Transocean Drilling U.K. Ltd (Claimant/Appellant) v Providence Resources Plc
| Jurisdiction | England & Wales |
| Judge | Lord Justice Moore-Bick,Lord Justice McFarlane,Lord Justice Briggs |
| Judgment Date | 13 April 2016 |
| Neutral Citation | [2016] EWCA Civ 372 |
| Docket Number | Case No: A3/2015/0855 |
| Court | Court of Appeal (Civil Division) |
| Date | 13 April 2016 |
[2016] EWCA Civ 372
Lord Justice Moore-Bick
Vice-President of the Court of Appeal, Civil Division
Lord Justice McFarlane
and
Lord Justice Briggs
Case No: A3/2015/0855
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Mr. Justice Popplewell
Royal Courts of Justice
Strand, London, WC2A 2LL
Mr. Laurence Rabinowitz Q.C. and Mr. Colin West (instructed by Ince & Co LLP) for the appellant
Mr. John McCaughran Q.C. and Mr. Laurence Emmett (instructed by Herbert Smith Freehills LLP) for the respondent
Hearing dates: 2 nd & 3 rd March 2016
Background
This appeal turns on the construction of a few clauses in a contract for the hire of a semi-submersible drilling rig, 'GSF Arctic III'. It also raises some interesting questions about the freedom of two commercial parties to determine the terms on which they wish to do business.
On 15 th April 2011 the owner of the rig, Transocean Drilling U.K. Ltd ("Transocean"), entered into a contract with Providence Resources Plc ("Providence"), to drill an appraisal well in an area of the Barryroe field off the southern coast of the Republic of Ireland. The contract, which contains many complex provisions, was based on a standard industry agreement known as the 'LOGIC' form, which the parties adapted to meet their particular needs.
On 18 th December 2011 drilling operations were suspended as a result of the misalignment of part of the blow-out preventer. They resumed on 2 nd February 2012 when the rig was able to continue work from the point at which it had been interrupted. The delay gave rise to various disputes between the parties, in particular, about the remuneration payable to Transocean in respect of what became known as the 'disputed period' and the right of Providence to recover additional overheads, known as 'spread costs', resulting from the extended period of work. At the heart of the dispute was the question whether the delay had been caused by one or more breaches of contract on the part of Transocean.
The judge found that the rig had not been in good working condition on delivery, contrary to the terms of the contract, because there had been a build-up of debris in a component of the blow-out preventer known as a 'stinger'. The defect caused a loss of time of over 27 days. He also found that an additional 10 hours' delay had been caused by the failure of a member of the crew to tighten a blanking plug properly. He held that Transocean was in breach of contract in both respects and there is no appeal against that part of the judge's conclusions. The judge held that in those circumstances Providence was entitled to recover spread costs for the period of delay, notwithstanding the terms of the contract on which Transocean relied as excluding any liability for losses of that kind. This is Transocean's appeal against that part of the judge's decision.
The structure of the contract
Before turning to the specific clauses on which Transocean relies, it may be helpful to say something about the structure of this particular contract, which provides an important part of the context in which those clauses must be construed. The parties to the contract are described in the contract as 'the contractor' and 'the company'. Clause 4 sets out the contractor's general obligations, which include obligations to provide the rig in good working condition, maintain it and carry out the work with all due skill and care. By clause 13 the contractor was to be paid at daily rates set out in a separate section of the contract, which varied in accordance with the activities being undertaken at any given time. There was, for example, a 'Daily Operating Rate' payable while work was being carried out, a 'Standby Rate', a 'Moving Rate', a 'Repair Rate' (applicable when there was a shutdown of operations caused by a failure of the contractor's equipment) and so on.
Clause 18 is of particular importance, but for present purposes it is sufficient to note that by means of a complex series of indemnities it allocated losses arising from or relating to the performance of the contract between the two parties, in the main regardless of cause. Thus, by clause 18.1 the contractor accepted responsibility for loss of or damage to its own property, for personal injury to any of its employees and for similar loss and for damage suffered by third parties (i.e. persons other than the company) insofar as it might be caused by its own negligence or breach of duty. Similarly, by clause 18.2 the company accepted responsibility for loss and damage to its own property and employees and for loss and damage suffered by third parties (i.e. persons other than the contractor) as a result of its own negligence. By clauses 18.3 and 18.4 the company accepted responsibility for loss caused by pollution, other than pollution originating from the hull of the rig, for which the contractor accepted responsibility. By clause 18.5 the company undertook responsibility for damage to the property or equipment of the contractor which occurred while in-hole or below the rotary table, unless due to fair wear and tear or the contractor's negligence. Clause 18 contained other provisions of a similar kind relating to damage to the well, blow-outs, fires and explosions and damage to the geological formation and the marking and removal of any wreck or debris. Finally, it is necessary to mention clause 18.8 which expressly provided that the exclusions and indemnities for which clauses 18 and 20 provided were to apply irrespective of cause and notwithstanding the negligence, breach of duty or other failure of the indemnified party and irrespective of any claim that might otherwise arise in law.
By clause 19.1 the contractor was required to procure and maintain for the benefit of both parties a wide range of insurance cover as described in detail in clause 19.2.
Clause 20, to which it will be necessary to refer in detail at a later stage, contained mutual undertakings by the company and the contractor to indemnify each other against, and hold each other harmless from, its own consequential loss, as defined in that clause. Although couched in the form of an indemnity, it was common ground that its effect was to exclude liability for losses of that kind.
As can be seen from this brief summary of their provisions, clauses 18–20, which were clearly designed to complement each other, contained a detailed and sophisticated scheme for apportioning responsibility for loss and damage of all kinds, backed by insurance. Sometimes called 'knock for knock' provisions, the scheme as a whole provides an important part of the context in which clause 20 is to be construed.
'Spread costs'
The spread costs which Providence sought to recover in these proceedings are described in the judgment below as the costs of personnel, equipment and services contracted from third parties which were wasted as a result of the delay. Examples given by the judge are well logging, well testing and cementing, mud engineers and mud logging services, geological services, diving and ROV (remotely operated vehicle) services, weather services, directional drilling services, and running casings. The claim was put in Providence's pleading as one to recover the wasted cost of third party equipment and services which had been supplied and paid for. They were described in its evidence as "costs of third party suppliers which have been incurred and paid by Providence, but which would not have been incurred but for Transocean's failures", but however they are described it is clear that the claim is to recover the cost of goods and services supplied by third parties which was wasted, either in the sense that Providence had no use for them while drilling was suspended or in the sense that they did not contribute to the process of completing the well.
Clause 20 – Consequential loss
In view of its central importance to the appeal it is necessary to set out clause 20 in full. It provided as follows:
"20. CONSEQUENTIAL LOSS
For the purposes of this Clause 20 the expression "Consequential Loss" shall mean:
(i) any indirect or consequential loss or damages under English law, and/or
(ii) to the extent not covered by (i) above, loss or deferment of production, loss of product, loss of use (including, without limitation, loss of use or the cost of use of property, equipment, materials and services including without limitation, those provided by contractors or subcontractors of every tier or by third parties), loss of business and business interruption, loss of revenue (which for the avoidance of doubt shall not include payments due to CONTRACTOR by way of remuneration under this CONTRACT), loss of profit or anticipated profit, loss and/or deferral of drilling rights and/or loss, restriction or forfeiture of licence, concession or field interests
whether or not such losses were foreseeable at the time of entering into the CONTRACT and, in respect of paragraph (ii) only, whether the same are direct or indirect. The expression "Consequential Loss" shall not include CONTRACTOR'S losses arising in connection with (1) failure by COMPANY to provide the letter of credit as required by Clause 3.13 of Section III or resulting termination of this CONTRACT or (2) any termination of this CONTRACT by reason of COMPANY'S repudiatory breach.
Subject to and without affecting the provisions of this CONTRACT regarding (a) the payment rights and obligations of...
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