QCR Spring 2017: Interpreting commercial contracts and excluding consequential losses.

Transocean Drilling v Providence Resources [2016] EWCA Civ. 372.

The English Court of Appeal has overturned a High Court decision on the interpretation of a consequential loss provision in a drilling contract. The judgment provides useful and more general guidance as to how the court will interpret provisions in commercial contracts. It also serves as a reminder of the importance of clearly drafted contractual provisions.

The owner of a semi-submersible drilling rig, Transocean Drilling U.K. Ltd, entered into a contract with Providence Resources Plc to drill an appraisal well off the coast of the Republic of Ireland. The contract was an amended version of a standard industry agreement, known as the ‘LOGIC’ form.

Several months into the contract, drilling operations were suspended as a result of the misalignment of the blow-out preventer. The resulting dispute came before the High Court, where the judge found that the rig had not been in good working condition on delivery. This was a breach of contract by Transocean which, the judge found, caused delays of over 27 days.

The High Court judge also held that Providence was entitled to recover certain wasted costs during the period of delay. These were known as ‘spread costs’ and included the costs of personnel, equipment and services which Providence had contracted from third parties, but which were left idle during the delays. It was this aspect of the first instance judgment, i.e. whether the spread costs were recoverable, which was the subject of the appeal.

Read the UK Defence Club's Soundings here.