Transocean Drilling UK Ltd v Providence Resources Plc

A clearly drafted mutual exclusion of consequential loss in a commercial contract must be given its ordinary and natural meaning in its contractual context. The contra proferentem principle applies only to genuinely ambiguous and one-sided language. It has no role where a clause is mutual, operates equally for parties of equal bargaining power, and has a clear meaning.

Language excluding loss of use or the cost of use of property, equipment, materials and third-party services may encompass wasted third-party expenditure. A court should not restrict a clear allocation of risk merely to preserve remedies which the parties have agreed to exclude. Contractual machinery allowing disputed payments to be withheld does not create a substantive cross-claim or preserve a set-off for losses excluded by the contract.

Transocean hired a semi-submersible drilling rig to Providence under an adapted LOGIC form contract. Drilling was delayed after defects in the blow-out preventer and a crew error. The Commercial Court found that Transocean had breached its obligations to provide and maintain the rig in good working condition. Those findings were not appealed.

Providence claimed wasted third-party equipment and service costs incurred during the delay, described as spread costs. The judge held that those costs fell outside clause 20, a mutual indemnity and exclusion provision for each party’s own consequential loss: [2014] EWHC 4260 (Comm).

Transocean appealed. The central issue was whether the definition of consequential loss, including loss of use or cost of use of third-party property, equipment, materials and services, excluded Providence’s claim for wasted spread costs. Providence also relied on the contractual payment and withholding provisions as a basis for set-off.

1. Appeal allowed. Clause 20 excluded Providence’s claim for wasted spread costs. The natural meaning of the words “loss of use or the cost of use” of property, equipment, materials and services, including those supplied by contractors and third parties, encompassed expenditure on goods and services from which no benefit could be obtained because of Transocean’s breach.
2. The clause formed part of a sophisticated, mutual, insurance-backed allocation of risk between commercially equal parties. The judge therefore erred by beginning with contra proferentem. That principle is available only where one-sided language is genuinely ambiguous. It cannot identify a proferens in a mutual clause which benefits both parties. The general observation in Gilbert-Ash that clear words are needed before contractual remedies are abandoned did not justify a restrictive construction; the parties’ intention remained a question of the language fairly construed.
3. The court rejected the reasoning that a narrower construction was required to prevent the contract from becoming a mere declaration of intent. The relevant principle, reflected in Suisse Atlantique, Tor Line and Kudos, is a last resort and concerns a clause relieving a party from liability for every breach of its obligations. It does not permit a court to rewrite a clear clause which excludes specified categories of loss. In any event, clause 20 did not deprive the contract of legal content, and the parties were free to allocate consequential losses as they had done.
4. Clause 13.6 provided only machinery by which Providence could withhold disputed invoices pending resolution. It did not create substantive rights. Equitable set-off likewise required a recoverable cross-claim. Clause 20 eliminated Providence’s right to recover consequential loss, so neither contractual withholding nor set-off could produce a recoverable claim for spread costs.

Moore-Bick LJ gave the judgment, with which McFarlane and Briggs LJJ agreed.

• Court of Appeal (Civil Division): Allowed Transocean’s appeal and held that clause 20 excluded Providence’s claim for wasted spread costs: [2016] EWCA Civ 372.
• High Court, Commercial Court: Popplewell J found Transocean in breach in relation to the rig’s condition and crew error, and held that clause 20 did not exclude Providence’s spread-cost claim: [2014] EWHC 4260 (Comm).