was dated 31^st August 1998. It listed the five attachments and then said:

In addition to the above the critical worklist for sailaway – Aker responsibilities will be achieved by end of to-day.

The above to be reviewed against the provisional acceptance certificate to be signed to-day by [POT] and Aker and confirmation of sailaway milestone being achieved accordingly.

Attachment 1 contained some figures which were explained and commented on by Mr. Gulaker in his witness statement. I accept that evidence as an accurate explanation of the figures. Whether the figures were accurate, or reflected the terms of the amended August agreement, are questions which I cannot decide at this hearing. The effect of that evidence was as follows. Attachment 1 showed total Rev. D carry-over man-hours as 8735. All the figures were given on the onshore basis, which I explain below. The 8735 man-hours were split into outstanding Rev. D plan workscope of 6420 hours and punchlist items amounting to 2315 man-hours. Work to be performed by Operations [i.e., Atlantic Floating Production Limited ("AFP")] was included in the figures. That work included 640 hours for shotblast and paint, an unspecified amount for personal protection lagging, being part of an amount of 3500 hours for insulation, and an unspecified amount for small bore branches, being part of an amount of 300 hours for structural work. Mr. Gulaker pointed out, and I accept, that the figures might not have been wholly up-to-date since there would always be a short time lag between work being done and the figures being put into the database. The figures included hours in respect of POT-initiated growth work which came into existence after 3^rd July 1998 and was thus (by common consent) outside the Rev. D plan workscope.

27. Mr. Terrell Wilson did not claim to have objected to the signing of the PAC. The PAC, like the CBC, was signed on 31^st August 1998. POT required the PAC in order to trigger the sale and leaseback provisions of the agreement with Sovereign. It was necessary to enable POT to complete the lease financing of the topsides.
28. There is a document dated 31^st August 1998 of which one copy is signed on behalf of Sovereign Corporate Limited as Lessor and an otherwise identical counterpart is signed on behalf of PGS Shipping (Isle of Man) Limited as Lessee certifying that pursuant to the lease dated 16^th March 1998 between the Lessor and the Lessee in respect of the Topsides Equipment and the Turrett Equipment, that equipment was delivered by the Lessor to the Lessee and accepted by the Lessee from the Lessor at 16.12 hours BST on 31^st August 1998.
29. On 3^rd September 1998 Mr. Terrell Wilson wrote to Conoco in the following terms:

The Ramform Banff is in the final stages of preparation for sailaway with the target sailaway set for tonight. You are respectfully requested to confirm that the criteria set for completion prior to sailaway has been achieved to Conoco's satisfaction with respect to point 4 of the Amendment.

The state of completion has been demonstrated to your representative at site.

As this is a matter of extreme importance to PGS we respectfully request your immediate attention to this telefax and that your answer could be provided within the course of tomorrow morning.

30. Mr. Terrell Wilson also asked Mr. Workman to write to Conoco to provide them with the documentation "to clear this point", as he put it. [Transcript, day 5, p. 38]. Mr. Workman did so, enclosing with his letter a "Completion Status Summary" which included the legend "The carryover workscope has been quantified based upon "offshore" estimates at 8,800 hours. The critical tasks associated with the punch list 'A' items and the riser spool installation is estimated at 600 hours".
31. The criteria by reference to which entitlement to the bonus was to be judged were mechanical completion of the topsides in accordance with the Rev D plan, and construction carry-over work on 31^st August 1998 not exceeding 10,000 man-hours calculated on the onshore basis. All additional work instructed by POT during the Rev D period was excluded.
32. The criteria for sailaway in the Conoco Completion and Sailaway Strategy document were principally: mechanical completion achieved with only minor punch items, and less than 10,000 man-hours of carry-over work, calculated on offshore basis. Those are the only criteria for sailaway that are in evidence; it has not been suggested in argument or evidence that any different criteria were intended to apply to the PAC.
33. Thus, the criteria for signing the Provisional Acceptance Certificate ("PAC") differed from those for signing the Confirmation of Bonus Certificate ("CBC"). Both certificates required carry-over work not to exceed 10,000 man-hours. But in the case of the former the carry-over work was to be measured in terms of offshore man-hours, whereas in the case of the latter the carry-over work was to be measured in terms of onshore man-hours. Moreover, some work to be done by Operations was to be excluded from the former but not (as I explain below) from the latter. Owing to the special difficulties of carrying out work offshore, any given item of work attracted a greater estimated number of man-hours calculated on the offshore basis than calculated on the onshore basis. The ratio between the two was between 1.4 and 3. Thus, signature of the PAC required carry-over work not to exceed something between 3333 and 7143 hours calculated on the onshore basis, a substantially more onerous requirement than that set for the CBC. If that consideration were to be taken alone, signature of the PAC would imply justification for signature of the CBC. On the other hand, the exclusion of some work to be done by Operations from the requirement of the PAC pointed in the opposite direction. There is a further consideration. Back-up documentation which Mr. Gulaker sent to Mr. Workman to demonstrate attainment of the bonus criteria showed the total Rev D carry-over man-hours as being 8735 on 31^st August 1998. Those figures included hours in respect of POT-initiated growth work which only came into existence after 3^rd July 1998 and, by common consent, was not included in the bonus criteria.
34. Both Mr. Workman and Mr. Gulaker considered that work to be done by Operations was excluded from the bonus requirements as from the sailaway criteria of the PAC. Thus to their minds satisfaction of the latter criteria would satisfy the requirements of the bonus certificate. Mr. Workman said in his witness statement:

It was in the context of the Criteria for Sailaway for Conoco that I negotiated the August Agreement with Harald Gulaker. The intention was that the criteria for AOGT should match the Conoco Criteria for sailaway. In the event the Conoco Criteria for sailaway were more onerous than the criteria in the August Agreement. This is because for the purposes of the August Agreement hours were agreed to be on a direct onshore basis....., whereas the carry over hours in the Conoco document were on an offshore basis.

35. Whether or not compliance with the sailaway criteria of the PAC implied compliance with the criteria for earning the bonus, the parties proceeded on the common assumption that that was so. In that connection, Mr. Workman gave the following evidence, which I accept:

A. ..... I have worked on this yard before on other projects with other clients, and I have seen what can be done in this yard through the efforts of the individuals involved, and I think that my personal reputation around this was damaged through the failure to pay, because I do believe that AOGT expected that if they performed on this contract under what was a relatively trusting environment, they took my word that PGS would honour the agreement. I feel very, very badly about that.

However, that does not mean that the signature was made emotionally. I really believe that that vessel was ready to sail on the 31st. Otherwise I would not have signed. And I still believe it was ready to sail on the 31st.

Q. You signed because you thought it was ready to sail?

A. It was ready to sail.

Q. That was what you addressed your mind to?

A. To our standard.

Q. That is what you addressed your mind to?

A. Absolutely. I also have personal friendship with people at Conoco, and I was not about to mislead Conoco around the state of this vessel. Aberdeen is a very, very small town.

Q. Did you think it was ready to sail for Conoco on the 31st?

A. Yes, I did.

Q. I thought, if you look at offshore man hours, it probably was not ready to sail on the 31st August.

A. I think the intent of the Conoco agreement, whether it is offshore or onshore man hours, I was satisfied that we had delivered to Conoco's agreement.

36. Moreover, the two sets of criteria and the two certificates were closely linked. And they were closely linked in Mr. Terrell Wilson's mind. The following is an extract from his evidence [transcript, day 5, p. 45]:

A. .....I do not believe that Aker, to be honest, would have refused to sign the PAC. That is the truth, even though David Workman used that as a line towards me. Because if they had refused them then definitely the bonus would have been off. So –

.....

Q. What you said there was if they had not signed the PAC, the bonus would have been off?

A. That is correct, because then they would have said -- if they would have refused to sign all these documents, then they would have admitted openly that they had not done the work.

.....

Q. My understanding is this: what in effect you say is if they had not signed the PAC, you would not have given them the confirmation of bonus?

A. No, that is not what I said. I said if they would have been difficult and then refused to sign—not to sign these other documents, if we had said we would not sign the certificate, or the confirmation, then that would have been almost an admittance, admission from their part, that they had not achieved things.

37. In the first two answers, Mr. Terrell Wilson appears to have been about to say words to the effect that POT would have refused to sign the bonus certificate if AOGT had refused to sign the PAC. He then thought better of it, and sought to convey the notion that if AOGT had refused to sign the PAC they would have admitted that they had not earned the bonus. The second sentence of the third answer illustrates his difficulty. However that may be, what is abundantly clear is the close connection in the mind of Mr. Terrell Wilson between the CBC and the PAC.
38. On 27^th August 1998 Mr. Terrell Wilson on behalf of POT wrote a letter to Conoco. In that letter, he said, among other things:

The topside construction plan was revised and Rev. D formally issued towards the end of July. PGS agree that prior to the issue of the Rev. D plan there was an excessive number of unplanned hours (growth) being expended and progress was significantly behind the Rev. C plan. This was significantly corrected with the Rev. D plan and growth hours have been controlled since that time. Construction progress has been virtually as per the plan since the issue of the Rev. D plan. There is only approximately a 1% discrepancy between planned and actual progress.

Mechanical Completion was not completed by the end of July (ref. Rev. C plan), but has extended well into August. The consequence of this on commissioning activities has been minimised through close co-operation between the construction and commissioning teams......

.....The co-operation between the two groups has been good and the progress achieved to date is testament to the co-operation and the intense follow-up of the program.

39. In cross-examination, Mr. Terrell Wilson was asked about that letter. The following exchange took place [transcript, day 5, pp. 55, 56]:

Q. .....This is a letter to Conoco on 27th August 1998, yes?

A. Yes.

Q. At this stage, you were confident that the Conoco criteria were going to be met for 31st August, were you not?

A. This letter was prepared by David Workman and went out under my signature. I will say that we probably put a little spin on that one, yes, and stated that we were confident. But at that point we were not going to tell Conoco we were in doubt as to whether we were going to achieve it or not.

.....

Q. So the spin that you put on it is that you did not know whether you would meet it, but nevertheless you wanted to give the impression that you were confident that you would achieve it?

A. It was very close, but this letter went to Conoco.

That "it was very close" is borne out by a memorandum of Mr. Workman dated 28^th August 1998 showing that as of 2400 hours on 27^th August the carry-over workscope on the offshore basis was estimated at 11,500 hours; the critical tasks associated with punch list 'A' items and the riser spool installation were estimated at 1700 hours.

40. The following is a summary of the evidence of figures that had been given by Mr. Workman.

On 27^th August, outstanding man-hours 11,500 given on offshore basis, [equivalent to 3833 to 8214 man-hours on onshore basis].

On 3^rd September, outstanding man-hours 8800 given on offshore basis, [equivalent to 2933 to 6286 man-hours on onshore basis].

The above figures having been prepared for the purpose of showing the status of the vessel relative to the Conoco sailaway criteria, I assume they exclude painting and fabric maintenance, which was to be carried out by Operations.

On 31^st August, Mr. Gulaker stated the outstanding man-hours as not more than 8735, including work to be carried out by Operations. Mr. Workman said in his witness statement that as a result of his ongoing knowledge of the state of completion, he knew before he met Mr. Gulaker on 31^st August that AOGT had satisfied paragraph (ii) 2) of the amended August agreement. I accept that as an accurate statement of Mr. Workman's state of mind.

Those figures, so far as the evidence goes at present, are mutually consistent.

41. The figures used to satisfy Conoco that the sailaway criteria had been met and those used in order to demonstrate AOGT's entitlement to the bonus were calculated in a similar way, using norms attaching to the various items of work.
42. In the re-re-amended statement of claim, the claimants claimed the performance bonus as due to them under the terms of the agreement of 18^th August 1998. It was said, inter alia, that they had met the criteria for earning the bonus set out in that agreement. [See also paragraph 21 of the statement of claim]. That case was denied in the re-amended defence. In the context of an allegation in the re-re-amended statement of claim that there was an implied term of the agreement that the defendants would not hinder or prevent the claimants from earning the bonus, it was pleaded in paragraph 6 of the re-amended reply that in the light of Sovereign and [POT's] agreement (a reference, doubtless, to the bonus certificate) that the relevant criteria had been demonstrated as being met, Sovereign was liable to AOGT (sc., to pay the bonus). In paragraph 12(a) of the re-amended defence, it was asserted that the claimant had not satisfied, and had not demonstrated to [POT] that it had satisfied, the conditions for earning the bonus. In paragraph 10(2)(b) of the re-amended reply that assertion was denied, and the bonus certificate was referred to. No estoppel was pleaded. Two paragraphs were added to the re-amended reply by a late amendment. In the second of those paragraphs it was pleaded, in the context of the bonus certificate, that there was a convention adopted by the parties that achievement of the 10,000 man-hours carry-over criterion was capable of determination on 31^st August 1998 by taking information from the record of outstanding man-hours and adding an estimate of outstanding man-hours attributable to punch list work. It was pleaded that AOGT had altered its position in accordance with the convention by not keeping certain records, and it would thus be inequitable for the defendant to be entitled to contend for a different construction.
43. The claimants seek a declaration to the following effect:

[POT]....agreed in the Confirmation of Bonus dated 31^st August 1998 that the bonus was earned and, absent misrepresentation inducing such agreement, is estopped from denying whether on a proper construction of the agreement or on the facts that Aker demonstrated attainment or achievement of the criteria and earned the bonus.

That proposed declaration does not have a firm foundation in the pleadings. Nevertheless, it formed part of the issues covered by this preliminary hearing. The argument was that the agreement embodied in the CBC gave rise, in all the circumstances, to an estoppel by convention.

44. In Toepfer v. Cremer [1975] 2 Lloyd's Rep 118 at 123 Lord Denning M.R. said:

When one person has led another to believe that a particular transaction is valid and correct, he cannot thereafter be allowed to say that it is invalid and incorrect where it would be unfair or unjust to allow him to do so. It is a kind of estoppel. He cannot blow hot and cold according as it suits his book.

Orr L.J. (p. 126) and Scarman L.J. (p. 127) agreed.

45. In Hamel-Smith v. Pycroft & Jetsave Ltd. (unreported) Peter Gibson J. said that he did not propose to essay a definition of estoppel by convention: it was sufficient for the purposes of that case to say that estoppel by convention applied where

(1) parties had established by their construction of their agreement or their apprehension of its legal effect a conventional basis, (2) on that basis they had regulated their subsequent dealings, to which he would add (3) it would be unjust or unconscionable if one of the parties resiled from that convention.

He observed that the agreed assumption need not be of fact, but might be of law; that the parties need not be about to enter a transaction when they made the common assumption; and that it did not matter that the transaction to which it was sought to apply the convention was a step taken by one party alone, and not in the course of the dealings between the parties.

46. Those propositions were endorsed by Bingham L.J. in The Vistafjord [1988] 2 Lloyd's Rep 343, 352. Taylor L.J. (p. 355) agreed with Bingham L.J.
47. Clearly, the propositions endorsed by the Court of Appeal in The Vistafjord are narrower than the proposition put forward by the Court of Appeal in Toepfer v. Cremer. The propositions endorsed by the Court of Appeal in The Vistafjord are illustrative of circumstances where estoppel by convention applies. They are expressed not to be definitive.
48. Here, the transaction to which it is sought to apply the convention is the amended August agreement providing for the bonus. Thus it was entered into before the convention came into existence. The analysis endorsed in The Vistafjord is not entirely apt to the present case. But the general statement of the law in Toepfer is wide enough to cover the present case.
49. The Confirmation of Bonus certificate was a simple agreement made without consideration and is not enforceable as such. It undoubtedly embodied a convention made between the parties that the bonus was earned. If it is taken in isolation, I am not satisfied that the claimants acted on it to their detriment. It is said that in reliance on it they failed to keep certain records and thus lost the ability to show that the bonus really had been earned. I reject that submission. But this case is unusual in at least two respects. First, the persons who on behalf of both parties signed the certificate have given evidence that the bonus was indeed earned. It is fair to say, however, that the defendants have adduced evidence that the bonus was not earned. Second, the principal witness (Mr. Terrell Wilson) of the defendants who expressed the view that the certificate should have no effect and should not have been signed was present when it was signed and, as I have found, made no objection to its being signed either at the time or for some time later. In those circumstances, I am by no means clear that it would be fair or just to allow the defendants to resile from the convention underlying the certificate. But the matter does not end there.
50. On the evidence, I am satisfied that both Mr. Workman on behalf of POT and Mr. Gulaker on behalf of AOGT were agreed that the Conoco sailaway criteria had been fulfilled on 31^st August 1998 and that that implied that AOGT had earned the bonus. Thus the convention underlying the bonus certificate was part of a larger convention whereby it was agreed that the PAC could be signed. The defendants derived benefit from that larger convention; for it enabled them to take possession of the vessel and proceed with their contract with Conoco. Whether by signing the PAC the claimants suffered a detriment is a question that need not detain me. The defendants undoubtedly obtained a substantial benefit. In those circumstances, I cannot see how fairness or justice could possibly allow them to blow hot on the PAC, accepting its benefits, and cold on the Confirmation of bonus certificate by disavowing their liability to pay the bonus.
51. Mr. Streatfeild-James argued that a convention as to the construction of an agreement that was contrary to the true construction of that agreement could not found an estoppel where the parties to the convention had no authority to vary the agreement. In this case, Mr. Workman (as I accept) had no authority to vary the amended August agreement. I reject that submission. In my judgment, it cannot stand with the remarks of Peter Gibson J. in Hamel-Smith that I have mentioned above. Estoppel is distinct from variation of the agreement.
52. The matter may be put differently. The parties proceeded on the common assumption that the figures (whether right or wrong) produced purportedly on the Rev. D basis and relied on in support of the CBC and of the PAC were correct. The defendants have taken the benefit of the PAC and of the figures relied on in support of it, and it would not be fair or just to allow them now to go behind those figures. Moreover, the defendants relied on figures prepared on the same basis and at almost the same time in their letter to Conoco of 3^rd September 1998, written in order to satisfy Conoco that the sailaway criteria had been met. It would not be fair or just to allow the defendants to go back on the former figures in order to disavow the CBC whilst relying on the latter.
53. There is a suggestion by Donaldson J. in Surrey Shipping Co. Ltd. v. Compagnie Continentale (France) S.A. (The "Shackleford") [1978] 1 Lloyd's L.R. 191, 198 that in deciding the fairness or justice of allowing a party to resile from a convention, the position of the other party has to be considered. Here, in my judgment, the important question is the position of the party who seeks to resile from the convention, not of the other party. I do not read Donaldson J's. judgment as excluding a situation such as the present.
54. Thus I hold that the defendants are estopped from resiling from the CBC. The effect of that is to render inadmissible their evidence that the bonus was not earned. There is evidence of Mr. Gulaker and of Mr. Workman that the bonus was earned. I find that evidence inherently credible and I accept it. Thus I find that the claimants are entitled to the bonus.
55. That is sufficient to decide this case. But since I have heard detailed argument on other points, I shall give my decisions briefly on the more important of them.
56. The claimants pleaded by additional paragraph 26 to their re-amended reply that there was a collateral oral agreement between Mr. Gulaker of AOGT and Mr. Workman on behalf of the defendant that construction carry-over hours would not include hours to be taken in carrying out work to be done by Operations (painting, personal protection lagging, branch stiffening and flow coding). Mr. Gulaker said in his witness statement that that agreement was made at the time of negotiating the August agreement. It was clear from his oral evidence that he could remember little about the agreement. Mr. Workman said in his witness statement that there was some Rev D work which POT specifically agreed be undertaken by Operations, and therefore excluded from the 10,000 man-hours; for example, remedial touch-up painting, personal protection lagging (part of insulation), and branch pipework stiffening (also referred to as small bore branches). The logic to that, he said, was that those workscopes were difficult to estimate prior to completion and were generally better done by the operations team over the first twelve months of operation as part of the improvement of any facility. He could not recall precisely when it was agreed that that work should be excluded. [Transcript, day 4, p. 209].
57. Mr. Terrell Wilson said this in his witness statement:

It is correct that POT agreed that work undertaken offshore by Operations (i.e. Atlantic Floating Production Limited) included remedial painting and perhaps personal protection lagging; it may also have included branch pipework stiffening. I recall that this was agreed some time during August as a practical matter to allow AOGT to focus on work related to the systems required for start-up of water injection and oil production, but it had no connection with the commercial terms of the August agreement. It was most definitely not agreed by POT that this work was excluded from the 10,000 man-hours criteria in the August agreement as stated by both David Workman and Harald Gulaker.

Mr. Wilson was cross-examined as follows [transcript, day 5, p. 106]:

Q.....you do not disagree with in fact what Mr Strachan here says and in fact what Mr Workman said and was not challenged last week, that, in fact, personal protection lagging and touchup painting had been agreed to be done by Operations. You do not disagree with that?

A. I do not disagree with that.

.....

Q. .....you knew that personal protection lagging and touchup painting had been agreed by the parties to be done by operations?

A. That is correct.

Q. Before 31st August?

A. Yes, because that was also mentioned with Conoco.

Q. Being done by operations means it is being done by a different company?

A. It was taken offshore. It is carryover work.

Q. It is being done by a different company?

A. By AFP, yes.

Q. So 31st August, it is agreed it is going to be done by AFP and, therefore, it is not going to be done by AOGT?

A. Yes.

Q. You knew that at 31st August?

A. Yes, but let us take that one step further.....

58. The further step does not illuminate the point. I am satisfied that the agreement was made. However, it is not clear whether the agreement was made before or after the amended August agreement was signed on 18^th August. That agreement is silent on the point, and is expressed to supersede all previous agreements on its subject-matter. Moreover, as Mr. Workman accepted, he required Mr. Terrell Wilson's approval of the wording of the agreement before he would sign it.
59. The amended August agreement amends contract 97001. The oral agreement, if valid, would affect the amended August agreement and thus also amend agreement 97001. Such amendment could not, I am satisfied, be made effectively without the authority of Mr. Terrell Wilson. It is not said that he authorized the oral agreement. Thus I find the oral agreement to be of no contractual effect in relation to the earning of the bonus.
60. I now consider a point as to the construction of the amended August agreement. The amended August agreement referred to the Rev. D plan as attachment 1 to the letter embodying the agreement. There was no attachment. The second bullet point referred to the Rev. D plan dated 20^th July 1998. No such document was in evidence.
61. Mr. Workman gave evidence that the document referred to as attachment 1 was the Rev. D plan of 30^th July 1998, a draft of which had been in existence for some weeks prior to being sent formally to POT by AOGT on that day. It was a 60-page document which he exhibited to his witness statement. The Reference to the Rev. D plan dated 20^th July "would have been", he said, a reference to an earlier draft of the document of 30^th July.
62. Mr. Streatfeild-James submitted that that evidence could not be right. Attachment 1 must be the same document as the Rev. D plan dated 20^th July, which did not exist. Moreover, the document relied on by the claimants (and exhibited by Mr. Workman) could not have been the intended document, since it provided for mechanical completion by 25^th August. Under the original August agreement, the date appearing in the amended August agreement as 31^st August had been 25^th August. Otherwise, the two agreements were in the same terms. Thus, if the Rev. D plan of 30^th July exhibited by Mr. Workman were intended as attachment 1 it could be that, under the original August agreement, there would have been no time after mechanical completion to prepare for sailaway. Mr. Streatfeild-James submitted, and I accept, that the nature of the deal that was formalised in the August agreements was that AOGT should be entitled to a bonus if it did all work necessary for sailaway to take place by the agreed date, that is, 25^th August 1998 (in the original August agreement). But if the Rev. D document were that exhibited by Mr. Workman, the claimants could have been entitled to the bonus notwithstanding that the vessel was not ready for sailaway on that date.
63. Mr. Streatfeild-James did not offer any suggestion as to what the document could be. He referred to a database, but on the evidence I reject that submission. He submitted that Mr. Gulaker's and Mr. Workman's subjective intentions as to the attachment to the agreement were inadmissible. He also relied on evidence that Mr. Workman and Mr. Gulaker took differing views as to the effect of the Rev. D plan.
64. In my judgment, Mr. Workman's evidence is admissible to identify the document misdescribed as attachment 1. And I accept that evidence, for all the difficulties. However, the reference to the Rev. D plan dated 20^th July 1998 is in my judgment another misdescription, and should read 30^th July 1998. To that extent, I do not accept the evidence of Mr. Workman. Although this latter point is relevant to the general question of construction, it is of no further significance since the defendants no longer contend that the second and third bullet points were not complied with.
65. In my judgment, on the true construction of the amended August agreement, the carry-over work was to be evaluated in terms of man-hours by reference to an estimate of actual outstanding construction work within the Rev. D plan as at the end of 31^st August 1998. (For the avoidance of doubt which has been expressed in argument, the expression "work.....as at the end of 31^st August 1998" refers to the situation prevailing at that time, and does not imply that the estimate is made at that time). The work was to be evaluated as the work had been evaluated in accordance with the Rev. D plan, i.e. using the same norms. That is not to say that it was correctly evaluated in that way in arriving at the figure of 8735 hours. In particular, Mr. Streatfeild-James's cross-examination of the claimant's witnesses elicited the possibility that there existed "growth" after 3^rd July 1998 attributable to AOGT. That is to say, that AOGT had under-estimated the hours attributable to the work in the Rev D plan in arriving at the original Rev. D estimate of outstanding man-hours. If so, the amount of carry-over work as at 31^st August 1998 calculated by counting down the number of man-hours in the Rev. D plan from 3^rd July 1998 by reference to the work done since then would be less than the amount properly evaluated in accordance with the agreement.
66. Mr. Taverner submitted that it was sufficient under the terms of the amended August agreement for AOGT to "demonstrate attainment" of the milestones. The fact that PGS signed the bonus certificate showed that AOGT had demonstrated to PGS that the carry-over man-hours fell short of 10,000, regardless of whether in truth they did fall short of 10,000. I reject that submission.
67. "The above milestones" mentioned in the amended August agreement meant the three bullet points plus the achievement of mechanical completion of the topsides in accordance with the Rev. D plan. The expression "mechanical completion" is not defined in contract 97001. I accept the evidence of Mr. Workman as to the meaning of mechanical completion. He said that a sub-system is mechanically complete when it is ready for commissioning. That will be no later than the date of signature of the last mechanical completion record ("MCR") relating to that sub-system. The fact that there may be A or B punch list items remaining after the signature of the last MCR relating to a sub-system does not prevent that sub-system from being mechanically complete. A degree of commonsense is to be applied in as much as the A items on the punch list must be limited to a level that permits commissioning to proceed. That definition is inconsistent with a definition of Category "A" punch list items contained in a document entitled mechanical completion manual, which appears to emanate from Aker. Nevertheless, Mr. Workman's definition is not inconsistent with a definition that appears in exhibit A to the agreement dated 31^st August 1998 amending the agreement between Conoco, PGS and Atlantic Power and Gas Limited. The latter definition of mechanical completion is

The completion of the construction of the facilities designed. The sub-systems will be handed over to commissioning "mechanically complete" with punchlists of required corrective actions.

Punchlist items are

Defined as those items which are defective on the handover of sub-systems from Construction to Commissioning. These items are further subdivided into Punchlist A items: defined as defects that must be rectified prior to bringing equipment into use and Punchlist B items: defined as minor items to be rectified but not having any impact upon start up of the equipment.

Mr. Workman's definition accords with the nature of the deal as mentioned above.

68. I reject the defendant's contention that the preparation of a sub-system completion certificate is necessary for mechanical completion to have taken place.