In a business environment in which few things matter more than the bottom line, commercial parties are increasingly concerned about ways in which they can command one thing which is typically unattainable – certainty. Certainty is vital in terms of being reactive and proactive in business decisions.
Certainty (or at least as close as there is to such a thing) provides Financial Controllers with information which they need in order to form budgets for future projects and ascertain what funds are available for capital expenditure projects. Certainty also provides a company’s auditors with the information they may need to properly advise a company of its liability and liquidity going forward.
One manner in which parties try to invoke certainty is through the deployment of exclusion clauses. Exclusion clauses have evolved to be very sophisticated and very detailed. They range from the exclusion of and/or limitation of liability in terms of transportation contracts, amusement park rides, consequences in project management and construction contracts. Common historical examples include those on the back of dry cleaning tickets and posted on signs in parking lots.
Of particular interest is the development of exclusion clauses which limit liability for loss incurred by an innocent party as a result of a default by the other contracting party. For example, in construction contracts, a sub-contractor may seek to limit any liability owed to the contractor to the value of the work done under the sub-contract, thereby excluding any liability corresponding to any form of consequential loss arising out of delays due to the sub-contractor’s breach.
A similar clause recently came up for consideration before the Court of Appeal of England and Wales in the case of Transocean Drilling U.K. Ltd. V. Providence Resources Plc. The case concerned an exclusion clause in the wildly unpredictable environment of offshore drilling. Under a term of the contract in question the drilling contractor would not be liable for any “consequential loss”. Transocean breached the terms of the contract in that it had not provided a drill in good working condition to the site. The breach had the effect of delaying the project in excess of 27 days.
It should come as no surprise that a delay of 27 days created significant delays and attendant costs. The matter before the court was: how much of those costs was the breaching party (Transocean) liable for? Wrapped up in that question was whether or not additional overhead expenses incurred during the delay could be deemed as consequential loss.
The contract was a very complex one with a very sophisticated system of cross-indemnity and liability apportionment. However, the decision came down to a simple proposition – what had the parties agreed?
It became apparent to the court that the parties had intended to put strict definitions as to what each one would be liable for. In the end, the court ruled that the overhead expenses were encompassed in “consequential loss” and accordingly Transocean was not liable for them.
Obviously, each case will turn on its own merits but the Transocean case represents the judicial direction that courts are taking on a more frequent basis. That is to say that in a time where contracts are becoming increasingly specialized and detailed and require the greater intervention of skilled draftsmen, the courts are minded to give greater emphasis to the parties’ intentions as they appear within the confines of the executed contract.
Jamaica has no statutory equivalent to the UK’s Unfair Contract Terms Act and accordingly parties are substantially free to agree the terms of their liability in a commercial setting.
The advice to contracting parties is, as it always has been, to get proper advice on the extent of exclusion clauses in contracts into which they wish to enter. That advice becomes more important the more complicated the contract. There may be nothing more damaging to a company’s bottom line than certainty presumed.
[1]2016 EWCA Civ 372