SPECIAL REPORT 23
The decision of the Court of Appeal was that the spread costs claimed by Providence were included in the definition of “loss of use” and that, therefore, Transocean had no liability to Providence for spread costs – the words, highlighted in bold, were clear and demonstrated the clear intention of the parties to exclude liability for wasted spread costs. A number of important principles in contract interpretation under English law are clear from this decision of the Court of Appeal: • Freedom of contract remains a fundamental principle of English law; • Where parties of equal bargaining power agree to a sophisticated apportionment of liability under knock-for-knock provisions, this will be enforced by the courts, provided the language is clear and unambiguous; • In particular, where parties agree mutual undertakings to accept the risk of consequential loss flowing from each other’s breaches of contract, such undertakings are enforceable; • A consequential loss clause must be interpreted as part of a broader scheme for allocating losses between parties. The entire liability and indemnity scheme must be read together. It is not, therefore, a simple exclusion clause of a kind which at one time the courts were willing to construe restrictively in order to avoid commercial oppression; • The words used by the parties must be given their ordinary and natural meaning. Artificial approaches to the construction of commercial contracts are to be avoided; • The court should give the language used by the parties the meaning which it would be given by a reasonable person in their position furnished with the knowledge of the background to the transaction common to them both; and • The judge was wrong to invoke the contra proferentem principle. This should only be invoked when the language chosen by the parties is one-sided and genuinely ambiguous. In such cases the application of the principle may enable the court to choose the meaning that is less favourable to the party who introduced the clause or in whose favour it operates. It has no part to play, however, when the meaning of the words is clear; nor does it have a role to play in relation to a clause which favours both parties equally, especially where they are of equal bargaining power. In the case of a mutual clause, it is impossible to say who is the proferens and who the proferee.
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