April 7, 2020

Legal update for energy lawyers - March 2020

This newsletter provides general information and is not intended to be comprehensive or to provide specific legal advice. Professional advice appropriate to a specific situation should always be sought.

Coronavirus

The Coronavirus pandemic is creating unprecedented legal challenges for in-house counsel.  Click here for information about the risks and implications arising from COVID-19 and how to mitigate against them. Courts and arbitral institutions around the world are putting in place daily measures to mitigate against the effects of the pandemic.  In the UK, the courts are making an effort to carry on with business as usual, as far as possible, but with greater use of telephone and video links.  A regularly-updated summary of the steps taken by the courts and arbitral institutions globally can be found here.

'Good faith' irrelevant to discharge of operator in Joint Operating Agreement

The Commercial Court's judgment in TAQA Bratani Ltd v RockRose UKCS8 LLC highlights the limited role that "good faith" plays in English contract law.  The claimant argued that it had a clear and unqualified right to discharge the operator in certain Joint Operating Agreements (JOAs), while the defendant argued that the right was subject to implied terms, including an obligation to act in good faith.  According to the judge, the starting point was the express term conferring an absolute right to discharge the defendant as operator under the JOAs. Although the Supreme Court had ruled in Braganza v BP Shipping Ltd that implied terms might introduce obligations of “good faith, and genuineness and the absence of arbitrariness, capriciousness, perversity and irrationality”, no such terms operated here.  In professionally drafted or standard form contracts, the imposition of terms of this kind would amount to "unwarranted interference in the freedom of parties to contract on the terms they choose", absent any fiduciary relationship created by the agreement.  This was the case whether or not the JOAs were "relational" agreements, involving a long-term contractual relationship and the parties reposing trust and confidence in each other.  Robust decisions like this confirm party autonomy, but also underline the importance of making sure contractual wording accurately reflects parties' intentions. 

Judicial independence defended

The new President of the UK Supreme Court, Lord Reed, has defended judicial independence, stating that US-style confirmation hearings to select judges based on their political views would be "really intolerable". Giving evidence before a House of Lords select committee earlier this month, Lord Reed denied that judges in the UK are usurping parliament's role, or that their approach to the law was to "make it up as we go along".  Lord Reed said that some criticism of judges in Britain was acceptable, but it was irresponsible to attack their integrity.  More

OGA launches mediation pilot

The Oil and Gas Authority (OGA) has announced the launch of a 'UKCS Mediation Pilot’, which will last one year.  The purpose of the pilot is to find out the extent to which mediation can be used to resolve disputes between oil and gas licensees, operators and infrastructure owners in the UK Continental Shelf. In the OGA's view, the cause of disputes is often the "entrenched licensee behaviours or communication breakdowns". Since the disputes can be expensive in terms of time and money for all concerned, and threaten the delivery of MER UK, it is hoped that the constructive and consensual nature of mediation will help soften attitudes and lead to settlement in a substantial number of cases. If the parties agree to mediate during the pilot scheme, the OGA will refer them to the Centre for Effective Dispute Resolution, which shall facilitate the mediation.

Barclays executives acquitted of fraud

Following lengthy and expensive proceedings, three former Barclays executives have been acquitted of fraud in the UK's first trial of bank executives for misconduct during the financial crisis of 2008.

It had been alleged that the three men misled investors and the markets over capital raising arrangements agreed with Qatar Holding LLC and Challenger Universal Ltd in June and October of that year. Similar charges had been made against Barclays, which were dropped in 2017, and against Barclay's former CEO, which was dropped in April 2019.  These cases have attracted further criticism against the Serious Fraud Office in respect of the amount of time and money that it has spent on high-profile prosecutions that have not resulted in convictions.  More   

More guidance on privilege from the Court of Appeal

There has been a spate of decisions recently on English privilege.  Now the Court of Appeal has issued two more.  Lawyers are familiar with the "dominant purpose" test in the context of litigation privilege.  What is less obvious, but has just been clarified in Civil Aviation Authority v R (on behalf of the application of Jet2.com Ltd), is that a dominant purpose test applies also where legal advice privilege is asserted.  For legal advice privilege to apply, the dominant purpose of a communication or document must be to obtain or give legal advice.   Communications from in-house lawyers, who provide both legal and commercial advice, are, therefore, covered by legal advice privilege, provided that the dominant purpose of the communication is to obtain or give legal advice  By way of contrast, the Court of Appeal took an expansive view of privilege in Sports Direct International plc v Financial Reporting Council, albeit in a different context  -  that of regulatory investigations.  Here the court confirmed that the statutory power of a regulator (the Financial Reporting Council) did not override the privileged status of certain documents, and so the judge at first instance was wrong to order their disclosure. 

Choice of law should be made explicitly

Under the Rome Convention 1980, a choice of law clause does not have to be made explicitly; it is sufficient that that it is "expressed or demonstrated with reasonable certainty by the terms of the contract or the circumstances of the case" (Article 3).  Nevertheless, there are dangers in not making an explicit choice, as the recent decision in GDE LLC and another v Anglia Autoflow Ltd shows.  The English High Court held that the laws of Ontario, the place with which the contract was most closely connected, governed the agreement underlying the dispute, and as a result the claim was time barred.  This was in spite of the fact that the parties had included a clause conferring jurisdiction on the English courts, which the claimant argued implied a choice of English law. 

Arbitration/adjudication clause in a sub-contractor's standard terms had been incorporated into a contract, giving tribunal jurisdiction

The recent case of MPB v LGK concerned an application to set aside an arbitration award under s.67 of the Arbitration Act 1996 on the basis that the Tribunal did not have jurisdiction to hear the dispute.  The respondent had provided a 4-page quotation to carry out works.  The quotation was accompanied by the respondent's terms and conditions (which included an arbitration/adjudication clause), but did not refer to them.  The subsequent contract was based on a work order that was stated to be "based on quotation Q17729 Rev B dated 11/04/2016".  The claimant argued that whilst the terms had been included with the quotation, they did not form an integral part of it.  The court disagreed, holding that the reference to the quotation in the work order was sufficient to incorporate the terms and conditions that had accompanied the quotation.  

Directors' duties survive insolvency

In Hunt (as Liquidator of System Building Services Group Ltd) v Michie & Ors, the High Court considered whether the directors’ duties outlined in sections 171-177 of the Companies Act 2006 continue after the company has become insolvent, and concluded that they do.  Corporate insolvencies are on the rise, and when insolvencies occur, management liability will be closely assessed. The UK insolvency regime requires insolvency professionals to examine the conduct of all of the insolvent company’s directors and management to assess whether there are grounds to take action against any individual directors on behalf of the company (for example, for wrongful trading, fraudulent trading, misfeasance or breach of fiduciary duty).  Claims brought by liquidators/administrators of insolvent companies are therefore a significant potential source of claims against directors. This decision underlines the fact that directors should not consider themselves 'off the hook' once an administration or CVL has been entered into. Directors' roles in pre-pack deals, in particular, are likely to continue to be an area for scrutiny. More

Costs implications of making a weak claim

It is well known that a claimant can be awarded costs on the indemnity basis if it makes a settlement offer under Part 36 of the Civil Procedure Rules, the defendant rejects the offer, but then fails to obtain a better result at trial.  However, in Lejonvarn v Burgess and another the Court of Appeal has confirmed that rejection of a defendant's settlement offer can also result in an award of indemnity costs, whether it is made under Part 36 or not, if the claim is weak and the offer is sufficiently generous.  In these circumstances, the court may view rejection of the offer as being so unreasonable as to be "out of the norm", and on that basis use its general discretion under Part 44 to award indemnity costs.  The decision should prove useful to parties faced with weak or speculative claims, where the opponent refuses to settle on reasonable terms.  As always, the best costs protection is obtained by making a Part 36 offer early in proceedings since the protection only applies to costs following rejection of the offer.  

Implications of Heathrow third runway decision 

On 27 February, the Court of Appeal allowed an appeal by multiple claimants to allow a judicial review challenge to the Heathrow expansion proposals.  The claimants sought to rely on several environmental grounds, including that the Heathrow expansion proposal is not consistent with the UK government's greenhouse gas reduction commitments.  The Court of Appeal found that the government's national policy statement supporting the project had failed to consider the UK's commitment to reducing carbon emissions and mitigating climate change under the Paris Agreement.  This is a landmark decision, that is likely to have major implications on future development projects, which may be liable to challenge under the government's net zero commitments. 

Net Zero 

In other climate change news, BP's new chief executive Bernard Looney has pledged to reduce its greenhouse gas emissions to net zero by 2050 at the latest.  This initiative is supported by ten "aims" - five relating to BP itself, and five to the world in general. They are explained here. Meanwhile the UK government has lifted its block on offshore windfarm subsidies. More