November 10, 2016

Transocean v Providence – a lost opportunity?

The Supreme Court has declined to hear an appeal by Providence in its dispute with Transocean about wasted spread costs.

The case has possibly added some uncertainty in important areas of contractual risk allocation

Earlier this year the Court of Appeal had ruled that Providence was not entitled to recover wasted spread costs against Transocean for a period during which the BOP was unserviceable. Any further possible appeal against that decision is now at an end. 

The Court of Appeal's decision turned on the specific wording in the indemnity provisions in the contract. These excluded Transocean's liability for Providence's "loss of use", in the usual way, but included some additional modifying language too. Because the decision turned upon the additional language, which was a variation of the industry standard, it seems the Supreme Court has decided that the case does not raise a "point of law of general public importance", and will not therefore reconsider it.

But this also means that we will not have an opportunity to hear what the UK's highest court thinks about some important points of principle, which were commented upon by the Court of Appeal in its judgment, but were not central to its decision. These include the suggestion by the Court of Appeal that the words "loss of use" in an indemnity provision, on their own and unqualified, may not be sufficient to cover wasted spread costs. The Court of Appeal had also added its voice to those who have taken the view that English case law interpreting "consequential loss" as meaning only indirect losses (ie those falling within the second limb of the remoteness test in Hadley v Baxendale) may have taken a wrong turn – for some time there has been academic support for this same criticism, which has been echoed recently by the English High Court in another case.

So, while the dispute between Transocean and Providence is now at an end, the case has possibly added some uncertainty in important areas of contractual risk allocation, and we will not, for now, have the benefit of guidance from the Supreme Court.