6 of 9 DOCUMENTS. [**186] MOBIL OIL CANADA LTD. v. BETA WELL SERVICE LTD. INDEXED AS: Indexed As: MOBIL OIL CANADA LTD. v. BETA WELL SERVICE LTD.

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1 Page 1 6 of 9 DOCUMENTS [**186] MOBIL OIL CANADA LTD. v. BETA WELL SERVICE LTD. INDEXED AS: Indexed As: MOBIL OIL CANADA LTD. v. BETA WELL SERVICE LTD. COUNSEL: [*1] M.S. BRETT, for the respondent R.C. SWIST, for the appellant Alberta Supreme Court Appellate Division JUDGES: Allen, Prowse and Moir, JJ.A A.R. LEXIS 19; 2 A.R. 186 JUDGMENT DATE: February 12, 1974 This appeal was heard by the Alberta Court of Appeal at Calgary, Alberta. The judgment of the Alberta Court of Appeal was delivered by ALLEN, J.A., on February 12, JUDGMENT: [5] ALLEN, J.A.: This action arises from the collapse on the 26th day of January, 1969 of a derrick forming part of a mobile oil well servicing rig operating at the site of a well known as Mobil Sierra well C-78-C/ situated near Fort Nelson, B.C. The respondent (hereinafter referred to as "Mobil") is a corporation engaged in the exploration and development of oil and gas properties in Canada and the production and marketing of oil and/or gas therefrom. The appellant (hereinafter referred to as "Beta") is a corporation carrying on the business of servicing and repairing oil and gas wells in Western Canada. It owns and operates a large number of well servicing rigs and has done considerable work for Mobil both prior and subsequent to the collapse of the rig employed at the Sierra well. [6] The collapse of the derrick or mast of the service rig in question occurred during the process of "stretching" a string of 41/2" production casing in the Sierra [*2] well prior to setting such string of casing for the production of gas from the well. [7] Before going into the details of the incident, with a view to determining whether liability of Beta can be founded on negligence or application of the principle of "res ipsa loquitur", there are several aspects of the contractual relationship existing between the parties which should be considered. [8] Mobil bases its action for damages suffered as a result of the collapse of the derrick on an alleged [**187] contract between it and Beta dated October 13, 1966 which, according to its terms, expired at the expiration of two years from that date. However Mobil contends that this contract had been renewed either by verbal agreement or by written extension dated February 13, 1969 with retroactive effect, so that it was in effect on the date of the collapse. The trial

2 1974 A.R. LEXIS 19, *2; 2 A.R. 186, **187 Page 2 judge gave effect to Mobil's contention and in my view there was sufficient evidence to support his findings on this aspect of the matter. [9] Accepting this as so, consideration must be given to certain clauses of the contract and of the Schedules annexed thereto to decide whether it is necessary to go into and determine [*3] the validity of the assertions of negligence of Beta in performing the work undertaken thereunder, because one of the alternative claims of Mobil is based upon the wording and alleged effect of Clause 10 of that contract which reads as follows: "INDEMNIFICATION BY CONTRACTOR 10. Contractor (Beta) shall be liable for and shall indemnify and save harmless Mobil Oil of and from all manner of actions, causes of action, proceedings, claims, demands, loss, costs, damages and expenses whatsoever which may be brought or made against Mobil Oil, or which it may sustain, pay, or incur as a result of or in connection with the performance, purported performance or non-performance of this agreement or other work hereunder by Contractor or his sub-contractors and whether the same results from or in connection with the use by Contractor or his sub-contractors of any machinery, tools or equipment belonging to Mobil Oil, or from or in connection with the negligence or wilful acts or omissions of Mobil Oil, its servants, agents, employees or its other contractors, while acting under the direction or control of Contractor or his sub-contractors, and Contractor shall further indemnify and save harmless [*4] Mobil Oil from all claims, suits, and demands for infringement of any patent or similar right growing out of or incident to Contractor's performance of said work or the use of material or equipment furnished by Contractor." [**188] 10 Briefly stated Mobil contends that this clause operates, in effect, as an insurance clause under the terms of which the Contractor agrees to insure and indemnify Mobil against, not only claims of third parties, but also to be liable for direct loss or damage which it may suffer as a result of any of the operations of the Contractor under the Contract. [11] As against this Beta refers to a provision of the Schedule annexed to the contract and forming part thereof in which, under the heading "Liability" it is provided as follows: "Beta will be bound on to carry out the services requested in good faith and to the best of its ability, being held responsible only for its wilful misconduct and failure to exercise good faith at all times." [12] In answer to this Mobil cites clauses 6 and 18 of the contract reading, respectively, as follows: "6. Contractor shall perform the work and services with due diligence and in good and workman-like manner. [*5] 18. In the event of any conflict between the provisions of this Agreement other than Schedule "A" and Schedule "A", the provisions of this Agreement other than Schedule "A" shall prevail." [13] On this aspect of the matter the learned Trial Judge stated:- "As to liability, clause 10 of the contract under which the plaintiff is I find entitled to recover, deals with indemnification by the Contractor and in my view said clause serves as a right to indemnification to the plaintiff for its loss and damages incurred as a result of the mishap." [14] As this finding if correct would effectively dispose of the question of liability it would seem that [**189] there was nothing more for the learned Trial Judge to do but fix the amount of damages. However he went on to deal with the plaintiff's alternative claims of negligence and the rule of "res ipsa loquitur" and made findings in favor of the plaintiff on both of these claims. [15] The first question to be dealt with is whether clause 10 of the contract, whatever its full effect may be, overrides the provisions of Schedule "A" quoted above, and I think that clause 18 effectively provides for this and has that

3 1974 A.R. LEXIS 19, *5; 2 A.R. 186, **189 Page 3 consequence. [*6] [16] The next question is whether clause 10 should be regarded solely as providing for indemnification by the Contractor of liability Mobil may incur to third parties by reason of Beta's operations. [17] No evidence was adduced by either side which would be of assistance to the court in determining the manner in which this clause should be interpreted. It had been entered into more than two years prior to the undertaking by the Contractor of the work on the Sierra well and other work under the Contract had been done by the Contractor for Mobil during that period. There was no evidence that any similar incident had occurred in that interval and consequently nothing to establish any interpretation put on the clause by the parties prior thereto. [18] Consequently it seems that we have no outside guide to interpretation of the contract and the intention of the parties must be ascertained from the words therein set down; British Movietonews Ld. v. London and District Cinemas Ld., [1952] A.C [19] To establish that the clause provides more than an agreement to indemnify Mobil against claims of third parties one must break it down, if possible to do so, into two separate [*7] parts each providing for separate contingencies. Applying this scheme or principle we might find that the clause provides for two things: "(a) The contractor shall be liable "... for all loss, costs, damages and expenses whatsoever"... which [**190] it (Mobil Oil) may sustain pay or incur as a result of or in consequence of the performance purported performance or non-performance of this agreement" etc.; and (b) The contractor... shall indemnify and save harmless Mobil Oil of and from all manner of actions (etc.) which may be brought or made against Mobil Oil or which it may sustain, pay or incur as a result of the performance, purported performance or non-performance of this agreement" etc." [20] But it must be noted that the "liability" provision and the "indemnification provisions" are linked together by the conjunction "and" - "The contractor shall be liable for and shall indemnify and save harmless Mobil Oil" etc. The clause may therefore be interpreted as providing for the acceptance by the contractor (Beta) of liability for, and an undertaking to indemnify Mobil Oil against, claims of third parties, rather than direct claims of Mobil Oil against the contractor for loss [*8] or damage it might sustain. I think, reading the clause as a whole, this intention may fairly and properly be drawn from its provisions. It must be borne in mind that this is Mobil's contract. The rule or principle of "contra proferentum" requires the words of written documents to be construed more forcibly against the party using them. I would therefore interpret the clause as providing for indemnification against outside claims, and not as creating contractual liability to answer for any direct claims of Mobil Oil for expenses incurred by it as a result of such a mishap as the one we are considering in this case, regardless of how they might arise. [21] The distinction is perhaps made most clear by the words used by Hyndman, J.A., in McDougall v. Gariepy, [1922] 1 W.W.R. 426, where he says (speaking of the distinction between contracts of indemnity and contracts of guarantee or suretyship):- "Indemnity springs from contract, express or implied, and is distinguished from guarantee and suretyship in that the engagement is to make good [**191] and save another from loss upon some obligation which he has incurred or is about to incur to a third person, and is not as in guarantee [*9] or suretyship a promise to one to whom another is answerable. It is an original and not a collateral undertaking. (See 22 Cyc. at 80)." [22] I should add, at this point, that it seems to me that the heading of clause 10 "Indemnification by Contractor" lends some support to the interpretation I have placed upon it, and perhaps additional support comes from the inclusion in the

4 1974 A.R. LEXIS 19, *9; 2 A.R. 186, **191 Page 4 contract of clause 6 quoted earlier in these reasons. [23] The mere fact that in the course of remedial operations Mobil may have paid some monies out to third persons for work or material done or supplied by them, does not, in my view, alter the situation. [24] Therefore it appears to me that to succeed in its action for damages against Beta, Mobil must establish either breach of contract or negligence in performance by Beta or circumstances from which the rule of "res ipsa loquitur" may be applied. [25] Beta agreed, in clause 6 of the contract, to perform the work and service with due diligence and in good and workmanlike manner. It becomes necessary to look at the facts established by the evidence to see if it failed to carry out this obligation and at the same time to determine whether it [*10] was negligent in its efforts to do so. [26] The relevant facts, quite clearly established by the evidence, are as follows:- (1) The Sierra well was a producing gas well, some 6500 feet in depth. The work for which Beta was engaged to perform on the Sierra well involved repairing or replacing leaks in the production casing and a packer in the bottom of the hole and replacing the 31/2 inch production tubing with 41/2 inch tubing. [**192] (2) The production casing forms the outside perimeter of the well; the production tubing is located in the center of the hole and is separated from the production casing by an open space known as the "anulers", the production tubing is held in place at the bottom of the well by a "packer" consisting of cement placed in the anulers between the production tubing and the production casing. The bottom of the packer opens into the underground where the gas is located; the production tubing is connected at the top of the well to the servicing, when the operation of changing the tubing is taking place, and ultimately to the surface of the well. When operations of the type which were being conducted in this well are in process, gas is prevented from escaping [*11] from the hole by the insertion of a "plug" or perhaps several plugs at the bottom of the packer. (3) In its operations in the Sierra well Beta employed what is known as a Cardwell Model K 210, manufactured in 1961, consisting of a mobile unit, mast, engine and appurtenances, it was known as a large capacity mobile rig, completely inspected, overhauled and reconditioned after its acquisition by Beta in 1963, which was put into operation by Beta in November, 1967 and had operated satisfactorily on several jobs before it was moved to the Sierra location. (4) The evidence of one Ruptash, drilling foreman for Mobil, establishes that the personnel employed by Beta were competent and efficient, the "tool push" in charge of its operations was thoroughly experienced and competent and the work performed by Beta prior to the collapse of the rig was entirely satisfactory. (5) The rig had a rated capacity of 180,000 lbs American Petroleum Association rating, which rating was explained as a two to one load factor, meaning that a mast with 180,000 lbs. [**193] rating should actually handle 300,000 lbs. (6) Up to the date of the collapse of the mast on January 26, 1969 no trouble had been experienced [*12] with the unit and it had operated quite satisfactorily. On that date the crew was operating in a temperature of 60[deg] below zero. The 41/2" tubing had been lowered into the hole and was being subjected to what is called a "stretching operation" before being finally affixed in position. This involved lifting the whole string of tubing amounting to something in the neighborhood of 6500 feet with a weight of about 82,000 lbs. a short distance above the packer and leaving it suspended for a short time to enable the "stretching" to take place. It had been in the lift position for about 20 minutes when one of the legs of the mast cracked and broke, the upper half of the mast collapsed and the tubing was dropped onto the packer in the bottom of the hole. The pressure reading prior to the collapse was 83,000 lbs. (7) It appears from the evidence of Dr. Samuel A. Bradford, a metallurgical expert called at the trial, that the crack and break were caused by the metal becoming brittle and losing its ductility due to the very cold temperature prevailing

5 1974 A.R. LEXIS 19, *12; 2 A.R. 186, **193 Page 5 during the operation, and that probably the crack and fracture occurred almost simultaneously. In this connection I quote from Dr. Bradford's [*13] evidence as follows: "Q. How far does the crack have to go before you can see it? A. It has to be visible. It is difficult to say because it depends on how it is loaded, when a crack first starts you can't see it, it's too fine, and yet low temperature operation would cause fracture immediately." (8) The work undertaken was carried on either under the express instructions of Mobil's drilling [**194] foreman or with his consent. He had authority to direct that work be suspended or halted if he regarded it as desirable to do so, but saw no reason to give any such instructions at the time. (9) The crack or defect in the mast would not have been detectable by visual inspection. The rig had been visually inspected by Ruptash before being put to work and appeared in satisfactory condition. (10) At the time of operations in the Sierra well, it was not customary to conduct electro-magnetic inspection of rigs in this area. Such inspection could not, in any event, be conducted while the rig was in operation or under the temperature conditions then prevailing. (11) As a result of the collapse the tubing was damaged, a large amount of time was expended in retrieving the plug at the bottom of [*14] the hole apparently because of accumulation of debris, probably due to the dropping of the tubing, and other incidental expenses were incurred in repairing the damage and putting the well back in operation. The service rig with a new Cardwell mast and the Beta crew were employed in these operations. [27] The question of liability seems to hinge entirely on whether there was a crack in the leg of the mast prior to its collapse and whether more detailed inspection should have been conducted by Beta prior to and during the course of its operations at the Sierra well. [28] Reading the evidence as a whole I cannot come to the conclusion that having regard to practices prevailing at the time when electro-magnetic inspections of metal in rigs operating in this area were not customarily conducted and visual inspections were regarded as sufficient, the rated capacity of the rig and the fact that the crack and fracture seem to have occurred simultaneously or at no great interval of time between the one and the [**195] other, this being based on the evidence of the clean nature of the fracture, no negligence in carrying out the work should have been imputed to Beta, and that there [*15] was no evidence upon which a finding of negligence could properly be based. [29] There is no room, in my opinion, for the application of "res ipsa loquitur". The evidence does not establish this as a case where the mishap could not have occurred without negligence on the part of the defendant. The reason for the mishap is in the opinion of the matallurgical expert explained by the extreme cold temperatures to which the mast was subjected. Mobil's drilling foreman could have directed operations to be suspended while these conditions existed but neither he nor Beta's tool push considered it necessary to do so. This rig had operated in cold temperatures before and right up to the occurrence of this collapse, without mishap, and neither saw any reason to anticipate the unfortunate incident which finally occurred. [30] I would accordingly allow the appeal and dismiss the action with costs to the appellant throughout. Appeal dismissed.