Transocean Drilling UK Ltd v Providence Resources Plc (‘The Arctic III’)
Court of Appeal
Citations:  EWCA Civ 372;  2 All ER (Comm) 606;  2 Lloyd’s Rep 51;  1 CLC 585;  BLR 360;  CLY 428.
Transocean owned a drilling rig. Providence contracted to use the rig to drill an appraisal well near the coast of Ireland. The parties’ contract was based on the LOGIC standard form contract.
Clause 18 of this standard form provided a complicated web of indemnities allocating losses relating to contractual performance between the parties. Most of these indemnities did not allocate losses based on which party was responsible for them. Clause 20 provided mutual undertakings from each party to indemnify the other against their personal consequential losses. ‘Consequential loss’ was defined as including the cost or loss of use of the parties’ property, equipment and materials (even those provided by third-parties). The purpose of clause 20 was to disentitle the parties from claiming these losses from each other.
Providence had to suspend drilling operations due to a fault with the drilling rig. They sued Transocean to recover damages representing additional overheads incurred during the suspension period. These included staff pay and the wasted cost of equipment and services hired from third-parties. Transocean disputed that these costs were recoverable, arguing that they were consequential losses within the meaning of clause 20.
- Did clause 20 prevent Providence from recovering their overheads from Transocean?
The Court of Appeal held in favour of Transocean. Clause 20 was not a simple exclusion clause. It was part of the contract’s broader scheme for allocating losses. In these circumstances, it was inappropriate to construe the clause contra proferentem.
The context for the clause indicated that it was intended to have a broad meaning, which included the kinds of costs claimed by Providence. Accordingly, Providence had agreed to indemnify Transocean against this kind of damage. They could not claim their costs back from Transocean.
This Case is Authority For…
The modern approach to exclusion clauses is to interpret them in light of their natural and ordinary meaning, rather than to automatically apply presumptions such as the contra proferentem rule. The contra proferentem rule should only be used where an exclusion clause is one-sided and ‘genuinely ambiguous’.
Moore-Bick LJ seemed to think that it was in principle possible to have a valid contract which excluded all of one party’s liability for breach of contract. This was strictly obiter, since the clause in this case did not go this far. Moore-Bick LJ also noted that:
‘there is a distinction to be drawn for this purpose between a clause which purports to relieve one party from all liability for breach of any of its obligations and a clause which excludes all liability for certain kinds of loss and damage. In the former case there may well be a dispute about the true scope of the clause, whereas in the latter the court is concerned to identify the kind of loss to which the clause applies.’