Scottish Power UK Plc v BP Exploration Operating Company Ltd & Ors

Where a commercial contract establishes a comprehensive compensatory regime for underdelivery and states that it is in full satisfaction of all claims in respect of underdeliveries, that regime excludes damages for the same loss even if the underdelivery resulted from breach of a separate operational obligation. The expression “in respect of underdeliveries” concerns the factual loss-producing consequence, rather than limiting the clause to causes of action for which underdelivery is a formal element.

Context, commercial purpose and the contractual scheme may show that clear wording replaces common-law damages with an agreed remedy. A party may nevertheless recover damages for a breach which produces no underdelivery, such as a repudiatory refusal to perform.

Scottish Power was the buyer under long-term gas sale and purchase agreements. The sellers shut in the Andrew Field facilities for about three and a half years while tying them into a neighbouring field. Scottish Power made valid daily nominations throughout the period, but no gas was delivered.

The agreements required the sellers to operate the facilities to the standard of a reasonable and prudent operator. They also created a Default Gas regime for underdeliveries. Article 16.6 provided that that regime was in full satisfaction of claims in respect of underdeliveries.

Leggatt J found that the sellers had breached article 7.1, but held that article 16.6 confined Scottish Power to the contractual Default Gas remedy. Scottish Power appealed, contending that it could instead recover damages for the cost of replacement gas.

1. Appeal dismissed unanimously. Christopher Clarke LJ, with whom King LJ and Moore-Bick LJ agreed, held that article 16.6 made the Default Gas regime the exclusive remedy for the loss caused by the underdeliveries.

2. Article 16 was a carefully drafted and comprehensive contractual remedial scheme. It compensated the buyer for a nominated quantity that was not delivered, while article 16.5 prevented opportunistic nominations made with knowledge of a delivery restriction. It would make little commercial sense for the agreed regime to be exclusive only where non-delivery resulted from a non-negligent mishap or natural cause, but not where it resulted from breach of the sellers’ operational obligation.

3. The words “all rights, remedies and claims howsoever arising” showed that article 16.6 was directed to every possible cause of action. The subsequent words “in respect of underdeliveries” identified the factual consequences giving rise to the claim. They did not confine the clause to a claim for which actual nomination and underdelivery were necessary legal ingredients. Scottish Power’s claimed replacement-gas loss was caused by the actual failure to deliver the gas it had nominated and was therefore within article 16.6.

4. The ordinary presumption against surrendering common-law rights did not alter that result. Applying contextual and purposive contractual construction, as described in [2016] EWCA Civ 128, the clause clearly replaced damages with an agreed remedy. It was not a pure exclusion clause and the contractual remedy could sometimes be more valuable than common-law damages.

5. Article 7.1 retained practical effect. If the sellers repudiated the agreements by refusing to operate the facilities, and there were no nominations or underdeliveries, Scottish Power could accept the repudiation and claim damages. That illustrative possibility did not assist Scottish Power on the facts.

6. The forward purchases were prospective mitigation. The relevant loss crystallised on each day of underdelivery. There was no pre-breach duty to mitigate: [1960] 1 WLR 1038.

• Court of Appeal (Civil Division): Dismissed Scottish Power’s appeal and upheld the conclusion that article 16.6 confined its remedy for the underdeliveries to Default Gas.
• Commercial Court: Leggatt J held that the sellers had breached article 7.1 by failing to operate the facilities, but that article 16.6 excluded a damages claim for the resulting underdeliveries.