British Gas Trading Ltd v Amerada Hess Ltd & Anor

The Claimant British Gas Trading Limited hereinafter “BGTL” is a buyer of gas from the Defendants Amerada Hess Limited and Perenco UK Limited hereinafter “Amerada” and “Perenco.” Specifically, BGTL is the buyer under four depletion contracts of gas produced in the Leman and Indefatigable (usually called “Inde”) Fields in the North Sea. Originally there were several such contracts relating to these fields, in which production started in 1968 and 1971 respectively. Contracts originally dated 19 September 1968 have been subsequently amended and novated, so that now only four contracts remain. Save in one respect the contracts are materially identical. There are now two contracts for each field, the seller under one being Amerada and under the other Perenco.

A depletion contract is a contract under which the sellers are required to sell to the buyers all or a fixed percentage of the estimated economically recoverable reserves of the field until the field is exhausted or depleted of those reserves. Since gas fields contain a finite quantity of gas the rate at which a field’s resources are depleted will have an important effect on its economic life. In general terms the buyer of gas under a depletion contract will determine the economic life of the field because the buyer makes nominations that determine how much gas a seller should extract, or attempt to extract, from a field. If a buyer makes high nominations the field’s reserves will be depleted faster, and therefore sooner, than if lower nominations were made. Moreover, the extraction of gas from a gas field does not simply reduce the remaining amount of gas which can be extracted from the field; it also leads to a decline in the pressure of the reservoir from which it is extracted – the remaining gas has a larger space to fill, with the result that the overall pressure of the reservoir drops. Although it is possible to halt the decline in pressure and the fall in production by installing extra facilities, this makes production more difficult. It also makes production more expensive, because, for example, it is necessary to burn gas to run compressors. As further gas is extracted, so there will inevitably come a point at which it becomes uneconomic to continue production from that field or reservoir.

Production in both fields peaked in about 1977 and has been in decline for over two decades. But for amendments to the original agreements those agreements would have expired some time ago. The lives of the fields have been extended by the installation of additional compression and delivery facilities. Some of the infrastructure in the two fields is however now over thirty years old.

As a result of amendments made in September 1987 the termination date of the contracts is now September 2010. In order to enable the sellers to ensure that they are not obliged to keep selling gas to the buyers even after it has ceased to be economic for the sellers to produce gas from Leman and Inde, the Principal Agreements, like most depletion contracts, contained provision for termination when continued production of gas under the Principal Agreements is no longer “Economic” for the sellers, “Economic” being a defined term. The relevant provisions were amended in September 1987. The process is initiated by the seller serving a “notice” stating its belief that it is entitled to terminate the Principal Agreement on the grounds that continued production of natural gas from the reservoir is no longer Economic. If BGTL does not agree with that notice it is able to serve a notice of objection thereto and either party may thereafter cause the dispute to be referred to expert determination.

On 29 March 2005 the sellers served notices in an attempt to initiate this process. The issue for the court is whether the notices of which there were four in identical form are apt to achieve that result. That question in turn depends upon whether the notices are in the form required by the contracts. The sellers say that they are, the buyers say that they are not. The buyers say, broadly, that the notices are insufficiently informative, or not as informative as the contracts require. If the notices are not in conformity with the contracts it is now too late to serve conforming notices which will be effective to trigger a termination for the Contract Year October 2006 to October 2007. That is because the notices must be served not less than eighteen months before the start of the first Contract Year in respect of which it is desired to terminate. Notices served on 29 March 2005 were thus only just in time for the Contract Year October 2006 – October 2007. There is no doubt that the sellers could without difficulty have served notices which were more informative as to the reasons for their belief that they are entitled to terminate the agreements. If they were not obliged so to do, that is an end of it. However one reason why they did not serve more informative notices is undoubtedly because they did not wish to divulge to the buyers information which might weaken their bargaining position in any renegotiation of the contract price. One might ask why the buyers are concerned as to the adequacy of the notices given that they have a right to object thereby triggering an expert determination, which right they have exercised without prejudice to the question whether they were obliged so to do. However if the buyers are right that the notices are inadequate there can now be no expert determination procedure for the next Contract Year October 2006 – October 2007. The contract price will remain in place.

Against that background I turn to the contractual provisions. Article XIX is the termination provision in the contracts. As I have already remarked save in one respect the provisions are materially identical.

The provisions of Article XIX are extensive. The general scheme, taken from the Leman Principal Agreement is as follows: -

Article XIX provides, by sub-clauses 3 and 4: -

“3.

If the Seller believes it is entitled to terminate this Agreement pursuant to Clause 1 above the Seller shall (together with the other Producers) give BG not less than eighteen (18) months notice prior to the beginning of the Relevant Year and such notice shall

(a)

specify the Relevant Year and

(b)

give reasons why the Seller believes it will no longer be Economic to continue to produce natural gas from the Reservoir during the Relevant Year

The one material difference between the Leman and Inde contracts is that on 27 April 1993 there was added to the Inde Agreements a new clause Article XIX.7. That provides: -

“7.

(a) Notwithstanding the foregoing provisions of this Article if the Seller has served a notice to terminate this Agreement pursuant thereto BG shall (when it serves the notice of objection thereto under Clause 4 above) have the right to notify the Seller of any modifications(s) to this Agreement which BG would be prepared to agree provided that such modification(s) shall be limited to the following

(i)

an increase in the initial prices specified in Clause 4(a) of Article XI hereof

(ii)

a reduction of the obligations of the Seller under Clause 3 of Article VI hereof to maintain the Delivery Capacity (and the consequential amendment to the Daily Contract Quantity)

(iii)

an increase in BG’s obligations to take or pay for the Annual Contract Quantity under Clause 7 of Article XI hereof

(iv)

a reduction of the Seller’s obligations under Clause 1 of Article VII hereof

(v)

a reduction of notice period(s) specified under Clause 2(b) of Article VI hereof for the notification by the Seller of any Daily Contract Quantity and

(vi)

the introduction of provisions whereby the Seller rather than BG is entitled to nominate the quantities of natural gas to be delivered hereunder

each of which modifications shall consist of a single and (subject to further modifications under this Clause 7) permanent and non-variable change in the relevant provisions being respectively modified as aforesaid and shall apply to the Relevant Year and each succeeding Contract Year for the remainder of the Contract Period

Mr McCaughran QC for the buyer summarises this special provision in this way. In summary, it provides that if the seller serves a notice to terminate, the buyer shall have the right, when it serves notice of objection, to notify the seller of any modifications to the contract which the buyer would be prepared to agree. Article XIX.7 then goes on to stipulate the specific modifications which the buyer may propose, including an increase in price. If the buyer proposes modifications which are not agreed, then the buyer’s proposals are to be taken into account in any expert determination. In short, the expert must first decide whether the seller was entitled to serve the notice of termination on the ground that continued production would no longer be Economic; if this issue is resolved in the seller’s favour, then the expert must consider whether continued production would be Economic on the basis of the modifications proposed by the buyer – “provided that …..the seller shall be deemed to be entitled to terminate this Agreement unless Gross Revenue exceeds one hundred and five (105) per cent of Production Costs for the Relevant Year.” If the expert should decide that the seller would not be entitled to terminate the contract if the proposed modifications were made, then the contract shall continue, modified in accordance with the buyer’s proposals.

Mr Rabinowitz QC for the sellers observes that the new Article XIX.7 of the Inde Principal Agreement added in 1993 is unlikely to have any bearing on the proper construction of Article XIX.3 in all four Principal Agreements which provision was agreed in 1987, because it cannot be said to reflect the intention of the contracting parties on the earlier occasion. Mr Rabinowitz is obviously in principle correct about that. On the other hand I have to construe the Inde Agreement as a whole. Later amendments can sometimes have the effect of compelling a construction of a pre-existing and unaltered part of the contract which would not before the amendment have been appropriate.

So far as material each of the notices served on 29 March 2005 provides as follows: -

“In accordance with Article XIX, Clause 3 of the Principal Agreement the Seller, as from the date hereof, gives not less than eighteen (18) months notice to the Buyer that the Seller, pursuant to Article XIX, Clause 1 of the Principal Agreement, believes that, in the Contract Year October 2006 – October 2007 (the “Relevant Year”), as a result of natural decline of reservoir pressure the continued production of natural gas from the Reservoir will no longer be Economic for the Seller and the other producers on the basis that the Production Costs will exceed the Gross Revenue for the Relevant Year.”

The dispute is whether the notices “give reasons why the Seller believes it will no longer be Economic to continue to produce natural gas from the Reservoir during the Relevant Year.”

Mr McCaughran submits that it is of significance that reasons is in the plural. I agree that it might be. On the other hand a notice surely cannot be invalid on the ground alone that it contains a single reason if there is in truth only one reason informing the seller’s belief and if the reason is articulated in such manner as the clause on its true construction requires. An example might be some natural catastrophe affecting the field.

Mr McCaughran points out, as is common ground, that natural decline in reservoir pressure occurs in every field after the end of the plateau period and that in the case of the Leman and Inde fields pressure has been declining for many years. This has not led to any previous suggestion by the sellers that continued production would no longer be Economic. Mr McCaughran also points out, as is again common ground, that in order to hold such a belief the seller would need to carry out a reasoned analysis, more than eighteen months prior to the commencement of the Relevant Year in order to determine, on the basis of forecasts, what its Gross Revenue and Production Costs were likely to be in the Relevant Year. In order to carry out this exercise properly, the seller would need to have regard to the definitions of Gross Revenue and Production Costs contained in Article XIX.2 so as to ensure, in particular, that only relevant items of cost were included, and would need to make a number of reasonable assumptions about future production and future costs.

So much is, as I have indicated, common ground. The court has before it a witness statement of Andrew Sanders, Commercial Manager of Perenco. He is principally responsible for the management of Perenco’s commercial operations in the Southern Gas Basin of the North Sea including the Leman and Inde fields. Perenco is the operator of both fields. At paragraph 35 of that statement Mr Sanders accepts that, before serving a notice under Article XIX.3, “it is necessary for the Sellers to conduct an analysis of the relationship between Gross Revenue and Production Costs in order to work out whether this position [i.e. that production will no longer be Economic] has been reached. The Sellers are bound to approach this analysis in accordance with the definitions and exclusions set out in Article XIX, Clause 2.”

So, submits Mr McCaughran, in serving a notice under Article XIX.3 the seller is necessarily asserting a conclusion, namely its belief that continued production in the Relevant Year, at least eighteen months in the future, will no longer be Economic i.e. that in that Year the Seller’s Production Costs will exceed its Gross Revenue. In BGTL’s submission, Article XIX.3(b), in requiring the seller to give its “reasons” (plural) why it believes that continued production will no longer be Economic in the Relevant Year, is requiring the seller to set out in the notice the substance of the reasoning process which has led it to the conclusion which it asserts, i.e. to state what its Gross Revenue will be and why and what its Production Costs will be and why. This, submits Mr McCaughran, is the natural meaning of the words used in the context in which they are used. Moreover, submits Mr McCaughran, it would be bizarre, indeed perverse, if the parties: (i) contemplated, as they plainly did, that the seller would need to go through a process of reasoned analysis in order to reach a conclusion that continued production would not be Economic; (ii) agreed that the seller must state in the notice its conclusions; (iii) further agreed that the seller must state its reasons for that conclusion; but (iv) did not intend that the seller should set out the substance of the reasoning process which it had to go through in order to reach the conclusion.

Mr Rabinowitz in contrast points to the fact that there might be reasons other than a natural decline in reservoir pressure which might lead sellers to believe that continued production will no longer be Economic. There might be sand migration in the reservoir. Government regulations might increase costs. There might be a catastrophic failure of a well or well equipment. Telling the buyers that the reason is the natural decline of reservoir pressure is useful to them because it tells them that there is no other reason than that. It identifies the only ground upon which the seller’s belief is based.

Pausing there, this submission seems to recognise that although “reasons” is not qualified in the clause by either a definite or an indefinite article, it should in fact be read as if it were qualified by a definite article. Thus the seller must give the reasons why it will no longer be Economic to continue to produce. It is not sufficient to give a reason or reasons if others are relied upon to inform the belief. If this be right it involves reading something into the clause, or construing it in a manner which goes beyond the natural meaning of the words used. The natural meaning of the words used divorced from their context is that reasons are required which inform the seller’s belief but not necessarily all of the reasons which inform that belief. Again, if this is the right approach, it detracts somewhat from the point made by Mr Rabinowitz that the clause does not in terms require the seller to set out in the notice the substance of the reasoning process. The clause does not in terms require all of the reasons to be given. The reasons is not of course the same as the substance of the reasoning process. But in my judgment “the reasons” is more closely akin to the substance of the reasoning process than is simply “reasons.”

I do not derive much assistance from the fact that Article VI.5(d) of the original contract, agreed between different parties, required certain notices specifying a decreased Depletion Fraction to give “such information as may be reasonable to support such proposal.” It is of course true that when the present parties deleted that provision in 1987 they could, if it had occurred to them, have borrowed the language or transposed it into the termination provisions if it expressed the meaning which they were trying to convey. However I doubt if that really adds anything to the basic and obvious point that the parties could have used language which more unequivocally points to the substance of the reasoning process being required.

Of more assistance in my view is the expert determination provision, which survives unamended from the original and provides, in material part, as follows: -

“………………………………

The experts shall consider all submissions and information made or given by the parties and before giving a final determination shall submit a draft thereof to the parties and the parties shall be entitled with fourteen (14) days thereafter to make representations to the experts

In any communication of the draft determination of the experts to the parties and in any final determination given by them the experts shall give reasons for their decision.”

Mr Rabinowitz points to the fact that it is at the discretion of the parties whether they provide information required by the expert or experts for the purpose of the expert determination. He submits that it would be extraordinary if the sellers were obliged to provide at the notice stage something which they were not obliged to provide at the stage of an expert determination. I agree with that, but I do not think that it carries Mr Rabinowitz very far. On any showing the reasons which are required by Article XIX.3 to be contained in the notice must be confined to the reasons upon which the seller intends to rely to substantiate its belief if challenged, which, insofar as the reasons include information, must be information which the seller is prepared to provide for the purposes of the expert determination. Reasons upon which the seller does not intend to rely or which it does not intend to attempt to substantiate are not, in my view, at any rate in terms of Article XIX.3 “reasons why the seller believes it will no longer be Economic to produce.”

Possibly of more significance is the fact that Article XXI provides by sub-clauses 5 and 6 that in communicating their draft determination the experts “shall give reasons for their decision” upon which the parties then have an entitlement to make representations. The language of giving reasons for a decision is very close to that of giving reasons why the seller believes it will no longer be Economic to continue to produce. In order for the parties to have a proper opportunity to make representations thereon, it would surely be necessary for the draft determination to set out the substance of the reasoning process. A determination which gave as the sole reason natural decline of reservoir pressure would surely be regarded by the parties as inadequate for that purpose. Since the buyer is called upon by Article XIX.4 to decide whether or not it agrees with the seller’s notice and thus the seller’s belief, it might equally be thought essential for the buyer to know the substance of the reasoning process which has informed the belief with which it is being invited to agree or disagree.

Some guidance is to be found in authorities to which I was referred but unsurprisingly the principle which emerges is that a notice provision must be construed in its context. If the purpose of the notice is to institute a dispute resolution process it may fall on one side of the line, an example being LHS Holdings LTD v. Laporte plc [2001] 2 All ER (Comm) 563. On the other hand it may be clear that the commercial purpose which a notice provision is intended to serve is that an impending claim must be identified in terms precise enough to enable the other party to know what claim it is he has to meet – see per Lloyd J in Tradax Export SA v. Italcarbo Societa di Navigazione Spa “the Sandalion” [1983] 1 Lloyd’s Rep.514 at 517. That was a case concerned with the amended Centrocon arbitration clause, a clause which has draconian consequences in barring claims which have not been made in the prescribed form within twelve months of a defined event. A similar but even more tightly drawn clause was under consideration in Babanaft International Co. S.A. v. Avant Petroleum Inc “the Oltenia” [1982] 1 WLR 871.

The approach to this clause may vary according to how it or its purpose is characterised. Mr McCaughran submits that it is first and foremost a clause providing for the termination of a long term contract prior to its agreed expiry date. Since the buyer is invited to agree or to disagree with early termination he must be told the substance of the reasoning process upon which the seller relies as justifying termination. Mr Rabinowitz submits that the primary purpose of the notice is to set in train a process enabling the seller to terminate on the ground that production will no longer be Economic. Part of the process is that the buyer has a choice whether to accept termination or to dispute that the circumstances required therefor have come about but it is not, submits Mr Rabinowitz, the purpose of the notice to furnish the buyer with the material upon the basis of which he will make that choice. Rather, although Mr Rabinowitz did not put it quite like this, the purpose of the notice is to inform the buyer that he is called upon to exercise that choice and that if he chooses to dispute the seller’s entitlement, the agreed dispute resolution process will follow. In this regard Mr Rabinowitz points to the fact that the buyer is given a minimum of six months in which to conduct its own research and make its own assessment. He also points to the evidence of Mr Sanders to the effect that the only way in which the sellers could have furnished the information which the buyers contend must be contained within a valid notice is either by providing the buyers with full figures on Gross Revenue and Production Costs running to volumes of financial schedules or by providing the sellers’ own computer generated model by which they assess the economic performance of the fields. If that were done, says Mr Sanders without contradiction, it would only take a matter of weeks to review the data and make a decision.

In this regard Mr Sanders does not suggest that there would be any confidentiality constraints in supplying the full figures set out in the financial schedules, although he does say that this material is simply not the kind of information which he would expect to see in a termination notice of the kind specified by Article XIX.3. He does say that attaching the sellers’ own computer generated model to the termination notice would equate to giving highly sensitive commercial information to the buyers prior to the commencement of any expert termination in which some financial disclosure would have to be made as part of that process in accordance with the directions of the expert or experts. He also suggests that there is no plausible necessity to include in the termination notices the information which BGTL says was required. This is because:

“(a)

BGTL is equally able to calculate Gross Revenue on the basis set out in Article XIX as the Sellers. It is the product of the Contract Price which BGTL will know, and the Annual Contract Quantity (i.e. the DCQ on an annual basis).

(b)

BGTL would bear in mind that Gross Revenue represents a maximum level for Production Costs which the Sellers can bear – if the latter exceed Gross Revenue, the Article XIX.1 test will show that continued production will no longer be Economic.

(c)

BGTL can rely upon its own extensive experience as a buyer of gas, and is able to obtain publicly available and objective material on Production Costs, such as Wood Mackenzie’s publications (an energy industry consultancy that produces detailed information on UK oil and gas fields). It could have instructed an external consultant to analyse the position and advise on whether to issue notices of objection. This fits with the six month period provided by Article XIX, Clause 4 for BGTL’s response.”

For the buyers evidence was given in the form of a Witness Statement by Mr Norman Wilson, Head of Gas Supplies at Centrica Energy. Mr Wilson manages the team responsible for the procurement of natural gas on long-term, non-standard structured contracts and the commercial management of such contracts on behalf of BGTL. His response to these points was as follows: -

“19.

I would have expected the Sellers to provide sufficient material to enable BGTL to form a view on the assertion that continued production would no longer be Economic. This need not necessarily be a full line by line analysis of the financial schedules to which Mr Sanders refers (although in my opinion such information will need to be provided in an Expert determination if BGTL’s challenge to the validity of the notices is unsuccessful). However, it would include the assumptions and the basic analyses/figures which formed part of the Sellers’ reasoning and led it to its conclusion. This analysis could be expected to be easily at hand for the Sellers because, as explained by Mr Sanders in paragraph 35 of his Witness Statement, it is necessary for the Sellers to conduct such an analysis in order to work out whether the position has been reached. Furthermore, such analysis would no doubt be included in the analysis of the reasons for seeking to terminate the Principal Agreements presented to management in Perenco and then presented by Perenco as Operator to Amerada.

20.

It is not correct to say that BGTL could form an accurate view of the level of Production Costs for these fields on the basis of its own experience, publicly available information or with the assistance of an external consultant. The estimate of production costs can vary widely and, without detailed information from the operator of a field, a third party will find it extremely difficult to ascertain with any precision what those costs are. For example, the estimates of production costs available to BGTL from published third party sources range for the Leman Field from £18 million to £27 million and for the Indefatigable Field from £12 million to £14 million. Furthermore, as detailed in Mr Sanders’ Witness Statement, certain costs are excluded from the calculation of Production Costs for these fields. It is clear from Mr Sanders’ account of the provisions of the Principal Agreements that the issue of the costs to be included in the calculation of Production Costs is complex and the reason we would expect to see a Seller’s view of costs would be to ensure the costs to be excluded under those provisions had been properly accounted for.”

Article XIX.2(a)(i)(c) is possibly of some importance. The purpose of sub-clause 2 of Article XIX is to define what is meant by Gross Revenue and Production Costs in determining whether the former will exceed the latter and thus whether continued production will over the relevant Contract Year be Economic. Article XIX.1 is the sub-clause which provides that unless sooner terminated under Article II i.e. by contractual notice served by either party to take effect on or after 17 September 2010, the Agreement shall terminate when continued production of natural gas from the Reservoir is no longer Economic for the seller. Article XIX.2(a) provides: -

“ “Production Costs” shall mean

(i)

those costs which it is anticipated would be incurred by the Seller and the other Producers (and which would not be incurred if production from the Reservoir ceased) directly related to

(A)

the inspection maintenance repair and operation of the Delivery Facilities

(B)

the premiums incurred in insuring compulsorily insured risks and other liability risks normally insured by a reasonable and prudent operator in similar circumstances

(C)

those direct overheads justifiably associated with the costs referred to in sub-clauses (A) and (B) above (and which are not already included therein) and the Seller shall if so requested produce past figures for all such overheads……..”

This is as it seems to me not determinative of what is required of a notice whereby the sellers seek to set in train a contractual termination of the agreement. On the other hand it does appear in that part of the agreement which deals with what “Production Costs” shall mean in any determination of whether continued production is Economic. Furthermore it is the detailed sub-clause immediately preceding the notice provision sub-clause 3. The contract therefore provides that the buyers may at any time request the past figures concerning the relevant overheads but obviously one time at which it would be particularly relevant to require such information and perhaps the time at which it would be most relevant to require it would be when the buyers are in receipt of a notice from the sellers pursuant to Article XIX.3. If the buyers are right as to the required content of the notice the past figures concerning the relevant overheads would presumably be comprised within “the assumptions and the basic analyses/figures which formed part of the seller’s reasoning and led to its conclusion” – I quote Mr Wilson on what he would have expected a valid notice would include. It would perhaps be strange if the contract provided a specific obligation on the sellers to produce certain information if in the paradigm case when such information would be required by the buyers it would already have been provided. Conversely the sub-clause might represent a compromise, identifying one category of information peculiarly internal to the sellers, direct overheads which would not be incurred if production ceased, which it is agreed ought reasonably to be made available to the buyers when they are deciding whether to serve notice of objection to the sellers’ notice of their belief that continued production will no longer be Economic.

The conclusive point which to my mind emerges from this discussion is however that if the buyers’ construction of the notice provision is adopted then there is opened up scope for enormous debate as to what precisely is required by way of the provision of information in order to render the sellers’ notice valid. Having regard to the consequences for the sellers should their notice be held to be inadequate I cannot believe that this is what the parties envisaged. It is no answer to this point to say, as Mr McCaughran did, that if the sellers give a fair picture the buyers will have nothing to complain about. In this complex field there is scope for argument as to what constitutes a fair picture, an argument which the court could only usually resolve with the assistance of expert evidence. Although the sellers’ notice might be served well before the deadline of eighteen months prior to the beginning of the relevant Contract Year, there is no obligation upon the buyers to respond and they may serve notice of objection at any time up to not later than twelve months prior to the start of the Relevant Year. Thus the buyers need not assert or point out the inadequacy of the notice until it is too late for it to be remedied in time for the Relevant Contract Year. Furthermore it is also to be noted that Article XIX.4 does not require the buyer to give any reason for its notice of objection. All this being so, and given the nature of the information which will in any event be available to the buyers, I have ultimately come to the conclusion that whilst it does not fit neatly into any conventional pigeon hole, XIX.3 is rather closer to a provision requiring notice to initiate a dispute resolution procedure than it is to a provision giving notice to a party of the nature of the case it has to meet. In circumstances where, if the parties do not agree, the contract provides an unfettered right to call for expert determination, I cannot believe that the parties intended that there should be an opportunity for protracted debate before that determination takes place on the question whether the sellers have sufficiently substantiated in advance the case which they intend if necessary to put forward at the determination. These considerations lead to the conclusion that whereas the draft or final expert determination must set out the substance of the reasoning process, the notice which sets in trail the process which may culminate in that expert determination need not.

There remains for consideration the additional provision in the Inde contract. Mr McCaughran pointed out that pursuant thereto the buyers for their part have only one opportunity to propose modifications and thus ought to know the target at which they are aiming. The process is not he suggested intended to be a sport. I see the force of that argument but it perhaps proves too much. If the buyers had all the information which they say should accompany a clause XIX.3 notice, then presumably they could pitch their proposed modifications at a level which would secure the result that Gross Revenue would exceed 105% of Production Costs. No doubt a certain margin for error would be required but in principle if the target is known it can be hit. If that is what the parties had in mind they could presumably have agreed a formula, which I accept would probably itself be quite complex, whereby the contract would continue provided that the buyers were prepared to agree that the sellers should have a Gross Revenue of or marginally exceeding 105% of Production Costs. The clause as drafted is of a very different nature, since it envisages that the sellers may in the event secure a result whereby Gross Revenue substantially exceeds 105% of Production Costs. The addition of this provision to the Inde Agreement does not therefore persuade me to adopt a construction of Article XIX.3 in that agreement which differs from the construction which I find it must bear in the Leman Agreement. In fact it rather reinforces my conclusion in that regard.

In the result I conclude that the sellers’ notices of 29 March 2005 gave reasons as required by Article XIX.3(b) of the Principal Agreements. BGTL is not entitled to a declaration that the notices were invalid.