Danielle Maidment Senior Associate
The life and times of Gilbert-Ash, the latest chapter – Scottish Power
Nice snappy quotes from cases can be hard to find. Which is perhaps why the words of Lord Diplock in Gilbert–Ash1 that
“…in construing such a contract one starts with the presumption that neither party intends to abandon any remedies for its breach arising by operation of law, and clear express words must be used to rebut this presumption”
have been used so often.
In fact Gilbert-Ash has featured in many of the most familiar English commercial cases. It was applied in Stocznia Gdynia SA v Gearbulk, Sonat, Seadrill v Gazpromand in the recent dispute between Transocean and Providence. It was followed in Fujitsu Services and it was mentioned in Nobahar-Cookson v Hut Group, Cavendish v Makdessi, Bunge v Nidera, Polypearl v E.ON, Kudos Catering, Shell Egypt v Dana Gas, Re Kaupthing, Dalkia Utilities, Bovis Lend Lease and in the Multiplex litigation to name but a few2. Not many cases can claim such a consistent run of appearances over the years.
The latest in this run was in the Court of Appeal’s judgment in November last year in Scottish Power UK PLC v BP3.
Scottish Power had entered into a series of long-term materially identical supply contracts with BP to purchase natural gas produced from the Andrew oil and gas field in the North Sea. The court found that BP had breached the supply contracts by failing to supply gas from the Andrew Field for a period of 3½ years while work was being performed on pipelines and other infrastructure. As part of its claim, Scottish Power sought to recover general damages for the additional costs it incurred in purchasing replacement natural gas from third party suppliers at a higher price than BP had agreed to supply it.
Article 16 of the contracts established a regime whereby, when an underdelivery occurred on any day, the quantity of gas which the Sellers had failed to deliver was classified as Default Gas and the prescribed remedy was for the Buyer to receive a like quantity of gas in a subsequent month at a discounted Default Gas Price.
BP argued that Article 16 Default Gas was the only remedy available to Scottish Power for underdeliveries. Scottish Power in contrast argued that where the underdelivery arose from a breach of contract additional remedies at law were available. The High Court had held that there were two possible meanings to Article 16 but held that the correct one was that Article 16 applied to underdeliveries whether or not the underdelivery was the result of a breach. On appeal Scottish Power argued that the judge had lost sight of the Gilbert-Ash presumption and that, since two meanings had been held to exist, the meaning which did not involve the loss of common law rights should have been adopted.
The Court of Appeal disagreed. Quoting Briggs LJ in Hut Group, Clarke LJ said that it was for the courts to apply “all its tools of linguistic, contextual, purposive and common sense analysis to discern what the clause really means”. He went on to say that “If as a result of so doing the answer becomes clear the court should give effect to it even though the interpretation may deprive a party of a right at law which he might otherwise have had. It is open to parties to make an agreement which has that effect”. Judgment in the Hut Group had been handed down after the first instance decision in Scottish Power and before the Court of Appeal and had cast doubt upon whether the “presumption” was in truth a presumption at all, stating “This approach to exclusion clauses is not now regarded as a presumption, still less as a special rule justifying the giving of a strained meaning to a provision merely because it is an exclusion clause”.
The approach taken in Scottish Power is therefore broadly consistent with the approach taken by the Court of Appeal in the Providence litigation. In Providence Lord Justice Moore-Bick noted that the Gilbert-Ash case itself had concerned whether rights of abatement or set-off specifically had been given up by an agreement to pay against certificates issued by an architect. Those rights were said to have particular importance in those circumstances such that it was correct to presume they were not given up unless that was made clear. However, following Providence and Scottish Power it seems that the “presumption” will apply less readily where a clause is evidently directed at excluding some rights and the debate centres on the extent of those rights.
The Court of Appeal in Providence went on to say that “since the decision in Photo Production any presumption that parties to a contract do not intend to give up their right to claim damages for breach of contract must likewise give way to the language of the contract.” Photo Production4 was decided by the House of Lords in 1980 but that had not stopped the Gilbert-Ash “presumption” being heavily cited since. The Hut Group, Providence, and now, particularly, Scottish Power do appear to mark a judicial move away from strained construction and presumption and towards a plain construction of what the parties objectively intended by the words used. The “presumption” still appears to have its place but its days as the star of the show on exclusion clauses look a little more limited.
1 Gilbert–Ash (Northern) Limited v Modern Engineering (Bristol) Limited  AC 689
2 Stocznia Gdynia SA v Gearbulk Holdings Ltd  EWCA Civ 75; Sonat Offshore SA v Amerada Hess Development and Texaco (Britain)  1 Lloyd’s Rep 145; Seadrill Management Services Ltd v OAO Gazprom  EWCA Civ 691; Transocean Drilling UK Ltd v Providence Resources Plc  EWCA Civ 372; Fujitsu Services Ltd v IBM United Kingdom Ltd  EWHC 752 (TCC); 153 Con. L.R. 203; Nobahar-Cookson v Hut Group Ltd  EWCA Civ 128; Cavendish Square Holdings BV v Makdessi  UKSC 67; Bunge SA v Nidera BV (formerly Nidera Handelscompagnie BV)  UKSC 43; Polypearl Ltd v E.ON Energy Solutions Ltd  EWHC 3045 (QB); Kudos Catering (UK) Ltd v Manchester Central Convention Complex Ltd  EWCA Civ 38; Shell Egypt West Manzala GmbH v Dana Gas Egypt Ltd (formerly Centurion Petroleum Corp)  EWHC 465 (Comm); Kaupthing Singer & Friedlander Ltd (In Administration), Re  EWHC 740; Dalkia Utilities Services Plc v Celtech International Ltd  EWHC 63 (Comm); Bovis Lend Lease Ltd (formerly Bovis Construction Ltd) v RD Fire Protection Ltd  EWHC 939 (TCC); Multiplex Constructions (UK) Ltd v Cleveland Bridge UK Ltd  EWHC 1341 (TCC)
3 Scottish Power UK PLC v BP Exploration Operating Company Limited and others  EWCA Civ 1043
4 Photo Production Ltd v Securicor Transport Ltd  2 W.L.R. 283