Say what you mean, and mean what you say.
The above paraphrased quote from Alice in Wonderland is often appropriate when drafting contracts. Despite best intentions, it is not always clear what particular words or phrases in a contract mean. The same set of words can be given quite different meaning by opposing parties, with significant sums turning on which interpretation is correct. Much time and cost can be spent arguing over the meaning of certain phrases.
This was the position in Transocean Drilling UK Ltd v Providence Resources Plc, in which the wording used in a limitation/exclusion clause became the focus of legal scrutiny. The case concerned a dispute over delay in relation to an offshore drilling rig. The drilling was suspended and, as a result, various claims were made.
The key issue for this article was the meaning of the exclusion clause in the contract. The owner of the drilling rig was found to be in breach of contract and liable for the wasted costs — these being the cost of support vessels that had been supplied. At trial the case went against the owner of the rig, so the owner appealed. It said the exclusion clause in its contract meant it was not liable for the sums claimed, contrary to what the trial judge had said.
The phrase in question on appeal was “loss of use”. The issue was whether the wasted costs of the support vessels (arising from the delayed drilling) fell within the phrase “loss of use”.
The Court of Appeal considered the various legal authorities and held that when construing the meaning of a word or phrase, “…the starting point in construing [the clause] must be the language of the clause itself”.
“The principle of freedom of contract, which is still fundamental to our commercial law, requires the court to respect and give effect to the parties’ agreement.”
The Court of Appeal found that the phrase in question did indeed bear the meaning the rig owner contended when approached from the above standpoint. As a result, the rig owner was not liable for the losses claimed.
This decision is a clear signal that the courts will uphold clearly worded drafting in relation to exclusion clauses, where they are negotiated between parties of equal bargaining power.
The Court of Appeal’s approach was to follow where possible the language used by the parties themselves to express their intention, and not adopt what might be regarded as artificial legal arguments in an effort to interpret the clause one way or another. The parties were free to agree how risk should be allocated.
By Stuart Thwaites, a legal director in Wright Hassall’s construction and engineering team. [email protected] tel: 01926 884690