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Published 23 June 2016
In the recent case of Transocean Drilling U.K. Ltd v Providence Resources plc (2016) EWCA Civ 372 upheld the allocation of risk provisions and exclusion clauses contained within a freely negotiated contract by parties of equal bargaining power. The court placed limits on the application of the contra proferentem rule (which provides that where the effect of an exclusion clause is ambiguous it is construed against the party seeking to limit its liability).
Transocean, the owner of a semi-submersible drilling rig, entered into a contract with Providence Resources for the hire of a drilling rig. The contract included an obligation to provide the rig in good working condition. As a consequence of a defect in the rig the drilling works being undertaken by the hirer fell into delay by 27 days.
Whilst the parties used an industry standard form of contract, it had been the subject of considerable amendment by the parties, who were of equal bargaining position. Clause 18 contained a complex series of provisions which sought to allocate losses arising from or relating to the performance of the contract, irrespective of the actual cause of the loss. Clause 19 contained an obligation on the contractor to take out and maintain insurance of the type described for the benefit of both parties.
Clause 20 went on to provide that:
(otherwise known as a "knock-for knock" clause the effect of which is that loss suffered by a party is to rest with that party regardless of fault).
The drilling rig supplied by Transocean was defective. Providence sought to recover what was referred to as "spread costs" by reason of the delay suffered to the project. These costs included the cost of personnel, equipment and services contracted from third parties which were wasted by reason of the delay. Transocean argued that liability for these losses were excluded pursuant to clause 20.
The Court of Appeal has given useful guidance on the interpretation of exclusion clauses. The traditional approach of interpreting such a clause against the party seeking to rely upon it will not be adopted in cases where the wording of the clause is clear and unambiguous and the parties have freely negotiated their allocation of risk provisions. The court will respect, and give effect to, the agreement of commercial parties, particularly in situations where the parties are of equal bargaining power and where the terms of the contract have been the subject of negotiation.
Chris Doran, Partner
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