The High Court has ruled that where a contract is expressed to be governed by English law, the contract must be construed in accordance with English law principles of contract construction despite the contract being in US form. In this case, Seadrill owned and managed a jack-up drilling rig and Gazprom specialised in the exploration for, and exploitation of, gas deposits. The parties entered into a contract for the hire by Gazprom of a rig to drill a well in the Bay of Bengal, and the contract was expressed to be governed by English law. Provisions of the contract sought to allocate risk and liability for losses incurred in connection with the activities to be performed under the contract to Gazprom unless a provision of the contract expressly allocated it to Seadrill. It was not disputed that Seadrill's rigmaster had been negligent during pre-loading operations and as a result the rig was damaged. Gazprom sought to terminate the contract on the grounds of Seadrill's negligence. Seadrill rejected Gazprom's purported termination, served its own notice of termination and subsequently brought proceedings against Gazprom to recover unpaid hire fees and other costs. Gazprom counterclaimed on the basis that Seadrill's negligence was a breach of its implied obligation under English law to operate the rig with reasonable skill and care which gave rise to a right for Seadrill to terminate the contract.
Seadrill sought to argue that, because the contract was drafted on the basis of a US form, conventional English law construction of the contract was inappropriate as it was contrary to the intent and correct construction of the contract. The High Court rejected this argument and ruled that the starting point for an English law contract was that the court must construe the contract in accordance with established English law principles of construction. Under English law, clear words are required to exclude the common law rights or remedies of a party to a contract. The High Court found that the contractual provisions in the contract in question were not sufficiently clear and unequivocal to amount to an exclusive code of risk allocation and therefore Seadrill's common law duty to use reasonable skill and care was not excluded. However, on the facts, the High Court concluded that Seadrill's negligence did not amount to a repudiatory breach entitling Gazprom to terminate the contract. As a result of Gazprom's wrongful termination and repudiation of the contract, Seadrill was entitled to accept that the contract had come to an end.
Samantha Lloyd, assistant editor of Upload-IT, comments: 'Parties to a contract should not assume that a contract drafted in US form will be construed in accordance with US case law. English courts will apply English law principles to a contract governed by English law notwithstanding the form of the contract. The case also confirms that any purported exclusion of common law or statutory rights must be drafted in express, clear and unequivocal language.'
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