Transocean Drilling UK Ltd v Providence Resources Plc & Anor

Remuneration provisions in a drilling contract do not permit a contractor to recover day-rate payments for periods when the contracted work was not performed because of the contractor’s breach, unless clear words produce that result. The right of abatement and related principles apply to rig contracts. Causation remains essential: remuneration is irrecoverable only to the extent that the breach caused the relevant loss of performance. Weather or operational periods that would have occurred in any event remain remunerable. Contractual warranties that equipment will be adequate, in good working condition and maintained in a capable state impose obligations to achieve the stated result where the language is absolute. A consequential-loss clause must be construed by reference to its wording and context; wasted expenditure on equipment and services already provided was not within the clause’s defined exclusion.

Transocean supplied the drilling rig Arctic III to Providence under a drilling contract for an appraisal well off Ireland. Problems with the blow-out preventer caused delays between 18 December 2011 and 2 February 2012.

Transocean claimed contractual remuneration and reimbursables. Providence disputed liability for remuneration during delay periods said to result from Transocean’s breaches, and sought to set off wasted spread costs. It also advanced a claim under section 2(1) of the Misrepresentation Act 1967.

The issues concerned construction of the day-rate provisions, breach and causation, the effect of the consequential-loss clause on the spread-cost claim, and misrepresentation.

1. Construction of remuneration provisions. The day-rate clauses did not clearly entitle Transocean to payment where the Rig was not performing the contracted work because of Transocean’s breach. Clauses 13 and 3 were framed as payment for performance and work, and did not exclude abatement or the consequences of breach. The express treatment of fishing and redrilling caused by Transocean’s negligence demonstrated that clearer language could have been used if payment irrespective of breach had been intended.

2. The relevant principles applied to rig contracts as to other contracts for goods and services. The Repair Rate could apply to failures not caused by Providence or force majeure, but it did not make Transocean remunerable for delay causally attributable to its own breach.

3. Breach. The Blue POD misalignment was caused by debris in the stinger segment cavities. Transocean breached continuing warranties requiring the Rig and equipment to be adequate, in good working condition, properly maintained and capable of performing their intended functions. The wedgelock plug had not been properly tightened; the mini collet gasket retaining dog had not been properly secured; and the upper annular preventer defect breached the warranty of condition. The upper annular defect caused no additional delay. No finding was required on the Yellow POD and miscellaneous deficiencies.

4. Causation and remuneration. Transocean could not recover remuneration, and Providence could recover wasted costs, for periods caused by the breaches. But weather delays and operational work that would have occurred in any event were not caused by breach. The court therefore allowed remuneration for qualifying weather and operational periods, while excluding periods of causally effective troubleshooting and repair. Certain spread costs were recoverable where Providence established that they would have been avoided absent breach.

5. Consequential loss. Clause 20 did not exclude Providence’s contractual spread-cost claim. The costs were wasted expenditure on equipment and services already provided, not loss of use or another specified category of consequential loss. Had the costs fallen within the exclusion, an excluded damages claim could not have been revived by set-off.

6. Misrepresentation. The tender statements concerning maintenance and fitness for purpose were untrue and made without reasonable grounds for belief. Providence nevertheless failed to prove reliance and loss. The claim under section 2(1) of the Misrepresentation Act 1967 therefore failed.

7. The parties were to calculate and agree the financial consequences. Further argument, without further evidence, was required concerning the weather period on 15 January 2012.

First-instance judgment in the Commercial Court. No appellate history was stated in the judgment.