British Gas Trading Ltd v Amerada Hess Ltd & Anor

Where a long-term contract gives a seller an exceptional right to terminate and requires notice to give reasons, validity depends on construing the contract as a whole. A notice may comply by concisely stating the reason for the seller’s belief and the contractual basis of the economic conclusion. It need not include projected revenue, production costs, assumptions or detailed particulars unless the contract requires them. Identical wording may bear different meanings in different contractual contexts. A termination notice is distinct from an expert determination, for which detailed reasons may be required. The court should consider the commercial operation of the agreement and avoid an interpretation likely to create satellite disputes over the sufficiency of notice.

British Gas Trading Ltd appealed against an order of Tomlinson J dated 23 February 2006 dismissing its Part 8 claim. The claim sought a declaration that notices served by Amerada Hess Ltd and Perenco UK Ltd to terminate two gas-supply contracts were invalid.

The notices were served under Article XIX.3(b) and identified the relevant contract year, natural decline in reservoir pressure, and the basis that production costs would exceed gross revenue. The central issue was whether the contractual requirement to give reasons demanded detailed financial projections and supporting analysis, or whether a concise statement of the reason was sufficient.

1. Appeal dismissed. The notices validly complied with Article XIX.3(b).
2. The clause required the sellers to notify the buyer of the reason or reasons why they believed continued production would cease to be economic in the relevant year. The notice identified natural decline in reservoir pressure as the reason and stated that production costs would exceed gross revenue. That was a clear reason for the sellers’ belief.
3. The use of the plural word “reasons” did not require more than one reason where the sellers essentially had one reason. Article XIX.3(b) did not require further and better particulars, projected revenue and production costs, assumptions, or a detailed financial analysis. The parties could have imposed such a requirement but had not done so.
4. The same words, “give reasons”, could have different meanings in Articles XIX.3(b) and XXI.6 because they appeared in different contractual contexts. Article XXI concerned an expert determination following detailed submissions and information under Article XXI.3 and 5. In that context, detailed reasons for the expert’s decision would ordinarily be expected. Article XIX concerned a concise notice initiating the termination and objection process.
5. The contractual scheme supported this construction. The buyer had at least six months to consider the notice, seek information and negotiate before serving an objection under Article XIX.4. An objection would trigger the expert procedure, under which the necessary detailed information would become available. The alternative construction would create substantial scope for satellite disputes about the adequacy of notices, which the parties were unlikely to have intended.
6. Article XIX.7 of the Inde Principal Agreement did not materially assist in construing Article XIX.3(b). The Master of the Rolls gave the leading judgment, with Keene LJ and Jacob LJ agreeing.

1. Court of Appeal (Civil Division): Appeal dismissed. The court upheld the order of Tomlinson J.
2. Queen’s Bench Division, Commercial Court: On 23 February 2006, Tomlinson J dismissed the claim for a declaration that the termination notices were invalid.