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 laware clear from this decision of the Court of Appeal: • Freedomof 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 agreemutual undertakings to accept the risk of consequential loss flowing fromeach other’s breaches of contract, such undertakings are enforceable; • A consequential loss clausemust be interpreted as part of a broader scheme for allocating losses between parties. The entire liability and indemnity schememust be read together. It is not, therefore, a simple exclusion clause of a kindwhich at one time the courts were willing to construe restrictively in order to avoid commercial oppression; • The words used by the partiesmust 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 themeaning which it would be given by a reasonable person in their position furnishedwith the knowledge of the background to the transaction common to themboth; and • The judge was wrong to invoke the contra proferentemprinciple. 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 principlemay enable the court to choose themeaning that is less favourable to the partywho introduced the clause or inwhose favour it operates. It has no part to play, however, when themeaning of the words is clear; nor does it have a role to play in relation to a clause which favours both parties equally, especiallywhere they are of equal bargaining power. In the case of amutual clause, it is impossible to saywho is the proferens andwho the proferee.
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