Herbert Smith Freehills has achieved a significant success in the Court of Appeal on behalf of BP and its partners at the relevant time in the Andrew Field in the North Sea in a case concerning the interpretation of long term gas sales agreements: Scottish Power UK PLC v BP Exploration Operating Company Limited and Others[2016] EWCA Civ 1043.

Under the long term gas sales agreements in question, the Andrew Field owners (as the Sellers) sold natural gas to Scottish Power (as the Buyer). Between May 2011 and December 2014 the Andrew Field was shut in and, as a result, the Sellers did not deliver natural gas to the Buyer. The Buyer sought to claim substantial damages in respect of its alleged losses.

As part of a trial of a number of preliminary issues in the Commercial Court in July 2015, Leggatt J had to decide whether the Buyer was entitled to claim damages as a result of the Sellers' failure to deliver natural gas during the period of the outage or whether its remedy was limited to the contractual remedy of "Default Gas", which was an entitlement to an equivalent quantity of gas delivered in the future at a discounted price. The Buyer's entitlement to Default Gas automatically accrued during the outage.

In his preliminary issues judgment, Leggatt J decided in the Sellers' favour that the remedy of Default Gas was the exclusive remedy in respect of the Buyer's claim and that it was not able to claim damages for underdeliveries ([2015] EWHC 2658 (Comm); [2016] 1 All E.R. (Comm)).

The Buyer appealed Leggatt J's decision on this point and, in a judgment given on 1 November 2016, the Court of Appeal dismissed the appeal. In doing so, the Court of Appeal affirmed Leggatt J's conclusion that it was an improbable intention to attribute to the parties that, in relation to a quantity of gas for which the Buyer had automatically received the contractual remedy of Default Gas, it should also be free to pursue a claim in damages.

The Court of Appeal's decision is of general interest for its analysis of the circumstances in which a contractual remedy will be interpreted as the exclusive remedy for breach of an agreement, to the exclusion of a right to claim damages, as well as of more specific interest to the oil & gas industry in view of the commentary on the balance of risk between buyers and sellers under long term gas sales agreements.