The UK Court of Appeal has adopted a robust approach to the construction of an exclusion clause, rejecting some of the more traditional ‘rules’ of construction that could have suggested a more restrictive interpretation of the clause. In this case, the owner of a drilling rig and contractor entered into a contract for the drilling of a well. The work was delayed due to the contractor’s breach and the drilling rig owner brought proceedings to recover his ‘spread costs’( the cost of goods and services that were obtained and paid for but were wasted as a result of the breach ) – all items of consequential loss. The contractor relied on an exclusion clause (clause 20) which said:
20. CONSEQUENTIAL LOSS
For the purposes of this Clause 20 the expression "Consequential Loss" shall mean:
- any indirect or consequential loss or damages under English law, and/or
- to the extent not covered by (i) above, loss or deferment of production, loss of product, 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)……
Applying some traditional rules of construction (including the contra proferentum rule and the eiusdem generis principle), the High Court held that clause 20 did not exclude the contractor’s liability for the spread costs. The Court of Appeal disagreed. It held that the language used by the parties was of paramount importance and that it should be given its plain and natural meaning in the context of the contract. The contra proferentum rule should only be used with regard to language that was ambiguous – that was not the case here. This was also not a proper case in which to apply the eiusdem generis principle. The words in clause 20(ii) were plainly apt on the face of them to cover the spread costs, particularly as the parties had emphasised the width of the exclusion clause by using the phrase ‘without limitation’ twice.
This judgment can be both a help and a hindrance depending on whether you are seeking to rely on or avoid an exclusion clause. It is helpful in showing that the courts are willing to construe exclusion clauses at face value, avoiding strict legal principles which could result in a more restrictive interpretation. This is particularly so where the contracting parties are of equal bargaining power. Accordingly, contracting parties can have greater confidence that the exclusion clauses they negotiate will be upheld.