Interpretation of exclusion clauses and the meaning of consequential losses

Clyde & Co (Deug Rong Lee, Thomas Kelly and Paul Collier) for defendant, Ince & Co for claimant

This case is an appeal from an arbitrator's award which concerned the construction of a clause in a shipbuilding contract. Two points of general interest were discussed by the judge:

(1) The interpretation of exclusion clauses: the judge confirmed that "Although it can no longer be said that exclusion clauses are to be read narrowly when they appear in commercial contracts between sophisticated parties - the wording must be given its ordinary meaning - where there is ambiguity the contra proferentem rule may play a role". This finding mirrors the recent decision in Impact Funding v AIG, in which the Supreme Court also held that exclusions should not always be construed narrowly.

(2) In the recent Court of Appeal case of Transocean Drilling v Providence Resources [2016], Moore-Bick LJ cast doubt on the meaning given to the phrase "consequential losses" in a number of cases. Those cases have held that the phrase covers only damages falling within the second limb of the rule in Hadley v Baxendale (ie losses will be recoverable if they are particular losses (in other words, not losses which may fairly and reasonably be considered as arising naturally) which may reasonably be supposed to have been in the contemplation of both parties as the probable result of the breach, at the time they made the contract). Moore-Bick LJ said that "It is questionable whether some of those cases would be decided in the same way today, when courts are more willing to recognise that words take their meaning from their particular context and that the same word or phrase may mean different things in different documents".

In this case, it was held that the phrase "consequential or special losses, damages or expenses" did not mean such losses etc as fall within the second limb of Hadley v Baxendale, but instead had a wider meaning of financial losses caused by guaranteed defects (above and beyond the cost of replacement and repair of physical damage), and were therefore excluded here. That was because "the Contract shows that this well-recognised meaning was not the intended meaning of the parties and that the line of authorities is therefore nothing to the point".