Factual and Procedural Background
The Plaintiff entered into four long-term Agreements for the Sale and Purchase of Natural Gas with the Defendants, collectively referred to as the "Andrew owners," who owned rights to produce hydrocarbons from the Andrew Field in the North Sea. The Agreements, originally made in 1994, were novated over time as ownership interests changed. The Defendants held varying shares in the Andrew Field, with one Defendant transferring its interest to another in 2014.
From 9 May 2011 until 26 December 2014, production from the Andrew Field was shut down primarily to enable works to tie-in the Andrew Field with the nearby Kinnoull Field. This involved modifications to the platform and facilities to handle production from both fields. The shutdown resulted in a failure to deliver natural gas to the Plaintiff, which is acknowledged by the Defendants as a breach of the Agreements for much of the period.
The dispute centers on the contractual consequences of the shutdown. The Defendants argue that the Agreements contain an exclusive compensation mechanism involving the supply of gas at a reduced price ("Default Gas") after deliveries resume, which is the sole remedy for non-delivery. The Plaintiff contends that it is entitled to recover damages under general law for the additional cost of procuring replacement gas during the shutdown.
To resolve these issues efficiently, the court ordered a trial of five preliminary issues focusing on key contractual interpretation questions, thereby potentially obviating or narrowing a full trial of liability.
Legal Issues Presented
- Whether the Defendants' failure to operate the facilities necessary to produce and deliver natural gas since 9 May 2011 amounted to a breach of the relevant contractual provision (Article 7.1) or whether an additional inquiry into compliance with the "Standard of a Reasonable and Prudent Operator" (RPO) was required.
- If such an inquiry is required, whether the Defendants complied with the RPO standard in deciding to shut in the Andrew Field to carry out the Andrew Area Development (AAD) works.
- Whether Article 16 of the Agreements provides the exclusive remedy for all breaches relating to underdeliveries, thus limiting the Plaintiff's remedy to delivery of Default Gas at a reduced price.
- Whether the Plaintiff's claim for damages is excluded by Article 4.6 of the Agreements, which excludes liability for certain types of loss.
- Whether compliance with the reporting requirements in Article 15.4(2) is a condition precedent or subsequent to a successful claim for relief under the force majeure provision (Article 15.2).
Arguments of the Parties
Plaintiff's Arguments
- The failure to operate the facilities constitutes a breach of Article 7.1 irrespective of compliance with the RPO standard.
- The RPO definition requires a party to be genuinely seeking to perform its contractual obligations; thus, the Defendants breached Article 7.1 by deliberately deciding not to perform their obligations during the shutdown.
- The Plaintiff is entitled to damages for losses caused by the breach beyond the remedy of Default Gas, including the additional cost of procuring replacement gas.
- The exclusion clause in Article 4.6 does not exclude the Plaintiff's claim, as the loss claimed is the normal measure of damages for non-delivery, not excluded categories such as loss of use or loss of profits.
- Failure to comply with the detailed reporting requirement in Article 15.4(2) precludes reliance on force majeure relief.
Defendants' Arguments
- Article 7.1 imposes a single qualified obligation governed by the RPO standard; failure to operate the facilities is a breach only if inconsistent with that standard.
- The decision to shut in the Andrew Field complied with the RPO standard, taking into account industry codes (ICOP) and potential regulatory referral to the Secretary of State.
- Article 16 provides a comprehensive remedial framework for all underdeliveries, limiting remedies to Default Gas and excluding damages claims for such breaches.
- Article 4.6 excludes liability for the Plaintiff's claimed losses as they amount to loss of use or loss of production.
- Failure to comply with the reporting requirements in Article 15.4(2) precludes the Defendants from successfully claiming force majeure relief for the initial 11 days of shutdown.
Table of Precedents Cited
| Precedent |
Rule or Principle Cited For |
Application by the Court |
| Arnold v Britton [2015] 2 WLR 1593 |
Authoritative approach to contract interpretation focusing on the objective meaning of contractual language. |
Guided the court’s approach to interpreting the contractual clauses, emphasizing the meaning a reasonable person would ascribe. |
| Chartbrook Ltd v Persimmon Homes Ltd [2009] AC 1101 |
Clarification of contract interpretation principles, including the role of factual matrix and commercial common sense. |
Supported the court’s methodology in construing the Agreements’ terms and the RPO standard. |
| Gilbert-Ash Northern Ltd v Modern Engineering (Bristol) Ltd [1974] AC 689 |
Presumption that parties are entitled to all remedies arising by operation of law unless clearly excluded. |
Informed the court’s view on the necessity for clear language to exclude common law remedies. |
| Bremer Handelsgesellschaft mbH v Vanden Avenne-Izegem PVBA [1978] 2 Lloyd's Rep 109 |
Consideration of whether notice provisions in force majeure clauses are conditions precedent or contractual terms of other character. |
Provided a framework for analyzing the effect of non-compliance with reporting requirements in force majeure clauses. |
| Ease Faith Ltd v Leonis Marine Management Ltd [2006] 1 Lloyd's Rep 673 |
Interpretation of exclusion clauses relating to loss of use, loss of profit, and loss of production. |
Supported the conclusion that such exclusions apply only to secondary losses, not the normal measure of damages. |
| Transocean Drilling UK Ltd v Providence Resources plc [2014] EWHC 4260 (Comm) |
Interpretation of "loss of use" in exclusion clauses as relating to loss of expected benefit from use of property or equipment. |
Reinforced the court's view that the exclusion clause did not apply to replacement costs claimed by the Plaintiff. |
| Hong Kong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd [1962] 2 QB 26 |
Doctrine of innominate or intermediate terms in contract law. |
Applied analogously to consider whether reporting requirements could be intermediate terms affecting force majeure relief. |
| Heritage Oil & Gas Ltd v Tullow Uganda Ltd [2014] EWCA Civ 1048 |
Interpretation of notice provisions as conditions precedent or not. |
Supported the court’s view that related notice requirements in the Agreement should be interpreted consistently. |
Court's Reasoning and Analysis
The court undertook a detailed textual and contextual analysis of the relevant contractual provisions. It rejected the Plaintiff's argument that the failure to operate the facilities amounted to an absolute breach of Article 7.1, finding instead that the obligation was qualified by the Standard of a Reasonable and Prudent Operator (RPO). The court reasoned that the clause imposes a single qualified obligation, not separate absolute and qualified obligations, based on the syntax and to avoid absurd results such as conflicting obligations.
On the second issue, the court concluded that the Defendants did not comply with the RPO standard in deciding to shut down the Andrew Field for the AAD works because they were not seeking to perform their contractual obligations during the shutdown. The RPO definition requires a party to be genuinely seeking to perform its obligations in good faith, which was not the case here.
Regarding the third issue, the court held that Article 16 provides a comprehensive remedial framework for losses caused by underdeliveries, limiting remedies to the delivery of Default Gas or payment in lieu. The court found that the Plaintiff’s claim for damages in respect of loss caused by failure to deliver properly nominated gas falls within the scope of Article 16 and is therefore excluded. However, damages remain available for losses caused by breaches of Article 7.1 that do not result in underdeliveries.
The court rejected the Defendants’ argument under Article 4.6 that the Plaintiff’s damages claim is excluded, reasoning that the claim relates to the normal measure of loss for non-delivery (the difference between contract and market price), which is not within the scope of the exclusion that targets secondary losses such as loss of use or profits.
Finally, on the force majeure reporting requirement under Article 15.4(2), the court found no language in the Agreements making compliance a condition precedent or subsequent to claiming relief under Article 15.2. The court emphasized the absence of express consequences for non-compliance and the potential unfairness and uncertainty that would arise if failure to comply barred force majeure relief. The court also considered but rejected the Plaintiff’s alternative argument that the clause might be an intermediate term where only serious breaches bar relief.
Holding and Implications
The court’s final rulings on the preliminary issues are:
- The failure of the Defendants to operate the facilities since 9 May 2011 did not automatically constitute a breach of Article 7.1; rather, breach depends on whether the failure was inconsistent with the RPO standard.
- The Defendants did not comply with the RPO standard in deciding to shut in the Andrew Field for the AAD works, and thus were in breach of Article 7.1.
- The Plaintiff’s claim for damages in respect of loss caused by failure to deliver properly nominated gas is a claim "in respect of underdeliveries" under Article 16.6 and is therefore excluded; the Plaintiff’s remedy for that loss is limited to Default Gas.
- The Plaintiff’s claim for damages for breach of Article 7.1 is not excluded by Article 4.6.
- Compliance with the reporting requirements of Article 15.4(2) is not a condition precedent or subsequent to a successful claim for relief under Article 15.2; the only remedy for failure to comply is a claim for damages.
The direct effect is that the Plaintiff’s damages claim is limited in scope by the contractual Default Gas remedy for losses caused by underdeliveries but remains viable for other breaches of Article 7.1. The ruling on the force majeure reporting requirement clarifies procedural obligations without imposing harsh forfeiture consequences. No new legal precedent beyond the interpretation of these specific contractual provisions was established.