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Careful what you wish for. Contractually agreed remedies, if sufficiently clear, can exclude common law remedies

Jason Rix

In Scottish Power v BP Exploration, the Court of Appeal considered whether contractually agreed remedies contained in long-term North Sea gas sales agreements should be construed as excluding common law remedies.

Scottish Power sought damages from the Sellers, which breached their obligation to deliver gas. At first instance, Leggatt J agreed with the Sellers that Scottish Power’s relief was limited to a compensation mechanism set out in the Agreements, which entitled it to the delivery of gas at a reduced price but excluded any claim for damages.

Christopher Clarke LJ, giving the leading judgment, endorsed Leggatt J’s approach holding that the compensation mechanism in the Agreements was intended to be comprehensive. Scottish Power had no additional remedy as its arguments on the construction of the Agreements had “a degree of legal finesse which commercial men are unlikely to have contemplated”.

The court also agreed with Leggatt J’s application of the presumption that parties do not intend to give up rights which the general law gives unless clear words are used to exclude or limit such rights (the “Gilbert-Ash presumption”). Further the strength of the presumption is reduced in proportion to the degree of derogation from the common law position. In this case, the compensation mechanism was not an exclusion clause but was a clause that replaced common law rights with a different contractual remedy, which could be more valuable than the right to damages in certain circumstances. Even if the result of the court’s application of “all tools of linguistic, contextual, purposive and common sense analysis to discern what the clause really means” (per Briggs in Nobahar-Cookson v The Hut Group) is to deprive a party of a right at law which he might otherwise had, that is no bar to the parties making such an agreement.

Comments published on Compact Contract do not necessarily reflect the views of Allen & Overy or its clients.

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