Of Default Gas and Freedom of Contract

It’s a good day for freedom of contract as Christopher Clarke LJ handed down his judgment for Scottish Power UK Plc v BP Exploration Operating Company Ltd & Ors [2016] EWCA Civ 1043 in favour of the respondents.

The appellants, Scottish Power – the buyers of natural gas under four, almost identical long term gas sales agreements – argued they should be allowed to recover damages for a contractual breach (the underdelivery of gas) under the general law. This was in spite of a compensation mechanism within their agreements which limited the remedy for such a breach to the delivery of the entitled quantity of gas at a discounted rate (“Default Gas”), and which expressly excluded the buyer’s right to seek compensation for such a breach through any other means.

During the initial case, in considering the commercial purpose of the compensation clause in the contracts, Leggatt J thought it improbable that the parties intended a situation where the buyer would automatically receive a quantity of Default Gas as compensation for the undelivered gas and yet still be permitted to seek another remedy for the failure to deliver the very same quantity of gas that already been compensated for. Christopher Clarke LJ was in agreement and further argued, quite sensibly, that the wording of the compensation regime was clear enough that the court was obliged to give effect to it, even though it deprived Scottish Power of a right it would have otherwise had under the law.

This case (along with the recent Transocean v Providence) is rather refreshing given how one of the very cornerstones of English contract law – freedom of contract (a rather sensible and practical doctrine which provides a good deal of certainty and thus is beloved by businesses everywhere) – has been placed under some scrutiny recently.

One hopes for more cases like Scottish Power v BP on the horizon but we’ll have to wait and see.

 

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