BP Gas Marketing Ltd v La Societe Sonatrach & Anor

A detailed commercial contract is construed by identifying what a reasonable person with the relevant background would understand its language to mean. The court must give appropriate weight to the words used and must not use commercial common sense retrospectively to improve an imprudent bargain. Where a formula uses a numerical figure as a constant, the court should not replace it with a variable merely because later events produce an unattractive allocation. Terms cannot be implied where they contradict express wording, lack necessity or obviousness, or are uncertain. A contractual good-faith obligation does not ordinarily require a party to surrender a clear contractual financial right. Where contractual calculation machinery fails, the court may substitute a calculation complying with the proper construction of the contract.

BP and Sonatrach jointly used an LNG import terminal under a Joint Shippers Agreement. The Agreement contained a formula allocating variable nitrogen costs between them by reference to gas sent out and LNG quality. The dispute centred on whether the figure 51.41 in the Wobbe correction formula was a fixed constant or a variable referring to the terminal’s operational Wobbe value.

Sonatrach alternatively relied on implied terms, alleged an agreement to amend the formula at Steering Committee meetings, alleged breach of a contractual good-faith obligation, and challenged BP’s invoices. The court therefore determined the construction of the formula, the implied-term case, the alleged amendments and good-faith breaches, and the validity of the invoices.

1. Construction. The figure 51.41 was a numerical constant. It was deliberately selected because it represented the maximum Wobbe value specified for gas entering the relevant networks. The formula’s stated purpose was to allocate variable nitrogen costs according to the quantity of gas sent out and the quality of LNG delivered, not to calculate each party’s actual nitrogen usage. Later operational practice, including blending below 51.41, did not justify substituting an operational Wobbe variable or rewriting the bargain.
2. Commercial common sense and subsequent events. The consequences of applying the agreed formula did not flout business common sense. Even if later events were unforeseen, the court could intervene only if the parties’ intended correction was clear. Several possible alternatives existed, so the proposed substitution could not be made.
3. Implied terms. The proposed terms failed the requirements of necessity, obviousness, clear expression and consistency with the express contract. They contradicted the express use of 51.41 as a constant and therefore could not be implied.
4. Amendment and good faith. The September 2006 meeting produced agreement concerning the omitted 28.9 coefficient and the 100% cap, but no agreement, discussion or agreement in principle to replace 51.41 with operational Wobbe. BP had not acted in bad faith at either Steering Committee meeting. The good-faith obligation did not require BP to surrender a contractual right or agree an amendment contrary to its financial interest.
5. Invoices. The September 2008 reconciliation was a reconciliation statement under the Agreement. Reconciliation 3 applied the contractual formula together with the agreed 28.9 coefficient and cap. BP was entitled to invoice on that basis. The invoices were valid and enforceable, and interest was payable under the contractual interest provisions. The claim succeeded.