NORTH SEA ENERGY HOLDINGS N.V. v. PETROLEUM AUTHORITY OF THAILAND

Contractual damages compensate for the value of the legal rights lost. The contract-breaker is ordinarily assumed to perform its legal obligations in the manner least burdensome to itself, but not to undertake additional voluntary acts or act against its commercial interests.

In a loss-of-chance claim, the claimant must prove on the balance of probabilities that it would have taken the necessary steps. Dependence on third parties may then be assessed as a chance, provided the chance was real or substantial rather than speculative. Predestined events which would have rendered contractual rights valueless must be reflected in the award.

The seller agreed to supply the Petroleum Authority of Thailand with Saudi Arabian crude oil over five years. A side letter required confirmation from the original supplier that the oil could be supplied to Thailand or to Far Eastern or Asian destinations where the buyer had processing facilities. Such confirmation could not be obtained without advance identification of the actual destination ports, but the buyer had no express obligation and no practical ability to identify every port for the five-year period.

Thomas J, in [1997] 2 Lloyd's Rep 418, found that the buyer had repudiated the contract but awarded nominal damages. The seller appealed. The threshold questions were whether a duty to provide the port information should be implied and, if not, whether damages could nevertheless be awarded for the chance that the buyer would have supplied it voluntarily.

1. Appeal dismissed unanimously. Waller LJ delivered the judgment, with which Ward and Roch LJJ agreed. The buyer was under no contractual obligation to identify, before nomination of the first load, every port at which it had or might obtain processing facilities during the five-year term.

2. The side letter entitled the buyer to confirmation that oil could be supplied to Thailand or to Far Eastern or Asian destinations where it had processing facilities at the time of supply. Its commercial purpose was to preserve flexibility so that processing arrangements could be made as needs arose. An implied obligation to identify all ports in advance would defeat that purpose and would require information which the parties knew the buyer could not provide.

3. A duty to co-operate cannot compel a contracting party to perform an act from which the contract, properly construed, relieves it. Nor can such a duty require an act which the party cannot perform. Whether approached through necessity, business efficacy, the officious-bystander formulation or a duty to co-operate, implication of the proposed term was therefore unwarranted.

4. A claimant relying on loss of a chance must prove on the balance of probabilities that it would have taken the actions required of it. Where performance also depends on third parties, the claimant must establish a real or substantial chance, rather than a speculative chance, that they would have acted as alleged.

5. Damages for breach compensate for the value of the defendant's legal performance, not for voluntary additional benefits which the defendant might have conferred. A contract-breaker is not assumed to undertake an obligation it never accepted, to act contrary to its commercial interests, or to do something it could not do.

6. Without advance port details, neither the required confirmation nor the oil could have been obtained. The buyer could not, and in its commercial interests would not, have supplied all those details. Those events were predestined when the repudiation was accepted and rendered the seller's contractual rights valueless. The judge therefore correctly awarded nominal damages.

• Court of Appeal (Civil Division): The seller's appeal against the award of nominal damages was dismissed unanimously. The buyer did not pursue its respondent's notice once the threshold damages issue was decided in its favour.
• Queen's Bench Division (Commercial Court): Thomas J held in [1997] 2 Lloyd's Rep 418 that the buyer had repudiated the contract, but awarded nominal damages because the contemplated oil could not have been supplied without destination information which the buyer was not obliged to provide.