Limit To Exclusion Of Consequential Loss

High Court presumes that a party does not intend to abandon a remedy to which it would not otherwise be entitled

In a recent case the High Court held that, where liability for consequential loss is excluded, such exclusion will not be interpreted any more widely than was specifically stated in the contract. If consequential loss had been construed as widely as was asserted, it would have rendered the primary performance obligations in the contract effectively devoid of contractual content, there being no sanction for non-performance. It is now clear that the courts will not readily accept such a construction.

Providence, the licensee of an oil field, contracted with Transocean for the drilling of an appraisal well. Drilling delays were incurred and Transocean brought a claim against Providence in accordance with the day rates payable under the contract. Providence argued that the drilling rig and Transocean's performance were defective and that it should not have to pay for delays caused by Transocean's breach of contract. Providence also counterclaimed against Transocean for wasted costs incurred during the delay period. However, the contract included an exclusion from liability for consequential loss, upon which Transocean sought to rely.

Consequential (or indirect) loss is loss that arises from a special circumstance of the case. Under the long established rule of Hadley v Baxendale such a loss will be recoverable if it may reasonably be supposed to have been in the contemplation of the parties at the time they made the contract, as a likely result of the breach.

The Court construed the consequential loss provision against Transocean (as the party which drafted it), despite the fact that the clause in question contained mutual exclusions and indemnities. Whilst acknowledging that parties to commercial contracts are entitled to apportion risk of loss as they...