Hi everyone,Transocean (RIG) filed a motion in federal court today arguing that BP is trying to get out of the indemnify clauses of its contracts with Transocean. It has always been Transocean's position that all financial damages and clean up for the Macondo well incident should be borne by BP because of those contracts. According to WSJ coverage, "'Why have you signed so many contracts, reviewed by an army of your lawyers and businessmen, that you have no intention of honoring,' it asked in the legal motion. 'The answer is simple: money.'" Wow, a shot right across the bow.Considering the amount of money at stake, this will be in the courts for a few years I'm thinking.Earnings release is tomorrow after the market closes with the conference call Thursday morning. Should be interesting.Cheers,Jim
Hey Jim,I think this is really going to be an interesting situation to watch. I wonder if there has been any precedence for this type of thing in the past. If I remember correctly, Transocean was found to have some fault in the oil spill, along with a number of other companies. I agree, this will be a very long, drawn out court battle, probably costing more for both sides than what there is to gain.Regards,Kyle
I think this is really going to be an interesting situation to watch.Hi Kyle,Definitely. The consequences for contract law are pretty serious, too, at least in my opinion. If a company can get out of indemnifying another when things go rotten, that abrogates the whole idea of indemnification. The result, I bet, would be either a lot fewer contracts signed between companies or increased costs to cover the risk taken on by the company who would otherwise be indemnified.I worked, at one time, for a very small biotech company. That company signed a couple of contracts with Amgen at one point and there were indemnify clauses in those contracts. Puny little things of only a few thousand dollars, but those clauses were in there. End user license agreements for software also contain indemnify clauses. They're everywhere. The issue is what is going to happen to contract law if BP is allowed to get around the indemnify clauses in its contracts with Transocean? Nothing good, that I can see.Was Transocean partly at fault? The US Coast Guard report (IIRC) said so, but it's BP's responsibility because of those contracts. At least that's Transocean's position.This AP article (http://finance.yahoo.com/news/Transocean-Contract-shields-ap...) shows the two different viewpoints of the companies. Transocean is arguing based on the contract, BP is arguing based on PR. "BP countered that Transocean's court filing showed it was 'putting its own interests ahead of the people and communities of the Gulf.'" Of course Transocean is putting its own interests first. That's what companies do and BP does it just as much as any other. In fact, BP is doing so in this case, trying to end up paying less to those selfsame people and communities.If I recall, the legal battles against Exxon for the Valdez spill took nearly a decade to work through. There's billions of dollars at stake here, so both sides should be more than willing to draw out the battle for a while.Cheers,Jim
Hi Jim,I completely agree with you on the big unknown here which is the effects a judgement in favor of BP will have on the contract laws. I am going to look further into this to see if there had been a precedent for this type of suit before. The only thing that pops to mind in terms of breaking contracts would be the auto bailouts (if I am remembering them correctly). Am I incorrect in saying the contract between the bond holders and the company was broken when the government, for all intents and purposes, told them they had to take hair cuts on their bonds, rather than allowing the company to enter bankruptcy and claim the assets?Regards,Kyle
Hi Kyle,I don't know about bondholders and GM or Chrysler, but I did find a quote from a law professor regarding BP's argument that it is good public policy to break the indemnity clauses. "There is nothing in the law that supports that perspective." -- http://online.wsj.com/article/SB1000142405297020452820457701...Found that (and included it) while turning this story into an article that should appear later today on Fool.com.Cheers,Jim
Thanks Jim! As soon as I can get away from work for a few, I will take a look at the article and let you know what I think. Looking forward to reading your article once it is published.Regards,Kyle
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