Brodies' oil and gas team has recently launched the Contracting Compass initiative, which provides insight on issues of English law relevant to oil and gas contracts. The initiative comprises a series of seminars, with each accompanied by a dedicated white paper.

Recognising that the landscape of the contract is sometimes difficult to navigate, each seminar and paper highlights a key clause from the contract, focuses on particular points of English law and commercial practice most relevant to the clause concerned, and heightens awareness of the landscape as a whole.

In 2016, we covered four topics. The first was the payment clause, to which this blog refers. For access to the full content of the white paper, click here

The foundation of any commercial relationship is the contract and the cornerstone of that foundation is payment, whetheryouare asupplier or customer. As a supplier, you aim to get paid on time, recover your costs and investment, and earn a profit. As a customer, you aim to avoid paying in excess of the price commitment or paying for work/services not compliant with the contract terms.

Given these competing concerns, the payment clause may be a challenge to negotiate and difficult to clearly draft. When faced with a contentious clause in the cut and thrust of negotiation, it is sometimes difficult to find common ground on clear language. If you have commercial leverage when acting on behalf of your client you will have the luxury of being clear when drafting for their benefit. If not, you may face commercial pressure to find-a-fudge in the language in order to get the contract across the line. Walking this fine line is never without peril, as explained in more detail in the white paper.

If you do find yourself with compromised and unclear language, it is equally important to understand your rights and remedies at law. The relevant rights and remedies under English law are also discussed in detail in the white paper.

Finally, if your position is not fully protected in the contract and if rights and remedies at law are not adequate, there are ways and means beyond the contract to procure additional protection. Guarantees, letters of credit and escrow agreements are autonomous legal instruments, but if properly drafted in conjunction with a contract they can function as a seamless extension which transfers the obligation to pay to a third party that is either more credit worthy or more willing to pay. These instruments are also considered in more detail in the white paper.


Greg May