LEgal advice using English Law

As before, Superpump Limited (“Superpump”) is a company based in Aberdeen, Scotland that supplies major items of plant and equipment for the offshore oil and gas industry.

Superpump wins a tender for the supply of equipment package to Bigoil Plc, a major oil and gas producer.The equipment is an essential part of Bigoil’s development of the Scurry oil field, a major new oil field situated around 20 miles West of the Shetland Isles.

The contract for the supply of equipment was worth a total of £4.5 million.Unfortunately, the delivery of the contract did not go smoothly.

There was a serious defect in the equipment package manufactured by Superpump for Bigoil.The equipment includes components manufactured using steel supplied by Wheeler’s Steel Ltd.The steel supplied by Wheeler’s Steel (although certified by them to be “Grade A Steel”) was in fact Grade B Steel, which is softer, more porous and less resilient than Grade A.As a result, the equipment made by Superpump does not conform to the contract between Superpump and Bigoil and cannot be safely installed or used.This defect was discovered at the point of testing by Superpump, prior to delivery to Bigoil. Superpump needed to conduct extensive remedial works to replace the defective parts of the equipment package.This resulted in a project delay of three weeks.The delay caused Bigoil losses of £1million (comprised of £500,000 loss of profits and £500,000 wasted expenditure).

The day before Superpump were about to re-deliver the re-worked equipment to Bigoil, the equipment was seriously damaged by a major fire in Superpump’s premises.The fire was deliberately caused by an intruder who managed to get around the intruder alarm and overpowered the night-time security guard before turning off the state of the art fire suppression system and deliberately setting fire to the warehouse using accelerants.

The need to re-manufacture the tool caused a further 6 week delay.This caused Bigoil another £2million loss, (apportioned between loss of profits and wasted expenditure in the same proportion as before).

Contractual and commercial information relative to Problem 2

Wheeler’s Steel and Superpump

Wheeler’s Steel regularly supply steel to Superpump.Wheeler’s Steel’s managing director and Superpump’s sales director agree that in a telephone call on 13 October 2019, they agreed on supply of Grade A steel, a quantity and the price, with delivery to follow to Superpump’s fabrication yard “in about a week”.They did not expressly agree on any other terms and conditions.Wheeler’s Steel and Superpump have been doing business together for many years.In the early days they used to do it on the basis of a written contract that incorporated Wheeler’s Steel’s standard terms and conditions.However, as there had never been a problem with the steel provided before, they got out of the habit of putting the contract in writing.

Among other terms, Wheeler’s Steel’s terms and conditions contains the following:

“The Law of the Contract.The contract shall be governed by English law.”

“Limitation of Liability: in no circumstance will supplier be liable to purchaser for any sums exceeding the value of the contract. Neither party hereto shall be liable to the other for any consequential loss howsoever caused.”

The expression “consequential loss” is not further defined in the terms and conditions.

Superpump and Bigoil Plc

The contract between Superpump and Bigoil Plc is contained in a written agreement duly signed by both parties and dated 19 September 2019.The contract contains two relevant clauses for consideration, namely a Force Majeure clause and a Liquidated Damages clause, as below.References to “COMPANY” are references to Bigoil; references to “CONTRACTOR” are to Superpump.

Although signed in Scotland, the contract is written under and governed by English Law.

Clauses referred to:-

“15.Force Majeure

15.1 Neither party shall be responsible for any failure to fulfil any term of condition of this contract if or to the extent that fulfilment has been delayed by a force majeure event as hereinunder defined which has been promptly notified to the other and which is beyond the control and without the fault and negligence of the party affected and which, by the exercise of reasonable diligence, the said party is unable to provide against.

15.2 For the purpose of this contract only the following occurrences shall be force majeure:

Riot, war, invasion, acts of terrorism, rebellion or insurrection;

Ionising radiation;

Earthquake, flood, fire or explosion and/or other natural physical occurrence, but excluding weather conditions as such;

Maritime or aviation disasters.”

“34.Liquidated damages for late performance

34.1If the CONTRACTOR fails to deliver the EQUIPMENT on or before the DELIVERY DATE, the CONTRACTOR shall be liable to the COMPANY for Liquidated Damages.

The amounts of such Liquidated Damages shall be as calculated as follows:

£55,000 per day’s delay or part thereof.

34.2 All amounts of such Liquidated Damages for which the CONTRACTOR may become liable are agreed as a genuine pre-estimate of the losses which may be sustained by the COMPANY in the event that the CONTRACTOR fails in its respective obligations under the CONTRACT.

34.3 Such Liquidated Damages shall be the sole and exclusive financial remedy of the COMPANY in respect of such failure.”

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