BG plc v Nelson Group Services (Maintenance) Ltd

Compromise agreements are construed objectively, by reading their language in the context of the parties’ relationship and the relevant surrounding circumstances. Courts are slow to infer that a party surrendered claims of which it was unaware, particularly where the agreement does not use clear language. A settlement of losses caused by a shortfall in expected volumes does not necessarily settle a distinct claim that the forecasts themselves were misrepresented. Language referring to claims “under” a contract ordinarily concerns obligations created by or incorporated in that contract, and does not naturally include tortious misrepresentation claims arising before or alongside it. Under section 2(1) of the Misrepresentation Act 1967, an opinion may carry an implied representation that the representor knew facts sufficient to justify it.

BG plc appealed from Judge Bowers’s decision substantially in favour of Nelson Group Services (Maintenance) Ltd on preliminary issues. BG pursued two issues. First, whether the compromise agreements settled Nelsons’ proposed misrepresentation claim concerning forecasts of installation volumes. Secondly, whether section 2(1) of the Misrepresentation Act 1967 applied to implied misrepresentations arising from opinions or forecasts.

Nelsons had entered installation contracts after receiving BG’s forecasts. The forecasts were materially inaccurate. The June/July agreement settled claims concerning the 1995 shortfall in income and additional costs. The August agreement addressed work-smoothing claims and the 1996 price review, and stated that BG would not entertain further claims under the contract. The central questions were whether those provisions covered the later misrepresentation claim and whether the pleaded implied representations were actionable.

The appeal was dismissed unanimously. Lord Justice Kennedy gave the judgment, with Lord Justice Mantell and Sir Swinton Thomas agreeing.

1. The court applied the objective approach to construction stated in ICS Ltd v West Bromwich Building Society [1998] 1 WLR 896 and BCCI v Ali [2001] 2 WLR 735. The agreements had to be read as a whole, in the context of the parties’ relationship and the surrounding circumstances known to them. The court should be slow to infer surrender of claims of which a party was unaware, even if the party might have discovered them.

2. The June/July agreement settled claims for the 1995 shortfall of income and additional costs. It did not settle a claim based on the absence of factual justification for the forecasts. The settled claim concerned the consequences of low installation demand; the present claim concerned being induced to enter the contracts by misleading forecasts. Those were materially different factual bases.

3. The August agreement was directed to work-smoothing claims and the 1996 price review. The statement that BG would not entertain further claims “under this contract” was an expression of BG’s intention, not an undertaking by Nelsons not to sue. The wording did not clearly encompass all claims connected with the installation contracts, and could not naturally include a tort claim based on pre-contractual misrepresentation. The reasoning in Fillite (Runcorn) v Aqua-Lift [1989] 45 BLR 27 was instructive on the meaning of disputes arising “under” a contract.

4. Section 2(1) of the Misrepresentation Act 1967 applies to an implied representation accompanying an opinion or forecast where the circumstances imply that the representor knew facts which justified the opinion. The court approved the broad approach in Cremdean Properties Ltd v Nash [1977] 244 EG 547 and declined to follow the contrary reasoning in Lancaster City Council v Unique Group Ltd (15th December 1995, unreported).

The appeal was dismissed, and BG was ordered to pay Nelsons’ costs, subject to detailed assessment if not agreed.

• Court of Appeal (Civil Division): The appeal from Judge Bowers’s decision was dismissed. The court upheld the conclusions on construction of the June/July and August compromise agreements and on section 2(1) of the Misrepresentation Act 1967.