Remedies for breach of contract - Scottish Power UK Plc v BP Exploration Operating Company Ltd Company Ltd [2016] EWCA 1043

Can a party be limited to an exclusive contractual remedy, without the right to claim damages for breach of contract?

The facts

Under a long-term gas sales agreement, the Andrew Field owners, including BP (the Sellers) sold natural gas to Scottish Power (the Buyer). Between May 2011 and December 2014, Andrew Field was closed and as a result the Sellers did not deliver natural gas to the Buyer as required by the contract. The Buyer sought to claim substantial damages in respect of its alleged losses. The Sellers argued that the Buyer’s remedy was limited to the contractual remedy of "Default Gas", which involved the supply of undelivered gas at a discounted price once Andrew Field had re-opened.

The clause stated: "…in full satisfaction and discharge of all rights, remedies and claims howsoever arising whether in contract or in tort or otherwise in law on the part of [the Buyer] against [the Sellers] in respect of under-deliveries by [the Sellers] under this Agreement".

The High Court had decided in the Sellers’ favour that the remedy of Default Gas was the exclusive remedy in respect of the Buyer’s claim and it was not entitled to claim damages for any under-deliveries as well. The Buyer appealed.

The decision

The Court of Appeal dismissed the appeal. The Buyer had argued that the general presumption that parties do not intend to limit their rights under common law meant that clear words were required to exclude those rights, and the clause was unclear as to whether it extended to damages claims (or only applied to the under-deliveries themselves).

The Court of Appeal rejected this and upheld the Judge’s conclusion. The Court had correctly interpreted the exclusion and it was improbable that the parties had intended that where the Buyer had automatically received the contractual remedy of Default Gas, it should also be free to pursue a claim in damages.

Why is this important?

The decision confirms that, although there is a presumption that clear words are required to exclude a party’s rights and remedies at law, the Court will still apply the usual approach to interpreting the relevant clauses. The mere fact that alternative interpretations could have been reached is not sufficient to say the clause is unclear.

Any practical tips?

Always ensure that your exclusion and limitation clauses are clear, particularly when they are seeking to exclude rights or remedies that a party would typically expect to have for breach of contract (eg the right to claim damages). If it is particularly unusual (eg excluding a right to terminate for repudiatory breach), consider including an express acknowledgment.