Scottish Power UK Plc v BP Exploration Operating Company Ltd & Ors
November 1, 2016
COURT OF APPEAL (CRIMINAL DIVISION)
United Kingdom
CORAM
- LORD JUSTICE CHRISTOPHER CLARKE
- LADY JUSTICE KING
Areas of Law
- Contract Law
- Commercial Law
November 1, 2016
COURT OF APPEAL (CRIMINAL DIVISION)
United Kingdom
CORAM
AI Generated Summary
This Court of Appeal judgment concerns long-term gas supply contracts between Scottish Power UK PLC and a consortium of sellers for deliveries from the North Sea’s Andrew Field. In 2011, the sellers shut-in production to tie the Andrew Field to the neighbouring Kinnoull Field, resulting in no deliveries for about three and a half years. Scottish Power continued to make proper daily nominations; the sellers’ non-delivery created daily underdeliveries, which the contract compensates via a Default Gas entitlement priced at 70% of the Contract Price. Alleging breach of Article 7.1 (failure to operate the facilities to the Reasonable and Prudent Operator standard), Scottish Power sought damages for the cost of substitute gas, crediting Default Gas. Upholding Leggatt J, Clarke LJ held that Article 16 sets out a comprehensive remedial regime for underdeliveries; Article 16.6 bars any other rights or claims “in respect of underdeliveries.” Loss crystallised daily with each underdelivery; there is no duty to mitigate before breach. The appeal was dismissed, with King LJ and Moore-Bick LJ concurring.
Judgment
Lord Justice Christopher Clarke:
On 4 February 1994 Scottish Power UK PLC (“Scottish Power”), the claimant and now appellant, made a series of materially identical long term gas sale and purchase agreements (“the Agreements”) with the respondents as sellers (“the Sellers”). The Agreements contemplated daily deliveries of gas from a field in the North Sea known as the Andrew Field over a period of 25 years or more. In May 2011 the Sellers decided to close down (or shut-in) the facilities necessary to produce gas from the Andrew Field for an extended period in order to tie it in with a neighbouring field – the Kinnoull Field. In the event the shut-in lasted for some 3½ years during which no gas was delivered. The issue with which this appeal is concerned is as to the compensation to which, in one form or another, Scottish Power is entitled under the Agreements.
The Agreements, in which words with capital letters are defined terms, are lengthy and complex documents. The scheme of them is as follows. Under Article 6.12 the Sellers were bound to deliver on each Day at the Delivery Point the quantity of Natural Gas properly nominated by Scottish Power. By Article 6.13 Scottish Power was obliged to make weekly nominations of gas to be delivered over the following week. If it failed to do so it was to be deemed to have made a nomination in the amount of the most recent preceding Daily Nomination.
Article 7.1 of the Agreements provided:
"Throughout the Contract Period the Seller will, in accordance with the Standard of a Reasonable and Prudent Operator, provide, install, repair, maintain and operate those Seller's Facilities which are (in the opinion of the Seller and the other Sellers) necessary to produce and deliver at the relevant times the quantities of Natural Gas from the Andrew Field which are required, in accordance with the terms of this Agreement, to be delivered to the Buyer at the Delivery Point."
The “ Seller's Facilities ” were defined in Article 1 of the Agreements to mean:
" the production wells, platforms, separation, processing and treating equipment, pipelines and other equipment … whether or not owned by the Seller and the Other Sellers installed or used for the purpose of producing Natural Gas from the Andrew Field and delivering the same at the Delivery Point under this Agreement."
A “ Reasonable and Prudent Operator ” was defined in Article 1 as:
"... a Person seeking in good faith to perform its contractual obligations and