The Supreme Court handed down judgment in the case of Farstad Supply AS v Enviroco Limited and another [2010] UKSC 18 on 5th May 2010. The appeal concerned whether under section 3(2) of the Law Reform (Miscellaneous Provisions) (Scotland) Act 1940 (“the Act”) a defendant in a negligence action was entitled to a contribution from the third party who had engaged it to carry out the work.

In 2002 an oil rig caught fire whilst berthed in a harbour. The rig was owned by the appellant, but had been chartered to a third party, Asco UK Limited. The third party had employed the respondent to undertake the cleaning of several tanks on board the vessel. The opening of valve by an employee of the respondent led to oil being released into a heated room. Engines had lately been turned on in that room at the instruction of the third party, and a fire was caused.

Section 3(2) of the Act provides that where a defendant to an action has been found to be liable and has paid damages that party is entitled to, by permission of the court recover some contribution from “any other person who, if sued, might also have been held liable in respect of the loss or damage on which the action was founded”.

Assuming the finding of liability, the Lord Ordinary found that the respondent was not entitled to seek a contribution from the third party. Following a successful reclaiming motion by the respondent before the Extra Division of the Court of Session, the appellant owners launched a claim to have the interlocutor of the Lord Ordinary restored.

The issues before the Supreme Court involved the construction of section 3(2), and whether a defence provided by a charterparty could be taken into account. If the document could be considered, the court was also asked to determine whether a particular clause in that document established a defence for the third party in the event of a claim against them by the appellant owners.

Acknowledging the primary purpose of section 3(2) to apply where two actions occur, the court found that its use was not so exclusively confined and could apply to third party proceedings. Assuming that liability had been established and damages had been paid, the court considered whether the third party could be established to be a person “who, if sued, might also have been held liable”. Construing “if sued” to mean “relevantly, competently and timeously sued” as set out in Dormer v Melville Dundas and Whitson Ltd 1989 SC 288, the court considered whether the third party could mount a defence to a claim.

Refuting the submission that the terms of the charterparty were irrelevant the court focused on clause 33.5. The court found that the clause clearly excludes liability in respect of damage to the vessel caused by the charterer’s negligence and therefore the third party could not be said to be a relevant person for the purposes of section 3(2).

Dismissing as irrelevant the argument that if the clause was only an indemnity clause the situation would be altered, the court found that if judgment were secured against both the defendant to the action and the third party within section 3(1) of the Act, no order for damages could be made against the third party by virtue of a defence of circuity of action. This principle was applicable in both English and Scottish jurisdictions.

Allowing the appeal, the court restored the decision of the Lord Ordinary.