Drilling Rig Hire Contract - Are wasted spread costs considered “consequential losses” within the context of a contractual exclusion clause?

Transocean Drilling UK Limited v Providence Resources PLC [2016] EWCA Civ 372.

Transocean (Owner of the rig ‘GSF Arctic III’), entered into a drilling contract with Providence for the hire of a semi-submersible drilling rig. The contract was based on a standard industry agreement ‘LOGIC’ form, with agreed adaptions. There was a loss time of over 27 days due to defects in the rig and also a further 10 hour’s delay because of failure of a crew to tighten a blanking plug properly.

Consequently, there were various disputes between the parties pertaining to remuneration payable to Transocean in respect of what became known as the ‘disputed period’. Providence claim against Transocean for spread costs, comprising the costs of personnel, equipment and services contracted from third parties, which it alleged were wasted as a result of the delay.

At first instance, Mr Justice Popplewell (“the Judge”) held that Transocean was in breach of contract and that Providence was entitled to recover the spread costs. Transocean’s appeal against the latter part of the Judge’s decision as they content that spread costs were excluded by virtue of Clause 20 of the contract.

Clause 20 - Clause 20 defined Consequential Loss as “ . . . 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 . . . “.

The closing paragraph of Clause 20 (ii) subparagraph 3 provides that the each of party was to “save, indemnify, defend and hold harmless” the other for its own consequential loss.

The Court of Appeal (“CA”) had to decide whether wasted spread costs incurred by Providence as a result of Transocean’s breaches of contract are “consequential losses” within the meaning of clause 20”.

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