EG595B - Commercial And Contract Issues Assignment

Assignment Task

Scenario 1

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 has learned that a rival company, Pumps-R-Us Limited (“Pumps-R-Us”), has started to manufacture and sell a high-pressure pump (the Pumps-R-Us-Turbo) that is extraordinarily similar to Superpump’s own Superpump DBX. Upon investigation, they discover that Pumps-R-Us are the current employers of Maurice, who worked for Superpump as Head of its Research and Design department at the time the Superpump DBX was developed. Maurice was a contractor, not an employee. Superpump has checked their copy of the written contract that existed between it and Maurice. The contract says nothing at all about who will be the owner of any intellectual property rights developed during the period of employment. Superpump hold no patents relative to the Superpump DBX, but have managed to obtain a copy of Pumps-R-Us’s instruction manual for the Pumps-R-Us Turbo. The manual was written not by Maurice but by Eric, who was a Superpump employee at the time.

Scenario 2

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 of the fabricated piece of equipment by Superpump, prior to delivery to Bigoil. Superpump needed to conduct extensive remedial works to replace the defective parts of the equipment package. This cost Superpump £200,000 in additional parts and labour. The remedial works also resulted in a project delay of three weeks. The delay caused Bigoil £500,000 in loss of profit on oil that would have been produced and sold during that period, had the commencement of oil production not been delayed by late delivery of the equipment. 

Scenario 3

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. 

As before, 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. Contrary to the information provided in Scenario 2, imagine this time that there was no problem with the steel provided by Wheeler’s Steel and the manufacture of the equipment proceeded without difficulty. However, the day before Superpump were about to deliver the equipment to Bigoil, the equipment was seriously damaged by a major fire in Superpump’s premises. The fire was caused by a spontaneously occurring electrical fault in a circuit that had been subjected to routine testing and found to be in good working order four months ago. 

Repairing the tool cost Superpump £300,000 (split evenly between parts and labour) and caused a six-week delay in delivery. The delay caused Bigoil a £2million loss, (comprised of £1m loss of profits and £1m wasted expenditure).

The Appendix starts overleaf

Appendix to Problem: Contractual Information relative to Questions 2 and 3

Contractual and commercial information relative to Problem 2 only

The contractual position between 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 2021, they agreed on supply of Grade A steel, a quantity and a price of £85,000, with delivery to follow to Superpump’s fabrication yard “in about a week”. The steel was delivered to Superpump on 22 October 2021. 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 standard terms and conditions contains the following:

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

“Limitation of Liability: Contractor’s liability to purchaser will be limited to the total purchase price of goods under the contract.” 

Contractual and commercial information relative to Problem 2 and 3

The contractual position between 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 2021. The contract contains 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 the following occurrences shall be considered to be force majeure:

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

Ionising radiation;

Earthquake, flood, fire, explosion or other natural disaster;

Maritime or aviation disasters.”

22. Consequential loss

Neither party shall be liable for any consequential loss suffered by the other.”

The expression “consequential loss” is further defined in the terms and conditions as follows:

“For the purposes of this Agreement, Consequential Loss shall mean:

(i) consequential loss under English law; and

(ii) loss and/or deferral of production, loss of product, loss of use and loss of revenue, profit or anticipated profit, whether direct or indirect, and whether or not foreseeable at the point of entry into force of this Agreement.”

“34. Liquidated damages for late performance

34.1 If 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.”