Adyard Abu Dhab Judgment

8/3/2019 Adyard Abu Dhab Judgment

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Neutral Citation Number: [2011] EWHC 848 (Comm)

Case No: 2009 Folio No. 1361 & 1622IN THE HIGH COURT OF JUSTICE

QUEEN'S BENCH DIVISION

COMMERCIAL COURT

Royal Courts of JusticeStrand, London, WC2A 2LL

Date: 11/04/2011

Before :

THE HONOURABLE MR JUSTICE HAMBLEN- - - - - - - - - - - - - - - - - - - - -

Between :

ADYARD ABU DHABI Claimant

- and -

SD MARINE SERVICES Defendant

- - - - - - - - - - - - - - - - - - - - -- - - - - - - - - - - - - - - - - - - - -

Matthew Reeve and Ruth Hosking (instructed by Clyde & Co) for the ClaimantAdam Constable QC and Lucy Garrett (instructed by Ince & Co) for the Defendant

Hearing dates: 28th February, 2nd - 4th, 7th -11th, 14th -16th, 23rd March 2011- - - - - - - - - - - - - - - - - - - - -

Approved JudgmentI direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this

Judgment and that copies of this version as handed down may be treated as authentic.

.............................

THE HON. MR JUSTICE HAMBLEN


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Adyard Abu Dhabi v SD Marine Services

The Hon Mr Justice Hamblen :

Introduction

1. The Claimant (Adyard) is a small to medium-sized shipyard operating from a site onthe Abu Dhabi shoreline. The Defendant (SDMS) is a commercial supplier of

services to the public sector. Under a private finance initiative with the UKGovernment, in December 2007 SDMS entered into a 15 year output contract for thedelivery of marine port services and moorings and navigational services for the RoyalNavy and its entitled customers. In this capacity SDMS contracted for 32 new-buildsand, through its prime subcontractor (Serco), supervised the construction projects.

2. The dispute between the parties concerns whether or not SDMS was entitled to rescindtwo shipbuilding contracts (the contracts) entered into on 14 December 2007 for theconstruction by Adyard and purchase by SDMS of two 50m Moorings and SpecialOperations Support Vessels, Hulls 10 and 11 (the vessels), for a price of$14,837,000 and $13,932,000 respectively.

3. Under the contracts, Hulls 10 and 11 were to be ready for sea trials by 30 Septemberand 30 November 2009 respectively. The contracts included at Article II, clause 3.3a right on the part of SDMS to rescind in the event that the vessels were not ready forsea trials by the contractually agreed dates.

4. It was common ground that the vessels were not ready for sea trials by those dates.SDMS purported to exercise its right to rescind by letters dated 7 October 2009 (Hull10) and 1 December 2009 (Hull 11). By Article X, clause 2.1, unless Adyardcommenced proceedings, it was obliged to refund to SDMS all the instalments of theprice previously paid to it. Adyard issued these proceedings on 15 October 2009(Hull 10) and 14 December 2009 (Hull 11).

5. In the proceedings Adyard claims that SDMS was not entitled to rescind because it wasprevented from completing the vessels for sea trials by SDMSs acts and/or it wasentitled to an extension of time to the sea trials date for both vessels. Adyard assertsthat it was delayed by various new design items which were imposed by the UKMaritime Coastguard Agency (MCA) or instructed by SDMS in June/July 2009.By the time of the trial the relevant design items (the design items) had beennarrowed down to the following:

(1)A change from watertight hinged to watertight sliding doors at frames 5, 12,36 and 49.

(2)The need for watertight valves and hot air vent arrangements at frame 36.

6. SDMS disputed Adyards claim as a matter of contractual entitlement, disputed thatthese items were variations (save in relation to the door at frame 12) and disputed thatthey caused any delay. SDMSs position is that it was entitled to rescind and isentitled to the return of the price paid.


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Relevant provisions of the contracts

7. The main provisions of the contracts of relevance are:ARTICLE I DESCRIPTION AND CLASS

1 .Description

1.1 The vessel ... shall be designed, constructed, launched, equipped,completed and delivered by the Builder in accordance with theprovisions of this Contract and the specifications and GeneralArrangement Plan which contemporaneously herewith have for thepurposes of identification been signed by each of the parties hereto andwhich are made an integral part hereof (which specifications andGeneral Arrangement Plan are hereinafter respectively called thespecifications and Plan and together are called the Specification.

....

3 Classification, Rules and Regulations

3.1 The Vessel, including its machinery, equipment and outfittings, shallbe designed and constructed in accordance with the rules, being inforce as at the date of this Contract, including any alterations andmodifications published on or before the date of this Contract andcoming into force during the shipbuilding period as provided in ArticleV Clause 2 of this Contract, and under the survey of the ClassificationSociety

3.2 The Builders obligation will include that the Vessel shall be deliveredas stated in the Specifications. This will include, but not be limited tothe installation of the following equipment, supplied and installed bythe Builder according to the Specifications and applicable rules andregulations

3.3 Decisions of the Classification Society as to compliance or non-compliance with the classification requirements shall be final andbinding upon the parties hereto.

3.4 The Vessel shall further comply with the applicable rules, regulationsand requirements of other regulatory bodies referred to in theSpecifications applicable to this type of vessel including in each case

any alterations and modifications published on or before the date ofthis Contract and coming into force during the shipbuilding period soas to enable the Vessel to be registered under the UK flag. The Buyershall give reasonable assistance to ensure that the Vessel can beregistered under the UK flag where appropriate. All such rules,regulations and requirements shall be complied with withoutconditions/recommendations.


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ARTICLE II CONTRACT PRICE AND TERMS OF PAYMENT3 Terms of Payment

3.1 The Contract Price shall, subject to other provisions in this Article,become due and payable by the Buyer to the Builder by instalments as

follows:-

(e) Sea Trials Instalment:The Sum of (US$ 1,820,806) being (12.3%) of theContract Price shall be due within five (5) Business Days afterthe Builder certifies that the Vessel is ready in all respects forsea trial which shall be achieved by the thirtieth of Septembertwo thousand and nine (30/09/2009) and payable in accordancewith Clause 4 of this Article II.

(f) Delivery Instalment:The sum of (US$741,850) being (5%) of the Contract

Price shall be paid upon Delivery in accordance with ArticleVII of this Contract. The parties shall try to agree on anyadjustments to be made to the Contract Price hereunder beforeDelivery

3.2 In the event that the parties fail to agree on the adjustments to theContract Price before Delivery the disputed amount shall be submittedfor resolution to the High Court of England and Wales in accordancewith Article XIV. No such submission to Court proceedings shall havethe effect of extending or postponing the Delivery Date of the Vesseland, while such proceedings are continuing, the Builder will deliver theVessel and the Buyer shall take delivery of the Vessel subject to theBuyer or the Builder, as the case may be, providing security in theform of a bank guarantee issued by a first class European bank,satisfactory to the Buyer, or to the Builder, as the case may be, in theform attached hereto as Appendix A for the disputed amount of theadjustments to the Contract Price.

3.3 If the Builder fails to complete either of the stages contained in Clause3.1(c) or (e) by the dates specified therein, then the Buyer may, at itsoption, rescind this Contract in accordance with the provisions ofArticle X hereof, provided always that, to the extent that any delays arecaused by the Buyers default or any Permissible Delay, that periodshall be extended to the same extent.

ARTICLE V MODIFICATIONS

1 Modifications of Specifications1.1 The work to be performed by the Builder under this Contract can be

modified and/or changed by written request from the Buyer, providedthat the Buyer shall first agree in writing, before such modificationsand/or changes are carried out, to such adjustments as are reasonably


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required by the Builder in the Contract Price, the Delivery Date andother terms and conditions of this Contract occasioned by or resultingfrom such modifications and/or changes.

1.2 Such agreement and any modification or change to this Contract, mayonly be effected by exchange of letters signed by the authorised

representatives of the parties hereto or by fax or by email containingscanned letters signed by the authorised representatives of the partieshereto, followed up by receipt of the original letters manifestingagreement of the parties hereto which shall constitute amendments tothis Contract and/or the Specifications.

2 Change in Class Requirements

2.1 In the event that, after the Effective Date of this Contract, anyrequirements as to class, or as to rules and regulations to which theconstruction of the Vessel is required to conform are altered orchanged by the Classification Society or the other regulatory bodies

authorised to make such alterations or changes, the followingprovisions shall apply:-

(b) if such alterations or changes are compulsory for the Vessel,the Builder, unless otherwise instructed by the Buyer, shallthereupon incorporate such alterations or changes into theconstruction of the Vessel, provided that the Buyer shall firstagree to reasonable adjustments required by the Builder in theContract Price, Delivery Date and other terms and conditions ofthis Contract and the Specifications occasioned by or resultingfrom such alterations or changes.

(c) if such alterations or changes are not compulsory for the Vesselbut the Buyer desires to incorporate such alterations or changesinto the construction of the Vessel, then, the Buyer shall notifythe Builder in writing of such intention. The Builder mayaccept such alterations or changes, provided that suchalterations or changes will not have a materially adverse effecton the Builders planning or programme in relation to theBuilders other commitments, and provided further that theBuyer shall first agree in writing to such adjustments

reasonably required by the Builder in the Contract Price, theDelivery Date and other terms and conditions of this Contractand the Specifications occasioned by or resulting from suchalterations or changes.

2.2 Agreements to such alterations or changes under this Clause shall bemade in the same manner as provided in Clause 1 of this Article formodifications or changes to the Specifications.


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ARTICLE VIII DELAYS AND EXTENSIONS OF TIMEFOR DELIVERY

(FORCE MAJEURE)1 Causes of Delay

1.1 The Builder shall under no circumstances be liable for any delay ordefault caused by fire, flood, unusually severe weather, war (whetherdeclared or not), warlike circumstances, civil or military authority,strikes, lockouts (other than strikes and lockouts affecting the Builderand/or its subcontractors only and not attributable to any regional ornational union activity applicable to other business enterprises at anational or regional level), resulting from any cause beyond theBuilders control (hereafter Force Majeure).

3 Definition of Permissible Delay

3.1Delays on account of such causes as specified in Clause 1 of this Articleand any other delays of a nature which under the terms of this Contractpermits postponement of the Delivery Date shall be understood to bepermissible delays and are to be distinguished from unauthorised delays onaccount of which the Contract Price is subject to adjustment as providedfor in Article III hereof.

ARTICLE XVIII INTERPRETATION2 Discrepancies

2.1 All general language or requirements embodied in the Specificationsare intended to amplify, explain and implement the requirements ofthis Contract. However, in the event that any language or requirementsso embodied permit of an interpretation inconsistent with anyprovisions of this Contract, then, in each and every such event, theapplicable provisions of this Contract shall prevail and govern. Thespecifications and Plan are also intended to explain each other, andanything shown on the Plan and not stipulated in specifications orstipulated in the specifications and not shown on the Plan shall bedeemed and considered as if embodied on both. In the event of

conflict between the specifications and Plan, the specifications shallprevail and govern.

2.2 This Contract (including the Umbrella Agreement of even dateherewith between the Builder and the Buyer and the Direct Agreementreferred to in Article XV, Clause 1) contains the entire agreement andunderstanding between the parties hereto and supersedes all priornegotiations, representations, undertakings and agreements on anysubject matter of this Contract.


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8. The Specification provided as follows:2.3 ClassificationThe vessel shall be built to Lloyds Regulations for Ships, +100A1 TUG,LMC, UMS, IWS0. The vessel must also satisfy the United Kingdom

Maritime and Coastguard Agency (MCA) requirements for a class VII CargoVessel and the IMO Code of Safety for Special Purpose Ships

Outline of Adyards case

9. It was Adyards case that the alleged variations in issue were prompted by a change inregulatory approach to safety requirements by the MCA as the intended flag authority.Adyards variation case in relation to the design items can be summarised as follows:

(1) Sliding watertight doors at frames 5 and 12.The two sliding doors at frames 5 and 12 were instructed by SDMS on 15 July

2009, 19 months after the signing of the contracts. At the time, Adyard pointedout in an email dated 21 July 2009 that there was a long ordering time of 18-20weeks from the suppliers, and the sliding watertight doors were hydraulic and hadto be designed as a set, connected to a single set of controls on the Bridge. Theend of the period of 18-20 weeks from this message was 24 November 8December 2009. Adyard submitted that this was a clear warning of thepropensity of these variations, if pursued, to prevent the completion of the vesselsin order to meet the contractual sea trials and delivery dates but that SDMS didnot withdraw its variation request and instead insisted that it be implementedwithout an extension of time.

(2)Engine Room vent ducting and watertight valves .Adyard contended that in June 2009 it became clear that, for damage stabilitypurposes, the MCA required that penetrations through the forward Engine Roombulkhead for ventilation should have watertight closings which could be operatedcentrally in the event of an emergency. For this variations to the design andspecification were required. An iterative series of designs were proposedshowing a variety of routes for the vent ducts and penetration protection measuresand there were protracted negotiations between Adyard and SDMS. By letterdated 20 June 2009 Adyard stated that the changes would have a cost and timeimplication on the project and that they would like to raise a VTS. SDMSsresponse was that it was willing to consider a VTS covering these changes(some of which have either been in the design for over a year or would have been

required regardless of the SPS Code) providing that they are at nil cost to SDMSand that there is no adverse effect on the delivery dates. Adyard contended thatthis demonstrated an inflexible refusal to accept any extensions of time, or evento negotiate, which remained SDMSs position throughout.

10. Adyard submitted that in the circumstances outlined above SDMS was not entitled torescind the contract for two main reasons.

11. First, it relied on the prevention principle which can be summarised as follows:


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It is well settled that in building contracts and in other contracts too whenthere is a stipulation for work to be done in a limited time, if one party by hisconduct it may be quite legitimate conduct, such as ordering extra work renders it impossible or impracticable for the other party to do his work withinthe stipulated time, then the one whose conduct caused the trouble can no

longer insist upon strict adherence to the time stated. He cannot claim anypenalties or liquidated damages for non-completion in that time. seeTrollope & Colls Ltd v. North West Metropolitan Regional Hospital Board[1973] 1 WLR 601, HL at p 607, approving a statement of principle by LordDenning in the CA.

12. Adyard submitted that the prevention principle applies in the present case. SDMScannot and could not insist on strict adherence with the original contractual timelimits, particularly those relating to sea trials and delivery, because of the extra workentailed in the variations, and because of SDMSs failure to obtain agreement (and itsrefusal to negotiate) as to the consequences of the variations, particularly adjustmentsto the timetable.

13. Alternatively, Adyard contended that it was entitled to extensions of time for similarreasons, namely because of the extra work entailed in the variations and because ofSDMSs failure to agree (and its refusal to negotiate) as to the consequences of thevariations. The extensions of time should be at least 7 days in respect of Hull 10 andone day in respect of Hull 11.

Outline of SDMS case

14. SDMS submitted that the design items were not variations to the contracts.15. SDMS disputed Adyards claim that there had been any change in regulatory approach

to safety requirements by the MCA. Its case was that MCAs position remainedthroughout that the vessels would have to comply with the damage stabilityrequirements laid down in the SPS Code.

16. SDMS acknowledged that the addition of a new door at frame 12 was a requestedvariation but it denied that it had any consequence independent of the changes madenecessary by regulatory requirements.

17. Even if there had been a variation SDMS denied that it had caused any delay. Itcontended that Adyard was weeks in delay by December 2008 and continued to fallfurther and further behind during the course of 2009.

18. SDMS further submitted that Adyards extension of time claims were barred as a resultof Adyards failure to comply with the notice condition precedent in Article VIII,clause 2.1; that the prevention principle does not apply; that Adyard has no claimunder Article V, that any claim should be based on Article II, clause 3.3; and that itsclaim fails as a matter of causation in law and in fact.

The Relevant Codes and the MCA


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19. A central factual issue in the case is therefore whether there was a change in regulatoryapproach to safety requirements by the MCA as alleged by Adyard but disputed bySDMS. To understand this issue and the correspondence and dealings between theparties at the time it is necessary to set out the requirements of the various codes andstandards which were under discussion.

Contractual requirements20. The vessels were described in the General Particulars of the Specification as Steel

Support Ship. Their Category was UK MCA Class VII Cargo Vessel, IMO Codefor Special Purpose Ships, Long International Voyages. They were described ashaving 12 crew and 20 special category persons.

21. Under section 2.3, Classification, the Specification provided:The vessel must also satisfy the United Kingdom Maritime and CoastguardAgency (MCA) requirements for a class VII Cargo Vessel and the IMO CodeSafety for Special Purpose Ships In addition the vessel must satisfy thefollowing regulations:

IMO Conventions- SOLAS

International Convention for the Safety of Life at Sea, 2004IMO Codes/Resolutions- SPS

Special Purpose Ship Code

- Intact Stability (IS)Intact Stability for All Types of Ships Covered by IMO Instruments, Res.A.749(18), as amended by Res. MSC.75(69)

Miscellaneous- MCA requirements for crew accommodation SI 1997 No. 1508

Passenger ships22. UK law divides ships into classes. Class I is a passenger vessel engaged on long

international voyages. Class II is a passenger vessel engaged on short voyages. ClassVII is a cargo vessel engaged on long international voyages. Cargo vessels cannotcarry more than 12 passengers and since, in UK law, a person is either crew or apassenger, special personnel are treated as passengers. A vessel can under UK law

only be in one class at a time. This meant that under UK law the vessels weretechnically Class I passenger ships.

23. The safety requirements for passenger ships are considerably more stringent than forcargo ships, in particular in relation to damage stability. This is for the common sensereason that passengers are less familiar with ships, and generally also more numerous,than crew and so can be assumed to take longer to get to safety from a damaged shipthan crew would.


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The SPS Code24. Special Personnel fit somewhere between crew and passengers. The IMO Code of

Safety for Special Purpose Ships (under MCA Resolution A.534(13)) deals withsafety requirements for Special Purpose ships. These are defined at paragraph 2 ofthe Preamble as:

2 a special purpose ship is a ship of not less than 500 gross tonnagewhich carries more than 12 special personnel, ie. persons which arespecially needed for the particular operational duties of the ship andare in addition to those persons required for the normal navigation,engineering and maintenance of the ship or engaged to provideservices for the persons carried on board

3 Because special personnel are expected to be able bodied with a fairknowledge of the layout of the ship and have received some training insafety procedures and the handling of the ships safety equipment, thespecial purpose ships on which they are carried need not be consideredor treated as passenger ships.

25. The SPS Codes stability requirements are therefore not as stringent as passenger shiprequirements, but remain considerably more stringent than cargo ship requirements.

26. There are two relevant forms of stability standard. One is intact stability and the otheris damage stability. Intact stability refers to the ships ability to withstand itsoperational environment in an undamaged condition. Damage stability is the shipsability to withstand a specified degree of flooding defined by the size of an assumedshell opening and the internal subdivision of the hull which limits the spread of water.

27. Chapter 2 of the SPS Code deals with stability and subdivision. At paragraph 2.1 it setsout the intact stability requirements. It specifies that a special purpose ship mustcomply with the provisions in resolution A.167(ES.IV) except that the alternativecriteria given in 2.5.2 of the Guidelines for the Design and Construction of OffshoreSupply Vessels may be used.

28. The Guidelines for the Design and Construction of Offshore Supply Vessels wereoriginally passed under Resolution A.469(XII). They were superseded by the versionadopted on 1 December 2006 under Resolution MSC.235(82) (the OSV Code). TheOSV Code itself states at paragraph 2 of the Preamble that it provides a standard ofsafety equivalent to the stability criteria of the Code on Intact Stability for all Typesof Ships Covered by IMO Instruments. This Code was passed under ResolutionA.749(18) (the 749 Code).

29.

The Specification for the vessels in fact specifically referred to the 749 Code for intactstability. The Specification and the SPS Code were therefore consistent in what wasrequired in relation to intact stability.

30. At paragraph 2.2 of the SPS Code, the requirements for damage stability are set out.The subdivision and stability requirements must be adequate to meet the survivalstandard specified in paragraph 2.5, after sustaining assumed side damage to theextent given in paragraph 2.3.


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31. Paragraph 2.3 sets out the extent of damage that must be assumed. The relevantrequirement is at paragraph 2.3.2, which requires that the transverse extent of sidedamage will be B/5 (one fifth of the ships beam). It was common ground thatfor these vessels that was 2.6m.

32. Paragraph 2.2.1 provides that in a special purpose ship carrying not more than 50special personnel, the damage should be assumed to occur anywhere in its lengthbetween transverse watertight bulkheads, except involving damage to the machineryspace.

33. Paragraph 2.3.5 of the SPS Code provides that if pipes, ducts, trunks or tunnels aresituated within the assumed extent of damage, arrangement should be made so thatprogressive flooding cannot thereby extend to compartments other than those assumedto be flooded by each case of damage.

34. In other words, under the SPS Code, one assumes transverse damage to the extent of2.6m, excepting only the machinery space. If a compartment is flooded assuming2.6m of damage, that compartment must have a watertight subdivision to prevent the

flooding extending into other compartments and throughout the ship. If the watertightsubdivision is penetrated by ducts or pipes of any sort, they too must be equipped withvalves to make them watertight for the same reason.

35. Paragraph 2.7.5 of the SPS Code requires compliance with Regulation 15 of SOLAS. Itwas common ground that Regulation 15 of SOLAS requires watertight doors to bepowered sliding doors (in all cases).

36. It was common ground between the naval architect experts that every design item reliedon as a variation by Adyard was required under the SPS Code (subject to theexemption issue discussed below).

Exemptions under the SPS Code

37. The SPS Code has two relevant possible exemptions:(1)At paragraph 2.2.1, it provides that a special purpose ship of not more than

50m in length and carrying not more than 50 special personnel may beexempted from the subdivision requirements of the Code provided that itcomplies with safety requirements which the Administration may deemappropriate for the area of operation.

(2)At paragraph 2.7.5, it provides that special purpose ships of not more than 50m in length may be exempted by the Administration from the requirements of

Regulation 15 of SOLAS (sliding watertight doors in all cases).

38. It is to be noted that these passages of the SPS Code do not set out the alternativestandard which is to be met. In both cases the Administration may set the standard.

The OSV Code

39. It was the OSV Code which Adyard sought to apply (and in fact did apply) for thedamage stability (as well as for intact stability). At paragraph 1 of the Preamble, theOSV Code states that it applies to offshore supply vessels. This is defined at


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paragraph 1.2. of the OSV Code as a vessel, which is primarily engaged in thetransport of stores, materials and equipment to offshore installations The vesselswere offshore support vessels. They were to provide support, in the form ofpersonnel, to the MoDs operations.

40. Paragraph 5 of the Preamble recognises this distinction. It provides that when anoffshore supply vessel is used for special purposes, such as diving assistance oroceanographic surveys, the persons on board in connection with these specialpurposes should be treated as special personnel.

41. Section 3 of the OSV Code deals with subdivision and damage stability. By paragraph3.2.1, the vessel has to comply with the stability criteria in paragraph 3.3 assumingdamage as set out in paragraph 3.2.

42. Paragraph 3.2.2.2 provides that the transverse extent of the assumed damage should be760mm, again assumed to occur anywhere along the vessels length.

43. At paragraph 3.5.1, the OSV Code provides that the machinery spaces and otherworking and living spaces in the hull should be separated by watertight bulkheads.

44. The relevant critical difference between the SPS Code and the OSV Code is the extentof transverse damage which is to be assumed: 2.6m in the SPS Code and 760mm inthe OSV Code (often referred to as the damage zone). The SPS Code therefore setsup a much higher standard of safety than the OSV Code.

45. It was Adyards case that in 2009 the MCA had passed a new SPS Code, the IMO Codeof Safety for Special Purpose Ships, 2008, passed under MCA ResolutionMSC.266(84) (the 2008 SPS Code). Adyard contended that as a result of therequirements of the 2008 SPS Code, the MCA refused to apply the exemptions fromthe SPS Code, and insisted on full compliance with the SPS Code itself.

46. Adyard submitted that the design items (except the watertight sliding door at frame 12)were required as a result of the MCA changing its mind on 3 June 2009: in 2008 theMCA intimated approval for the proposed damage stability exemption under the SPSCode, and that Adyard could apply the damage stability standard set out in the OSVCode, but after 3 June 2009 this was no longer the case.

The 2008 SPS Code

47. The major relevant differences between the SPS Code and the 2008 SPS Code are:(1)Under the 2008 SPS Code, it is necessary to carry out a probabilistic damage

stability calculation rather than the determined one under the SPS Code.

(2)Under the 2008 SPS Code, there are no exemptions for ships of under 50metres carrying fewer than 50 special personnel.

48. It was common ground that the 2008 SPS Code was never in fact applied to thesevessels.


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49. The essential factual issues in relation to the MCA and the relevant Codes were:(1)In 2008, did the MCA intimate approval for the proposed damage stability

exemption under paragraph 2.2.1 of the SPS Code?

(2)In 2009, did the MCA change its mind as a result of the existence of the 2008SPS Code, and require compliance with the SPS Code?

The evidence at trial

50. At the trial oral evidence was given by the following witnesses on behalf of Adyard: MrThomas Bower, the General Manager (from August 2009); Mr James Masterton, theGeneral Manager (January 2005 - February 2010); Mr Rajeev Vohra, MarineManager (2006 31 March 2009)(his evidence was by video link due to ill health);Mr A. C. Cidambaram, Technical Director, Engineering Division of Hendersons, whowere the naval architects for the project; Mr William Henderson, the ManagingDirector of Hendersons and Mr Valappil of Technology Ventures, the suppliers of thesliding doors. In addition there were witness statements served under the Civil

Evidence Act from Mr Ashok Kumar, Adyards Project Manager; Mr Vijaya Rengen,Adyards Operations Manager, and Mr Unnikrishnan, a naval architect withHendersons.

51. On behalf of SDMS there was oral evidence from the following witnesses: Mr GrahamBaldock, the Managing Director of SDMS; Ms Emily Williams, Programme Managerfor SDMS; Mr Martin Johnson, Serco Project Engineer; Mr Iain Ross, SercoTechnical Director; Mr Jim Wileman, Senior Chief Engineer contracted by Serco assite representative, and Mr Iain Macleod, a consultant naval architect. In additionthere was an unchallenged witness statement from Mr John Gouch, Serco SeniorProject Manager.

52. In addition, there was expert evidence from naval architects (Mr Pollard for Adyard andMr Coleman for SDMS) and delay experts (Mr Swan for Adyard and Mr Breeze forSDMS).

The factual history

Pre-contract dealings with the MCA

53. The involvement of the MCA with these vessels began long before the contracts. AsMr Ross explained in his evidence, Serco had had a long standing relationship withthe MCA, both as a vessel operator and as a prospective purchaser of vessels whichwould come under the UK flag, since 1995/1996. In relation to the procurement of

new vessels Mr Ross and Mr Walker were the main people who dealt with the MCA.In this connection Mr Ross had a number of discussions with MCA involvingtechnical requirements for the various project vessels and the legislative frameworkthey were going to occupy.

54. In his evidence Mr Ross explained that they had had previous experience of broadlydiffering applications of rules from one MCA area office to another and that theywanted a single point of contact within the MCA. This proved to be Mr Simon Judge,described by Mr Ross as a customer service manager. He also explained how they


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were limited in how far they could get with the MCA because the culture andapproach of the MCA involved having a verydefined view of the design and build process, that they would only go so far at thespecification stage, and that they would invariably hang back from giving crystal-clear guidance until they saw the build proposals and designs. He said that there wasalways this risk that at plan approval stage they would in some way change their mind

or their approach.

55. Sercos consultant naval architect, Mr MacLeod, also had discussions with the MCAbetween 2006 and summer 2007 in relation to these and other vessels which werebeing procured by SDMS. Again those discussions focussed on the legislativeframework and the MCAs requirements.

The involvement of Hendersons

56. Towards the end of 2006 Denholm Coates, a broker, suggested Serco use Hendersonsto assist with finding a yard. It had been Sercos intention from about 2003/2004 forthese vessels to be 50 metres. At the first technical meeting at the end of November/beginning of December 2006 Mr Henderson told Serco that he thought a 50m vessel

would be too small to get everything they wanted on it.

57. At some point in time the design increased to a 56m design and Hendersons provided aproposed design of a 56m vessel. It was in respect of this design that Mr Judge of theMCA wrote to Mr Cidambaram of Hendersons on 2 March 2007 in relation to theMCAs fees for certification of the vessels and the fact that Hendersons draftspecification referred to the vessel as carrying 20 supernumeraries and was to bebuilt as a Class VII Special Category Vessel. The MCAs response was thatVessels carrying more than 12 passengers (which includes supernumeraries) aretreated as passenger vessels and require to comply with the requirements for suchvessels. However, there may be potential grounds for the vessels owners/operators toseek exemption from the passenger vessel requirements based on equivalent standardswhich may take into account the special purpose of the vessel. The MCA went on toset out the scope of work that was covered by its fees estimate. This included,Exemption certificate anticipating IMO Code of Special Purpose Ship compliance.

58. In April 2007, Hendersons produced a Pre-Construction Report. Under the columnOperational Detail was a heading MCA Classification. The proposed solutioncolumn read, Class VII Cargo Vessel and IMO Code of Safety for Special PurposeShips. The Justification column read, Standard cargo vessel requirement withadditional certification for carrying in excess of 12 embarked military personnel.This reflected discussions with the MCA.

59.

A 56m design was the original design put on the table in discussions with Adyard andon 13 May 2007 Mr Cidambaram emailed Mr Vohra of Adyard forwarding aspecification and General Arrangement (GA) plan for a 56m multi support vessel.In the event, SDMS decided to revert back to a 50m design, a decision which appearsto have been primarily based on cost considerations, and on 14 May 2007 Mr.Cidambaram emailed Mr. Vohra attaching a GA plan and brief specification for a50m vessel, followed by subsequent emails on 19 May and 22 May 2007 proposing aLOA of 50.70m and an updated specification respectively. On the basis of thisinformation Mr. Vohra sent Mr. Cidambaram a quotation on 6 June 2007.


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60. On 18 July 2007 Mr Ross wrote to Mr Masterton of Adyard requesting a quotation fortwo operations support vessels, one of Type A and one of Type B, and attachingspecifications. The specifications attached were different from the specifications sentby Mr Cidambaram to Mr Vohra in June 2007 on which Adyard had based its originalquotation. Mr Ross then sent a further letter on 20 July 2007 requesting a firm

quotation against a Henderson specification.

61. It was during this time that Mr Cidambaram had discussions with Mr MacLeod, theconsultant naval architect employed by Serco in respect of the FPMS projects. MrMacLeod had had ongoing discussions with the MCA since 2006 in relation to thesevessels and others and accepted in cross examination that it was important for him topass on all the information he had gleaned from the MCA to Hendersons. He alsoagreed that he had discussed the SPS Code with Mr Cidambaram and that they hadlooked through the SPS Code together and discussed the exemption from subdivisionrequirements of the SPS Code under paragraph 2.2.1 of the SPS Code. Mr MacLeodalso said that they specifically discussed the use of the OSV Code for damagestability. He agreed that Hendersons as naval architects were capable of putting

forward an alternative proposal to see whether the administration would agree to it.

62. There was a dispute of fact between Mr Cidambaram and Mr MacLeod as to whetherMr MacLeod agreed that the vessels should be designed on the basis of the exemptionfrom subdivision requirements of the SPS Code. I find that he did not. As he said inevidence, there was a conversation in which Mr Cidamabaram said that for such avessel operating in the Gulf he would use the OSV Code. Mr MacLeod said that thatmight be OK in the Gulf but that it would obviously have to be checked with theMCA.

The choice of Adyard

63. The choice of Adyards was explained in a Serco document as follows:The selection of ADYARD to build the 2 off Marine Services Multi-SupportVessels (MSVs) was taken late in the period between announcement of preferredbidder to contract award 17th December 2007.The vessels first started out as 56M Anchor Handlers/Platform Support Vessels to aHenderson design with initial negotiations for the placement of the build contract withITALTHAI, a Thai-based shipbuilding company a short distance from Thailandscapital Bangkok. As negotiations progressed a combination of rising prices and FMPSbudgetary constraints meant that an alternative design and shipbuilder needed to besourced.Several alternative shipbuilders were approached including FBM Philippines, whoexpressed interest but would have had to make infrastructure changes toaccommodate. Their main business was fast aluminium catamaran.Shipbuilding activity was at its peak. It was during this period that DAMEN, SercoLimited and MOD entered into the tripartite [sic] to secure build slots with DAMENshipyards. The Henderson 56M design was revisited and the sizes reduced to 50M atthe same time ADYARD were presented by Hendersons as a possible solution tosupply the 2 off MSVs.Mr Iain Macleod (FMPS Consulting Naval Architect) made a site visit and gavefavourable reports about the capability of the shipyard, mainly based on its oil & gas


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work in-progress, its main stay of business, and a small ship repair capability. Thesenior management of ADYARD stated that they had successfully undertaken severalshipbuilding projects before, albeit small landing craft, and wished to start up ashipbuilding capability to service worldwide demand.

64. Adyard had made clear in the tender documents that they had no experience of eitherthe MCA or Lloyds Register. However, Hendersons, who were ultimately employedby Adyard on the project as designers, would be expected to have such experience, asits own publicity material makes clear and its witnesses accepted. On 17 July 2007,for example, Mr Henderson emailed Mr Vohra of Adyard, reassuring him that, BothKeith and AC will be working with you on this and AC has a long experience with theusual issues with the design for New Builds and will be able to provide valuabletechnical as well as Industry Norms Input.

The Specification & Contract65. The specifications were designed to suit SDMSs requirements and Mr MacLeod

assisted in drawing up the specifications. Adyards main involvement was inassessing the specification in order to price and schedule.

66. Both the specification and the GA went through various revisions prior to the contractsbeing signed in mid December 2007. However, the specification always providedthat the vessel were to be Class VII with SPS Code.

67. Adyard and SDMS entered into the contracts on 14 December 2007. The contractsrequired compliance with the SPS Code. SDMS was to give reasonable assistance toensure that the vessels could be registered under UK flag where appropriate.

68. Hendersons entered into the design contract with Adyard sometime in January 2008.Pursuant to clause 6.13 of the agreement, Hendersons was to use its best endeavoursto assist Adyard in obtaining the necessary approvals from Class and/or RegulatoryBody in time.

69. Adyards responsibility, as builder, for design was set out expressly in Article I, clause1 of the contracts:

The vessel ... shall be designed, constructed, launched, equipped, completed anddelivered by the Builder in accordance with the provisions of this Contract and thespecifications and General Arrangement Plan which contemporaneously herewithhave for the purposes of identification been signed by each of the parties hereto andwhich are made an integral part hereof (which specifications and GeneralArrangement Plan are hereinafter respectively called the specifications and Plan

and together are called the Specification.

70. Adyard submitted that it is important to read this provision alongside the Specificationand the GA plan. Those latter documents contained a specific design which had beendeveloped between SDMS and Hendersons before the contracts were made and inwhich Adyard had played no real part. Adyard accepted a contractual obligation todesign ... in accordance with the previously-developed contractual design. Itsubmitted that this meant that it was no doubt obliged to fill in the gaps in thecontractual design with more detailed engineering and other drawings of the sort that


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are typically needed for procurement and construction to take place, but that it wasnot at liberty to discard the contractual design and start again. The contracts gaveAdyard no unilateral power or obligation to change the Specification or the designcontained in the contractual GA plan.

71. SDMS submitted that although the basic design of the vessels was as set out in theSpecification and GA plan, this was still a design and build contract. In so far as thedesign needed to be developed in order to meet contractual requirements it wasAdyards responsibility to do so. One of those requirements was that the vesselcomplied with the SPS Code. If and in so far as the design needed to be developedfor such compliance to be achieved then Adyard was obliged to do so.

72. I agree with SDMSs analysis. So far as material, the only design developments whichwere not the responsibility of Adyard were those set out in Article V, namely thoseresulting from variations requested by SDMS or a change in Class or other regulatoryrequirements. In so far as the design had to be developed in order to meet Class orother regulatory requirements which were not the result of any change thereto, thatwas the risk and responsibility of Adyard.

Meeting with MCA on 25 March 2008

73. There was an important meeting on 25 March 2008 at the MCAs offices. The meetingwas attended by Mr Judge of the MCA, Mr John Phelps of Lloyds, Mr Vohra and MrKumar of Adyard, Mr Unnikrishnan of Hendersons and Mr Walker of Serco.

74. Mr Judge of the MCA had prepared a draft letter which formed an agenda for themeeting and of which copies were circulated. The draft is very close to the finalversion of the letter dated 27 March 2008 which was written by Mr Judge followingthe meeting. That letter provides a useful summary of the discussions and stated asfollows:

...As discussed, for clarity, I have recorded below the points discussed duringour meetings and the advice previously provided following a meeting heldtogether with Serco Denholm and LR London on 4 June 2007 in relation to asimilar type of vessel (Special Purpose Ship)....2. Vessel status... 3. From discussions with the owner it is noted that the vessels are beingdesigned to operate within the context of a safety case generated by the owner.3. UK Law/ Classification... 3. In terms of personnel onboard vessels under UK law there are onlydefinitions in place for passengers and crew.

4. the vessel required to comply with the requirements for passenger vessels, ifmore than 12 passengers are carried.5. The IMO Special Purpose Ship Code (SPS) is not currently implemented inUK law and the definition of Special Person does not currently exist.6. Any request for an exemption from any prescribed requirements (UK Law)would be based on the vessel at least complying with the requirements of theIMO Special Purpose Ship Code, SAFCON construction certification and thevessel being safely designed, built and operated within the context of a safetyCase.


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7. Exemption certificates where applicable would be issued by the MCA. Theseneed to be sought by the owner in conjunction with the Builder/ Designer withsupporting justification.8. The risk of UK law or any exemption not being accepted by any host countryor foreign administration lies with the owner, if the vessel is to tradeinternationally.

4. Construction... 2. The watertight doors fitted within watertight bulkheads are to be approvedsliding watertight doors. Please advise if you propose any alternatives?...11. Stability information (MCA)1. The intact and damage stability information is to comply with the Passengervessel, or SPS requirements, as applicable. This information should be submittedat an early date for an independent check of the data together with a GeneralArrangement, Lines Plan and details of the initial down-flooding points.2. Any exemption from the Passenger ship requirements would need to includecompliance with the severe wind and weather criteria.3. The intact and damage stability information is to be submitted in a format (see

guidance) that can be approved indicating compliance with the requirements forCode certification. Any proposal necessary to achieve compliance should beforwarded in advance, or at an early stage....32. Special Purpose Ship Code1. The MCA is not a signatory to the Special Purpose Ship Code and as such aSpecial purpose ship certificate cannot be issued under the authority of the UKGovernment. However, a letter of compliance (or equivalent) confirmingcompliance with the relevant requirements and current convention requirementscan be issued by the LR where appropriate.2. The primary convention certificates will need to be in place based on the vesselyear of build.

75. In the witness statements of Mr Vohra and Mr Unnikrishnan it was said that the lattertold Mr Judge that they intended to apply the damage stability criteria from the OSVCode. This is not reflected in the notes of either of them, nor is it reflected in MCAsletter, nor was it supported by Mr Vohra in oral evidence. In oral evidence heaccepted that it was said by Mr Judge that the OSV Code would be applied for intactstability, but that the SPS Code would be applied for damage stability.

76. I find that at that meeting there was a discussion as to the applicable standards for bothintact and damage stability. Mr Judge told the meeting that the vessels werepassenger ships, and that in order to obtain an exemption from the full passenger ship

requirements, compliance with at least the SPS Code would be required. He also saidthat in relation to intact stability compliance with the OSV Code would be required.He further stated that doors at watertight subdivisions would have to be slidingwatertight doors.

Meetings between Adyard and Serco on 26 and 27 March 2008

77. There were further meetings between Adyard and Serco on 26 and 27 March 2008.The agenda included a Review of MCA exemptions. These meetings were attendedby Mr Vohra, Mr Cidambaram, Mr Walker and Mr Ross.


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78. Mr Ross handwritten notes of one of the meetings recorded: MCA exemptions tocome from SDMS/Serco MCA visit 25th March SPS compliance key to

exemption agreement Specific exemptions:

sliding w/tight doors NOTE MCA

have declared need for class 1 exempted as opposed to class 7 with SPS At thebottom of the page is recorded, Design issues: SPS compliance is an issue and hasdriven change USD32k ex Henderson (+LRS for approval?) Was old design SPScompliant.

Hendersons Response to MCA letter dated 27 March 200879. Hendersons produced a document headed Response to MCA Letter dated 27 March

2008.

80. At reference 3.6 (in response to the MCAs comment that the vessel must at leastcomply with the requirements of the SPS Code), the document stated, The vesselwill be registered as a Cargo Vessel. The vessel shall comply with IMO Code ofSafety for Special Purpose Ships as applicable to vessel less than 50m in length and

carrying special personnel less than 50.

81. At reference 4.2 (in response to the MCAs comment that watertight doors must be ofan approved sliding type, the document stated, It is proposed to fit hinged water tightdoors in the bulkheads below main deck as these are normally kept closed at seaExemption can be granted by MCA in accordance with SPS code) Section 2.7.5.

82. At reference 11 (in response to the MCAs comment that the intact and damagestability information is to comply with the passenger vessel, or SPS requirements), thedocument stated,

As per SPS Code 2.1, the intact stability of special purpose ships of under

100m in length should comply with the provisions in resolution A.167(ES.IV)except that the alternative criteria given in 2.5.2 of the Guidelines for theDesign and Construction of Offshore Supply Vessels may be used for specialpurpose ships of similar design and characteristics. Accordingly, the vesselshall comply with intact stability criteria IMO Resolution A.749(18).

As per SPS Code 2.2.1, in a special purpose ship carrying not more than 50special personnel the damage should be assumed to occur anywhere in itslength between transverse watertight bulkheads, spaced at a distance of notless than the longitudinal extent of side damage specified in 2.3.1, exceptinvolving damage to the machinery space. A special purpose ship of notmore than 50m in length and carrying not more than 50 special personnel may

be exempted from the subdivision requirements of this Code provided that itcomplies with safety requirements which the Administration may deemappropriate for the area of operation.

However, the damage stability analysis shall be carried out in accordance withIMO Resolution as applicable to Offshore Supply Vessels. [emphasisoriginal]


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83. The document indicates that Hendersons understood that the MCA was requestingdamage stability to be designed to the criteria in the SPS Code but that it wasHendersons intention to seek an exemption from those requirements enabling it todesign on the basis of the OSV Code not just for intact, but also for damage stability.

Exemptions list dated 31 March 2008

84. At the same time Hendersons were preparing a list of exemptions which they neededfor their current design. Mr Cidambaram sent the list to Mr Vohra by email dated 31March 2008.

85. The first exemption was from the passenger ship requirements and the alternativestandard given is the SPS Code. The Explanation states that, The vessels shall beregistered as Cargo vessels under UK Law. The vessels operation is normally shorebased with short sea voyages Special personnel shall not be onboard when thevessel undertakes long voyages.

86. The second exemption was from the passenger ship requirements for subdivision anddamage stability. The alternative was stated as being the SPS Code section 2.2.1. It

is apparent from the Explanation column, however, that, As per SPS Code, forvessel with length not exceeding 50m and carrying special personnel not exceeding50, the sub-division requirements may be exempted by Administration. Accordingly,it is proposed to apply IMO Damage Stability requirements as applicable to Offshoresupply vessels to demonstrate the survival capability of the vessel.

87. The third exemption was for hinged, rather than sliding, watertight doors.88. It was therefore apparent from this list that Hendersons were seeking exemption from

the SPS requirements both for damage stability and for watertight doors.

89. Mr Vohra forwarded the list to Mr Judge and to Mr Walker and Mr Johnson on thesame day. He forwarded it to Mr Phelps of Lloyds on 9 April 2008.

Drawings and stability documents sent on 10 April 200890. On 10 April 2008, Hendersons sent revised drawings and their Response to the MCAs

letter dated 27 March 2008 to Mr Vohra. Mr Cidambaram referred to the Responsedocument in his email and stated, this note may be forwarded to the client fordiscussion with MCA. However, it never was. The revised drawings included theGA plan rev A.

91. Hendersons sent a more extensive list of drawings, including the GA rev A, to Lloydson the same date. Mr Kumar also sent the GA rev A and Preliminary copies of the

intact and damage stability booklets to Serco, for reference to Mr Johnson bycourier on 10 April 2008.

92. Revision A of the GA plan showed hinged rather than sliding doors. There werehinged doors at frames 5, 12, 36 and 49. They were all described as watertight doors.It also showed an engine room which ran the whole length of the ship between frames12 and 49. There was a large container at frames 26 to 30. The Preliminary copyof the damage stability booklet records that the OSV Code was being used to calculatedamage stability.


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93. Mr Kumar forwarded the GA plan rev A and copies of the preliminary intact anddamage stability booklets described as for approval to Mr Judge of the MCA on 13April 2008.

Meeting with the MCA on 17 April 2008

94. A further meeting had been arranged for 17 April 2008 with the MCA.95. At the meeting on 17 April 2008, the issues of the application of the OSV Code rather

than the SPS Code for damage stability and the use of hinged rather than slidingwatertight doors were on the table for discussion.

96. The meeting on 17 April 2008 was attended by Mr Judge of the MCA, Mr Walker forSDMS and Mr Vohra for Adyard. Mr Vohra took with him the MCAs draft letterdated 24 March 2008 (circulated during the meeting on 25 March 2008) and used itfor his notes of the 17 April 2008 meeting.

97. At that meeting, there was a further discussion about the size of the engine room. Itwas common ground that under the SPS Code (as fully applied), the engine room isnot taken into account when calculating damage stability. That is, the SPS Codepermits the designer to assume that the engine room is not flooded if the ship isdamaged, even if it would otherwise be caught by the transverse extent of damage.The MCA wanted the engine room to be reduced in size. SDMS agreed to considerthe removal of the ISO container stowage below decks in order to facilitate the designof a smaller engine room.

98. It was at this meeting that Adyard contended the MCA intimated approval of anexemption from the SPS Code requirements for damage stability. This was disputedby SDMS. This central factual issue will be addressed separately below.

99. The MCA wrote several letters to Adyard recording the matters discussed at the 17April 2008 meeting.

100. The first letter to Mr Vohra was on 21 April 2008 and was specifically in relation to thestability booklets which it had received prior to the meeting. The letter recorded thatthe documents have been sent to the MCAs Stability Unit for an independent check,but went on to state:

Meeting 17 April 2008Points raised during our meeting Rajeev Vohra, Gerry Walker and SimonJudge in Plymouth on 17 April 2008 will have an influence on the damage

stability in particular and will need to be taken into account in the future.

101. The MCA wrote three letters to Mr Vohra on 23 April 2008. The first, recording itsnotes of the meeting on 17 April 2008, is the most important. The letter follows theformat of the 27 March 2008 letter and stated:

... The purpose of the meeting was to discuss the items that were raised in ourletter of 27 March 2008 and to discuss exemptions ...


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102. Section 2 recorded the various substantial modifications to the design which are goingto take place. These included:

i. Modification of the two Engine Roomsii. Removal of the container stowage below deck in way of the Engine

Room/s.

iii. Reconsider the fuel tank arrangements

103. It recorded at item 3 (UK Law/Classification) that the comments raised in the letterdated 27 March 2008 are accepted/in hand and the following added. It then stated:

There has been a slight variation to the approach for seeking exemptionsfrom Passenger Vessel requirements and it is anticipated that a single requestExemption based on compliance of the Special Purpose Ship Code and anyother specified conditions.This is in the process of being agreed by the MCA HQ, and I hope to be ableto confirm this shortly.

104. Under Section 4 (Construction), the rubric as to the comments in the letter dated 27March 2008 was repeated. The additional comment was:

An exemption is being sought from the requirement to have a sliding WTdoor, although this may not be sought with the proposed modifications.

105. Under Section 11 (Stability Information), the letter recorded:1. Comments raised in letter dated 27 March 2008 are accepted/in hand andthe following added.2. The watertight subdivision is likely to significantly change and a furthersubmission of damage stability information will be made.

106. Under Section 21 (Accommodation), the rubric as to the comments in the 27 March2008 was repeated, followed by, 2. Finalised exemptions being sought will beprepared by Serco.

107. Under Section 32 (Special Purpose Ship Code), the MCA simply re-iterated that thecomments in the 27 March 2008 letter are accepted/in hand.

108. The MCA sent a further two letters on 23 April 2008.109. The second 23 April 2008 letter commented on the Access Plan and Escape Plan

drawings sent to the MCA prior to the meeting. Those drawings showed a hingednon-watertight (NWT) door at frame 5 and no door at all at frame 12.

110. The letter stated that the drawings have been considered in conjunction with the SpecialPurpose Ship Code. That letter recorded that there are no objections to the proposedarrangements save that:

1.1 Watertight doors forming part of the required watertight sub division areto be sliding watertight doors.


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111. The letter went on to say:Please refer to our letter dated 27 March 2008 which refers to the surveyrequirements/elements in terms of UK law. These plans should be presentedto LR as part of the plan approval process requirements.

Meeting 17 April 2008The points raised above were discussed during our meeting Rajeev Vohra,Gerry Walker and Simon Judge. However, there are now variations proposedin terms of the arrangements that will need to be taken into account in thefuture.

112. The third 23 April 2008 letter commented on all the plans submitted including the GAplan rev A. Consideration had taken place in conjunction with the SPS Code. Theletter recorded that there were no objections to the proposed arrangements save that:

Drawing HI/9187/101 General Arrangement

Meeting 17 April 2008The points raised above were discussed during our meeting Rajeev Vohra,Gerry Walker and Simon Judge. However, there are now variations proposedin terms of the arrangements that will need to be taken into account in thefuture.

113. Immediately after the meeting, SDMS confirmed the offer to agree to the removal ofthe under deck store for the ISO container in order to facilitate the redesign of theengine room.

Discussions after meeting on 17 April 2008114. Mr Kumar sent a revised exemptions list to Mr Cidambaram on 20 April 2008. This

list was identical to the original list save that it added a series of exemptions relatingto the crew accommodation. This version of the list of exemptions was never sent toeither the MCA or to SDMS or Serco.

115. On 18 April 2008, Mr Johnson sent Mr Kumar comments on the GA rev A plan whichhe had received the day before, together with a sample exemption submission for thecrew accommodation regulations. His comments were contained in a letter dated 18April 2008 which stated:

Following the meeting at Plymouth, UK between Adyard, Serco and MCA anumber of issues have arisen that will require major changes to the General

Arrangement at reference. I have listed below the issues raised by the UKMCA and those of Serco.1. Engine Room The combined engine and generator room with the hold inthe centre was not acceptable to the MCA from the damage stability point ofview. It is suggested that the hold is removed and the forward engine roombulkhead is moved from Frame 48 to Frame 42 as a minimum.2. Hold/storage area The vessel will still require some below deck storage,but it does have to have the capacity to load a 20 ISO Container. It is


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possible that the workshop could be moved and the hold area be positionedbetween Frames 5 and 12.7. Exemptions from UK Accommodation Regulations Statutory Instrument1997 No 1505 The Merchant Shipping (Crew Accommodation) Regulations1997 should be complied with where possible, but in any case where these

regulations can not be met an exemption will be required from the MCA. Ihave listed a few areas where the design does not complyI am sure that exemptions can be obtained for all of these issues, but they willneed applying for as soon as possible. I have attached a copy of a similarexemption that Serco submitted recently.

116. This letter triggered a misunderstanding by Hendersons of the MCAs requirements.Mr Cidambaram mistakenly believed that the MCA were treating the engine room asflooded (which is not required under the SPS Code). He wrote an email to Mr Kumaron 20 April 2008 saying that this would require changes in the design. He alsocomplained that the movement of the engine room bulkhead from frame 49 to 42might mean that the damage stability criteria were not met if the engine room was to

be treated as flooded.

117. Mr Kumar forwarded this email to Mr Johnson for his comments. Mr Johnson repliedon 22 April 2008. He said:

The moving of the forward engine room bulkhead from Frame 49 to Frame42 was only a suggestion. The design is yours and you make these decisions.The specification calls for the design to meet the requirements of the SPSCode, IMO Intact Stability Code and IMO Resolution A.749(18) as amendedby Resolution MISC 75(69). In any case the requirements of stability andsubdivision must be to the satisfaction of the Administration, in this case theMCA

Revision B of the General Arrangement drawing dated 1 May 2008118. On 1 May 2008, Adyard sent the MCA rev B of the GA plan showing the new

arrangement of the engine room and the various other changes that had beendiscussed at the 17 April 2008 meeting. Rev B of the GA plan showed slidingwatertight doors at frames 36 and 49. It showed a hinged NWT (non watertight)door at frame 5. This was a change from rev A of the GA plan which had showed awatertight hinged door at frame 5. The door at frame 12 had, for some reason,disappeared.

Revision to the damage stability booklet

119.

On 19 May 2008, SDMS sent its comments on rev B of the GA plan to Adyard. Theplan was approved subject to the following comments:

The following plans are to be amended in accordance with GA PlanHI/9187/101 Rev B [the GA rev B] and re-submitted for comment:

Tank capacity plan Escape route plan Access plan Preliminary Intact and Damage stability Booklet


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The intact Stability booklet is to include an additional load case for the mostonerous crane operation condition.

120. On 26 May 2008, Hendersons wrote formally to Adyard requesting additional paymentfor the changes to the layout requiring modification to a series of drawings. Item 2 ofthe list of matters requiring modification is Stability Calculations Intact and

Damage.

121. On 9 June 2008, the MCA wrote to Adyard commenting on the GA plan rev B. Thatletter stated:

The arrangements are noted to have been modified to include the pointsraised in my letter dated 17 April 2008 and considered acceptable, including:

1. Modification of the engine rooms.2. Removal of the container stowage below deck in way of EngineRooms.

The remaining points raised in our letter dated 21 April 2008 are understood to

be being addressed.

122. The remaining points included the resubmission of revised damage stabilitycalculations and resolution of the issue as to sliding doors at watertight subdivisions.On 10 June 2008, the MCA sent an identical letter in relation to rev C of the GA plan(which they had been subsequently sent).

Site visit 10 11 June 2008123. On 10 and 11 June 2008, Mr Walker visited the Yard. Under item 8, MCA

Exemptions, the following was recorded in the visit report:

It was agreed that all main items of non-compliance where exemption fromthe required codes and standards had been identified and had been de-riskedwith the certifying authority as much as could be expected. It was agreed thatthe process of applying for exemptions should start soonest ACTION ADYARD to review SI 1997 1505 vs 50M vessel to identify compliance/noncompliance and revert to SERCO with findings, for submission of exemptionrequest. ADYARD to request exemption for anchors direct to LR

124. At item 9 the comments from the MCA as to crew accommodation in its letters dated 9and 10 June 2008 were discussed.

Damage stability and watertight doors in July and August 2008

125.

On 7 July 2008, Mr Kumar emailed Mr Judge attaching revision C of the Access Planand Escape Route plans. Mr Judge had already commented on rev 0 of thesedrawings, stating he required watertight sliding doors in his second letter dated 23April 2008. Rev C still showed a hinged non-watertight (NWT) door at frame 5 andno door at all at frame 12.

126. On 8 July 2008, Mr Kumar sent an email to Mr Judge at the MCA attaching what hedescribed as revised drawings and documents. These documents were rev B of the


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tank capacity plan, rev 0 of the trim and stability booklet (intact stability), rev 0 of thedamage stability booklet and rev D of the GA drawing.

127. The intact stability booklet and the damage stability booklet were in fact the samerevisions (and the same documents) which were submitted to the MCA on 13 April2008, prior to the meeting on 17 April 2008 at which the major changes to the design

were discussed. For example, these versions of the intact and damage stabilitybooklets still had the large engine room which had already been removed on the GAplans.

128. Mr Judge replied on 11 July 2008 asking Mr Kumar to forward the stability documentsstraight to the MCAs Mr Maclean at the Stability Unit as he was out of the office.Mr Kumar duly did this on 12 July 2008. This is probably the reason that Mr Judgeapparently did not realise that the documents being sent were the same as the ones hehad already said needed to be revised.

129. In the event Adyard did not submit a revised damage stability booklet to the MCA until23 July 2009.

130. On 17 July 2008, the MCA wrote to Adyard commenting on the rev C versions of theAccess Plan and the Escape Plan showing a non-watertight door at frame 5 and nodoor at frame 12. The MCA had no objection to the proposed arrangements butcommented:

Damage StabilityWatertight doors forming part of the required watertight subdivision are to besliding watertight doors.

131. This letter was passed on to Hendersons on 26 July 2008.132. On 29 July 2008, Mr Cidambaram sent Mr Kumar rev 0 of the Disposition and Details

of Doors drawing. It included a list of watertight steel doors. Doors 4 and 5 werelisted as sliding doors and appeared at frames 36 and 49 on the plan showing belowmain deck, as per revs B and C of the GA plan. The door at frame 5 was door number2. It was listed as a hinged door. It had however become a watertight door. No doorwas shown at frame 12.

133. Mr Kumar forwarded this drawing to the MCA on the same day.134. Mr Judge commented on this drawing by email dated 18 August 2008. He said:

The following is drawn to your attention:1. Watertight doors, where required for subdivision purposes are to be of anapproved sliding type.


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143. At some point between 28 February and 2 March 2009, Mr Unnikrishnan and MrThomson of the MCA had a conversation about the review of the stability booklets. Itis apparent from Mr Unnikrishnans email dated 2 March 2009 that Mr Thomson hadrealised that he only had the rev 0 versions of the stability booklets (dated April 2008)and had asked for the updated versions which he was supposed to be reviewing.

144. It is clear from the email that there had also been some discussion of the relevantcriteria to be applied. Mr Unnikrishnan also said:We would also request clarification on the following stability criteriaapplicable to this vessel.Intact stability as per IS code [IMO 749(18)]Both vessel are less than 50m and are carrying less than 50 specialpersonnel They are under UK flag. Since SPS code is not ratified under UKflag, we are following OSV code [Resolution MSC.235(82) Adoption of theGuidelines for the Design and Construction of Offshore Supply Vessels, 2006]for damage stability calculations. Please confirm that this is acceptable toMCA.

MCA email dated 5 March 2009145. On 5 March 2009, the MCAs Mr Maclean responded to Mr Unnikrishnans query on 2

March 2009, copying in Mr Judge and Mr Thomson. Mr Maclean said:

Further to the email on Tuesday from our Brian Thomson, I have been askedto clarify the current requirements for UK vessels which carry Special PurposePersonnel onboard. I have attached a copy of our draft Marine Guidance Note(MGN) which lays down the current MCA policy with respect to this type ofvessel.The damage stability requirements which will apply to Adyard Hull Nos. 10 &11 will be dependent on the standard which the vessels are to be certifiedunder. There are three possible routes to certification which could apply, eachwith a different damage stability standard and these are outlined below:1. If the vessel is to be certified as a cargo ship as outlined in the MGN, theproposed stability standard ie IMO Resolution MSC 235(92) will beacceptable. However, it should be noted that if this is the case, any specialpersonnel carried on board the vessel would need to meet the definition ofcrew and be signed on in the vessels articles and also meet the minimumstandards of training etc. in accordance with STCW.2. Alternatively, if the vessel is to be certified as a passenger ship, passengership construction standards (including stability considerations) would need tobe complied with in full. However, in this case any special personnel carried

onboard would not require any additional certification.3. Finally, if it intended that the vessel will be certified as a Special PurposeShip and an SPS Code certificate issued, it will be necessary for the vessel tocomply with the requirements of IMO Code of Safety for Special PurposeShips Resolution MSC.266(84) [the 2008 SPS Code]. I have attached a copyof this code to this email. It can be seen that Special Purpose Ships are nowconsidered under the probabilistic damage stability framework as implementedby the latest revision of SOLAS.


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As can be seen from the above, at this stage, it is important to determine thetype of certificate which will be issued to the completed vessel and we wouldbe grateful if you could confirm this to us as soon as possible

146. Mr Cidambaram replied on 9 March 2009. He clarified that the keels for the vesselswere laid in 2008 and that therefore the 2008 SPS Code, which applied to vessels with

keels laid after 1 January 2009, did not apply.

147. He went on to explain that the design of the vessels in relation to damage stability hadbeen calculated on the basis of the OSV Code on the assumption that the exemption inparagraph 2.2.1 of the SPS Code permitted this. He then asked the MCA to confirmthe damage stability criteria which should be applied to these vessels.

Events during March 2009

148. On 13 March 2009, following a further discussion with Mr Maclean, Hendersonsagreed to send the MCA the intact stability booklet but not the damage stabilitybooklet, which would wait until Hendersons received an answer to their question as towhether they could use the OSV Code.

149. On 18 March 2009, there was a further meeting between Adyard, Hendersons andSDMS. It was attended (at different stages) by Mr Kumar, Mr Vohra (of Adyard), MrWileman, Mr Baldock, Ms Williams (all of SDMS) and Mr Unnikrishnan and MrSwain (of Hendersons).

150. The MCA approvals issue was discussed. In her handwritten notes, Ms Williamsrecorded that Mr Kumar felt that the MCA were being managed in relation tooutstanding approvals. In the formal minutes, it was recorded that Adyard had anaction from the meeting on 9 January 2009 to arrange a meeting with the MCA.Adyard responded that Mr Judge was visiting the yard in March and SDMS asked forconfirmation of the date of the visit bearing in mind that it was already 18 March2009.

151. There was also a discussion of the current VTS on the table, including VTS 16. ThisVTS related to Hendersons claim for additional costs of the redesign due to thechanged engine room. The handwritten note recorded that Adyards proposedreduction in cost was not sufficient. MCA claim engine room too big containerinside. SL thinks related to Henderson stability problem. Adyard saving money disputed

152. After this, Adyard and Hendersons chased the MCA for a response on the applicabledamage stability criteria fairly regularly, namely on 23 March 2009, 24 March 2009,

15 April 2009 and 28 April 2009. Each time Mr Judge replied saying that he hadchased MCA headquarters.

153. On 31 March 2009, Mr Walker produced a report on Adyards progress whichconcluded that the project was delayed by at least 6 months. Mr Walker recordedunder the heading Lloyds and MCA that One area of concern was the time taken toreview Intact and Damage Stability. This was due to incomplete data being suppliedby Adyard to the MCA.


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154. On 15 April 2009, Mr Judge responded to a chaser from Mr Kumar repeating that hehad chased his headquarters, but that he anticipated that the decision would haveadverse effect.

155. On 23 and 24 April 2009, Adyard received a further quotation for two watertightsliding doors. Delivery was 14 weeks plus shipping.

SDMS letter dated 1 May 2009156. On 1 May 2009, SDMS wrote formally to Adyard in relation to damage stability. Mr

Walker said:

During a recent meeting held with Mr Simon Judge of the [MCA] I discussedthe issue of damage stability of the vessels at subject.He advised me that ADYARD were proposing to apply a different standard tothat required under the Special Purpose Ship Code (SPS Code), for vesselsoperating with the numbers of special category personnel that we intend tocarry onboard these ships. He advised me that ADYARD were seeking to

apply a standard the same as for offshore supply vessels.I am surprised that ADYARD are making this request as early on in the designprocess as a result of initial feedback received on the General ArrangementPlan given by MCA, we removed the requirement to fit an ISO containerbelow deck in order for ADYARD to achieve compliance with the SPS Codefor the 50M design.I believe your request is with the MCA policy for consideration. You haveindicated in your correspondence with the MCA that failure to obtain adispensation from the SPS Code damage stability criteria will have an adverseeffect on the build programme due to any ensuing rectification work.Please be advised Serco Ltd will not accept any excuse for failure to securethis dispensation from the MCA as mitigation against late delivery.Compliance to the SPS Code is a contractual requirement and the risk inachieving compliance lies solely with ADYARD.

157. On 2 May 2009, Mr Kumar sent this letter to Hendersons for comment. MrCidambaram responded on 3 May 2009. He set out paragraph 2.2.1 of the SPS Codeand said as follows:

Since the vessel is less than 50m in length and carrying less than 50 specialpersonnel, the design was based on the consideration that necessary exemptionwill be provided. It is only suggestion from us that offshore supply vesseldamage stability requirements can be considered by Administration as

appropriate for this vessel as an alternative.There was no clear communication from MCA that these vessels should betreated as more than 50m length and apply the required damage stabilitycriterion.Please note that the damage stability as per SPS Code as applicable to vesselmore than 50m in length can be applied if required by Serco/MCA. Aconfirmation on this is required to redo the calculations and submit to MCAfor approval.


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We expect the present subdivision will meet SPS Code requirement.However, there is a problem in respect of ER vent duct. Present location ofvent duct will fall within damage zone and will lead to progressive flooding ofER. Any watertight arrangement of vent duct at ER bulkhead will be difficult.The ducts will have to be led on to main deck near winch per our earlierproposal, which was not accepted by Serco considering noise problems.

To our best of understanding, SERCOs contention that large store room wasremoved to meet SPS Code was not correct as at that time no damage stabilitycalculations were submitted. Please note that as far as SPS Code is concernedthe engine room damage is not to be considered. However, it was felt byMCA that ER is very large and store was coming in between and accordinglythe layout was modified.

158. Mr Kumar cut and pasted Mr Cidambarams response into a formal letter dated 3 May2009.

Claim during site visit 12 14 May 2009

159. On 11 May 2009, Mr Kumar emailed Mr Cidambaram with an agenda for a technicaldiscussion with Serco. This included an item for Damage stability aspects (holdupson WT sliding doors and requirement of WT vent flaps etc). This was the first timethat watertight sliding doors were mentioned in relation to the MCAs requirements.

160. The Serco visit referred to is Mr Walkers site visit on 12 14 May 2009. Mr Walkersreport of that visit recorded as follows:

MCA APPROVALSADYARD are still waiting from the MCA guidance on what Damage Stabilitycriteria has to be applied to the 50M vessels. Early on in the design processthe MCA indicated that additional damage cases would need to be considered,a requirement driven by the length of the Engine Room. At the time Sercorelaxed the design requirement to fit a 20ft ISO container below decks toenable ADYARD/HI to improve sub-division.Recent discussions with HI representative indicate that the present design willmeet the required Damage Stability criteria ADYARD/HI to requestresolution on this soonest and concurrently ADYARD/HI to run model for onecompartment flooding.The result of the need to comply with Damage Case would mean the need tofit two SLIDING WATERTIGHT DOORS. ADYARD have stated that thelead time for these doors in 12-14 weeks, a 4 week delivery and two weeksinstallation and testing, 20 weeks from order to testing.

161. There is no record of to which two doors Adyard were referring. If the two doors werethose at frames 36 and 49 (on one ship), these doors had been shown on Adyards GAplans as sliding doors since 1 May 2008. If the two doors were those at frame 5 (onboth ships), the MCA required that these doors were sliding doors on at least threeseparate occasions in 2008.


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Claim at meeting on 19 May 2009162. There was a further meeting with SDMS on 19 May 2009. There was a slideshow

presentation by Adyard relating to progress and current issues.

163. The hard copy of the slides was annotated by Ms Williams. At slide 27 which recordedAdyards assertion that it would be necessary to procure watertight sliding doors (and

valves), Ms Williams had noted GET ON ORDER NOW (x 4).

164. The formal minutes of the meeting recorded at item 3 (in relation to slide 27) that theprocurement period is 20 weeks which takes H10 past the delivery date. Adyardconfirmed they are 80% sure they will need them. JM instructed AK to procure thedoors now.

Meeting with MCA on 3 June 2009

165. Adyard had managed to arrange a meeting with the MCA to take place on 3 June 2009.Mr Judge would attend in person and the MCAs damage stability personnel wouldattend by phone.

166. Adyard relied on the decision at this meeting as the foundation of its case that, as aresult of the existence of the new 2008 SPS Code, the MCA changed its approach tothe application of the OSV Code standard for damage stability and insisted oncompliance with the SPS Code.

167. At this meeting, it is common ground that the MCA informed Adyard and SDMS thatthe vessels would be built in accordance with the original SPS Code.

168. There was a further extensive review of Adyards drawings in order to progressoutstanding approvals.

169. There was a further meeting between Adyard and SDMS on 4 June 2009. This meetingwas attended by Ms Williams and Mr Baldock for SDMS, Mr Brown and MrChalmers for Serco and Mr Masterton and Mr Kumar for Adyard.

170. Ms Williams typed up notes of what SDMS were told had happened in the relevanttelephone call with the MCA damage stability personnel recorded that the decisionstated that the old code, not the new code, will be applied but that the MCA wantedsome items from the new code including sliding watertight doors. It was Ms Williamevidence, which I accept, that this was a mistaken transposition of her manuscriptnotes which did not link the doors to either code.

171. Mr Judges email dated 5 June 2009 reflected the decision made by the MCA:Thank you for your email regarding the damage stability standards applicableto Adyard Yard Nos 10 and 11. I apologise for the delay in responding on thisissue.Noting the keel laying dates for these vessels we agree that the applicableversion of the Special Purpose Ship (SPS) Code would be IMO ResolutionA.534(13) [the SPS Code].[Mr Judge then set out paragraph 2.2.1 of the SPS Code]


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In this case the UK would expect that these vessels are shown to demonstrate astability standard similar to other ships certified under the SPS code. Wewould accept compliance with the damage stability requirements ofParagraphs 2.3 2.55 of the SPS Code as meeting this requirement.However, it is noted that this damage stability standard excludes damages tothe machinery space (main engine room). Therefore, in order to maintain a

level of safety consistent with other similar vessels, we would also require thatdamage stability in way of the engine room wing spaces is shown to complywith the requirements of IMO Resolution MSC.235(92) Adoption of theGuidelines for the Design and Construction of Offshore Supply Vessels.

172. The MCAs decision was that the SPS Code applied. It did not apply the new 2008SPS Code. The MCA asked Adyard to apply the OSV Code to the engine wing tanksonly. It was common ground that this

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