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Long-term gas sales agreements—gas allocation agreements—seller’s obligation to maintain capacity to deliver gas—breach—seller’s contractual right to serve variation notice to reduce daily quantities that buyer was obliged to nominate—whether damages ought to be assessed based on the assumption that the seller ought to have served the variation notice
This case arose from two long-term agreements for the sale of gas (Principal Agreements) from the Sole Pit field in the North Sea consisting of the Barque Reservoir and the Clipper Reservoir (Reservoirs). The agreements, concluded on 22 December 1988 on materially identical terms and due to run until at least 2025, were between Shell and Esso (Sellers) and British Gas (Buyer). Clause 6.4(1) required the Sellers to provide and maintain a capacity to deliver Natural Gas from the Reservoirs at a specified rate:
“with effect from the Start Date the Seller shall provide and maintain a capacity (herein referred to as the ‘Delivery Capacity’) to deliver Natural Gas from the Reservoirs on each Day at a rate of not less than the DCQ applicable for such Day multiplied by one hundred and thirty (130) per cent and BG shall have the right on any and every Day (subject as herein provided) to require delivery of Natural Gas at rates up to the appropriate Delivery Capacity determined hereunder notwithstanding that the aggregate of such daily requirements made in respect of any Contract Year exceed the ACQ …”
There were contractual provisions that set the daily quantity which the Buyer was entitled to nominate for delivery. If the Sellers failed to deliver the full amount nominated, they would be in default and ought to bear the consequences (provided for in the agreements). The Principal Agreements were “take or pay” agreements, providing for a minimum amount of gas that the buyer either ought to take delivery of, or pay for, every year. The quantity of gas which the Buyer was required to take was dependent upon the “Total Reservoirs Daily Quantity” (TRDQ). The TRDQ was intended to change