‘6. The Tribunal’s analysis and conclusions in respect of the January contract

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6.7 The Respondent’s obligations under the January Contract with regard to demobilization and movement of [Rig 1]

The Claimant’s Position:

6.7.1 The Claimant contends that further to its termination … it was entitled to have [Rig 1] demobilized and withdrawn by virtue of implied and express terms of the January Contract …

6.7.2 There is a general principle of English law under which there is “the implication of terms into a contract either to give business efficacy to the contract, i.e. where it is necessary to imply the term in order to make the contract work, or where the implication of the term gives to the obvious but unstated intention of the parties, i.e. the “officious bystander” test (see Chitty on Contracts, 29th Edition, vol. I, §§ 13-005 to 13-007)”. As to the necessary efficacy of the contract, the Claimant contends it was obviously implied between the parties that as soon as the January Contract was terminated, it should be entitled to demobilize and withdraw its rig elsewhere and such affirmation cannot “seriously be contested”: indeed, if the Claimant has the right to terminate but was to request the approval to demobilize and to withdraw in the event of termination, then its right to terminate “would effectively be useless”. As to the bystander test, to the question “if [Claimant] validly exercises its right to terminate, can it then withdraw the unit?”, the inevitable answer would be “Of course […]!” (The Claimant’s First Written Brief …).

6.7.3 Article 19.1.4 (d) of the January Contract clearly provides that should the Claimant not receive any instruction from the Respondent for a longer period of up to 30 days, it is entitled to terminate the Contract and the Respondent is to move [Rig 1] to [port] and pay demobilization … It is expressly provided that the Respondent was to pay and facilitate the demobilization of [Rig 1]. The Respondent’s allegation that the Claimant was to obtain the Respondent’s consent or authorization to demobilize should be rejected since it would mean that the Respondent could breach the Contract but at the same time could also exercise “ultimate control” over the Claimant’s movement of [Rig 1] ...

6.7.4 The Claimant concludes that it did not need the Respondent’s agreement to demobilize [Rig 1] ...

6.7.5 The Claimant also contends that in any event, “at common law”, there is an implied duty to each party in a contract to cooperate with the other to discharge their obligations to that other and to allow that other to exercise its rights under the contract (Mackay v. Dick (1881) 6 App. Cas. 251 at 263 and Chitty on Contracts, Col I, §§ 13-011) ...

6.7.6 The Claimant states that the Respondent had the obligation to facilitate the demobilization of [Rig 1] which implies the obligation not to prevent or to procure others to prevent the Claimant’s demobilization and withdrawal ...

6.7.7 The Claimant contends that the Respondent breached “deliberately” such obligation which is clearly evidenced by the facts …

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6.7.10 The Claimant concludes that the above facts show that not only did the Respondent not comply with its obligation to facilitate the demobilization of [Rig 1] but also “prevented [Claimant] from taking its own steps to demobilize and transport the drilling unit” ...

6.7.11 The Respondent having breached its obligations under the January Contract, the Claimant states that it has “a claim in tort for [Respondent]’s wrongful interference with goods, viz. its detention of the rig ... Thus, were the Arbitral Tribunal to deny the Claimant’s right to be paid for the standby post-termination, it requests “claim for damages to detention” since it has lost opportunities to earn money during that period. It assesses its loss by reference to the daily standby rate … and the period during which [Rig 1] was detained; if the Respondent had not detained [Rig 1], it would have reached an agreement elsewhere “at the current market rates which were significantly higher that the rates set out in the January Contract” …

The Respondent’s Position:

6.7.12 The Respondent’s allegation is that since the parties entered into a pre-contractual phase immediately after the January Contract’s termination, “all post-termination obligations that would normally have survived […] were transferred onto the new contract as a necessary component thereof”. Accordingly, the Respondent is free from its post-termination obligations under the January Contract …

6.7.13 The Respondent recognizes that were the January Contract terminated and not followed by a new contract, “the demobilization and withdrawal of [Rig 1] from [the North African state] would have been the normal consequence of the termination […]” ...

6.7.14 However, the Respondent contends that, the Claimant was not entitled, contrary to its allegation, to demobilize and to withdraw [Rig 1] from the … area following the termination of the January Contract, since the parties were negotiating a new contract for a possible drilling of an additional well in this area: the demobilization of [Rig 1]“would simply make no sense” in that event …

6.7.15 The Respondent adds that from the correspondence exchanged between the parties, it is clear that after the termination, the relationship between them was “dominated by other consideration than the demobilization of [Rig 1] as a consequence of the termination of the January Contract. 75% of [Respondent]’s claims are thus based on a false pretence” …

6.7.16 By entering into negotiations with the Respondent, the Claimant waived its right to require demobilization and withdrawal of [Rig 1] as a consequence of the termination of the January Contract and its claim as to its right to demobilize and withdraw [Rig 1] is to be dismissed …

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The Arbitral Tribunal’s Analysis and Conclusion:

6.7.20 Having decided that the January Contract was validly terminated … and that no new agreement was reached after such termination, the Arbitral Tribunal rejects the Respondent’s general allegations that all the post-termination events are to be dismissed since they are in relation to the alleged new agreement and not the January Contract.

6.7.21 Article 19.1.4(d) provides expressly that “[a]fter 30 days Contractor shall have the right to terminate this Contract, and Company shall be obliged to move Unit to [port] […]”.

6.7.22 Such obligation is confirmed in Appendix B of the January Contract which provides that (i) demobilization to [port] (Item 1) and (ii) “land transport services and cranes to move contractor’s equipment, materials and supplies including the rig from the last drilling location to [port]” (Item 27) are to be provided by the Respondent.

6.7.23 Having recognized that the Claimant was entitled to terminate the January Contract pursuant to Article 19.1.4(d), the Arbitral Tribunal agrees with the Claimant that the Respondent was under the obligation to move [Rig 1].

6.7.24 Accordingly, the Respondent was under the obligation to do all that was necessary to enable the Claimant’s Rig to be demobilized and transported to [the port].

6.8 ... Was the Claimant’s decision of 16 March 2001 to demobilize unlawful?

6.8.1 The Arbitral Tribunal has already decided that (i) the parties agreed to postpone the effects of the termination, (ii) no new agreement was reached for the use of [Rig 1] and (ii) the Respondent had the obligation to demobilize [Rig 1].

6.8.2 The issue to be determined is whether … the Claimant was entitled to decide unilaterally to demobilize [Rig 1].

6.8.3 The parties agreed to a postponement pending exploratory talks in connection with outstanding sums due and a new contract. These negotiations had not been successful ... By letter … the Claimant clearly stated that after having waited for two months and no settlement having been reached, it wished to demobilize the rig ... Since, as stated above, the Claimant’s agreement to postpone the demobilization of the Rig was subject to the settlement of the invoices and such settlement not having occurred, the Claimant was entitled to demobilize. Such a decision is neither contrary to the January Contract nor unlawful. Accordingly, the Respondent’s counterclaim that the Claimant’s decision to demobilize was unlawful is rejected.

6.8.4 From that date the Respondent was obliged to move [Rig 1] to [the port] under the January Contract.

6.9 ... The implied obligations of co-operation and non-prevention

6.9.1 … the Respondent had the obligation to organize the demobilization of the Rig. As well as the express obligations under Appendix B and Article 19.1.4(d), the Respondent was under an implied obligation of co-operation and non-prevention in the discharge of the contract (see Mackay v. Dick [1881] 6 App. Cas 251 of 263 and Chitty on Contracts 29th Edition, Vol. 1 par. 13.011).

6.9.2 In the same way, the Respondent’s obligation to facilitate the demobilization of [Rig 1] implies necessarily that it has an obligation not to prevent its demobilization and the withdrawal of [Rig 1]. Otherwise, the Claimant’s right to demobilize would be useless and contrary to the “business efficacy of the contract” principle.

6.9.3 The Arbitral Tribunal concludes that (i) the Claimant was entitled to demobilize [Rig 1] without the Respondent’s prior consent and (ii) the Respondent was not to prevent such move (iii) the Respondent was obliged to cooperate in such demobilization.

6.10 ... Did the Respondent prevent [Rig 1]’s demobilization?

6.10.1 The Arbitral Tribunal is satisfied on the evidence that the Respondent was the moving force behind the blockade and prevention of the movement of the rig. To suggest that the authorities of their own accord took steps to stop the rig being moved flies in the face of the evidence …

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6.10.3 By asking the authorities to prevent the rig being moved the Respondent was in breach of its contractual obligations under Articles 19.1.4(d) and Appendix B of the January Contract and in breach of its implied obligations of co-operation and non-prevention.

6.10.4 Since the Respondent was in breach of the January Contract, in principle the Claimant is entitled to damages in compensation for the loss caused by the breach. The result of the breach was that the rig remained on site ... The Claimant claims that had the rig not been so detained, it could have been used elsewhere at the current market rates. Extremely late in the proceedings, the Claimant produced some documents purporting to show hire rates for another land rig at approximately this time. However the Claimant failed to produce any evidence to show that [Rig 1] itself could and would have been used profitably elsewhere between ... Accordingly the claim for damages in this respect has not been proven. However the Claimant did suffer extra costs on site as a result of the Respondent’s breach. …

6.10.5 As well as a claim for breach of contract, the Claimant claims for wrongful detention of the rig in tort ... This claim does not advance the Claimant’s position. The remedy for such a claim is damages to compensate for the loss caused by the detention. Since the Claimant has not shown that the rig would have been utilized elsewhere, the claim for damages in tort suffers from the same defect as the claim for breach of contract.

6.10.6 The Arbitral Tribunal concludes that:

(i) the Respondent prevented the Claimant from demobilizing [Rig 1], in breach with [sic] the January Contract;

(ii) the Claimant’s claims for damages relating to the Respondent’s unlawful prevention are rejected, save [in relation to costs for standby of vehicles “which the Claimant was caused to incur by reason of the Respondent’s breach of contract in preventing the demobilization of the rig and its movement to [port]”].

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7. The Tribunal’s analysis and conclusions in respect of the October contract

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7.2 The Claimant’s right to suspend and not to perform additional drilling

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7.2.16 An important issue which arises in relation to the disputes under the October Contract is whether the Claimant was allowed to carry out drilling work in the absence of a programme or of written instructions.

7.2.17 Article 7.9 of the October Contract required the Respondent to provide the Claimant with a well drilling programme and under Article 7.4 the Claimant was obliged to comply with all instructions given by the Respondent.

7.2.18 The Drilling Operations Programme given to the Claimant by the Respondent … made it clear that no deviation from the drilling programme could be implemented without the approval of the Respondent’s Drilling Superintendent and that after such approval a formal amendment had to be issued. …

7.2.19 The Arbitral Tribunal is satisfied that under the contractual provisions, contrary to the Respondent’s allegation, it was its obligation to give instructions to the Claimant and it was not the Claimant to “chase for instruction”. ...

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7.2.21 Despite some uncertainty at the beginning of the Final Hearing, by the end of the oral testimony of the witnesses it was clear that there was a measure of agreement as to the need for instructions in writing for work on the rig. …

7.2.22 … in an exchange between the Arbitral Tribunal and the Respondent’s Counsel …, the Respondent’s Counsel accepted that written instructions were necessary for the Contractor to carry out work and that without such instructions the Contractor would not know what to do and would not be in a position to do anything ...

7.2.23 The Arbitral Tribunal finds that in order for the Claimant to carry out work on [Rig 2] it was necessary firstly that it had been given a programme covering the work to be done and secondly it had to have received written instructions from the Respondent’s representative on the rig as to how that work was to be done. In the end there was really no dispute about this.

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7.2.25 The Arbitral Tribunal is satisfied that the Claimant was not in a position … to proceed any further with drilling unless and until it received written instructions from the Respondent. That did not happen until [five months later]. Accordingly, the Arbitral Tribunal concludes that the Claimant was entitled to suspend the drilling operations … for lack of instruction. There was no breach of the October Contract in this respect.

7.2.26 To the Respondent’s allegation that the Claimant breached Article 2 of the October Contract by shutting down the offshore Rig, the Arbitral Tribunal notes that under such Article 2, the Claimant was to furnish the offshore Rig, its equipment and the personnel for “the purpose of drilling and completing the offshore well”. The Arbitral Tribunal is satisfied that the Claimant did not “close” [Rig 2] but put it on standby “waiting further order” as quoted in the daily reports ... The Claimant remained operational and able to resume the drilling in case the Respondent gave further instruction. There was no breach of Article 2 of the October Contract.

7.2.27 It is clear to the Arbitral Tribunal that the Claimant did not want to carry on drilling because it was owed significant sums of money. It is clear from the correspondence that this was a major factor in the Claimant’s approach. It is noteworthy that in no letter did the Claimant complain about lack of instructions but it did complain about lack of payment. Finally, it is clear that the October Contract did not include provision relating to suspension for non-payment.

7.2.28 However, the Arbitral Tribunal agrees … that the critical point is that without an instruction in writing from the Respondent, the Claimant was not in a position to carry on drilling and was not obliged to do so (regardless of what it wanted to do). Thus its reluctance to carry on in view of the lack of payment is subsidiary. Unless and until the Respondent issued an instruction which dealt with drilling a 6″ hole, the Claimant was under no obligation to proceed. It had completed the work covered by the programme issued in November. It was, in truth, waiting for instructions. Had they been given, and had the Claimant then refused to proceed because it had not been paid, then the question of whether that stance was legitimate would have arisen. However, in the absence of an instruction it did not arise.

7.2.29 It is not essential that the Arbitral Tribunal finds the reason for the Respondent not giving any written instructions to the Claimant to proceed with 6″ drilling. The fact that the Respondent failed to do so is enough. However the Arbitral Tribunal is in no doubt that the Respondent did not give the necessary instructions because it was in financial difficulties. The fact is that the Respondent did not give any written instruction or produce any written programme to cover continuation of the drilling using a 6″ bit. The necessary programme was not given until [five months later]. The Arbitral Tribunal is satisfied that the reason for this is the financial difficulties with which the Respondent was grappling [at the time]. It may have wanted to proceed with the drilling but it was not in a financial position to do so. That was ample reason not to give any instructions.

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7.3 Was there an agreement of the parties to suspend the drilling operations instead of terminating?

7.3.1 [Claimant’s witness] gave oral evidence … to the effect that [Respondent’s president] had asked the Claimant not to terminate the October Contract but to suspend it. The Respondent denies this. … It certainly suited the Respondent to have the Claimant keep [Rig 2] on station so that it could complete the drilling. The Arbitral Tribunal accepts [Claimant’s witness]’s evidence on this matter.

7.3.2 The Arbitral Tribunal also finds support in the correspondence that the parties agreed to suspend instead of terminating the October Contract …

7.4 Did the Respondent request the Claimant daily to resume the drilling?

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7.4.3 A related point raised by the Respondent is to the effect that no written instruction was given to the Claimant to continue drilling with a 6″ bit because it knew that it would not do so. Accordingly, so it said, there was no point in giving such an instruction. [Respondent’s counsel] relied on the case of Bulk Oil v. Sun International [1984] 1 Lloyd’s Rep. 531 in support of his submission that contract law does not require contracting parties to go through the empty motions of performance of the contract if it is clear from the attitude of the other party that this would be futile ... The Respondent cites the following passage from the judgment of Devlin J. in Sinason-Teicher Inter American Grain Corporation v. Oilcakes and Oilseeds Trading Co. Ltd [1954] 1 Lloyd’s Rep 376 applied by Bingham J. in Bulk Oil:

If the seller’s repudiation is such that he displayed an attitude which showed that he was, in effect, saying to the buyer “Although you are keeping the contract alive, you can take up or perform your next obligation whatever it may be, tender your documents as much as you like, I cannot accept them”, the buyer is relieved from the obligation of making an empty and formal tender. He may, if he wishes for his own purposes, keep the contract alive and still claim that he is relieved from the obligation of making an empty and formal tender.

7.4.4 Devlin J. relied on Braithwaite v. Foreign Hardwood Co. [1905] 2 KB 543 for this proposition. However the House of Lords considered Braithwaite in Fercometal SARL v. MSC Mediterranean Shipping Co. (“The Simona”) [1988] 2 Lloyd’s Rep 199. Lord Ackner, with whom the other Law Lords agreed, dealt with Braithwaite in the passage running from page 204 second column to page 207 second column. The critical passage is at page 207 second column as follows:

I therefore conclude that the decision in Braithwaite [1905] 2 K.B. 542 is not an authority for the proposition advanced by the appellants, alternatively if it is, then it is wrong. When A wrongfully repudiates his contractual obligations in anticipation of the time for their performance, he presents the innocent party B with two choices. He may either affirm the contract by treating it as still in force or he may treat it as finally and conclusively discharged. There is no third choice, as a sort of via media, to affirm the contract and yet to be absolved from tendering further performance unless and until A gives reasonable notice that he is once again able and willing to perform. Such a choice would negate the contract being kept alive for the benefit of both parties and would deny the party who unsuccessfully sought to rescind, the right to take advantage of any supervening circumstance which would justify him in declining to complete.

7.4.5 It is clear following The Simona that Braithwaite cannot be relied on to support the Respondent’s submission. The Respondent’s case is as follows: it contends that the Claimant breached the October Contract by not proceeding with the drilling because it was not paid; that the Respondent did not terminate the contract because of the Claimant’s alleged breach but the contract remained in force; and that it was excused from giving instructions to the Claimant to enable it to proceed because it was clear that to do so would be pointless. However, as per Lord Ackner, the Respondent faced with a repudiatory breach could either treat the contract as still in force or treat it as discharged. If the former it was not absolved from performing his obligations. The Respondent, if it wanted the 6″ drilling to be carried out, was obliged to issue instructions enabling it to be done. Since it treated the contract as continuing in force it was not absolved from this obligation. The Arbitral Tribunal rejects the Respondent’s argument to the contrary.

7.4.6 To summarize the essential findings of the Tribunal:

(i) … the Claimant had completed the work covered by the programme ... It could not do any further work without written instructions from the Respondent. It suspended operations. The Daily Drilling Report, signed by both the Respondent’s and Claimant’s representative, recorded “Shutdown – waiting on further orders”.

(ii) The Respondent was in serious financial difficulties and was not able to commit to continuing with offshore drilling until it had achieved financial restructuring and the consent of the majority of its creditors.

(iii) The Respondent did not issue any written instructions which would enable the Claimant to proceed with the drilling until [five months later]. …

(iv) Contrary to [Respondent’s witness]’s evidence the Respondent did not ask the Claimant “on numerous occasions to resume the drilling”. Resumption of drilling may have been discussed but this did not result in any instructions.

(v) The contract continued in force with the rig suspended. If the Respondent wanted drilling to recommence it was under an obligation to issue instructions to the Claimant.

(vi) Since no instructions were issued, the Claimant was under no obligation to do any further drilling work; indeed it was not in a position to do so. Clearly the Claimant did not want to proceed due to the amount of money it was already owed. However, given the failure of the Respondent to issue the necessary instructions, the fact that it was unwilling to proceed without payment did not become an issue.

7.4.7 The Arbitral Tribunal’s finding is that the Claimant was not in breach as alleged. It could not proceed with any more drilling without a written instruction. That instruction was not given until [five months later]. Accordingly no question of breach can arise until then. This aspect of the Respondent’s case is therefore dismissed.

7.5 The Claimant’s right to terminate

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The Arbitral Tribunal’s Analysis and Conclusions:

7.5.10 … the Respondent owed considerable sums to the Claimant under the October Contract. … the Respondent had made offers to the Claimant which were significantly lower than what the Claimant was entitled to under the Contract. … the Respondent made what it called a “final offer” … The Claimant did not accept this “final offer”.

7.5.11 The Arbitral Tribunal is in no doubt that the Respondent’s behaviour … culminating in this “final offer” constituted repudiation of the October Contract. The outstanding sums had continued to build-up, the Respondent had failed repeatedly to come up with an acceptable proposal to pay what owed and promises as to payment had not been kept. The Claimant was entitled to accept this behaviour as discharging and terminating the Contract and it did so effectively by its letter of [date]

7.2.12. The Respondent contends that the Claimant was not entitled to terminate the Contract. It is said that by not terminating the October Contract [when it was suspended], the Claimant affirmed it and lost the right to terminate on grounds of non-payment of invoices or any ground existing at the time of suspension ...

7.5.12 It is clear law that once a party who is faced with a breach has elected not to terminate the contract but to continue with it, he cannot later on rely on that same breach as a ground for termination. He cannot blow hot and cold. However, if a breach is persisted in or added to by further breaches, then the innocent party clearly can terminate in reliance on the continuing or additional breaches. The reason is obvious. The position has changed. The innocent party is not relying on the breach as it existed at the time he decided not to terminate. He is relying on the continuance of the breach or the additional breaches. As is said in Chitty 29th Edition, Volume 1, paragraph 24-004:

Affirmation irrevocable. Once the innocent party has elected to affirm the contract, and this has been communicated to the other party, then the choice becomes irrevocable. There is no need to establish reliance or detriment by the party in default. Thus the innocent party, having affirmed, cannot subsequently change his mind and rely on the breach to justify treating himself as discharged. Nevertheless, in the case of a breach which is persisted in by the other party, the fact that the innocent party has continued to press for performance will not normally preclude him at a later stage from treating himself as discharged. In such a case the innocent party is not terminating on account of the original repudiation and going back on his election to affirm but rather is “treating the contract as being at an end on account of the continuing repudiation reflected in the other party’s behaviour after the affirmation”. Nor, in the case of an ongoing contract, will affirmation in respect of one breach preclude the innocent party from treating himself as discharged by reason of further subsequent breaches.

7.5.13 The logic of this is obvious. If one contracting party is owed £100 by the other and affirms the contract, it would be nonsensical if he was precluded from terminating the contract if the other party persisted thereafter in refusing to pay him with the result that the debt kept increasing.

7.5.14 After [the suspension], the Respondent did persist in its breach. It made offers to pay which were significantly worse than the Claimant was entitled to under the Contract. The sums due rose as the rig stood on standby waiting for the necessary instructions to continue work. When those instructions eventually came the Respondent had still paid nothing, the outstanding sums had risen and the final offer was not acceptable. The fact that the Claimant had not terminated the Contract [at the time of its suspension] was no bar to its terminating [five months later] faced with the different and worse circumstances.

7.5.15 Accordingly, the Tribunal finds that the Claimant was entitled to terminate the Contract …’