May 19, 2020

Legal update for energy lawyers - May 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.

Contents

Price of oil and Covid-19 – the legal challenges

This is clearly a time of crisis for the energy sector. The "perfect storm" of Covid-19 plus record low prices present unprecedented legal challenges for in-house counsel. Please see Clyde & Co's Coronavirus Information Hub for guidance and legal analysis. Examples of recently published articles include:

Third party funding

Litigation funding has been around for some time, but has mostly been used for one-off cases by companies that have financial constraints. Now the picture has changed, with funders also taking on portfolios of claims, often for companies that could pursue them on their own but prefer not to devote resources to litigation or to take the financial risk. In emergencies, funding even allows companies to monetise claims immediately. Ben Knowles explains the options here.

Businesses allowed to cooperate more during the pandemic

The UK's Competition and Markets Authority (CMA) has relaxed the rules regarding business cooperation, so as to protect public health and avoid shortages during the pandemic. However, it warns that coordination between competing businesses must only address concerns arising from the current crisis, and should not go further, and last no longer, than is required. The CMA's paper on this goes into some detail about how it will prioritise its work during the epidemic, and how it will apply the criteria for exemption from the competition law prohibition on agreements and arrangements restricting competition.

Wrongful trading rules for company directors suspended in the UK during pandemic

In light of the pandemic, the UK has announced that it will suspend 'wrongful trading' rules until at least 31 May, with retrospective effect from 1 March 2020. Normally, if a director of a company concludes (or should conclude) that there is no reasonable prospect of their company avoiding an insolvent liquidation or administration, the director has a duty to take certain steps to protect creditors, which can include the cessation of trading. This announcement gives company directors breathing space, ensuring that they will not risk having to make a personal contribution if their company increases its losses as a result of continuing to trade. However, the remaining parts of the UK's insolvency regime remain in place, so directors are not given free rein. They can still be prosecuted for fraudulent trading, for example, or be disqualified from acting as a director in certain circumstances.

English courts relax rules on time extensions during pandemic

Despite the challenges posed by Covid-19, the English courts have tried to keep going as far as possible, prioritising the most urgent hearings and holding as many as possible by telephone or video link. Given the difficulties that some parties are facing as a result of the pandemic, the judiciary has relaxed to some degree the rules governing extensions of time. Now the general rule is that parties are allowed to agree a time extension of up to 56 days where agreed extensions are permitted at all. (For defences, the limit remains 28 days - see CPR 15.5(1)). Moreover, when a party seeks a time extension from the court, the court will take into account the impact of the pandemic "in so far as compatible with the proper administration of justice" (see our article on new Practice Direction 51ZA here). However, this should not be taken to suggest that all deadlines and hearings will be postponed when the pandemic causes practical difficulties. On 6 April, for example, the High Court refused to postpone a five week trial because of the government lockdown. Instead, the parties were ordered to explore ways in which the trial in June could be conducted remotely using videoconferencing software and an electronic trial bundle (Re Blackfriars Ltd). The Supreme Court is also embracing remote working technology and has recently conducted a hearing for the first time entirely by video link.

UK Supreme Court clarifies the vicarious liability test

In two recent decisions, the UK's Supreme Court has found that employers were not liable for their employees' actions. In WM Morrison Supermarkets PLC v Various Claimants, the court considered the application of the ‘close connection’ limb of the two-stage test for establishing vicarious liability. It concluded that employers are not liable for an employee’s wrongful act where that act is not engaged in furthering the employer's business and is an effort to deliberately harm the employer as part of a vendetta. The key factor which pointed away from vicarious liability was that the employee, who had released sensitive employee payroll data, had done so for personal reasons, as retribution following a previous disciplinary procedure (more). In Barclays Bank PLC v Various Claimants, the court found that Barclays was not liable for sexual assaults committed by a medical practitioner in the course of medical examinations carried out at Barclays' request. The examinations were carried out either as a precursor to or during the claimants' employment with Barclays. However, the doctor was not at any time an employee of Barclays, or close to being so (more). Both rulings clarify the application of the vicarious liability test and restrain the expansion of those parties which are considered to be employees or 'quasi-employees', as well as the range of wrongful actions of employees for which employers can be held to be vicariously liable.

Court of appeal interprets gas price provisions by looking at the broader picture

In Teeside Gas Transportation Ltd v Cats North Sea Ltd and others, the Court of Appeal interpreted a gas price provision by looking not only at the relevant provision in the supply contract, but also at the overall structure of its payment provisions, background circumstances, and what made general commercial common sense. The court accepted that both sides' interpretation of the relevant provision were plausible, though "not without difficulty". Therefore consideration of the broader picture was crucial in this case. However, the court conceded that there are limits to this approach. It would not have been proper, for example, to consider agreements that had been entered into subsequent to the one under consideration. 

Disclosure – order to disclose detailed financial records

On 5 May, the High Court ordered a German shipping company to release detailed financial records to economic experts in the wake of a shipping price-fixing scandal. In the ongoing case of Daimler AG v MOL (Europe Arica Ltd), which relates to admitted violations of competition law, the Court directed that the documents, which related to events that took place up to 20 years ago, may help determine what damages the claimant is entitled to from the shipping company. The case is a useful example of the English court's willingness to make extensive disclosure orders in the appropriate circumstances, albeit that the judge fell short of ordering the shipper to hand over records of past tenders that it been invited to bid on, but chose not to.

Contractual estoppel - a new principle applied

The doctrine of estoppel has existed at common law for many years, but it is only quite recently that contractual estoppel has emerged as a distinct form of it. As a result, there are relatively few cases that show how it works in practice. One such case is Wallis Trading Inc v Air Tanzania Co Ltd, which concerned an aircraft lease agreement. The lessee, Air Tanzania, sought to argue that the lease was invalid, since it breached local government procurement rules. However, the lessee was estopped from making this argument because it stated in the lease itself that the document was legal and valid and that all necessary authorisations and consents had been obtained. Those representations gave rise to an estoppel upon entering the lease. The case is a useful illustration of how the contractual estoppel principle works in practice.

Fraud - Unaoil trial resumption and deferred prosecution agreements

The SFO trial against three former Unaoil executives and employees, which is Britain's biggest ongoing corruption case, and which had been delayed as a result of the Covid -19 pandemic, resumed last week for closing submissions. The individuals are accused of having conspired to pay $6 million in bribes to an Iraqi public official in relation to an overhaul of the country's infrastructure. Meanwhile the UK's Serious Fraud Office has confirmed that Tesco Stores Ltd has fulfilled the terms of the Deferred Prosecution Agreement (DPA) it entered into three years ago. This involved the company putting in place a new compliance programme as well as paying a £129m fine and a further £3m for investigation costs. The decision is significant because this is only the third DPA to have concluded with its terms fulfilled, while four further DPAs are ongoing (more).

Rare case of an arbitration award being appealed successfully on a point of law

Under section 69 of the English Arbitration Act, parties may appeal a decision on a point of law, unless they have agreed in advance not to do so. However, appeals on this ground are rare, and successful ones rarer still (see Sir Bernard Eder's speech on appeal rates, delivered in April last year). The Commercial Court's judgment in Tricon Energy Ltd v MTM Trading LLC is unusual, then, because it allowed a section 69 appeal and overturned the arbitral tribunal's decision on a claim for demurrage, holding that it was time barred because the claimant had failed to produce certain bills of lading, as required under the contract. The case demonstrates that the courts are willing to allow section 69 appeals of law in the appropriate case.

Access to parties' email and social media accounts

In Lakatamia Shipping Company Ltd and others v Su and others the High Court has shown how an independent lawyer can be used to search for non-privileged documents hidden in a defendant's email and social media accounts. In this case the defendant was ordered to identify the accounts to the claimant and the independent lawyer, but only the latter was to be authorised to access them. To protect the defendant's privacy, the independent lawyer was forbidden from handing over documents that were obviously irrelevant, and the claimant was ordered not to use the documents for purposes beyond those of the current proceedings. The case illustrates how the courts can accommodate privacy concerns at the same time as exercising their powers under section 37(1) of the Senior Courts Act 1981 to issue injunctions and their inherent jurisdiction to ensure compliance with court orders.

And Finally

Clyde & Co’s pre-eminent position as the leading disputes firm was underlined last week when The Lawyer‘s Litigation Tracker confirmed that Clyde &Co has conducted more cases before the civil courts in the past 5 years than any other firm. We also have more ongoing LCIA arbitrations than any other firm and are the second largest user of the ICC. If you need assistance with any dispute resolution issues, please do not hesitate to contact us.