The English Commercial Court has recently confirmed the restricted scope of risk allocation provisions in rig hire contracts, and has emphasised that, in the absence of an express term to the contrary, a party will not be able to benefit from his own breach of contract.
Transocean provided the rig GSF ARCTIC III to Providence pursuant to a drilling contract which set out a scheme of different daily hire rates to apply depending on the function the rig was performing at any given time. Delays arose during the performance of the contract, caused by Transocean’s failure, in breach of the contract, properly to maintain the rig. Providence refused to pay hire for periods of delay caused by Transocean’s breach. Transocean argued that the contract provided a complete code and one of the different daily rates was to be applicable in all eventualities, irrespective of a breach by Transocean.
The Court rejected Transocean’s argument. Express terms allocating the risk of one party’s negligence to the other party, such as knock-for-knock clauses, are fairly common in rig hire and offshore vessel contracts. However, when the risk of a particular event is not expressly allocated by the terms of the contract, the presence of knock-for-knock clauses elsewhere in the contract does not give rise to any special principle of construction whereby the parties to such contracts can be considered more likely than others to be willing to bear the financial consequences of the other party’s breach.
The Court went on to apply the general presumption of contractual interpretation that neither party intends to abandon any remedies for breach unless clear words to the contrary are used. There were no such contrary words in this case. Indeed, the remuneration clause framed the remuneration obligation as being in return for “the WORK”, which indicated that there was no intention to pay during periods when work was not being performed.
This judgment shows the Courts’ unwillingness to read an all-inclusive risk allocation regime into a rig contract where such a regime would have denied the hirer a remedy for the owner’s breach. If a party to a rig contract wishes to allocate the risk of his own negligence or breach to his counterparty, he will need to use very clear contractual language to do so.