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January 31 2018
In Doiron v Special Rental Tools & Supply LLP, the US Court of Appeals for the Fifth Circuit jettisoned the six-factor, fact-intensive Davis & Sons test for maritime contracts in favour of a "simpler, more straightforward test consistent with the Supreme Court's decision in Norfolk Southern Railway Co. v. Kirby". The decision will affect contractual indemnity provisions in offshore drilling contracts.
The case arose in the context of a claim for contractual indemnity. Apache contracted with Specialty Rental Tools & Supply (STS) to perform 'flow-back' services on a gas well on a stationary production platform in navigable waters in Louisiana. The work order did not require a vessel, and neither party anticipated that a vessel would be necessary. However, during the job, the STS crew decided that some heavy equipment was needed to complete the job, and a crane would be necessary to lift the equipment into place. Apache agreed and contracted with Larry Doiron Inc (LDI) to provide a crane barge. The LDI crane later struck and injured one of the STS crew members. As a contractor of Apache, LDI sought indemnity from STS under the indemnity provision in the Apache/STS contract.
The issue was whether the contract was wet or dry. If maritime law applied, the indemnity provision was enforceable. If Louisiana state law applied, the indemnity provision was invalidated by the Louisiana Oilfield Indemnity Statute (LSA-RS 9:2780).
The court began its analysis by recognising that its "cases in this area have long been confusing and difficult to apply". Judge Rubin attempted to summarise and make sense of the conflicting case law in Davis & Sons in 1990, distilling the principles into a six-factor test. Noting that several judges had criticised the approach as confusing, the court recognised that "most of the prongs of the Davis & Sons test are unnecessary and unduly complicate the determination of whether a contract is maritime". Many of the factors required the courts to parse facts that may be relevant to Jones Act status, but have little to do with whether the employer entered into a maritime contract.
After discussing guiding principles from the Supreme Court in Kirby, the Fifth Circuit adopted a two-pronged test to determine whether an offshore contract is maritime. First, is the contract one to provide services to facilitate the drilling or production of oil and gas on navigable waters? If yes, does the contract provide, or do the parties expect, that a vessel will play a substantial role in the completion of the contract? If so, the contract is maritime in nature. The court noted that "this test places the focus on the contract and the expectations of the parties".
Applying the new test to the facts, the court found that the contract was non-maritime because the original work order did not contemplate the use of a vessel, and neither party expected a vessel to be used. Rather, the STS crew encountered an unexpected problem that required a vessel and a crane. The use of the vessel to lift equipment was an insubstantial part of the job and not work that the parties expected. Therefore, the contract was non-maritime and controlled by Louisiana law.
While the Fifth Circuit greatly simplified the test for maritime contracts in the oilfield, the Davis & Sons factors are not entirely dead. The Fifth Circuit threw them a lifeline: "This does not mean, however, that some of the Davis & Sons factors are never relevant."
For further information please contact please contact Todd Crawford at Fowler Rodriguez by telephone (+1 504 523 2600) or email (firstname.lastname@example.org). The Fowler Rodriguez website can be accessed at www.frfirm.com.
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