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19 February 2020
The US Fifth Circuit Court of Appeals recently confirmed its test for determining whether a contract is a maritime contract and extended the test to all mixed service contracts. Whether a contract is 'maritime' is a vital distinction for anyone operating in the maritime or offshore industries in the United States as it can have far-reaching implications with respect to:
It is difficult to clearly demarcate between maritime and non-maritime activities, particularly in the offshore construction and service industries. The Fifth Circuit's decision in Barrios v Centaur LLC (942 F3d 670 (5th Cir 2019)) is an effort to further streamline and simplify the determination.
Until 2018, the Fifth Circuit applied a six-factor test for determining whether a contract was maritime.(1) That test was extremely fact specific and rendered it difficult to predict at the outset of a contract whether it would later be considered maritime. Courts faced with such a decision wrestled with prior case precedent and the result often turned on minute factual details.
In re Larry Dorion, Inc (879 F3d 568 (5th Cir)) (en banc), the Fifth Circuit attempted to clarify and simplify the test for determining whether a contract was maritime. That case presented the issue of whether a contract to perform services on a gas well in navigable waters was maritime.(2) Instead of the cumbersome six-factor test, the Fifth Circuit adopted a two-factor test:
First, is the contract one to provide services to facilitate the drilling or production of oil and gas on navigable waters?… Second, if the answer to the above questions is 'yes,' does the contract provide or do the parties expect that a vessel will play a substantial role in the completion of the contract?(3)
The court sought to emphasise and focus on the parties' intentions and expectations when entering into the contract, rather than parsing the specific factual details of the subsequent work in carrying out the contract. The contract was maritime if it was:
The court noted, without specifically holding, that although it was dealing with contracts for the exploration, drilling and production of oil and gas, its new two-factor test would be helpful in determining whether a non-oil and gas contract is maritime.(4)
The Fifth Circuit recently clarified that the Dorion test is not limited to contracts for oil and gas exploration in navigable waters but also applies to all mixed service contracts. In Barrios v Centaur LLC (942 F3d 670 (5th Cir 2019)), the Fifth Circuit applied the Dorion test to determine whether a contract to perform construction services on a dock was a maritime contract.(5) The contract at issue was to construct a concrete containment rail on a dock in the Mississippi River. The contract specifically called for the use of a crane barge and tug boat to complete the work. It also contained an indemnity provision under which the contractor agreed to indemnify the dock owner for injuries to the contractor's workers. During the project, an employee was injured. The question of whether the contract was maritime arose to determine whether the indemnity provision of the contract was enforceable. If the contract was maritime, the indemnity was enforceable. If it was not maritime, one of Louisiana's anti-indemnity acts would apply to void the indemnity provision.
In making its determination, the Fifth Circuit contemplated the language and purpose of Dorion and several more recent decisions in assessing how to apply the Dorion test outside the oil and gas context.(6) Ultimately, the court concluded that for non-oil and gas contracts, the Dorion test should ask whether:
The court stated that the purpose of the Dorion test was to simplify the inquiry into whether a contract is maritime and that maintaining the same two-prong test for all service contracts – whether related to oil and gas exploration – would best serve this goal.(8) The court further noted that the two prongs of the Dorion test stand for the requirement that the principle objective of the contract be maritime commerce.(9)
After settling on the applicability of the Dorion test to non-oil and gas contracts, the court ultimately determined that the contract at issue in Barrios was maritime.(10) The dock construction contract easily satisfied the first prong of the test because it was for work that facilitated activity on navigable waters. The work was to be performed on a dock in the Mississippi River that facilitated the loading, offloading and transportation of cargo from vessels on navigable waters. It also satisfied the second prong because the parties expected the barge and tug to play a significant and critical role in the completion of the work. With the contract being maritime, federal maritime law was applicable. As such, the indemnity language in the contract was enforceable.
With Barrios, the Fifth Circuit has clarified the proper test for determining whether a contract is maritime. By removing the distinction between oilfield service contracts and other types of service contract, there is now more certainty in the applicable law and the maritime status of a non-oil and gas contract. This clarity should prove beneficial for parties engaged in maritime-related services. Now, there is no question that the Dorion test applies, which enables parties to better assess whether their contract will be classified as maritime. As Barrios demonstrates, this is an important distinction when considering the enforceability of indemnity provisions or other methods for allocating risk in the contract. Ultimately, the Fifth Circuit's goal in establishing and clarifying the Dorion test is to de-emphasise the factual details of the contractual work and instead place more importance on the parties' intent and expectations when they entered into the contract when deciding whether it is maritime. Barrios should be welcomed by parties in the maritime service industry as a step towards more certainty in the law that will govern their contracts.
For further information on this topic please contact Michael Harowski at Wilson Elser by telephone (+1 504 702 1710) or email (firstname.lastname@example.org). The Wilson Elser website can be accessed at www.wilsonelser.com.
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